Lecture-19

Company Law: Introduction

- Objectives, Definition & Concepts
- Corporate Personality
- Separate legal personality
- Veil of incorporation
- Lifting/piercing the Veil
- Doctrine of alter ego
- Essential features of a Company
- Types of Company
- Other types of Business Orgns
- Difference; Private Vs. Public Company
- Conversion; Private-Public-Private
- Principles:
i. Falling below the Membership
ii. An illegal Association
1

Objective & Purposes

The main objective & purposes of statutes
relating to companies are as follows~
i. Encourage investments in companies by providing
certain facilities, i.e.. Limitation of liability,
transferability of shares etc.
ii. Ensure due and proper administration of the funds
and assets of companies in the interest of the investing
public.
iii. Identify malpractices by directors and managers.
iv. Arrange for investigation into the affairs of
companies and provide for effective audit in dealing with
cases of
dishonesty and fraud in the corporate
sector.

Definition ; Company
The term Company is used to describe an
association of a number of persons, formed for
some common purpose and registered according
to the law relating to companies.
Sec 3 (1) (i) of the Company Act, 1994 states
that a Company means a company formed and
registered under this Act or an existing company

Concepts ;

Company

A company, formed and registered under the Company Law

is regarded by law as a single person, having specified
rights and obligations. The law confers on a company a
distinct legal personality, with perpetual succession and a
common seal. Therefore ; a company is different from its
members and the individuals composing it.
Example: Suppose that, A, B, C and 50
persons form a company called XYZ Co. The
XYZ Co. is a legal person quite separate
and others. Therefore
A, B, C can enter
contracts with XYZ Co.

other
company
from A, B, C
into

Corporate Personality
Separate legal personality~
A company, formed and registered under the
Company Law is regarded by law as a single
person, having specified rights and obligations.
The law confers on a company a distinct legal
personality, with perpetual succession and a
common seal. Therefore ; a company is different
from its members and the individuals composing
it.
Salomon Vs. Salomon [1897]
Contd

Salomon Vs. Salomon [1897]

Salomon had a business in boot manufacture. He formed a
company called Salomon ..Co. with himself, his wife,
daughter and 4 sons as shareholders; transferred to it his
business. As consideration for the transfer he received the
major portion of the shares of the company and debentures
for 10,000. Later on the company went into liquidation.
Salomon, as a debenture-holder, claimed to be secured
creditor and demanded priority in the payment of 10,000,
out of the assets of the company. The unsecured creditors
of the company objected on the ground that the business
really belonged to Salomon and he should not be allowed to
claim as a secured creditor.
Decision~
It was held that Salomon as an individual, was quite
distinct from Salomon..Co; and he could therefore be a
secured creditor of the company, even though he happened
to hold the majority of the shares.

Although a company is treated as a legal person

upon incorporation, there are limits to treating a
company in this way and the terms of a contract
may negate such a construction.
[Deutsche Genossenschaft Bank Vs. Burnhope..
Others (1995)] ;
Here the banks insurance policy covered burglary, robbery
of hold-up, or theft. committed by persons present on the
premises of the assured.? The House of Lords held that
the policy only covered theft by a natural person who was
physically present on the banks premises. The bank was
therefore unable to claim under the policy when a company
committed the theft through its chairman who did not
physically enter the bank. The definition of person in s-61 of
the Law of Property Act, 1925 includes a corporation unless
the context provides otherwise. Their lordship felt that the
context did provide otherwise, as the clause referring to
burglary, robbery or hold-up, can only relate to crimes
committed by natural persons on the banks premises.

Veil of incorporation ;
A company, formed and registered under the Company Law
is regarded by law as a single person, having specified
rights and obligations. The law confers on a company a
distinct legal personality, with perpetual succession and a
common seal. Therefore ; a company is different from its
members and the individuals composing it. This is called
the veil of incorporation.

Lifting/Piercing the veil ;

It is sometimes necessary to find out the ownership of the
shares. It is also necessary to find the persons who control
the company. This is called Lifting or Piercing the veil. It
can be done by Statute or Court.

Criminal & civil responsibility

Doctrine ; alter ego
In certain cases the acts of a companys agents
can render a company criminally liable. The
crucial question is whether the person behind the
company is in sufficient control of it as to make it
liable for any criminal act. This principle of
corporate liability is sometimes referred to as the
alter ego doctrine.
This allows the law to attribute the mental state
of those who in fact control the company and
manage the company, to the company as being
its directing mind and will.

Essential Features ;
The essential features of a Company are as
follows~
i. Registration
ii. Voluntary Association
iii. Legal Personality
iv. Contractual capacity
v. Management
vi. Capital
vii. Permanente existence
viii. Registered office
ix. Common seal
x. Limited liability
Contd..

xi. Transferability
xii. Statutory obligations
xiii. Not a citizen
xiv. Residence
xv. Fundamental rights
xvi. Corporate/Separate legal personality
.
.
xx. Others (if any)
Note: [More details, please see at Page ; 540-42, Sen &
Mitra, 25th Edition (2006)]

Types of Company

There are basically 2 types of Companya. Private Company

b. Public Company
i. Company limited by Shares
ii. Company limited by Guarantee
iii. Unlimited Company

Others;
- Statutory Public Company
- Government Company
- Foreign Company

Other Types of Business Orgns~

- Sole Trader/Proprietorship
- Partnership
- Unincorporated association

Difference between~
Company Vs. Partnership
i. Registration: A company comes into existence only after
registration under the Company Act. In the case of partnership,
registration is not mandatory.

ii. Min Members; Company-2/7 ; Partnership-2

iii. Max Members; Company-50/unlimited ; Partnership:10-20
iv. Legal status; Company- a single person/legal personality.
Partnership- Collection of individual, not a single person.

v. Length of existence; Company- perpetual succession; the

death or insolvency of a Member does not affect its existence.
Partnership-dissolves once a partner dies or become insolvent.

Note: [More details, please see at Page ; 543-44, Sen &

Mitra, 25th Edition (2006)]

Private Vs. Public Company

i. Members: Private;2-50, Public;7-unlimited
ii. Transfer of Shares: Private-yes (with restriction),
Public-yes (no restriction)
iii. Invitation to public: Private-no, Public-yes
iv. Min Directors: Private-2 & Public-3
v. Commencement of Business: A private company
can commence business immediately on incorporation;
whereas a public company has to wait until it obtains a
certificate for the Commencement of Business.
Note: [More details, please see at Page ; 549-51, Sen &
Mitra, 25th Edition (2006)]

Conversion ;
Private Company into a Public Company~
- By resolution
- By default
- Creating a Statutory Public Company

Note: [More details; please see at Page ; 551-52, Sen

& Mitra, 25th Edition (2006)]

Public Company into a Private Company~

- By special resolution

Note: [More details; please see at Page ; 554-55, Sen

& Mitra, 25th Edition (2006)]

Principles
Falling below the minimum
Membership~
If the number of Members of a public company is
reduced to below 7 and that of a private company to
below 2 and the company carries on business for
more than six months while the number is so reduced,
every person who remains a member after six months
and is aware of the fact of shortage of members, shall
be perpetually liable for all the debts of the company
contracted during that time.
Example:
1. In a public limited company there were 7 Members. The
shares of 1 Member were sold by the Court auction and were
purchased by another Member of the same Company. The
minimum number of Membership is reduced to 6.
2. A private company was formed with 2 persons, the father
and his son. The son was the only heir of the father. The
father died and all his shares devolved to his son. Here the
minimum number of Membership is reduced to 1.

Principles
Company & Illegal Association~
An association of more than 10 persons carrying
on business or an association of more than 20
persons carrying on any other type of business
must be registered under the Company Act,
1994. If it is not so registered it is deemed to be
an illegal association.

Lecture-20
Company Law: Constitution & Laws

Memorandum of Association
-Definition,
- The Form and Contents of the Memorandum
- Rules regarding the name of the Company
- Alteration of the Memorandum

Article of Association
- Definition
- Alteration of the Article

Others
- Relationship, Difference Memo Vs. Article
- Doctrine of indoor management
- Doctrine of ultravires & intravires

18

Def:

Memorandum of Association.?

The memorandum of association is a document

which contains the fundamental rules regarding
the constitution and activities of a company. It is
the basic document which lays down how the
company is to be constituted and what work it
shall undertake.
The memorandum contains rules regarding the
capital structure, the liability of the members, the
objects of the company, and all other important
matters
relating
to
the
company.
The
memorandum is altered only after certain
formalities are observed.

Def:

Articles of Association.?

The Article of Association is a document which

contains
rules,
regulations
and
bye-laws
regarding the internal management of the
company. Articles must not violate any provisions
of the memorandum or any provision of the
Company Act.

Relationship:

Memo & Article

i. The Articles are subordinate to Memorandum.

ii. The Memorandum must be read in conjunction
with the Articles.
iii. The terms of the Memorandum can not be
modified or controlled by the Articles.

Difference:

Memo & Article

The distinction between the Memorandum & the Articles of

Associations are as follows~
i. The Memorandum is the fundamental charter of the
company determining its constitution and objectives;
the Articles are rules regarding internal management.
ii. Any rule in the Articles contrary to the Memorandum
is invalid.
iii. Articles can be altered easily, the Memorandum can
be altered only after the adoption of certain formalities.
iv. Acts beyond the powers of Memorandum (ultra
vires) are void. Acts done by a company beyond the
Articles can be ratified by the shareholders provided
they are with in (intra vires) the powers of
Memorandum.
Note: [More details; please see at Page ; 566-67, Sen &
Mitra, 25th Edition (2006)]

Form and Contents of the

Memorandum~
The Memorandum of Association of every company shall
contain the following particularsi. Name Clause
ii. Situation Clause
iii. Object Clause
iv. Area of Operation Clause
v. Liability Clause
vi. Capital Clause
vii. The Association .. Subscription Clause
Note: [More details; please see at Page ; 567-68, Sen &
Mitra, 25th Edition (2006)]

Rules regarding the name of the

Company~
A company can not adopt a name by which another
company is registered. If by inadvertence, mistake or
otherwise, a name is selected which the same as that of an
existing company or closely resembles it, the name must
be changed.
If the name of company closely resembles the name of a
previous company, the public may be misled and may be
defrauded. In such a case the Court will direct the change
of the name of the company.

Alteration;

Memorandum & Articles

Memorandum of Association;
The Memorandum of Association of a company can be
altered by following the procedure laid down in the
Company Act, 1994. The procedure is different for different
clauses of the Memorandum.
Article of Association;
Alteration of Articles is a statutory rights as specified in the
Company Act, 1994. This rights can not be taken away by
any provision in the existing Articles or the Memorandum.
Contd..

Alteration; Article of Association;

Although alteration of Articles is permitted, there are certain
restrictions on the nature and extent of the alterations that can be
madei. Articles can be altered always by special resolution only.
If the Articles of the company prescribed a different
procedure, e.g.. an ordinary resolution, it will
not be
followed.
ii. No change is permitted which violates the provisions of
the Company Act, 1994.
iii. No change is permitted which violates the provisions of
the Memorandum of Association.
iv. The alteration must not constitute a fraud on the
minority [Foss Vs. Harbottle].

Doctrine of-

Indoor management~
When the Articles of Association of a company prescribes a
particular procedure for doing a thing, the duty of carrying
out the provisions lies on the person in charge of the
management of the company. Outsiders are entitled to
assume that the rules have been complied with. This is
known as the Doctrine of Indoor Management.
Example:
The Articles of a company provided that the directors can give a
bond if authorized by a resolution of the company. The directors
gave a bond to T although no resolution was passed. Held, T was
entitled to assume that the resolution was passed.. because it is a
matter of internal procedure.. and the company was bound by the
bond.
Contd..

Doctrine of indoor management

does not apply in certain cases~

i. Void acts
ii. Knowledge of irregularity
iii. Lack of authority
Note: [More details; please see at Page ; 584-85, Sen &
Mitra, 25th Edition (2006)]

Doctrine of-

Ultravires & intravires~

Acts beyond the powers of Memorandum (ultravires) are
void. Acts done by a company beyond the Articles can be
ratified by the shareholders provided they are with in
(intravires) the powers of Memorandum.

Example:
1. When Army takes power that is ultravires the Bdesh
Constitution;
2. When care taker Govt. doesnt conduct the national
election with in 90 days that is intravires the Bdesh
constitution.

Lecture-21
Company Law: Company Formation
- Essential steps of Comp. formation
- Registration & Certificate ofincorporation
- Promoters
- Definition
- Duties & liabilities of Promoters
- Pre-incorporation contract

30

Formation of a Company
Before a company can be formed; the following steps must be
followed~
1. The Memo and Articles must be prepared. These two
documents must be filed when application is made for the
registration and incorporation.
2. It must have a proposed paid up capital as approved
by the Government.
3. The company must be registered in accordance with
the provisions of the Company Act, 1994.
4. The Certificate of Incorporation must be obtained.
In case of a Public Company; the following further steps are
required to be taken before it commences businessContd..

In case of a Public Company; the following further

steps are required to be taken before it commences
business5. The prospectus or the Statement in lieu of
Prospectus must be issued and registered with the
Registrar.
6. The minimum subscription must be raised and
thereafter the allotment of shares must be made.
7. The Certificate for the Commencement of Business
must be obtained from the Registrar.

Registration &

Certificate of Incorporation
If the Registrar is satisfied that all the
requirements of the Act have been complied with,
he will Register the company and issue a
certificate called the Certificate of
Incorporation.

Def;

Promoter?

Promoter is a word which is used to describe the persons

who initially plan the formation of a company and bring it
into existence.
In other words~ A person who originates a scheme for the
formation of the company, has the Memo and the Articles
prepared, executed and registered, and finds the first
directors, settles the terms of the preliminary contracts and
prospectus.. if any.. and makes necessary arrangements for
advertising and circulating the prospectus and placing the
capital is a Promoter.

Who are the

Promoter?

In seeking to find out who are the promoters of a

company; it is helpful to and ask the following questions~
1. Who had the idea to form the company for the
purpose in question?
2. Who drafted the memorandum and articles or gave
instructions to lawyers to prepare them?
3. Who paid for the registration of the company and
cost of preparing the documents?
4. Who arranged for persons to become the first
directors?
Note: [This is only a guide and is by no means decisive; a person
may have done none of these things and yet be a Promoter].

Duties & Liabilities

of Promoters~

Note: [For details; please see at Page ; 591,

Sen & Mitra, 25th Edition (2006)]

Pre-incorporation Contract?
Before a company is formed and registered; the promoters
of the company have to enter into contracts for drafting the
necessary documents, transfer of goods and property etc.
Such contracts may be called Preliminary or Preincorporation contracts. They are entered into before a
company comes into existence. The questions arises
whether contract by the promoters with a non-existing
company are enforceable or not..?
The rules regarding the subject are summarized below~

Note: [More details; please see at Page ; 59293, Sen & Mitra, 25th Edition (2006)]

Lecture-22
Company Law:
(Capital & Share) ;
- Types of Capital
- Share ; Definition, Features & Classifications
- Increase of Share Capital
- Transfer & Transmission of Shares
- Rights of Shareholders including Voting Rights
- Others
- Share Warrant Vs Share Certificate
- Share Vs Stock

(Debenture) ;
- Definition ; including Charges
- Shareholders Vs Debenture holders

(Insider Dealings);
38

What is Capital?

Types of Capital
The term capital in connection with company formation
may mean any one of the following things~
1. Nominal/or Authorized Capital
Nominal or Authorized capital is the total face value of the
shares which the company is authorized to issue by its
memorandum of association. The total share capital of a
company is also called its Registered Capital.
The full authorized capital may not be needed by a
company at the time it commences business. A company
may issue less than the authorized capital, reserving the
right to raise further moneys by the sale of the
unauthorized shares at a later time.
Contd..

2. Issued Capital
Issued capital is that par of the authorized capital which is
actually offered to the public for sale.
3. Subscribed Capital
Subscribed capital is that part of issued capital which is
taken up and accepted by the public.
4. Paid up Capital
Paid up capital is the amount of money actually paid by the
subscribers or credited as so paid.
5. Uncalled Capital
The unpaid portion of the subscribed capital is called
Uncalled Capital.

What is Share?

Share ; Def
The shareholders are the proprietors of the company.
Therefore, a Share may be defined as an interest in the
company entitling the owner thereof to receive proportionate
part of the profits, if any and a proportionate part of the
assets of the company upon liquidation.

Share ; Features/Characteristics
The main features/characteristics of Shares areas follows~
i. A share is not a sum of money, but is an interest measured
in a sum of money and made up of various rights contained
in the contract.

Contd..

ii. A share is an interest having a money value and measure

up of diverse rights specified udder the Articles of Association.
iii. The holder of a share has certain rights, duties and
liabilities, as stated in Company Act, 1994 along with its
Memo and Articles of Association.
iv. A share is transferable and heritable subject to regulations
framed in the Articles of Association.
v. The share or the interest of a member in a company is
movable property, transferable in the manner provided by the
Articles of the company.
vi. The share must be numbered so as to distinguish them
from one another.

Share ; Classification
Share can be classified broadly 2 ways~
1. Preference Share
2. Equity Share
Others~
3. IPO (Initial Public Offer)
4. Bonus Share
5. Right Share

1. Preference Shares ;
Preference Shares are those shares which are given, by the
articles of the company, two privilegesi. priority in the payment of dividends over other
shares.
ii. priority as regards return of the capital in the event of
liquidation.

2. Equity Shares ;
All Shares other than preference shares are called Equity
Shares. The rights and privileges of equity shareholders are
laid down in the articles subject to the provision of the Act.
Contd..

3. IPO (Initial Public Offer) ;

4. Bonus Shares ;
Instead of cash, profit is given by share value to the
existing shareholder.
5. Right Shares ;
Where at any time after the expiry of 2 years from the
formation of a company or at any time after 1 year from
the firs allotment of shares; whichever is earlier, it is
proposed to increase the subscribed capital of the company
by allotment of further shares to the person who at the
date of the offer, are holders of the equity shares of the
company in proportion as nearly as circumstances admit, to
the capital paid up on those shares at that date. This called
as Right Share.

Increase of Share Capital ;

There are 2 methods of increasing capital~
1. Further issue of capital/Right Shares
2. Conversion of Debenture or Government loan
Further issue of Capital/Right Shares ; Where at any
time after the expiry of 2 years from the formation of a
company or at any time after 1 year from the firs allotment
of shares; whichever is earlier, it is proposed to increase
the subscribed capital of the company by allotment of
further shares to the person who at the date of the offer,
are holders of the equity shares of the company in
proportion as nearly as circumstances admit, to the capital
paid up on those shares at that date. This called as Right
Share.

Transfer & Transmission of Shares ;

A shareholding is personal property (in the
technical sense) and so it is by its nature
transferable, subject toi. It must be in writing.
ii. It must follow relevant provisions of the Company Act,
1994.
iii. It must follow relevant provisions of Articles of
Association.

Note ; [Transfer is the term used when a shareholder by

his own act passes the ownership of shares to another
person; whereas, Transmission by operation of law is the
term used when ownership passes as a result of an event
such as the death or bankruptcy of a member, as described
above].

Rights of Shareholders
The Company Act gives various rights to the
Shareholders of a company. The important rights
are mentioned below~

Note: [For details; please see at Page ; 617-18,

Sen & Mitra, 25th Edition (2006)]

Voting Rights of the Shareholders~

Equity Shareholders; An equity shareholders is entitled
to vote on every resolution placed before the company. This
right can not be curtailed by the Articles. The number of
votes a shareholders can cast is proportional to his share of
the paid up equity capital of the company.
Preference Shareholders; A preference shareholders is
entitled to vote only resolution which directly affect the
rights attached to his preference shares and resolutions for
winding up of the company.

Share ;
The shareholders are the proprietors of the company.
Therefore, a Share may be defined as an interest in the
company entitling the owner thereof to receive
proportionate part of the profits, if any and a proportionate
part of the assets of the company upon liquidation.

Stock ;
When all shares of a company have been fully paid up, they
may be converted into stock if so authorized by the articles.
Difference:

Share Vs Stock
Note: [For details; please see at Page ; 625, Sen & Mitra,
25th Edition (2006)]

Share Certificate ;
The share certificate is a certificate issued under the
common seal of the company specifying the number of
shares held by any member. A share certificate must be
issued and delivered within 3 months from date of
allotment.
Share Warrant ;
The share warrant is a document issued by a company,
stating that its bearer is entitled to the shares therein
specified. It is a substitute for the share certificate.
Difference:

Share Certificate Vs Share Warrant

Note: [For details; please see at Page ; 624, Sen & Mitra,
25th Edition (2006)]

What is

Debenture?

Debenture ; Def
The issue of debentures is a particular mode of borrowing
money by companies. A debenture is a document which
shows on the face of it, that the company has borrowed a
certain sum of money from the holder thereof upon certain
terms and conditions.
Sec 2(12) Of the Company Act states that a debenture
includes debenture stock , bonds and any other securities
of a company whether constituting a charge on the assets
of the company or not.

Debenture ;

Characteristics

The main features/characteristics of Debentures are

as follows~
i. Each debenture is numbered.
ii. A debenture usually creates a floating charge on the
assets of the companies.
iii. A debenture may create a fixed charge instead of a
floating charge.
iv. Sometimes debenture holders are given the right to
appoint a receiver in case of non-fulfillment of the terms of
the debentures by the company.

What is

Charge..?

Charge ;

Def

A charge on a property is created when it is made liable

for the payment of money. A charge is 2 types~
1. Fixed charge
2. Floating charge

1. Fixed Charge ;
A fixed charge is one which creates a legal interest of a
specific property of the company or all the properties of the
company. Thus a fixed charge is equivalent to mortgage.

2. Floating Charge ;
A floating charge is also creates a legal interest of a specific
property of the company or all the properties of the
company. But a floating charge does not amount to
mortgage.

Crystallization?
A floating charge becomes fixed charge when any of the
following things occur~
i. a company is wound up
ii. a Receiver of the properties of the company is
appointed.
iii. the company fails to pay the interest and the
installment of the principal.
iv. The company ceases carrying on its business.

When the above occurrence or contingencies happen, a

floating charge becomes a fixed charge. This is known as
crystallization of the floating charge. This crystallization
occurs on the moment of crystallization.

Difference:

Shareholder Vs Debentureholder
Note: [For details; please see at Page ; 738-39,
Sen & Mitra, 25th Edition (2006)]

Insider Dealings ;
Def ; Insider dealing is understood broadly to
cover situation where a person buys or sells
securities when he, but not the other party to the
transaction, is in possession of confidential
information which affects the value to be placed
on those securities.
In short it is termed as upsi means- unpublished
price sensitive information. If anyone in charge of
upsi discloses is liable of criminal offence.

Lecture-23
Company Law:
Directors
- Definition ; including max number
- Types
- Directors duties
- Minority Protection [Foss v Harbottle]

Meeting
- Types
- Others Meeting including GM, AGM
- Rules of procedure regarding Meeting
- Resolution

62

Director; Def
The director of a Company are selected according
to the Articles of Association of the company and
provisions of the Company Act, 1994. Directors
are in charge of the management of the affairs of
the Company. The directors are collectively called
the Board of Director and the Board is the
companys executive authority.
A director is an officer of the company within the
meaning of Sec 2(30) of the Company Act, 1994.
Sec 2(13) States that a director includes any
person occupying the position of the director by
whatever name called.

Director; Types

Paid Director ;

Non paid Director ;

Shadow Director ; is any person in accordance

with whose directions of the company are
accustomed to act.

Director as Employee ; A director who also holds

a management post; e.g.. as head of the
department in the company is sometimes called a
Working Director or Executive Director
Contd..

CEO/Executive Director ; A director who holds a

management post; e.g.. as head of the department in the

company is called CEO or Executive Director. A CEO/ED
may not be from Directors.

MD ; must be from the Directors.

Chairman ; The Board of Directors may appoint one of

themselves to be chairman of the Board, usually for an
indefinite period to hold office so long as he is a director
though he may be removed or replace.

Directors duties ;
The duties of Directors of a company have been elaborately
explained by Romer L. J. in Re City Equitable Fire Insurance
Co..1925 The important duties are quoted from this case and
summed below~
1. Distribution of work
2. Good faith
3. Reasonable care
4. Degree of skill
5. To attend meeting
6. Duty of disclosure
7. Other duties
Comments ; [If a director fails to perform his duties, as explained
above, he is guilty of negligence. If on account of such negligence
the company suffers any damages, the director must
compensate].
Note: [For details; please see at Page ; 694-95, Sen & Mitra, 25th
Edition (2006)]

Minority Protection
A group of wrongdoers may gain control of the majority of
votes and operate the company for their own benefits. This
is more likely to happen in a small private company.
Generally, the court has been reluctant to interfere with the
exercise by the majority of their voting rights, unless there
is clear bad faith.
The rule in [Foss Vs. Harbottle]
The rule states that when a wrong is done to a company,
the proper plaintiff is the company. Thus the board will
usually initiate an action. If the action is against the
directors, the majority of shareholders must initiate it on
behalf of the company, the minority can not. This is known
as rule in [Foss Vs. Harbottle].

Meeting..?
- Types
- Meeting including Statutory/GM, AGM, EGM..
- Rules of procedure regarding Meeting
- Resolution

Meeting; Types
As per Company Act, 1994 ; Meeting can be classified~
1. Meeting of the Shareholders

Statutory/General Meeting
AGM
EGM
Class Meeting

2. Meeting of the Directors

3. Other Meeting
- Meeting of the creditors
- Meeting of the Debenture holders

1. Meeting of the Shareholders

- Statutory/General Meeting
- AGM
- EGM
- Class Meeting
Statutory/General Meeting
Every public company limited by shares and every company
limited by guarantee and having a share capital must within a
period of not less than 1 month and more than 6 months
from he date at which the company is entitled to commence
business, hold a general meeting of members which is to be
called, the Statutory Meeting. In this meeting the members
are to discuss a report by directors known as the Statutory
Report which contains particulars relating to the formation of
the Company.
Contd..

AGM ;
- The first AGM of a company may be held within a period
of not more than 18 months from the date of its
incorporation.
- Subject to the above mentioned conditions, a company
must hold AGM each year. Not more than 15 months shall
elapse between the date of one AGM and the next..

EGM ;
The Board of Directors can be compelled or hold a GM upon
request or requisition made for it. The AGM is specially
called at any time over the year for urgency.
Class Meeting ;
The meeting for special class, e.g.. preference shareholders
or debenture share holders meeting.

Procedure regarding Meeting

The general rules of procedure as regards shareholders
meeting can be summarized as follows~
1. Proper authority
2. Notice
3. The Agenda
4. The Quorum
5. Chairman
6. Proxy
7. Method of Voting
Note: [For details; please see at Page ; 656-59, Sen & Mitra, 25th
Edition (2006)]

Resolution ; Types
Company Act, 1994 classifies resolutions into the following
types~
1. Special Resolutions
2. Ordinary Resolution
3. Resolution by special notice
1. Special Resolutions
A special resolution is necessary for deciding important
matters. Company Act, 1994 specifies what these matters
are. e.g- Reduction of capital; Winding up etc.
A special resolution may be passed in a GM of members
called in the usual way with the usual notice. But the
following 2 conditions must be satisfiedi. the notice calling the GM must specify that a special
resolution will be moved.
ii. The number of votes cast in favor of the resolution
whether by show of hands or by poll, must be at least 3
the number cast against it.

times

2. Ordinary Resolutions
All matters not required to be decided by a special
resolution, may be decided by ordinary resolution. An
ordinary resolution is passed when the number of votes
cast in favor exceeds those cast against it.

3. Resolution by special notice

Where by any provision contained in Company Act, 1994 or
in the Articles, special notice is required of any resolution,
the intention to move the resolution shall be given to the
Company not less than 14 days before the date of meeting
where the resolution is to be moved, exclusive of the day
on which the notice is served or deemed to be served and
the day of the meeting.

Lecture-24
Company Law ;
Liquidation/Winding up
- Definition
- Types of liquidation/winding up
- Grounds for compulsory liquidation
- Liquidator/Receiver
- Mode of distribution assets/Priority of
Charges

75

Liquidation/Winding up; Def

The winding up or liquidation of a Company
means the termination of the legal existence of a
Company by stopping its business, collecting its
assets and distributing the assets among
creditors and shareholders ; in the manner laid
down in Company Act, 1994.

Modes of Winding up ;
There are 3 methods of Winding up/Liquidation of a
company. They are as follows~
i. Voluntary Winding up by the members themselves
or by the creditors.
ii. Compulsory Winding up by the Court.
iii. Voluntary Winding up under the supervision of the
Court.

Voluntary Winding up ;
There are 2 types of voluntary winding up~
1. Members voluntary winding up
2. Creditors voluntary winding up
1. Members voluntary winding up ;
If the company is, at the time of winding up, a solvent
company, i.e.. able pay its debts and the directors make
a declaration to that effect, is called Members voluntary
winding up.
2. Creditors voluntary winding up ;
If the company is not in a position to pay its debts and
the directors make no declaration of solvency, is called a
Creditors voluntary winding up.

Compulsory winding up ;
Compulsory winding up takes place when a company is
directed to be wound up by an order of Court. The grounds
of compulsory winding up are as follows~
i. by special resolution of the company
ii. By default
iii. Not commencing or suspending the company.
iv. Reduction of members
v. Inability to pay debts
vi. The just and equitable clause

Note: [For example; please see at Page ; 561-62, Sen &

Mitra, 25th Edition (2006)]

Liquidator/Receiver ;
After a winding up petition is filed, notice is issued on the
Company to appear and state its case if any. After hearing
both sides, the Court may directs the petition, adjourn the
hearing conditionally or unconditionally, make an interim
order necessary or pass an order for winding up.
In such a situation a order for winding up is passed, the
court appoints a Liquidator/Receiver whose function is
to take charge of and complete the winding up
proceedings.

Duties of Liquidator/Receiver ;
Note: [For details; please see at Page ; 768, Sen & Mitra,
25th Edition (2006)]

Mode of distribution of Assets/

Priority of Charges~
In case of winding up/liquidation; the mode of distribution of
assets are as follows. This is also known as priority of charges~
1. The cost of the winding up proceedings.
2. All revenues, taxes to be paid to the Government.
3. Employees salary up to 4 months.
4. Employees other important benefits like gratuity,
provident fund, insuranceetc.
5. Debenture holders
a. Fixed charge
b. Floating charge
6. Shareholders
a. Preference share
b. Equity share
7. Deferred Creditors
8. Members
9. Others..if any..