8 Company Law - Handout

COMPANY LAW
Company
Company is an association of many persons who contribute to a common stock to
use in trade or business and share the profit or loss in proportion to the share of
capital contributed.
Company is person, artificial, invisible, intangible and existing only in the eyes of
the law.
It is a creature of law. Hence it can possess only those properties which the
creator has conferred upon it, either expressly or incidental.
It is therefore an artificial person with separate entity and perpetual succession
and a common seal. Hence it is a legal personality.
Characteristics
1. Company is an artificial person created by law.
2. It possess all the properties which the creator has conferred on through the
memorandum and articles of association.
3. It has limited power.
Within such power, it can do all acts as a natural person can.
It can
(a) Enter into contracts.
(b) Enforce the contractual rights against others.
(c) Sue and be sued.
(d) Own and hold properties
(e) Have its own nationality.
But it has no physical shape or emotions or citizenship nor commits crime.
It is a distinct and separate legal entity.
Doctrine of corporate veil.
Case of Salomon Vs Salomon Limited
- Concept of Corporate personality as distinct and different from that of its
members individually and collectively.
- Salomon Shoe business-forms Co. Salomon & Co- Salomon, wife, 4 sons and
one daughter. 30,000 Business sold.
20,000 shares+10,000 debentures-each
member 1 share-Loss-Liquidated 6,000- Salomons debenture dischargedUnsecured loan of 7,000 lost.
Salomon & co has validly incorporated.
It had independent existence distinct from members.
Salomon was entitled to be discharged first.
Business belonged to Salomon & co and not Salomon.
The fact all the members belonged to the same family was irrelevant.
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COMPANY LAW
Consequences
1. Company may enter into contract with its members and members with the
Company.
2. A member can be a debtor and creditor at the same time.
3. Members cannot be held responsible for the acts of the company, even if he
held the entire shares.
4. Members cannot claim ownership of companys assets.
5. Members cannot have any insurable interest in the companys properties.
6. Creditors remedy for recovery lie against the company and not against its
members.
Case of MACAURA Vs Northern Assurance Co. Ltd..
Macaura Timber estate owner
Formed a company & sold timber 42000 BP
Purchase cost was paid as shares of 1BP each to him & his family
members.
The timber was destroyed in a fire
Macaura had insured the timber in his name
He claimed
Held, timber belonged to the Company and not to Macaura
Case of PHILIPPOU
Mrs. & Mr Philippou formed two companies .
In both companies they were the only share holders and directors.
To buy a property for one of the companies, they transferred money from
the other.
Both were held guilty of theft as they had taken money belonging to the
company which was different from them and had its own property.
Case of Catherine Lee Vs Lee Air Farming Co
Lee formed a crop spraying co. with 2999 shares and his wife remaining 1
share .
Lee was the Mg.Director and controlled the entire operation of the co.
He appointed himself as the pilot of the co on a monthly salary.
He died in an air crash while spraying operation.
Catherine Lee claimed Workers Compensation from the co.
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COMPANY LAW
Held, Lee was an employee of the Lee Air Farming Co and entitled to
compensation.
His being a Mg. Director and full owner was irrelevant.
Case of Mrs. Guzdar Vs IT Commissioner
Mrs. Guzdar owned shares in a Tea co.

Company paid dividends after income tax
Assessee claiming exemption on dividend paid by Tea co.
Held, share holders income as dividend and the Tea companys profits
were two different things.
Perpetual existence
1.
Death, insolvency or unsound mind does not affect the company.
2.
Members may come and go.
3.
Company is like a flowing river.
4.
As it is a creation of law, it can bewound up by a process of law.
Common Seal
Seal is the signature of the company.
It is affixed witness or by at least 2 directors.
Limited Liability
Incase of company limited by share, the liability of a member is limited to the
amount remaining unpaid on the shares held by a member.
Incase of company limited by a guarantee, the liability of a member is limited to
the amount guaranteed by a member.
Free Transferability of shares
Possible by public companies.
A share holder can transfer his shares to anyone without the consent of other
members.
Lifting the corporate veil
When the company uses the corporate veil for improper conduct or to protect
fraud or to justify wrongs, the law disregards the corporate veil and look at the
persons behind and treat the company and the members as same persons.
1. when no of members fall below the statutory minimum
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2. Non disclosure of representative
capacity.
3. Misrepresentation in prospectus.
4. Failure to return application money.
5. To examine the relationship of holding and subsidiary.
6. To investigate the affairs of related companies.
7. To investigate the ownership of a company.
8. When business is carried on to defraud the creditors.
9. To determine the character of the camp
(alien enemy)
Daimler Co limited Vs Continental Tyre Company Limited
10. To prevent fraud of improper conduct.
11.To protect Revenue
12. Where Co is formed to act as an agent of its members
13. When company is formed to avoid welfare laws.
Associated Rubber Industries-Subsidiary to avoid Bonus. USA & UK.
KINDS OF COMPANIES
1. By constitution
2. By incorporation
3. By control
1. By constitution
Public
Private
2.By incorporation
1) Chartered
i) Chartered Companies formed by royal prerogative bank of
England; East India Company
2) Statutory
i) Statutory Companies LIC; RBI;Food Corporation of India- Governed
by the Act creating them. Annual Report to be placed before the
Parliament or State Legislature
3) Registered
Limited
By shares
By guarantee
Unlimited
Public
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COMPANY LAW
Private
Two members can form
Immediate commencement of business

No prospectus to be filed
3. Companies limited by guaranteeliability to pay the share amount

the amount guaranteed
Clubs;
Trade associations;
Research associations;
Societies
4. Unlimited Companies- Liabilities not limited to share value but by the debt
accrued
5. Holding Company and Subsidiary company
i.
Controls composition of the Board
ii.
Holds more than 50% of the nominal value of equity share
iii.
Controls more than 50% voting power
Holding company could be a subsidiary of another holding company
6. Government Company
i.
Formed under sec 617 of Companies Act
ii.
51% of share capital owned by central or state or states or
central and state/s
iii.
Auditor is appointed by Comptroller and Auditor General of
India
iv.
Statutory auditor to submit audit report to CAG for
Comments
v. Annual report tabled in both the houses of parliament/ state
legislature
7. Foreign Companies
Not less than 50% is held by Indian citizen
8. One man company or Family company
9. Licensed Company- companies not for profitCharitable associations; sports clubs; trade associations
Conversion of private to public
1. By choice
2. By default
3. By operation of law
i.
When invites public deposit
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COMPANY LAW
ii.
Holds 25% or more of paid up capital of a public

company
iii.
Public companies holding 25% or more of its shares
iv.
Turn over exceeds 25 crores for three consecutive FYs
Conversion of public to private
Special resolution
Approval by central govt.
Filed with ROC
PRIVATE COMPANIES
No need to hold statutory meeting

Can issue shares with disproportionate voting rights
Accounts submitted to Registrar not open to public
No share qualifications required for a director
No restrictions on managerial remuneration
Can have minimum, two directors
Interested director can participate in Board meetings
No restrictions on further issue of capital
Can extend financial assistance to purchase its own shares
DISTINCTION BETWEEN PUBLIC AND PRIVATE COMPANIES

No
Description
Public
Private
Minimum number of members
Maximum no. of members
unlimited
50
Certificate of commencement of business
required
not required
Public issue by prospectus
Yes
Transferability of shares
No restrictions
As per articles
Min.No.of directors
Statutory meeting
Required
Not required
Appointment of directors
Restrictions
No
9
10
Managerial remuneration
Further issue of capital
Restrictions
No
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DISTINCTION BETWEEN PARTNERSHIP AND COMPANY
Registration
No. of members
Legal status
Property
Contracts
Management
Life
Liability
Creditors
Dissolution on death of a partner
Every partner an agent
Partner cannot transfer interest without consent of others
Government company
A company in which not less than 51% of paid up shares are held by central or
state or states or both
Auditor is appointed by CAG
A report on the working of the company is placed before both the houses of
Parliament / state legislature
Formation
1. Co. must be registered to start business
2. Application to be presented to Registrar of companies in the state
3. Application must be accompanied by
Memorandum of association
Articles of association
Statement of authorised capital
Notice of address of registered office
A list of directors with their consent duly signed
An undertaking by each director to take and pay for qualification shares
A declaration that all requirements of have been complied with.

4. Certificate of incorporation.
5. Certificate of commencement of business
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Certificate of incorporation.
Birth certificate
Company becomes a legal person
Secures perpetual succession
Prevents reopening of matters prior to registration
Certificate of commencement of business
Also known as Trading certificate

Shares payable in cash should be allotted to the extent of min. subscription
Every director must have paid for and shares must have been allotted.
A statutory declaration of compliance
PROMOTER
Who undertakes to form a company with reference to a given objective
And who takes necessary steps to accomplish that purpose.
Decides the scope of business
Prepares necessary legal documents to bring company to life.
Provides funds for all initial expenses for registration
Arranges for publicity
Circulates prospectus
Places capital
HE is not an agent nor a trustee
He must fully disclose the exrent of expenditure he has incurred
Cannot make secret profits
Should disclose his contractual interests
Liable for untrue statements in prospectus
Compensate losses suffered by third-party on this count
Entitled to adequate compensation against contract
Name Clause with Limited/Private Limited
Registered office clause with state in which is company is situated
Objects clause
Main objects
Other objects
Liability clause of members
Capital clause
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Association or subscription clause
1. Name Clause
Free to choose any name
Should get name clearance from the registrar
Should not be identical or closely resemble any existing registered name
Should use limited after its name and private limited in case of a private
limited company
Name should not violate Emblems and names Act
Should display its name wherever it does business and carry it on all its
letters and bills
2. Registered office clause
Shows the state in which it is registered
Determines its domicile
The place where all registers must be kept
The address to which all communications must be sent and received

2. Objects clause
Case of ASHBURY RAILWAY CARRIAGE &IRON CO. Vs. RICHE
MOA of the company listed its objectives:
To carry on business of mechanical engineers and general contractors
ULTRA VIRES DOCTRINE OF CONSTRUCTIVE NOTICE
To make or sell or lease carriages, wagons and all kinds of railway

plants, land and buildings, timber,coal,metals and minerals etc
It provided finance to Riche for construction of a railway in Belgium.
Later there was a dispute between the parties.
Financing was NOT an object of the company.
If anything goes beyond the MOA, it is ultra vires- BEYOND POWER.
The contract itself may be legal but the question is about the
competency and power of the contracting party the company which
is independent of its owners.
Case of BEAUFORTE VS. Re
The objective stated in MOA was to manufacture garments. The

directors decided in good faith to diversify into veneered panels.
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It constructed the factory in Bristol. Later it could not pay the

suppliers.
Suppliers did not know that veneer business was ultravires the
company.
Contract was VOID

Ultra vires doctrine of constructive notice
4.
5.
Protects the company from the outsiders.
Informs the prospective investors the main purpose for which their money
will be used
Indicates the powers of the company
It means that each person must know all the public details of a company
as this information is in public domain
Liability clause of members

Liable to the extent of the face value of the share held
Liable to any amount unpaid on shares taken by the holder
Capital clause
Authorised share capital
Kinds of shares
Nominal value of each share
Indicates the investment required to set the business and get going
Association or subscription clause
At least 7 persons must have agreed to subscribe
They should have signed the memorandum
Each should write the no. of shares he shall take
Minimum must be one
6.
Where Articles are not registered, model articles in Table A of schedule 1

will automatically apply.
Where Articles are registered, exclusions from model articles in Table A of

schedule 1.
Adoption of preliminary contracts

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COMPANY LAW
Number and value of shares
Allotment of shares
Calls on shares
Lien on shares
Transfer of shares
Forfeiture of shares
Alteration of capital
Share certificates
Conversion of shares into stocks
Voting rights and proxies
Meetings
Doctrine of constructive notice(MOA)
doctrine of indoor management(AOA)
Doctrine of constructive notice protects the company from the outsiders as
everyone is expected to know the objectives and powers of the company while
dealing with it.
Doctrine of indoor management protects the outsiders from the company

as outsiders do not know how the internal matters are managed which are
contained in the AOA.
DOCTRINE OF INDOOR MANAGEMENT
IF A CONTRACT IS WITHIN THE PUBLIC DOCUMENTS ,

IRREGULARITIES ARISING OUT OF INTERNAL FUNCTIONING OF THE
COMPANY WILL NOT AFFECT THE CONTRACTING PARTY.
DOCTRINE OF INDOOR MANAGEMENT

Case of ROYAL BRITISH BANK Vs TURQUANT
Under AOA directors had powers to borrow only such sums of money as
authorised by the general resolution of the company.
Two directors and the company secretary signed the bond to borrow 2000
Pounds from RBB.
The company claimed that no general resolution was actually passed by

the company and hence bond was ultravires.
Doctrine of Indoor Management applied.
Case of MAHONY Vs. East Holyford Minig Co.
Under AOA authorised by the general resolution
of the company to sign cheques if two of three
directors and the company secretary.
Accordingly, two directors and the secretary signed
cheques. The bank honoured the cheques.

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COMPANY LAW
The fact was that the directors and the secretary

were never appointed to the posts by the company
even though they were acting as if duly appointed.
Doctrine of Indoor Management not applicable.
Memorandum of Association
Articles of Association
1 Charter
Rules and regulations
2 Defines scope of activities
Regulates internal management
3 Defines relationship with outside

world
Deals with rights and internal relationships
4 Cannot be altered without due

process
Can be altered by special resolutions
5 Supreme
Subordinate to memorandum
6 Have own memorandum
Can adopt Table A
7 Deviations ultra vires
Can be ratified
7. Directors
Borrowing powers
Accounts and audit
Dividends and reserves
Winding up
8.
PROSPECTUS
Is a document inviting deposit or offer or subscription from public for

shares or debentures of a corporate body.
It must be dated
Copy signed by every director
Consent from SEBI
Must accompany every application
Contain necessary information to nable public to invest or not
General information
Capital structure
Details of issue
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Company management
Project
Other information
Financial information
Statutory information
Additional disclosures
9.
General information
Name and address
Letter of intent
Stock exchange
Minimum subscription
Refund of application of money
Dates of opening, closing and earliest closing
Lead managers
Credit rating
Underwriting arrangements
10.
Capital structure
Authorised
Issued
Subscribed
Paid up
Size of issue and break up
Lock in period
Maximum no. of shares to employees and no.of employees
Details of issue
Authority for issue
Resolutions passed
Terms of payment
Rights of holders
Objects
Tax benefits
Justification for premium

Company management
History
Main objects
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Present business
Subsidiary
Promoters
Names and addresses of managers, MD, Directors
Project
Cost
Means of
financing
Location
Plant and machinery
Collaboration
Infrastructure
Water
Electricity
Implementation schedule
Date of trial production

PROSPECTUS
Project
Products profile
Consumer profile
Export
Capacity utilisation
Expected year of making cash profits
High/low prices of equity shares in last 3 years
Other information
Other listed companies under the same management
Name ,Year and Amount of issue
Date of completion of delivery of shares
Date of completion of project
Declaration about allotment
Litigations pending relating to operation, finances, criminal prosecution
Default in meeting statutory dues
Risk perception
Consent of directors
Changes in directors
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Financial information
Profits and losses
Assets and liabilities
Dividends paid during last 5 years
Auditors certificate
Statutory information
1) Minimum subscription
2) Expenses of issue
3) Underwriting commission
4) Previous issue for cash
5) Details of public or rights issue in last 5 years
6) Details of premium received
7) Commission paid on previous issue
8) Debentures outstanding
9) Option to subscribe
10) Properties purchased
11) Directors and their interests
12) Benefits to promoters
13) Details of contracts
14) Voting rights of members
15) Restrictions in transfer of shares
16) Revaluation of assets in last 5 years
17) Additional disclosures
18) Disclaimer
19) Reservation for NRIs
20) Stockinvest
21) Buyback
22) Performances Vs promises to previous issues
23) Use of proceeds of issue
24) Stock market data
25) Statement on allotment and refund
LIABILITY FOR MIS STATEMENT IN PROSPECTUS
1) Rescission of contract
2) Damages
3) Every director
4) Every proposed director named
5) Every promoter name
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6) Every person authorised the issue
7) Both criminal and civil liabilities
A person can become a member of a company:

1. By subscribing to MOA
2. By agreeing to take qualifying shares
3. By application and allotment
4. By transfer of share
5. By transmission of shares
6. By estoppel
Basis
Transfer of share
Transmission
Operation
Voluntary
By operation of law
Base
Transfer of property
Takes place on
1. Death
2. Insolvency
3. Lunacy of owner
Does not arise
Proof of title necessary
Consideration adequate
Lodgement
Lodgement of
instrument necessary
Stamp
Necessary
No need
Termination of membership:
1. By transfer of shares
2. When shares are forfeited when shareholder fails to pay amount due on call, directors
may if AOA permits
Forfeited shares become property of company
They can be reissued at par or dicount.
3. By surrender- there is no provision. It is voluntary.
4. By sale by company on its right of lien- until the member pays up
the debt to company
5. When share holder dies
6. When declared insolvent
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7. By repudiating on the ground of misleading statement in
prospectus
8. When redeemable shares are redeemed
9. When company is wound up
Rights of a member:
1. To have certificate of shares
2. To have his name entered in the register of members
3. To transfer shares
4. To attend meetings of share holders
5. To receive notice
6. To vote at meetings
7. To associate in declaration of dividends
8. To inspect registers and get extracts or copy
9. To get copies of MOA and AOA on payment
10. To have first option in case of issue of new shares
11. To receive a copy of statutory report
12. To have notice of any resolution
13. To obtain minutes of GB Meetings
14. To remove directors
15. To appoint auditors
16. To receive auditors report
17. To participate in special resolutions
18. To appoint directors
19. To fix remunerations for directors
20. To participate in liquidation proceedings
Duties of a member:
1. To take up shares when allotted
2. To pay for shares allotted
3. To abide by majority
4. To contribute to assets
5. Liable for debts of company.
SHARE CAPITAL
1. NOMINAL
2. ISSUED
3. CALLED UP
4. PAID UP
PREFERENCE SHARE
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EQUITY SHARE
ALTERATION SHARE CAPITAL
1. Increase by issuing new shares
2. Consolidate and divide all or any of its shares of larger
amount than the existing shares
3. Convert all or any of its fully paid up shares into stock or
reconvert stock into fully paid up shares of any
denomination
4. Sub divide its shares into smaller shares
5. By cancelling not paid up shares by reducing the share
capital
REDUCTION OF SHARE CAPITAL
1. To return surplus capital to share holders
2. By not calling unpaid portion of share money
3. Actually the assets may have diminished in value.
Without the consent of court
1. Where redeemable shares are redeemed
2. Where shares are forfeited
3. Where there is surrender
4. Where unissued shares are cancelled
5. By buy back scheme
With the consent of court
1. Where authorised by articles by special resolution and
confirmation of the court
2. Reduce by the amount of unpaid
3. Cancel by loss of assets
4. Pay off paid up capital in excess of requirement.
KINDS OF SHARE
Equity or Ordinary
Preference
Cumulative
or non cumulative
Participating or non participating
Convertible or Non convertible
Redeemable or Irredeemable
Sweat Equity Shares
Right Shares
Bonus shares
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Right Shares
A company at any time issue new shares to increase its capital by passing
ordinary resolution.
Such shares are to be offered to existing share holders in proportion to the shares
each holds
Bonus shares
If the AOA permits, a company may capitalise profits by issuing fully paid up
shares to its members.
These are regulated by SEBI guidelines on bonus shares 2000.
SEBI guidelines on Bonus Shares 2000.
1. To be made out of free reserves
2. Reserves created by revaluation of fixed assets not t o be
capitalised
3. Not in lieu of dividend
4. All partly paid shares must have have been fully paid up
5. Company should not have defaulted in payment of interest
or principal on fixed deposit
6. Implemented in 6 months of decision
Basis
Bonus shares
Right shares
Meaning
To the existing share

Shares meant for existing
holders out of profit and share holders
reserves of the company
Objective
Payment dividend in the To increase share capital

form of share
Consideration
Issued without extra

payment
Full payment is to be made
STOCK
is the aggregate of fully paid up shares legally consolidated

Aggregate can be split into fractions of any amount
Premium Issue
A company is free to sell its share at a premium
It can be used for:
1. To issue fully paid bonus shares
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2. To write off preliminary expenses
3. To write off discounts and commissions in issue of shares
4. For payment of premium during redemption
Dividends
Interim
Dividend warrant
Debenture
1. It is an instrument in writing
2. It is an acknowledgement of debt by company to the holder
3. Issued under common seal of company
4. Provides for fixed rate of interest for specified period
5. Generally secured
6. Could be on right basis
7. Entitled to redemption
8. No voting rights
Kinds of Debentures
1. Debenture payable to a registered holder
2. Debenture payable to a bearer
3. Secured
4. Unsecured
5. Redeemable
6. Irredeemable or perputual
7. Convertible
8. Nonconvertble
Debentures
Fixed charge
Floating charge
Registration of charges
MEETINGS
Company is an artificial person. But it is a legal entity. Hence it must act through
human intervention.
The owners are share holders. There may be millions of shareholders and
changing all thee time. All of them cannot meet all the time to transact business.
So some procedure has been laid down in the act and articles.
Act provides for different types of meetings of
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1. Share holders:
Statutory
Board Meetings
Creditors Meeting
Annual general
Extraordinary general
Class
2. Directors Meeting
Meetings of Committees of Board
3.Meetings of Creditors
Meeting of Debenture holders

Statutory meeting
Every public limited company must hold this meeting
Held only once in companys life time
Held after one month but before six months from the date of
commencement of business
21 days notice is must
Each member must get statutory report along with notice and to the
Registrar
Statutory Report must be certified by the Managing Director and another

Director and auditor
Members may discuss any matter relating to formation of company
Default to hold the meeting will result in fine upto 5000
Registrar may move court to wind up the company

Objective is
to provide the shareholders
at the earliest date
all important facts
relating to the company
Statutory Report
Details of shares allotted

1.Total allotted
Fully paid up
Partly paid up
For cash
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For consideration
2. Total cash received
3. Abstract of receipts and payments and balance on hand 7days before the report
date
4.
Commission paid on issue of shares
5.
Names, addresses and occupation of
Directors
Auditors
Managers
Secretary
Extent to which underwriting contract not carried out
Arrears due from directors or managers to issue
Commission paid to any director

ANNUAL GENERALBODY MEETING (sec 166)
This share holders meeting
is to be held every year.
First AGM within 18 months of date of incorporation
15 months between 2 AGMs
EXTRA ORDINARY GENERALBODY MEETING
Every GM other than statutory and AGM is an EGM
To deal with any subject which cannot be postponed till the next AGM
Ex.: Change in objects
Shifting registered office
Alteration of capital
Removal of director or auditor
Convened by
Board of Directors or
Requisition by sufficient members or
National Company Law Tribunal
CLASS MEETING
Convened by
Holders of a particular class of share
To vary / alter their rights and privileges or for conversion of one class into
another
BOARD MEETINGS
To formulate management policies
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Decision making
Review of progress
Other matters related to company
POWERS
Make calls of unpaid money
Issue debenture
Borrow money
Invest funds
Make loans
REQUISITES OF VALID MEETING
Proper Authority
Notice of 21 days clear days
Nature of business to be transacted:

Ordinary
Special
Quorum
5.
Minutes
Resolution
Ordinary
Special
Doctrine of Ultra-vires
Any act done beyond the powers of the company will be ineffective even if
ratified by all the members.
Such act done outside the objects and provisions of MoA is ultra-vires the
company.
MoA binds the company and its members
Consequences of Ultra-vires acts
Injunction may be obtained by any member to restrain the company from such
ultra-vires act
Directors are personally liable
DIRECTORS
Trustee
Agent
Management Partner
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Qualification shares if required by AoA

Can be director in 20 companies
DISQUALIFICATIONS OF A DIRECTOR
Person of unsound mind

Undischarged insolvent
Person convicted by court
Person who has applied to be adjudged an insolvent
Person not paid any call of shares
Person disqualified by court
Person already a director of a company not filed annual accounts and

annual returns for 3 continuous fy
Person already a director of a company not repaid its deposits or interest

thereon or redeem debenture on due date
REMOVAL OF A DIRECTOR
By shareholders
Central government
Court
REMUNERATION OF A DIRECTOR
Determined by AoA
Passed by resolution in general meeting
Effective capital < 1 cr upto 1.5 lakhs pm
1 to 5 Cr - 2 lakhs pm
5 to 25 Cr - 3
25 to 50 Cr - 3.5
> 100 Cr - 4
DUTIES OF DIRECTORS
Exercise some degree of skill and diligence

Act honestly
Books and papers are open to inspection by director
Perform their duties personlly
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Shall not enter into contract with the company for sale, purchase or
supply of goods, materials or services
LIABILITIES OF DIRECTORS
To outsiders
To company
Criminal liability
To outsiders
They contract with outsiders
In their personal capacity

As agents of an undisclosed principal
On behalf of a prospective company
When contract is ultra-vires the company
To the Company
When they have acted
ultra-vires the company
Negligently
There is a breach of trust
For misfeasance
WINDING UP
1.
By Courts
Special resolution
Default in holding statutory meeting
Failure to commence business
Reduction in membership
Inability to pay debts

2.
Voluntary winding up
Subject to supervision of court
Dissolution
1.
By Courts
Special resolution
The court has discretion to look into the interest of company or public and order
not to wind up
Dr. M Koteeswaran
108
COMPANY LAW
On default in holding statutory meeting the Registrar or a contributory

petitions the court
Failure to commence business within a year from incorporation or

suspends for a whole year the court may order winding up
It examines the circumstances and possibilities or intention of starting or

continuing business
Reduction in membership below 7

Inability to pay debts
When a creditors demand for payment outstanding more than Rs. 500
remains unpaid without reasonable excuse
Other grounds
Just and equitable

Deadlock
Loss of substratum
Oppression of minority
Incorporation for fraudulent purposes
Public interest
Who can file?
Shareholders
Creditors
Contributors
Registrar
Central government
Official liquidator
2.
By passing ordy. Resl. In GM
On expiry of period fixed in Articles
By passing spl. Resl. Even when the company is solvent
Only when company is able to pay its debts
Directors declare solvency
Members meeting is called
Liquidator is appointed
Dr. M Koteeswaran
109
COMPANY LAW
Creditors Voluntary winding up
When solvency declaration is not made
Meeting of members and creditors is called
Liquidator appointed by creditors
Committee of inspection is appointed
Creditors exercise power with sanction of court
Meeting of members and creditors is called when proceedings are
completed
Subject to supervision of court

Anytime after resolution is passed for
voluntary winding up, the court may
order such winding up subject to its
supervision by giving liberty to
creditors, contr8ibutorsand others
Dissolution
Just and reasonable under the circumstances
Ordinary
When the affairs of the company have been completely wound up
When the court is of opinion that liquidator cannot proceed with winding
up for want of funds
For any other reason
MOTIONS AND RESOLUTIONS
Decisions of a company are taken at meeting by passing resolutions.
A motion is a proposal moved by a member of the meeting.
The proposal may be accepted as proposed.
Any member may move an amendment to the proposal or motion to modify.
Such motion when passed with or without amendment is called a resolution.
MOTIONS
A motion must always be in writing.
Necessary notice must be given for moving such a motion before the meeting.
The proposer of the motion is called the MOVER
The motion must be signed by him.
Once the motion is put to members and they have voted in favour, it becomes a
resolution.
RESOLUTIONS
Kinds:
Dr. M Koteeswaran
110
COMPANY LAW
Special
Alteration of objects
Resolution requiring special notice

Ordinary Resolution
Is a motion is passed by simple majority at a GM
Special Resolution
Is a motion is passed with thrice the number of votes in favour as the number of
votes against.
21 days notice is necessary
The intention to propose a special resolution must be made clear.
For what purpose Special Resolution?
Change of registered office from one state to another
Alteration of articles
Change in name of company
Reduction of share capital
Resolution Requiring Notice

Notice of intention be given 14 days in advance
Company must give 7 days notice to members
Appointing an auditor other than retiring
Not to reappoint a retiring auditor
Removing a director before expiry of his term
Resolution by postal ballot

Managing Director-2 or more companies at a time;
5 year term
Whole time Director- only one company at a time
No restriction on term
MBA - I YEAR (2012-13) - ASSIGNMENT-4 - LEGAL ASPECTS OF MANAGEMENT

(P1BAA04) - UNIT-4 - COMPANY LAW
1
2
3
4
5
PART-A
Define Company. List types of companies.
What is a government company?
What is meant by Memorandum of Association?
What is meant by Articles of Association?
What is a Prospectus?
Dr. M Koteeswaran
111
COMPANY LAW
6
7
Who is a promoter?
What are the minimum and maximum number of members in private limited and public limited
companies?
8
9
10
11
12
13
14
15
16
17
18
What is the importance of a registered office of a company?

Explain capital clause in Memorandum of Association?
What is certificate of incorporation?
What is certificate of commencement of business?
What is the difference between certificate of incorporation and commencement of business?
What is one man company?
When should the statutory meeting be held?
X states that he was director in 27 companies. Could it be true?
What is the role of statutory meeting?
What is meant by winding up of a company?
If a company uses the keyword 'corporation' in its name, it must have a minimum authorised capital
of (a) Rs.25 lakh (b) Rs.50 lakh ( c) Rs.100 lakh (d) Rs.500 lakh (e) Rs.1,000 lakh
19
The corporate veil of a company can be lifted (a) when revenue of the state is to be protected (b) to
determine the character of an enemy company (c ) when the company does not refund the
application money on failure, to make allotment (d) when the doctrine of corporate veil conflicts with
public policy (e) all of the above.
20
Since a company is registered as an entity separate from its members (a) The shareholders hae
insurable interest in the property of the company (b) The assets and liabilities of the company are
also the assets and liabilites of the members (c ) The shareholders can enter into contracts with the
company (d) The shareholdres are the agents and trustees of the company (e) The members of the
company can be sued for the debts of the company.
21
The auditor of a government company (a) Is appointed by the State government (b) Can be
apopointed either by State government or Central government (c ) Is appointed by the Central
government (d) Can be appointed by the management of the company (e) Is appointed by the
Comptroller and Auditor General of India
22
A private company must have at least (a) 7 directors (b) 2 directors ( c) 3 directors (d) 4 directors
(e) 5 directors
23
Which of the following exemptions is/are granted to a 100% government owned company? (a) such
a company need not hold a statutory meeting (b) there is no need to transfer unpaid dividend to a
special dividend account as required by section 205A of the Companies Act, 1956 (c ) the
remuneration of the managing director need not be commensurate with the profit (d) proviso to
section 296(1) of the Companies Act, 1956 which says that the interested directors should take
board's approval is not applicable. (e) all of the above.
24
Which of the following is/are regarded as public financial institution(s) under the Companies Act
1956? (a) Export and Import Bank of India (b) The Industrial Reconstruction Bank of India (c ) New
India Assurance Co. Ltd. (d) General Insurance Corporation (e) Both b and c above.
25
A public company desirous of getting its securities listed on a recognised stock exchange, shall
apply to the (a) stock exchange (b) SEBI (c ) NCLT (d) Central government (e) State government
26
Which of the following companies is covered under section 25 of the Companies Act, 1956?
(a) Deemed public company (b) Companies limited by shares (c ) Associations not for profit (d)
Companies limited by gaurantee having share capital (e ) Unlimited company
27
Which of the following is essential to alter the objects clause of the memorandum of association?
(a) Ordinary resolution is to be passed (b) Special resolution is to be passed
(c ) Ordinary
resolution and confirmation of the NCLT (d) Special resolution and confirmation of the NCLT (e)
Ordinary resolution and confirmation by the court.
28
The doctrine of constructive notice can be invoked by (a) a company (b) an outsider (c ) The NCLT
(d) The Registrar of companies (e) The Securities and Exchange Board of India.
Dr. M Koteeswaran
112
COMPANY LAW
29
An outsider can claim relief on the grounds of 'Indoor Management' if he proves that (a) he has no
knowledge of Articles (b) he has entered into a contract with the company, which is ultravires (c ) he
has no knowledge of irregularity (d) he has entered into a contract with the employee of the
company, who has no powers (e) He has relied on a forged document
30
A certified copy of the order of the Central Government confirming the alteration of Memorandum of
Association is to be registered with the Registrar of Companies within............................. of its
alteration (a) one month (b) two months (c ) three months (d) six months (e) twelve months
31
When a private company is convereted into a public company, it has to file a/an with
the Registrar of Companies.(a) information memorandum (b) shelf prospectus (c ) red herring
prospectus (d) statement in lieu of prospectus (e) both a and b above.
32
Which of the following is not an exception to the Doctrine of Indoor Management? (a) No
knowledge of irregularity (b) No knowledge of articles (c ) Negligence (d) Forgery (e ) Non-existent
authority of the company.
33
A person dealing with a company having satisfied himself that the proposed transaction is not in its
nature inconsistent with the memorandum and articles, is not bound to enquire into the regularity of
the internal proceedings. This is known as (a) Doctrine of Ultravires (b) Doctrine of constructive
notice (c ) Doctrine of Indoor management (d) Doctrine of fraudulent transfer (e ) Doctrine of
lispendens.
34
An outsider can claim relief on the ground of 'indoor management', if he has (a) no knowledge of
articles (b) no knowledge of irregularity (c ) acted negligently (d) entered into a contract with a
person who has no authority (e ) none of the above.
35
Which of the following requires an alteration to the Memorandum of Association? (a) Reduction of
share capital (b) Reorganisation of share capital (c ) shifting of registered office from one place to
another place in the same city (d) Making the liability of the directors unlimited (e ) All of a, b and d
above.
36
Shifting of registered office from one state to another (a) requires an ordinary resolution to be
passed at the general meeting of the shareholders (b) requires a special resolution to be passed at
the general meeting of the shareholders (c ) Must be confirmed by the NCLT (d) Both a and c above
(e) Both b and c above
37
In case of an ultra vires borrowing, the lender (a) cannot get an injunction against the company, if
the money has not been spent (b) Takes the place of a creditor, if the money is used to pay off
lawful debts (c ) Can claim pari-passu distribution of assets in case of winding up, when his money
cannot be traced (d) Both (b) and (c ) above (e) All of a, b and c above.
38
A company will be considered as a subsidiary of another when (a) it holds more than 1/2 in nominal
value of equity share capital of the latter (b) the latter controls the composition of Board of Directors
of the former (c ) The former can remove directors of the latter at its own discretion (s) Both a and c
above. (e) none of the above.
39
Articles of Association of a company (a) contains the ancillary objects of the company (b) is
superior to the memorandum of association (c ) contains rules beyond the scope of the
memorandum (d) contains rules beyond the scope of the memorandum but within the scope of the
Companies Act (e) Governs the way in which the objects of the company are to be carried out.
40
Declaration of compliance in Form no.1 for the purpose of the incorporation of a company shoudl
not be signed by (a) a chartered accountant practising in India (b) a company secretary practising in
India (c ) an advocate of High court or Supreme court. (d) a gazetted officer (e) a person named in
the Articles as Director of the company.
41
The name of the company is considered to be undesirable by the Central Government when (a) It is
identical or nearly resembles the name of an existing company (b) it contains the words 'Indian' ,
'Bharat', 'Universal' or 'Global'. (c ) It is difficult to pronounce (d) Its meaning cannot be ascertained
(e ) it is too big or too small.
42
An act is said to be ultravires a company when it is beyond the powers (a) conferred on the
company by the articles (b) of the directors (c ) of the directors but not to the company (d) of the
company (e) of the mnaging director and / or manager
Dr. M Koteeswaran
113
COMPANY LAW
43
Unless there is express power in the Memorandum and Articles of Association, no charge can be
creted on (a) a ship (b) goodwill (c ) unpaid capital (d) patents (e) a property acquired subject to
charge.
44
There need not be a registered Articles of Association in case of (a) a private company limited by
shares (b) a public company limited by shares (c ) An unlimited company (d) a company limited by
guarantee (e) every company
45
The memorandum and articles of a company are open for inspection for (a) the members and
creditors of the company (b) the members of the company (c ) the registrar (d) everybody (e) The
NCLT
46
Which of the following charges need not be registered with the Registrar of the Companies? (a) A
charge on uncalled share capital of the company (b) a charge being pledge, on any movable
property (c ) a charge on calls made but not paid (d) a charge on any immovable property (e) a
charge on any book debt of the company
47
The registered office of Nice Nylons Ltd., is shifted from Chandni Chowk, North Delhi to Malviya
Nagar, South Delhi. The company should give a notice to the Registrar of Companies
within . . . . . . . . . . . . . . . . . . . days of such change. (a) 10 (b) 15 (c ) 30 (d) 45 (e) 60
48
Which of the following matters is not contained in the Articles of Association? (a) alteration of share
capital (b) conversion of shares into stocks (c ) taking shares into other companies having similar
objects (d) general meetings and procedures (e) adoption of preliminary contracts
49
The profit made by a promoter is (a) admissible if disclosed (b) inadmissible if disclosed ( c)
admissible if not disclosed (d) to be disclosed to an independent board of directors (e) Both a and
d above.
50
The doctrine of indoor management (a) can be invoked by the company and operates in its favour
(b) can be involked by the company, but does not operate in its favour (c ) can be involked by
outside parties dealing with the company (d) aims at protecting the outsider against the company
(e) both a and d above.
51
A company issuing a prospectus should issue it within (a) 30 days after it is registered with the
Registrar of companies (b) 45 days after it is registered with the Registrar of companies (c ) 60
days after it is registered with the Registrar of companies (d) 90 days after it is registered with the
Registrar of companies (e) 120 days after it is registered with the Registrar of companies
52
A person who was induced to subscribe for shares, based on a mis-statement (a) can rescind the
contract after the company goes into liquidation (b) can rescind the contract within a reasonable
time (c ) can rescind the contract but can retain his shares (d) cannot rescind the contract (e) Can
only sue for damages.
53
A shareholder loses the right to rescind a contract (a) When he attempts to sell the shares (b) When
he attends and votes at a general meeting by proxy (c ) When the parties cannot be relegated to
their original position (d) both b and c above. (e) All of a, b and c above.
54
Every prospectus issued by an existing company should be signed by (a) the managing director of
the company (b) the managing director and secretary of the company (c ) majority of the directors
of the company (d) all the directors of the company (e) all such persons whose names appear in the
prospectus.
55
A member purchased equity shares of a company through regional stock exchange. If the
prospectus of the company contained misstatements, which of the following remedies is available
to the member? (a) He can claim damages only but cannot rescind the contract (b) He can rescind
the contract only but cannot claim damages (c ) He can sue every director responsible for issue of
prospectus (d) He can sue any person named in the prospectus including directors. (e) He has no
remedy against the company.
56
A director shall be liable for misstatements in prospectus, if he (a) withdraws his consent before
issue of the prospectus and the same was published without his consent (b) Had reasonable
grounds to believe that the statement was true (c ) Relied on the basis of fair representation of a
public document (d) withdraws his consent giving reasonable public notice on becoming aware of
untrue statement (e) Informs only the company that his name was included without his knowledge
or consent.
Dr. M Koteeswaran
114
COMPANY LAW
57
Managing Director of a company may be appointed by virtue of (a) an agreement with the company
(b) a resolution passed in the general meeting of the company (c ) a resolution passed in the
meeting of the board of directors of the company (d) the memorandum and articles of association of
the company (e) either of a, b, c and d above.
58
Who among the following can become a director of a company? (a) Bodies Corporate (b)
Association of persons (c ) Firms (d) Individuals (e) Both a and c above.
59
Qualification shares (a) are to be held by a director before his appointment (b) are to be acquired
within a period of less than 2 months of appointment, if provided by the articles of the company (c )
can be held jointly unless the articles provide otherwise (d) can exceed a nominal value of
Rs.5,000/- (e ) both a and d above.
60
When directors are appointed under Section 255, permanent directors should constitute . . . . . . . .
of total number of directors (a) 1/5 (b) 1/3 (c ) 1/2 (d) 2/3 (e) 4/5
61
An alternate director can hold office (a) till the next Annual General Meeting after his appointment
(b) the date upto which the original director would have held office (c ) only during the absence of
the original director (d) for a period longer than that permissible to the original director (e) until he
voluntarily vacates his office
62
A person cannot be a director at the same time in more than . . . . . . companies (a) 10 (b) 15 (c )
20 (d) 25 (e) 30
63
A director who enters into a contract with the company for sale, purchase or supply of goods under
circumstances or urgent necessity (a) need not obtain the consent of the board (b) has to obtain the
consent of the board within 2 months of the date of contract (c ) has to obtain the consent of the
board within 3 months of the date of contract (d) has to obtain the consent of promoters within one
month of the date of contract (e) has to obtain the approval of shareholders.
64
Granting of loans by a bank to its directors (a) is prohibited under Sec.295 (b) requires prior
approval of central government (c ) is valid only if those directors control not less than 25% of total
voting power at the General Meeting (d) is contemplated as a part of its business (e) both b and c
above.
65
Total managerial remuneration payable by a public company to its directors (a) shall be less than
10% of net profits for the financial year (b) cannot exceed 11% of gross profits for the financial year
(c )cannot exceed 11% of net profits for the financial year (d) can exceed 11% but not 15% of gross
profits (e ) is left to the discretion of the company.
66
Total managerial remuneration to directors does not include (a) expenditure incurred in providing
free accommodation (b) guarantee commission on the guarantee given for company loans (c )
expenditure incurred in providing life insurance (d) sitting fee payable for attending meetings (e )
both b and d above.
67
Appointment of Managing Director is compulsory if a company has a (a) paid up capital of 3 crores
(b) issued capital of 5 crore (c ) subscribed capital of 5 crore (d) paid up capital of 5 crore (e )
authorised capital of 5 crore.
68
Statutory meeting is to be conducted within a period of (a) less than one month after incorporation
of a private limited company (b) less than six month after commencement of business of a public
limited company (c ) Not less than one month nor more than 6 months after incorporation of a
public limited company (d) Not less than one month nor more than 6 months after allotment of
shares (e) Not less than one month nor more than 6 months from the date at which the company is
entitled to commence business
69
Statutory report should be forwarded at least . . . . . . . days before the statutory meeting is to be
held to every . . . . . . (a) 14 days, member (b) 21 days, debenture holder (c ) 21 days, member (d)
21 days, director (e) 21 days, employee
70
A special resolution is required when (a) the registered office is shifted from one place to another in
the same town (b) a sole selling agent is to be appointed by a company having paid up capital of
Rs.45 lakh (c ) applying to the court to wind up a company (d) both a and b above (e) both b and c
above.
Dr. M Koteeswaran
115
COMPANY LAW
71
Under the Companies Act, 1956, which of the following acts is held as oppressive? (a) that the
majority share holders appointed all directors (b) that the management is inefficient (c ) denying a
shareholder the right to inspect the registers maintained by the company (d) failure to comply with
the formalities of giving notice for general meeting or refusal to declare more than modrate rate of
dividend, where the profits of the company justify a higher rate (e) a person and who thus had no
authority at all usurps the office of a director and managing director
72
Which of the following acts of the directors is/are considered to be oppressive? (a) inefficient
management (b) denial of access to books of accouns to shareholders (c ) refusal to register the
transfer of shares according to the directions contained in a will (d) drawing of salary by the
directors when the company is making losses (e) both a and b above.
73
On a reference made to it by the National Company Law Tribunal about the oppression or
mismanagement of a company, the central government is empowered to appoint any number of
directors as it thinks fit for a period not exceeding . . . . . . . years at a time. (a) 1 (b) 2 (c ) 3 (d) 4 (e)
5
Which of the following acts by the management of a company have been held to be oppressive? (a)
denial of access to books to the shareholder (b) failure to comply with the formalities of giving
notice for a general meeting. (c ) diversion of business opportunity (d) negligence and inefficiency in
managing the affairs (e) increasing the voting rights of the shares held by the management
74
75
Which of the following does not constitute a case of oppression ? (a) shareholders holding 30%
shares of a company, being denied access to books of account. (b) a majority shareholder, flouting
the decision of the board and making it impossible for the company to function. (c) member of a
company being deprived of his/her right to vote. (d) consistent refusal by a company to register a
transfer, in order to retain control (e) both b and d above.
76
In case of a company not having a share capital, application to the NCLT against oppression should
be signed by (a) not less than 100 members (b) not less than 1/10 of total number of members (c )
not less than 1/5 of total number of members (d) not less than 2/5 of total number of members (e)
not less than 1/3 of total number of members
77
In a contract of reconstruction/amalgamation, an offer made by the transferee company to acquire

shares should be approved (a) within 2 months by holders of not less than 1/10 in value of shares
of the transferor company (b) within 4 months by holders of not less than 1/5 in value of shares of
the transferor company (c ) within 4 months by holders of not less than 9/10 in value of shares of
the transferor company (d) within 6 months by holders of not less than 1/10 in value of shares of the
transferor company (e) within 6 months by holders of not less than 1/5 in value of shares of the
transferor company
78
A scheme of compromise will have to be approved by (a) creditors of the company (b) simple
majority of persons who took park in the voting (c ) special resolution at the meeting convened to
pass the scheme (d) the NCLT (e) the Central Government.
79
Where an arrangement has been proposed for the purpose of reconstruction of a company, the
scheme shall be approved by the holders of (a) three-fourths in value of the shares concerned (b)
nine-tenths in value of the shares concerned ( c) two-thirds in value of the shares concerned (d)
three-fourths in value of the creditors concerned (e) three-fourths in value of the shares concerned
and three-fourths in value of the creditors concerned.
80
Which of the following is a just and equitable ground to wind up a company by court? (a) where
there is a dead-lock in the management of a company (b) if the membership in a public company
falls below the statutory minimum of seven members ( c) if a company is unable to pay its debts (d)
if a company does not commence its business within a year of its incorporation (e) all of the above.
81
Which of the following is not a ground for winding up of a company? (a) default in holding statutory
meeting by a public company limited by shares (b) default in holding annual general meeting (c )
failure to commence business within a year of its incorporation (d) inability to pay debts (e)
reduction of number of members below statutory minimum.
82
Which of the following payments are not allowed to be paid as preferential payments in winding up
of a company? (a) Revenues, taxes, cesses to the government (b) Amounts payable to financial
institutions (c ) Accrued holiday remuneration payable to employee (d) Any compensation or liability
under the Workmen's compensation act, 1923 (e) Both a and b above.
Dr. M Koteeswaran
116
COMPANY LAW
83
A petition for winding up in case of failure to hold statutory meeting can be filed by the contributory
(a) before the expiry of 21 days from the date on which the statutory meeting was to be held (b)
Within the expiry of 14 days from the date on which the statutory meeting was to be held (c )Any
time after the expiry of the date on which the meeting was to be held (d) After the expiry of 14 days
from the day on which the meeting ought to have been held (e) At the discretion of the petitioners.
84
When the company is no longer able or never has been able to carry on the business for which it
was formed, the (a) court can wind up the company on the ground that it is just and equitable (b)
court cannot wind up the company on the ground that it is just and equitable (c ) court can wind up
the company only if majority shareholders approve (d) court can wind up the company only if a
special resolution is passed by the company (e) both a and c above.
85
Petition for winding up for failure to hold statutory meeting can be presented by a (a) Company (b)
Creditors (c ) Registrar (d) Contributory (e) Both c and d above.
86
When a resolution has been passed by the company, for voluntary winding up, before the
presentation of a petition, winding up commences (a) At the time of presentation of petition (b)
When the petition is acknowledged by the court (c ) From the date of resolution (d) 14 days after
the resolution has been passed (e) When the court gives an order for winding up.
87
In a compulsory winding up, preliminary report of the official liquidator should be submitted to the
court (a) before the receipt of the statement of affairs (b) 3 months after the date of order of
winding up (c ) after receipt of statement of affairs and before 6 months from the date of order of
winding up (d) 3 months before the date of order of winding up (e) before receipt of statement of
affairs and 6 months prior to the date of order of winding up.
88
Period for submission of statement of affairs can be extended by the court to a maximum
of . . . . . . . . of appointment of official liquidator. (a) 30 days (b) 2 months (c ) 3 months (d) 4
months (e) 6 months
89
If a members voluntarily winding up, the declaration of solvency should be made (a) after 5 weeks
of passing a resolution for winding up (b) at the time of passing the resolution (c ) within 5 weeks
immediately preceding the date of passing of resolution (d) when petition for winding up has been
made to the court (e) only after the court acknowledges receipt of petition for winding up
90
Transfer of property, in favour of a creditor will be deemed as fraudulent preference in case of a

company (a) if the transaction took place within 3 months of presentation of winding up petition (b) if
the transaction took place within 6 months of presentation of winding up petition (c ) when the
motive was to prefer one creditor to others (d) both a and c above (e) both b and c above.
91
Which of the following does not amount to fraudulent preference? (a) Payment of debt by a debtor
with an intention to benefit himself (b) Involuntary transfer of property (c ) Payment to a creditor in
preference to others and made within 6 months before presentation of winding up petition (d) Both
a and b above (e) Both a and c above
92
According to Sec.531-A of the Companies Act, 1956 which of the following is void ? (a) Transfer of
property made in ordinary course of business (b) Transfer of property in favour of a purchaser for
valuable consideration (c ) Assignment of property to trustees for the benefit of all its creditors (d)
Transfer of property within 1 year before commencement of winding up not made in good faith (e)
Both c and d above.
93
A disclaimer made by the liquidator should be made (a) After a period of 6 months from
commencement of winding up (b) Before a period of 6 months from commencement of winding up
(c ) Within 12 months after commencement of winding up (d) After 12 months from the date of
commencement of winding up (e) None of the above.
94
Power(s) of the liquidator with the sanction of the Court in compulsory winding up is/are (a) to
inspect returns filed with the Registrar of Companies on payment of fees (b) to pay all creditors in
full (c ) to claim dividends from estate of a contributory in case of insolvency (d) to endorse a
promissory note on his name (e) both b and c above.
Dr. M Koteeswaran
117
COMPANY LAW
95
A company cannot be wound-up on just and equitalble grounds if (a) there is a dead-lock in the
management (b) it is said to have lost its substratum (c ) it was incorporated for carrying on any
fraudulent or illegal objects (d) it has failed to conduct the annual general meeting (e) it is unable to
carry on business except at loss
96
Who is not entitled to make an application to the court for winding up of a company by petition? (a)
Registrar of Companies (b) The Ccompany (c ) A creditor of the company (d) The central
government (e) All of the above
97
In which of the following situations winding up of companies on just and equitable grounds is
justified? (a) Deadlock in the management of a company (b) Loss of substratum (c ) Oppression of
minority (d) Fraudulent purpose (e) All of the above.
98
Intellectual property (IP) relates to the creations of mind. Such IP includes (a) Patents (b)
Trademark (c ) Computer (d) Both a and c (e) Both a and b.
99
Concept of fair use is chiefly a limitation laid down on the exclusive rights granted to a (a) copyright
holder (b) Trade mark holder (c ) Account holder (d) Patentee (e) Both a and d.
100
The expression 'industrial property' covers inventions and industrial designs and includes (a)
patents (b) trade marks (c ) service marks (d) commercial names and designations (e) All of the
above
101
Information Technology Act, 2000, provides that the Act shall not apply to instrument (a) Power of
attorney as defined in Sec.1A of the Power of Attorney Act 1882 (b) A Trust as defined in Sec.3 of
the Indian Trusts Act 1882 (2 of 1882) (c ) A will as defined in clause (h) of Sec.2 of the Indian
Seccession Act 1925 including any other testamentary instrument (d) Any contract for sale or
conveyance (e) All of the above
102
The reasons that necessitated the enactment of a separate Cyber law (a) The absence of a
centralised regulating agency (b) to restrain improper conduct of the user or internet (c ) Absence of
a suitable legal framework to arrest frauds, vandalism or abuses (d) All of the above (e) None of the
above.
103
Which of the following matters can be referred to Arbitration? (a) Matrimonial matters
Testamentary matters (c ) Lunacy proceedings (d) Matters relating to breach of contracts
(e) Criminal proceedings
104
The arbitrators shall make their award within . . . . . . . . . . . months of reference of dispute to them
(a) 2 (b) 3 (c ) 4 (d) 6 (e) 12
105
Which of the following statement(s) is/are true? (a) Suits pending before courts may be settled by
arbitration by appointing an arbitrator (b) Parties wanting to settle their case pending before the
court can opt for arbitration, but must do so before the judgement is pronounced by the court (c )
Parties intending to opt for arbitration need to apply to the court for an order of reference to an
arbitrator (d) All of a, b & c above (e) Both b and c above.
106
Which of the following is not a power of the arbitrator? (a) Administer oath to parties and witnesses
(b) Make the award conditional (c ) Extend time for making award (d) Correct any mistake or error
in the award (e) Administer to the parties necessary interrogatories
107
In which of the following cases reference to arbitration is valid? (a) In a contract between Aamir
and Salman, a local chamber of commerce is to arbitrate in case of any dispute arising between
them. There are many local chambers of commerce in the area (b) In a contract with military firms
department, the District Commander concerned is to be the Arbitrator. (c) A clause in an arbitration
agreement says 'in the matter of dispute the case shall be referred to the Superintending Engineer
of the circle' (d) The arbitration clause in a contract speaks of disputes to be referred to arbitration
in accordance with the rules of Millowners' Association, Mumbai (e) All of b, c and d above.
108
Disputes relating to . . . . . . . . . . . can be referred to arbitration (a) Matrimonial matters (b) Time
barred claims (c ) Testamentary matters (d) Lunacy proceedings (e) Matters of criminal nature
109
Which of the following is not the powers of arbitrators? (a) To make the award conditional (b) To
correct clerical mistakes (c ) To correct errors in award (d) To remove the umpire (e) To extend time
for making award
(b)
PART-B
Dr. M Koteeswaran
118
COMPANY LAW
1
2
Distinguish between public sector and public limited company.

Under what circumstances can a public sector company be a public limited company? Give an
example
3
4
5
6
7
8
9
10
11
How can a government company be made a public limited company? Give an example.
What is perpetual succession?
What are the liabilities of a partner in partnership firm?
What is main object in memorandum of association?
What is indoor management?
How does a company communicate with the outside world?
What is doctrine of ultra vires?
What is meant by lifting the corporate veil?
H and W the only two members of a private limited company die in a road accident. Is the company
dead?
12
13
14
What is the purpose of statutory meeting?

What is the purpose of the annual general meeting?
A promoter P of a company contracts with S to purchase of a property on behalf of the proposed
compny. Upon incorporation, the company refused to buy the property.Advise S
15
After issuance of certificate of incorporation, it was found that a few of the signatories to the
memorandum of association were forged. What is the position of the company?
16
17
What are the implications of misstatementsin prospectus?

A purchased some shares from market based on the prospectus. Realising that prospectus
contained misstatements, filed a case against the company. Will he succeed?
18
Based on the prospectus issued by company C, A applied for and was allotted some shares.
Realising that prospectus contained misstatements, A filed a case against the company. Will he
succeed?
19
20
21
22
23
24
25
State the rules relating to appointment of directors .

What are the qualifications of a director?
When is a person disqualified to to be appointed as a director?
Under what circumstances a compny maybe wound up?
What are the characteristics of a company?
What are the differences between private limited companies and public limited companies?
What is the liability of a member in Guarantee companyand private limited company and public
limited company
26
27
What are the privileges enjoyedby private company over public limited company?
Salomon owned all the shares of a shoe compny he started excepting six owned by 6 of his family
members 1 share each . The company failed and was wound up. The creditors sued that Salomon
and the company were one and the same and so their unsecured loans be settled before dischrging
the debentures held by Salomon. The court rejected. Why? What was the principle enunciated?
28
Lee held all but one the shares of Lee Air Farming Coompany Ltd. He died while air spraying. Wife
claimed compensation from the company. The court allowed the claim. Why?
29
30
What are the contents of a statury report?

Is it possible to convert public company into private company? How?
PART-C
Who is a promoter? Explain the concept, role, power, rights, duties and liabilities of Promoter of a
company
2
3
Memorandumof association is the charter of the company. Discuss exlaining its content
Discuss the concept of ultra-vires and the consequences on the company and its directors and
agents.
4
5
Explain the purpose, content and the role of Articles of Association of a company.
What are the modes of winding up of companies?
Dr. M Koteeswaran
119
COMPANY LAW
6
7
8
Explain the procedure for voluntary winding up of a company.

Explain winding up subject to supervision of court.
Describe the procedure and documents required for formation of companies under the Companies
Act.
9
10
11
12
Explain the meaning, purpose, contents and importance of prospectus.

What are the concepts, roles, duties and responsibilities of directors in a company?
Explain the source and powers and limitations of the Board of Directors of a company
Explain the purpose and significance of various kinds of meetings of a company
Dr. M Koteeswaran
120

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COMPANY LAW

MBA I 2012 Hand out 8

MBA I 2012 Hand out 8

His being a Mg. Director and full owner was irrelevant.

Case of Mrs. Guzdar Vs IT Commissioner

Mrs. Guzdar owned shares in a Tea co.

MBA I 2012 Hand out 8

MBA I 2012 Hand out 8

Immediate commencement of business

3. Companies limited by guaranteeliability to pay the share amount

MBA I 2012 Hand out 8

Holds 25% or more of paid up capital of a public

No need to hold statutory meeting

DISTINCTION BETWEEN PUBLIC AND PRIVATE COMPANIES

Minimum number of members

Maximum no. of members

Certificate of commencement of business

Public issue by prospectus

MBA I 2012 Hand out 8

DISTINCTION BETWEEN PARTNERSHIP AND COMPANY

Statement of authorised capital

Notice of address of registered office

A list of directors with their consent duly signed

An undertaking by each director to take and pay for qualification shares

A declaration that all requirements of have been complied with.

MBA I 2012 Hand out 8

Certificate of commencement of business

Also known as Trading certificate

Name Clause with Limited/Private Limited

Registered office clause with state in which is company is situated

Liability clause of members

MBA I 2012 Hand out 8

Association or subscription clause

Free to choose any name

Should get name clearance from the registrar

Should not be identical or closely resemble any existing registered name

Name should not violate Emblems and names Act

Shows the state in which it is registered

Determines its domicile

The place where all registers must be kept

The address to which all communications must be sent and received

MOA of the company listed its objectives:

To carry on business of mechanical engineers and general contractors

ULTRA VIRES DOCTRINE OF CONSTRUCTIVE NOTICE

To make or sell or lease carriages, wagons and all kinds of railway

Case of BEAUFORTE VS. Re

The objective stated in MOA was to manufacture garments. The

MBA I 2012 Hand out 8

It constructed the factory in Bristol. Later it could not pay the

Contract was VOID

Protects the company from the outsiders.

Indicates the powers of the company

Liability clause of members

Where Articles are not registered, model articles in Table A of schedule 1

Where Articles are registered, exclusions from model articles in Table A of

Adoption of preliminary contracts

MBA I 2012 Hand out 8

Doctrine of indoor management protects the outsiders from the company

DOCTRINE OF INDOOR MANAGEMENT

IF A CONTRACT IS WITHIN THE PUBLIC DOCUMENTS ,

DOCTRINE OF INDOOR MANAGEMENT

The company claimed that no general resolution was actually passed by

Doctrine of Indoor Management applied.