Practical Questions Corporate & Other Laws

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Q.No.1. Both the shareholders of the Private Company died in a car accident. Decide whether Companys existence also comes to an end. Sol.: The Companys existence is not affected by the death of its shareholders, since the Company has separate legal entity. This is clearly established in Salomon s. Salomon ! Co. "td, "ee s. "ee #ir farming "td ! $andoli tea Co. "td. cases. %&rther the Company has having perpet&al s&ccession. Q.No.2. 'n a private Company, after the death of (r.) entire capital of the company is held by his son *. Decide, whether * can contin&e b&siness of the co. with single shareholder. Sol.: 'n s&ch a sit&ation, * can contin&e to carry on the b&siness of the Company b&t, in accordance with the provisions of Sec.+, of the #ct, if the same position contin&es for more than six months, then y will become personally liable for all the liabilities of the Company contracted after six months from the date he becomes only shareholder. Q.No.3. The n&mber of members in a p&blic Company became red&ced to six on the -. th September, -/00, the Company inc&rs trade debts on -- th September, -/00, 1nd %ebr&ary, -/0/ and -2th (arch, -/0/. 3ow far are the remaining six members liable for the debts4 Sol.: The remaining six members are liable for the debts inc&rred after 5 months of the red&ction in the n&mber of members below the stat&tory minim&m specified in Sec. +, of the Companies #ct, -/,5 i.e., for debt contracted on -2th (arch, -/0/. Q.No.4. # p&blic limited Company has only seven shareholders, all the shares being paid in f&ll. #ll the shares of one s&ch shareholder are sold by the co&rt in an a&ction and p&rchased by another shareholder. The Company contin&es to carry on its b&siness thereafter. Disc&ss the liabilities of the shareholders of the Company. Sol.: The problem in 6&estion relates to red&ction of membership below the stat&tory minim&m. Section -1 of the Companies #ct re6&ires a p&blic Company to have a minim&m of seven members. 'f at any time the membership of a p&blic Company falls below seven and it contin&es for more than six months, then according to Section +, of the Companies #ct, -/,5, every s&ch member who was aware of this fact, wo&ld be individ&ally 7personally8 liable for the debts contracted after six months. Th&s, in the above problem the remaining members shall inc&r personal liability for the debts contracted by the Company9 a. b. 'f they contin&ed to carry on the b&siness of the Company with that red&ced membership 7i.e., 58 beyond six months period. :nly those members who ;new this fact of red&ced membership shall be liable, for instance, one of the members who was abroad and th&s not aware of these developments, shall not be liable. The liability shall extend only to the debts contracted after six months from the date of a&ction of that members shares.

c.

Q.No.5. 'n a private limited Company it is discovered that there are, in fact, ,+members. :n an en6&iry, it is ascertained that 5 of s&ch members have been employees of the Company in the recent past and that they ac6&ired their shares while they were still employees of the Company. 's it necessary to convert the Company into a p&blic limited Company4 Corporate & Other Laws Practical Questions________________________________ 1

Ph: 0863 22 42 355 Sol.: #s per Section <7-87iii8, a Company to be registered as a private Company m&st restrict its membership to ,. only. B&t, however, in co&nting this n&mber of ,. members, employee members and ex=employee members 7i.e., those who become members while in the employment of the Company b&t now having retired still contin&e to retain membership8 are to be excl&ded. Th&s, in the given case, the Company shall contin&e to be a private Company. There is no need for conversion. Q.No.6. BS ! Co. "td. is registered as a P&blic "imited Company. The shareholding pattern of the Company is &nder. Cate or! Directors ! their relatives >mployees >x=employees 7shares were allotted when they were employees8 Six co&ples holding shares ?ointly in the names of h&sband and wife 75 x 18 :thers "otal:

<5 -0 ./ -1 .5 # 1

The Board of directors of the Company proposes to convert it into a private Company. #dvise the Board of directors abo&t the steps to be ta;en for its conversion into a private Company incl&ding red&ction in the n&mbers of members, if necessary. Sol.: # p&blic limited Company may be converted into private limited Company only if the n&mber of members is limited to ,. excl&ding Sec.<7-87iii89 a. Persons who are in the employment of the Company b. Persons who became members d&ring the co&rse of their employment ! contin&e to be members even after their employment ceases. c. %&rther if two or more members hold shares in a Company ?ointly they shall be treated as a single member. The n&mber of members is only +0 for this p&rpose as noted below9 Directors and their relatives @oint holding treated as single :thers <5 5 5 4 #

3ence the Company can be converted into private limited Company. Q.No.$. The paid &p share capital of #dvanced Castings Pvt. "td is As.-,..,..,... consisting of 0,..,... >6&ity shares of As.-. each f&lly paid &p and 1,..,... c&m&lative Preference shares of As.-. each f&lly paid &p. B&ality %orgings Pvt. "td. and S&preme >ngineering Pvt. "td. are holding <,..,... >6&ity shares and -,,.,... >6&ity shares respectively in #dvanced Castings Pvt. "td. B&ality %orgings Pvt. "td. and S&preme >ngineering Pvt. "td are the s&bsidiaries of Cni6&e (achineries Pvt. "td. >xamine whether #dvanced Castings Pvt. "td. is a s&bsidiary of Cni6&e (achineries Pvt. "td. Dill yo&r answer be different, if Cni6&e (achineries Pvt. "td. controls composition of Board of Directors of #dvanced Casting Pvt. "td.4 Sol.: %ol&in & Su'si&iar! Co.(s. #ccording to section + of the Companies #ct, a Company 7#ss&me S "td.8 shall be deemed to be a s&bsidiary of another Company 7#ss&me 3 "td.8, if ! only if9 1. 2. Control on )O*. That the 3 "td. controls the composition of Board of directors of S "td. :r Control '! ownership. a. Dhere S "td. is an existing Company in which the preference shareholders are having voting rights, 3 "td. controls more than half of the total voting power of S "td. 7> E P8 b. Dhere S "td. is a newly formed Company, 3 "td. holds more than half in the nominal val&e Corporate & Other Laws Practical Questions________________________________ 2

of S "td. e6&ity share capital 7:nly >8 :r 3. Chain relation. 'f S "td. is a s&bsidiary of # "td. which is s&bsidiary of 3 "td., then the Company S "td. is s&bsidiary of 3 "td.

%&rther shares held by any person as a nominee for the Co. shall be treated as being held by the said Co. Th&s, the shares held by a s&bsidiary shall be treated as held by the 3olding Co. 'n this case, the e6&ity share capital of #dvance Castings Private "td. is As.0.,..,... consisting of 0,..,... >6&ity shares of As.-. each f&lly paid &p. B&ality %orgings Pvt. "td. and S&preme >ngineering Pvt. "td. are holding +,,.,... 7<,..,...E-,,.,...8 >6&ity shares in #dvance Castings Pvt. "td. #s these two Companies are the s&bsidiaries of Cni6&e (achineries Pvt. "td., it will be treated as holding more than half in nominal val&e of the >6&ity share capital of #dvance Castings Pvt. "td. and hence #dvance Castings Pvt. "td. is a s&bsidiary of Cni6&e (achineries Pvt. "td. 'f Cni6&e (achineries Pvt. "td. control the composition of the Board of Directors of #dvance Castings Pvt. "td., it will also be treated as holding Company by virt&e of Sec.+. 3ence the answer will not be different. Q.No.#. The paid=&p share capital of )*F 7Private8 Co. "imited is As.1. la;hs consisting of 1,..,... >6&ity Shares of As.-. each f&lly paid &p. #BC 7Private8 "imited and its s&bsidiary D>% 7Private8 "imited are holding 5.,... and ,.,... shares respectively in )*F 7Private8 Co. "imited. >xamine with reference to the provisions of the Companies #ct, -/,5, whether )*F 7Private8 "imited is s&bsidiary of #BC 7Private8 "imited. Do&ld yo&r answer be difference if D>% 7Private8 "imited is holding -,-.,... shares in )*F 7Private8 Co. "imited and no shares are held by #BC 7Private8 "imited in )*F 7Private8 Co. "imited4 Sol.: +rite a'out %ol&in & Su'si&iar! Co,panies in the a'o-e Question.

%&rther shares held by any person as a nominee for the Company shall be treated as being held by the said Company. Th&s, the shares held by a s&bsidiary shall be treated as held by the holding Company. 3ere #BC Private "imited is holding 5.,... shares in )*F Private "imited and ,.,... shares held by D>% private limited. Therefore, #BC "imited will be deemed to be holding -,-.,... >6&ity shares in )*F "imited i.e. more than half in nominal val&e of the >6&ity Share Capital of )*F Private "td. 3ence )*F Private "imited is s&bsidiary of #BC Private "imited. The answer will remain the same in the second case b&t holding=s&bsidiary relationship is established by virt&e of Chain relationship i.e. a s&bsidiary of one Companys s&bsidiary will also be considered as the s&bsidiary of the second mentioned Company. Q.No... D&e to oversight some of the share transfers were registered in the Company d&e to which the n&mber of members in a private Company increased from 10 to ,1. Dhat is the effect of s&ch transfers and what is the remedy available to the Company. Sol.: 'n that case, since the n&mber of shareholders has crossed ,., the Company will be named as p&blic Company. 3owever the GC"T, on being satisfied that the fail&re to comply with the conditions laid down by Sec.< was accidental or &n intentional and it is ?&st and e6&itable to grant relief, may, on the application of the Company or any other person interested and on s&ch conditions as seem to the GC"T reasonable, order that the Company be relieved from s&ch conse6&ences as aforesaid. Q.No.1/. :n acceptance of deposits a private Company becomes a P&blic Company. Sol.: %alse. # private Company becomes a p&blic Co. on acceptance of deposits from p&blic thro&gh iss&e of advertisement. 3owever the private Co. can accept the deposit from its shareholders, directors, from their relatives and even then the private Co. does not become a p&blic Co. 7Sec.<8 Q.No.11. By obtaining the license from the Central Hovernment &nder section 1, of the #ct a Company shall dispense with the word IlimitedJ or Iprivate limitedJ from its name. Corporate & Other Laws Practical Questions________________________________ 3

Ph: 0863 22 42 355 Sol.: %alse. Cnder section 1,, it is not comp&lsory to dispense with the word "imited or a Private "imited, b&t it is only an optional at the wish of the Company. Beca&se, the ob?ect of registration of a Company &Ks 1, is not only to dispense the &se of words "imited or Private "imited as a part of its name b&t to avail the exemption which may be granted to s&ch Companies from the provisions of this #ct by the Central Hovernment. Q.No.12. # firm can also become member of a Company which has been granted license &nder Section 1, of the #ct. Sol.: *es, Sec.1, of the Companies #ct permits a firm to be a member of any association or Company licensed &nder this section. 'nfact this is the only one case which permits the partnership firm to become a member of a Company. Q.No.13. :n revocation of "icense granted by the Central Hovernment &nder section 1, the Company may contin&e to carry on the same #ctivities which were being carried on by it prior to s&ch revocation. Sol.: Tr&e. :n revocation of license granted by the Central Hovernment &nder Sec.1,, the association or the Company may contin&e to carry on the same activities which were being carried on by it prior to s&ch revocation. The impact of the revocation of license is9 a. The Company will have to add a word L"imited or LPrivate "imited at the end of its name. b. 't will cease to en?oy the exemptions granted by the Central Hovernment to s&ch Companies.

Q.No.14. Two ?oint 3ind& families carry on a b&siness as ?oint=owners. The first family consists of < brothers and their respective sons being -1 in n&mber. The second family consists of the father, + ma?or sons and 1 minor sons. 's the association illegal4 Sol.: Sec.-- of the Companies #ct, -/,5, provides that no firm, association or Company consisting of more than 1. persons for doing any b&siness 7-. in case of ban;ing b&siness8 shall be formed &nless it is registered as a Company &nder the Companies #ct. #n association formed in violation of the above provision of the Companies #ct is termed as an illegal association and does not have any legal existence and recognition. 3owever, in comp&ting the aforesaid n&mber of members, viM., -. in case of a ban;ing b&siness and 1. in case of any other b&siness, minor members of the families constit&ting the association are not ta;en into acco&nt. #ccordingly, in the given problem, the first family consists of -, members 7< brothers E -1 sons8 and the second family that of , members 7- father E + sons and ignoring 1 minor sons8. The total n&mber of the members of the two families constit&ting the association th&s comes to 1.. The association is not an illegal #ssociation. Q.No.15. The Aegistrar of Companies iss&ed a Certificate of 'ncorporation #ct&ally on 0th @an&ary, -///. 3owever, by mista;e, the certificate was dated I, th @an&ary, -///J. #n allotment of shares was made before the Company was incorporated4 Sol.: The allotment of shares is valid. Sec.<, of the Companies #ct, -/,5 provides that a certificate of incorporation iss&ed by the Aegistrar in respect of any association shall be concl&sive evidence of the fact that all the re6&irements of the #ct have been compiled within respect of registration, and that the association is a Company a&thorised to be registered and d&ly registered &nder the #ct. 0u'ilee cotton ,ills lt&.. a. b. The registrar iss&ed a certificate of incorporation on @an 0 th b&t dated it @an 5th which was the date he received the doc&ments. :n @an 5th, the Company made an allotment of shares to "ewis.

3eld, that the certificate was concl&sive evidence of incorporation on @an 5 th and that the Corporate & Other Laws Practical Questions________________________________ 4

allotment was not void on the gro&nd that it was made before the Company was incorporated. Q.No.16. # "imited Company is formed with its articles stating that one (r. Srivastava shall be the solicitor for the Company, and that he shall not be removed except on the gro&nd of miscond&ct. Can the Company remove (r. Srivastava from the position even tho&gh he is not g&ilty of miscond&ct4 Sol.: #s between o&tsiders and the Company, #rticles do not give any right to o&tsiders against the Company, even tho&gh their names might have been mentioned in the #rticles. #n o&tsider cannot ta;e advantage of the #rticles to form a claim thereon against the Company. Th&s, in the given case, Company shall s&cceed in removing (r.Srivastava as the solicitor of the Company witho&t inc&rring any obligations. Q.No.1$. # Company, in which the directors hold ma?ority of the shares, altered its articles so as to give power to directors to ac6&ire shares of any shareholder, who competed with the Companys b&siness, to transfer his shares, at their f&ll val&e, to any nominee of the directors. S had some shares in the Company, and he was in competition with the Company. 's S bo&nd by the alteration4 Sol.: The power of the members to effect alteration in the #rticles by passing special resol&tion is limited in as m&ch as the alteration m&st be bonafide and in the interest of the Company. 'n the given case, alteration re6&ires ta;ing over the shares of only those who competed with the Companys b&siness. Therefore, empowering the directors to ta;e over shares of s&ch members seems to be in the general interest of the Company as a whole and hence shall be valid. S shall be held bo&nd by the alteration. Q.No.1#. #dvise #siatic Hovernment Sec&rity "ife ins&rance Co. "td. Dhether it can see; an in?&nction against LThe Gew #siatic 'ns&rance Co. "td. Dhich was s&bse6&ently formed restraining it from having in its name the word L#siatic on the gro&nd that it has ca&sed conf&sion and can deceive the p&blic. Sol.: The Companies #ct, -/,5 permits the promoters of a Company to choose any s&itable name for the Company provided the name chosen is not &ndesirable. # name may be considered &ndesirable where it is too similar to the name of an already existing Company. 'n the present problem since the two Companies are in ins&rance b&siness, it may lead to a nat&ral inference on the part of the p&blic that the two are interrelated beca&se of the word L#siatic which is 6&ite an imaginary word and does not mean anything. (ere addition of the word LGew is not li;ely to give an otherwise impression. Therefore, on a s&it by #siatic Hovernment Sec&rity "ife 'ns&rance Co. "td., Co&rt is li;ely to advise the Gew #siatic 'ns&rance Co. "td. to change its name. Q.No.1.. The #rticles of a Company provided that the shares of a member who became ban;r&pt wo&ld be offered for sale to other shareholders at a certain price. 's the provision binding on the shareholders4 Sol.: The facts of the given problem are based on the decided case of Bore land Tr&stee vs. Steel Bros. ! Co. "td., in which case, the provisions in the #rticles were held to binding on the members. 't was held that LShares having been p&rchased on these terms and conditions, it is impossible to say that those terms and conditions are not to be observedJ. Th&s, since #rticles constit&te a binding contract between the Company and its members, the shareholders shall be held bo&nd by the stated provision in the #rticles. Q.No.2/. The plaintiffs contracted with a director of the defendant Company and gave him a che6&e &nder the contract. The Director co&ld have been a&thorised &nder the Companys articles, b&t was not in fact so a&thoriMed. The plaintiff had not seen the #rticles. The Director misappropriated the che6&e and the plaintiffs s&ed the Co. 's the Company liable4

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Ph: 0863 22 42 355 Sol.: The problem relates to the protection that the o&tsider may claim against lac; of a&thority on the part of the officers of the Company. The r&le commonly ;nown as the Doctrine of 'ndoor (anagement was first laid down in the case of The Aoyal British Ban; vs. T&r6&and. 3owever, it has been held that the r&le of indoor management cannot be invo;ed in favo&r of a person who had no ;nowledge of the #rticles of the Company. 't is beca&seN in s&ch a case the person cannot ass&me that the power 7of which he has no ;nowledge8 has been exercised. Th&s, in the present case, Company shall not be held liable by the #ct of the director who has transacted beyond the scope of his a&thority. # principal can be held liable for the fra&ds of his agent only to extent they are committed within the scope of the a&thority conferred &pon him. Q.No.21. # Company iss&ed a bond &nder its common seal signed by two Directors. The #rticles provided that the directors might borrow on bond s&ch s&ms as they sho&ld be a&thoriMed by an ordinary resol&tion of the Company. Go s&ch resol&tion was passed. 's the Co. liable on the bond4 Sol.: *es. The Company is liable on the bond. The o&tsiders dealing with the Company are entitled to ass&me that as far as the internal proceedings of the Company are concerned, everything has been reg&larly done. They are bo&nd to read the registered doc&ment and to see that the proposed dealing is not inconsistent therewith, b&t they are not bo&nd to do moreN they need not in6&ire into the reg&larity of the internal proceedings as re6&ired by the (emorand&m or #rticles. 7Aoyal British Ban; vs. T&r6&and8. The gist of the r&le is that persons dealing with limited liability Companies are not bo&nd to in6&ire into their indoor management and will not be affected by irreg&larities of which they had no notice. The r&le is based on p&blic convenience and ?&stice. Q.No.22. The (emorand&m of #ssociation of a Company was signed by two ad&lt members and by a g&ardian of the other five minor members, the g&ardian signing separately for each minor member. The Aegistrar registered the Company and iss&ed &nder his hand a certificate of incorporation. The plaintiff contended that a. Conditions of registration were not d&ly complied with, and b. That there were no seven s&bscribers to the (emorand&m. Dill the Co&rt &phold his contention4 Sol.: The Certificate of incorporation is concl&sive for all p&rposes. #ccording to Section <, of the Companies #ct, -/,5, a certificate of incorporation given by the Aegistrar in respect of any association shall be concl&sive evidence that all the re6&irements of this #ct have been complied with in respect of registration and matters incidental thereto, and therefore the association will be considered as a company d&ly registered &nder this #ct. Q.No.23. The a&thorised signatory of a Co. iss&ed a share certificate in favo&r of ), which apparently complied with the Companys articles as it was p&rported to be signed by two directors and the secretary and it had the Companys common seal affixed to it. 'nfact, the secretary had forged the signat&res of the Directors and affixed the seal witho&t any a&thority. Dill the certificate be binding &pon the Company4 Sol.: #ccording to the doctrine of 'ndoor management, persons dealing with the Company are pres&med to have read the registered doc&ments and to see that the proposed dealing is not inconsistent therewith, b&t they are not bo&nd to do more i.e. they need not en6&ire into the reg&larity of internal proceedings as re6&ired by (!#. B&t, this r&le cannot be applied to forgery. 'n the case of forgeries, the #cts done in the name of the Company are void abinitio. # Co. can never be held bo&nd by forgeries committed by its officers. 1u'an 2s. 3reat 4in ual Lt&.: The plaintiff was the transferee of a share certificate iss&ed by the defendant co. &nder its seal. The certificate was iss&ed by the Companys secretary, who affixed

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the seal and forged the signat&re of two directors. The certificate was held to be void.

3ence, it can be concl&ded that in the instant case, the certificate iss&ed by the secretary by having forged the signat&res of the directors and affixed the seal witho&t any a&thority will not be binding &pon the Company. Q.No.24. #BC 7Pvt.8 "td. was incorporated in -.th @&ne, -//5. # similar Company with identical name and same ob?ects was also incorporated on -. th @&ne-//2. #BC 7P T.8 "td. came to ;now abo&t this and filed a petition on -.th @an&ary, -//0. >xplain remedies available to the first Co. Sol.: 'f a Company is inadvertently registered with a name which in the opinion of the Central Hovernment, is identical with or too nearly resembles, the name by which a Company in existence has been previo&sly registered, the Company registered later 7Sec.1189 a. b. (ay change its name, by ordinary resol&tion and with the previo&s approval of the Central Hovernment :r The change Shall also be carried o&t if a direction is received from the Aegional director. Dhen so directed by the Aegional director the Company shall, by ordinary resol&tion and with the previo&s approval of the Central Hovernment, change its name within a period of < months or the extended period.

'n the given case #BC 7Pvt.8 "td. can complain to the Aegional director to iss&e s&itable directions to the Company incorporated on -.th @&ne, -//2 for change of its name. 'n this case, the Company filed a petition on -..-.-//0 within -1 months of date of registration of second Company and so the complaint shall be accepted. Q.No.25. >ight signatories to the memorand&m o&t of total ten were s&bse6&ently fo&nd to be forged. The memorand&m was presented for registration and of registration was iss&ed. The existence of the Company was disp&ted that the registration of the Company is void. Decide4 Sol.: The Companys registration cannot be void beca&se, &nder Section <, of the #ct, a certificate of incorporation is a concl&sive evidence of the fact that all the stat&tory re6&irements of the #ct in relation to registration of the Company have been complied with. Q.No.26. The registered office cla&se of the memorand&m of association of # ltd. does not contained name of the city. Beca&se of this registrar of Companies ref&sed to registered the memorand&m of association. 's it Correct4 Sol.: Go., Sec.-< states that the registered office cla&se shall contain the name of the State in which the registered office of the Company is sit&ated. %&rther, it may be noted that the address of the registered office is not stated in the memorand&m of association. 'f this was done, every change there in wo&ld re6&ire the amendment of the memorand&m, which is a diffic&lt proced&re. Therefore the address is stated in #:#. Q.No.2$. # Company filed a petition before the GC"T for shifting its registered office to another state. The S.H. ob?ected against s&ch shifting on the gro&nd that it wo&ld adversely effect the government reven&es and employment. Decide whether ob?ection of the State Hovernment is tenable. Sol.: The ob?ection of the State Hovernment is not tenable. 'n (inerva (ills "td. s. Hovernment of (aharashtra the co&rt ref&sed to accept the contention of the State on the gro&nd of loss of reven&e. Q.No.2#. 't is not necessary to present a copy of #rticles of #ssociation to the Aegistrar of the Companies at the time of incorporation of the P&blic Company limited by shares. Sol.: Sec.15 provides that the Companies limited by g&arantee, private limited Companies, and Corporate & Other Laws Practical Questions________________________________ $

Ph: 0863 22 42 355 &nlimited Companies m&st have their own articles of association, while a p&blic Company limited by shares may or may not have its own articles. Since in this case it is a p&blic company limited by shares it is not necessary to present a copy of articles of association to A:C and in s&ch a case Table # of Sched&le ' 7(odel articles8 shall be deemed to be the Companys articles. Q.No.2.. The promoters of yo&r Company, incorporated on /th #pril, -//5, had entered into a contract with ( on 0th (arch, -//5 for s&pply of goods. #fter incorporation, yo&r Company does not want to proceed with the contract. #s a Company secretary, advise the management. Sol.: Pre=incorporation contracts in general are void and hence not binding on the Company. 3owever, as per the Specific Aelief #ct, -/5< the party to the contract can enforce the contract against the Company if9 7i8 the Company had adopted the same after incorporationN and 7ii8 the contract is warranted by the terms of incorporation. Th&s, &nless the Company adopts the contract, the other party cannot enforce the same against the Co. B&t, promoters can be held liable. Q.No.3/. Promoters made an application for registration of a Company in the name of (CG #ssociation. #t the time of application, another Company was already registered with the similar name b&t it was def&nct for more than -. year. Decide whether new Company can be registered in a name which is similar to any other existing Companys name. Sol.: # new Company cannot be registered with a name which is 6&ite similar to any other existing Companys name. B&t in the opinion of department of Company affairs it is possible if the exiting Company is a def&nct Company 7Gon operational8 for a long time. Q.No.31. )*F Co. "td. was in the process of incorporation. Promoters of the Company signed an agreement for the p&rchase of certain f&rnit&re for the Company and payment was to be made to the s&ppliers of f&rnit&re by the Company after incorporation. The Company was incorporated and the f&rnit&re was &sed by it. Shortly after incorporation, the Company went into li6&idation and the debt co&ld not be paid by the Company for the p&rchase of above f&rnit&re. #s a res&lt s&ppliers s&ed the promoters of the Company for the recovery of money. >xamine whether promoters can be held liable for payment in the following cases9 a. b. Dhen the Company has already adopted the contract after incorporation4 Dhen the Company ma;es a fresh contract with the s&ppliers in terms of pre=incorporation contract4

Sol.: The promoters remain personally liable on a contract made on behalf of a Company which is not yet in existence. S&ch a contract is deemed to have been entered into personally by the promoters and they are liable to pay damages for fail&re to perform the promises made in the Companys name, even tho&gh the contract expressly provided that only the Company shall be answerable for performance. %&rther, a Company cannot ratify a contract entered into by the promoters on its behalf before its incorporation. The Company can, if it desires, enter into a new contract, after its incorporation with the other party. The contract may be on the same basis and terms as given in the pre= incorporation contract made by the promoters. 't is, therefore, safer for the promoters #cting on behalf of the Company abo&t to be formed to provide in the contract that9 7a8 if the Company ma;es a fresh contract in terms of the pre= incorporation contract, the liability of the promoters shall come to an endN and 7b8 if the Company does not ma;e a fresh contract within a limited time, either of the parties may rescind the contract. Th&s applying the above principles, the answers to the 6&estions can be9 a. The promoters in the first case will be liable to the s&ppliers of f&rnit&re. There was no fresh contract entered into with the s&ppliers by the Company. Therefore, promoters contin&e to be held liable in this case for the reasons given above. 'n the second case obvio&sly the liability of promoters comes to an end provided the fresh contract was entered into on the same terms at that of pre=incorporation

b.

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contract. Q.No.32. ) Co. "td, intended to b&y a r&bber in Per&. 'ts prospect&s contained extracts from an experts report giving the n&mber of r&bber trees in the estate. The report was inacc&rate. Dill any shareholder b&ying the shares of the Co. on the basis of the above representation have any remedy against the Co.4 Can the persons a&thorising the iss&e of prospect&s escape from their liability4 Sol.: 'n the event of any mis=statement in a prospect&s, the allottees have certain remedies against the Company as well as those responsible for the iss&e of the prospect&s. Th&s, in the present case, the allottee shall have the right to claim compensation from the Company for any loss that he might have s&stained in terms of the val&e of shares. B&t, his claim against those responsible for iss&e of prospect&s shall not s&cceed since they made the statement on the basis of the report of an expert whom they believed to be competent. 3owever, expert can be proceeded against. Q.No.33. ) a f&rnit&re dealer, entered into a contract with the Company for f&rnishing the Companys office before it co&ld obtain certificate of commencement of b&siness. Can ) recover the price of the f&rnit&re4 Sol.: # contract made by a p&blic Company after incorporation b&t before it is entitled to commence b&siness is provisional only, and is not binding on the Company. B&t as soon as the certificate to commence b&siness is obtained the contract becomes binding on the Company a&tomatically. 'n this case, ) can enforce the contract and recover the price of the f&rnit&re from the Company after it obtains the certificate of commencement of b&siness. Q.No.34. # applied for 1.. shares on the basis of a prospect&s which contains some mis= statement. The shares are allotted to him. # afterwards transfers the shares to B. Can B bring an #ction for a rescission on the gro&nd of mis=statement4 Sol.: 'f there is a mis=statement of material information in a prospect&s and if it has ind&ced any shareholder to p&rchase shares, he can rescind the contract and claim damages from the Company. 3owever, to claim relief, privity of contract is necessary. Th&s, whereas L# co&ld have obtained the aforesaid relief, LB who has p&rchased shares from L# and not from the Company cannot proceed against the Company 7Pee; s. H&rney8. Q.No.35. #mar s&bscribed shares iss&ed by % "td. The prospect&s of % "td. incl&ded a statement which was misleading in the forms and contents. :n the faith of the prospect&s believing it to be a tr&e, #mar s&bscribed for shares and s&stained loss. Can #mar s&e for compensation of loss4 'f so, who will be s&ed for s&ch loss4 Sol.: *es, #mar can s&e for compensation of loss. Sec.51 of the Companies #ct provides that an allottee is entitled to claim compensation from directors, promoters and any other persons who a&thorised the iss&e of the false prospect&s, for damages s&stained by reason of any &ntr&e statement in it. 3owever, he will have to prove that misrepresentation was of material factN he #cted on misrepresentation and has s&ffered damages in conse6&ence. The following persons are liable to pay compensation for loss or damage s&stained by reason of &ntr&e statement incl&ded in a prospect&s9 a. >very person who is a director of the Company at the time of iss&e of prospect&s. b. >very person who has a&thorised himself to be named and is named in the prospect&s either as a director, or as having agreed to become a director, either immediately or after an interval of timeN c. >very person who is a promoter of the CompanyN and d. >very person who has a&thorised the iss&e of the prospect&s. (r. #mar having s&stained loss beca&se of having believed the facts given in the prospect&s iss&ed by % "td. to be tr&e, can s&e the fo&r categories of persons mentioned above for Corporate & Other Laws Practical Questions________________________________ .

Ph: 0863 22 42 355 compensation of his loss. #part, from above, the allottee may s&e the Company for damages for deceit. Q.No.36. #ll statements in a prospect&s iss&ed by ) ! Co. "td. were literally tr&e, b&t it failed to disclose that the dividends stated in it as paid were not paid o&t of reven&e profits, b&t o&t of realised capital profits. The statement that the Company had paid dividends for a n&mber of years was tr&e. B&t the Company had inc&rred losses for all those years, however, no disclos&re of this was made in the prospect&s. #n allottee of shares wanted to avoid the allotment on the gro&nd that the prospect&s did not disclose this fact which, in his opinion, was very material. Do&ld he s&cceed4 Sol.: 'n the given case the #llottee of shares wo&ld s&cceed and he can avoid the contract on the gro&nds of &ntr&e statement incl&ded in the prospect&s. #s per Sec.5, a prospect&s shall be deemed to incl&de an &ntr&e statement9 a. b. 'f it contains a statement which is misleading in the form or content. There is an :mission of any matter.

Gothing sho&ld be stated as fact which is not so, and no fact sho&ld be omitted. Th&s it is not necessary that there sho&ld be false representation in prospect&s, even every word incl&ded in it is tr&e, the s&ppression of material facts may render it fra&d&lent. Q.No.3$. #n allottee of shares in the Company has bro&ght an action against director B in the Company in respect of false statements in the prospect&s. The director has contended that the statements were prepared by promoters and he had relied on them. 's the director liable4 Sol.: Sec.51 lays down civil liabilities for misstatements in prospect&s. 't renders every Directors liable for any misstatement in prospect&s. Sec.51718, however, lays down the circ&mstances &nder which the director concerned shall not be held liable. :ne of the plea that the director can ta;e is that he had reasonable gro&nd to believe and did &pto the time of allotment of shares or debent&res believe that the statement was tr&e. 'n the instant case the director can absolve himself of the liability if he proves that he had reasonable gro&nds to believe and did believe that the statement prepared by the promoters was tr&e. The on&s of proof is on the director. Q.No.3#. Go additional information in addition to the stat&tory re6&irements can be given in the prospect&s. Sol.: %alse., Sec.,5 of the #ct provides that the prospect&s m&st contain matters specified in Part '' of that Sched&le. The section does not contain any negative provision regarding incl&sion of additional information in the prospect&s. #ny additional information which may &sef&l to the investors i.e. the contents given in Sec.,5 are only minim&m. Q.No.3.. 'n a scheme of amalgamation shareholders of Company L# was offered shares of Company LB in lie& of shares held by them in Company L#. The offer letter iss&ed by Company B to the shareholders of Company # can be regarded as prospect&s4 Sol.: Go, the offer "etter iss&ed by Co. B to the shareholders of Co. # cannot be regarded as a prospect&s beca&se the offer has been made to specified persons only and no person other than those can avail the offer. The test for determination of the nat&re of offer is not who receives the offer b&t who can avail the offer. 'f offer can be availed only by the person to whom offer has been made, it is not a prospect&s. Q.No.4/. The Directors of i?ay >lectronics "td. allotted to themselves certain rights shares for which no application was made by certain shareholders as re6&ired by Section 0- of the Companies #ct. Disc&ss the validity of their action specially in view of the fact that mar;et price of shares of the Company is ,.O above par.

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Sol.: 'f no application is made by the shareholders to whom the offer is made &nder Section 0- of the Companies #ct, -/,5, the Board of Directors may dispose of the shares in s&ch a manner as they thin; most beneficial to the Company. Therefore, &nless shares were allotted to directors on terms &nfavo&rable to the Company, the allotment wo&ld be valid. Q.No.41. The Board of Directors of a Company reiss&ed shares which were forfeited for non= payment of calls. #s a Company secretary, tell whether Aet&rn of #llotment is re6&ired to be field4 Sol.: Aet&rn of allotment is re6&ired to be field only in case of allotment of shares. #llotment means an act of appropriation by the Board of directors of the Company o&t of previo&sly &nappropriated capital of the company to persons who have made application for shares. Since reiss&e of forfeited shares is not an allotment of shares no ret&rn of allotment need to filled. Q.No.42. Dhat is the remedy available to a Company if stoc; exchanges ref&se to accept its application for listing of shares or debent&res4 Sol.: >very Company going for p&blic iss&e shall ma;e an application to stoc; exchange7s8 for obtaining the permission for listing of s&ch shares or debent&res. The prospect&s shall state that application has been made for obtaining listing permission and names of s&ch stoc; exchange7s8. 'f the permission has not been applied for or having applied for has not been granted by the stoc; exchange7s8 before the expiry of -. wee;s from the date of the closing of the s&bscription list the allotment made shall become void. PSec.2<7-8Q. #n appeal may be preferred against the ref&sal with Sec&rities #ppellate Trib&nal ! in the allotment shall not be void &ntil the dismissal of appeal. Q.No.43. # Co. forfeited -... shares of As.-. each on which As.0 had been paid &p ! s&bse6&ently disposed of same for As.-.,. each. >xamine the validity of reiss&e of shares. Sol.: Aeiss&e can be at any price provided that the total s&m paid by the original owner of shares together with the reiss&e price is not less than the par val&e. 'n other words, the disco&nt on re= iss&e sho&ld not exceed the amo&nt forfeited on those shares. The allotment is invalid since the shares have been reiss&ed a price less than the amo&nt remaining &npaid. Q.No.44. The prospect&s of a Company stated that application has been made to Delhi and Bombay Stoc; >xchanges for permitting its shares to be dealt there at. The Company applied to the said stoc; exchange. The Company got permission from Bombay stoc; >xchange only. The Company allotted shares to its applicants thereafter. 's this allotment of shares valid4 Sol.: >very company going for p&blic iss&e shall ma;e an application to stoc; exchange7s8 for obtaining the permission for listing of s&ch shares. The prospect&s shall state that application has been made for obtaining listing permission and names of s&ch stoc; exchange7s8. 'f the permission has not been applied for or having applied for has not been granted by the all the stoc; exchanges before the expiry of -. wee;s from the date of the closing of the s&bscription list the allotment made shall become void. Therefore allotment is void in this case. Q.No.45. Dowell Co. "td iss&ed -.,... shares of As. -. each. The entire iss&e was &nder written by 'C'C'N b&t before the prospect&s was iss&ed the entire capital was s&bscribed by the friends of directors of the Company. Do&ld 'C'C' be entitled to receive any &nderwriting commission4 Sol.: LCnderwriting means LH&aranteeing. 't is a contract entered between the Company and &nderwriters for the p&rpose = in case the whole or an agreed portion of the shares or debent&res are not applied for, then the &nderwriters will themselves apply for &ns&bscribed shares or debent&res. #s a ret&rn for the services rendered by them, the &nderwriters get CKC. 't is payable even if the &nderwriters are not called &pon to ta;e any shares. Q.No.46. #s per the a&dited balance sheet of Dowell "td. as at <- st (arch, -///, the details of share capital and reserves and s&rpl&s are as &nder. Corporate & Other Laws Practical Questions________________________________ 11

Ph: 0863 22 42 355 >6&ity Share Capital Reserves and surplus: Profit and loss acco&nt Heneral reserves Share premi&m <.... . 51.2, -1... 1,...

Brea; &p of &nsec&red loans as at <-st (arch, -/// in given below9 Deposits from p&blic Deposits from shareholders -<.. . <.51

Comp&te the limits &p to which Dowell "td. can accept f&rther deposits from p&blic ! shareholders. Sol.: #s per Balance Sheet of Dowell "td. as at <-.<.//. Paid up capital: >6&ity Share Capital Share Premi&m Free Reserves: Profit and "oss aKc Heneral Aeserves <.... . 1,... 51.2, -1...

<1,... 0+.2, 4/..$ 5 51s. in la6hs7 4ro, pu'lic

Particulars "imit &p to which Dowell can accept deposits -.O of As. +./.,. la;hs 1,O of As. +./.,. la;hs Deposits as at <-st (arch, -/// (axim&m f&rther deposits that can be accepted.

4ro, sharehol&ers +/./, <.51 46.33

==
-.1.<2, -<... #..3$5

Q.No.4$. ( Company "imited iss&ed 1,..,... >6&ity shares of As. -. each. *o& are allotted -.. shares. >xplain any ten rights yo& have as a member of the Company. Sol.: Aefer to 6&estion rights of members in membership lesson 7-.th lesson8. Q.No.4#. 's a person, holding Pref. shares in a Co., deemed to be a member of that Co.4 Sol.: *es, a person holding preference shares in a Company is a member of that Company (embership in a Company can be obtained, by ac6&iring shares in it and s&ch shares may be e6&ity or preference. #s s&ch, a person holding preference shares shall be deemed to be its member. Q.No.4.. Can a s&bsidiary Company hold shares in its holding Company4 S "td. held shares of 3 "td. before becoming its s&bsidiary. Dill it be necessary for S "td. to s&rrender those shares on its becoming a s&bsidiary of 3 "td.4 Sol.: #s per Section +1, a body corporate cannot be a member of a Company which is its holding Company and any allotment or transfer of shares in a Company to its s&bsidiary shall be voidN except9 a. Dhere the s&bsidiary holds shares in the holding Company in the capacity of a legal representative of a deceased shareholder, or Corporate & Other Laws Practical Questions________________________________ 12

b. Dhere the s&bsidiary holds shares as tr&stee, or c. Dhere the s&bsidiary was a member before the commencement of this #ct or it held shares in the holding Company before it become its s&bsidiary. 'n these case the s&bsidiary can contin&e to hold the shares b&t, witho&t to vote at meetings of the holding Company. Since S "imited held shares of 3 "imited before it become its s&bsidiary, as per the provisions of Section +1, it is not necessary for S "imited to s&rrender those shares on its becoming a s&bsidiary of 3 "imited. S "imited in this case can contin&e to hold the shares of 3 "imited, b&t S "imited will not have the right to vote at meeting of 3 "imited in respect of the shares held by it. Q.No.5/. Shyams name appears in the register of members of a Company. 3e contends that he is not a member. The Company maintains that Shyam had orally agreed to become the member. 's the contention of Shyam correct4 Sol.: *esN the contention of Shyam is correct. #ccording to Section +- 718 of the Companies #ct, -/,5, every person who agrees in writing to become a member of the Company and whose name is entered in its register, shall be a member of the Company. #greement in writing can be either by way of application for allotment of shares or by transferKtransmission of shares. The s&bscribers to the memorand&m of a Company are deemed to have agreed to become members of the Company and their names shall be entered in register of members on registration of the Company. There is no provision for becoming a member of the Company by oral agreement. Q.No.51. D@# Co. "td. is holding +.O of total e6&ity shares in (A Co. "td. The Board of Directors of (A Co. "td. 7incorporated on -.-.-//08 decided to raise the paid=&p >6&ity Share Capital by iss&ing f&rther shares and also decided not to offer any shares to D@# Co. "td. on the gro&nd that it was already holding a high percentage of shares in (A Co. "td. #rticles of #ssociation of (A Co. "td. provides that the new shares be offered to the existing shareholders of the Co. :n -.<.1..new shares were offered to all the shareholders excepting D@# Co. "td. Aeferring to the provisions of the Companies #ct, -/,5 examine the validity of decision of Board of Directors of (A Co. "td. of not offering any f&rther shares to D@# Co. "td. Sol.: The 6&estion is based on Sec.0- of the Companies #ct. #s per Sec.0- if, at any time after the expiry of 1 years from the formation of the Company or after the expiry of - year from the first allotment of shares, which is earlier it is proposed to raise capital by allotment of f&rther shares, it sho&ld be offered to the existing e6&ity shareholders of the Company. 'n the given case applying the provisions and the r&ling in the above case, (A Companys decision not to offer any f&rther shares to D@# Co. "td. on the gro&nd that D@# Co. "td. already holds a high percentage of shareholding in (A Co. "td. is not valid for the reasons that it is against to Sec.0-. Therefore Board of (A Company "imited cannot ta;e a decision not to allot shares to D@# Company "imited &nless the same is approved by the general meeting by means of special resol&tion re6&ired as &nder Sec. 0-. Q.No.52. # P&blic Company proposes to p&rchase its own shares. State the so&rce of f&nds that can be &tilised by the Company for p&rchasing its own shares and the re6&irements to be complied with by the Company &nder the Companies #ct before and after the shares are so p&rchased. Sol.: Aefer to B&y Bac; provisions 7Sec.22#8. Q.No.53. #BC Company "imited at a general meeting of members of the Company pass an ordinary resol&tion to b&y=bac; <.O of its >6&ity Share capital. The articles of the Company empower the Company for b&y=bac; of shares. The Company f&rther decide the payment for b&y= bac; to be made o&t of the proceeds of the Companys earlier iss&e of e6&ity shares. >xplaining the provisions of the Companies #ct, -/,5, and stating the so&rces thro&gh which the b&y=bac; of Companies own shares be exec&ted. >xamine. a. b. Dhether Companys proposal is in order4 Do&ld yo&r answer be still the same in case the Company instead of <.O decide to b&y=

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Ph: 0863 22 42 355 bac; only 1.O of its >6&ity Share Capitals Sol.: Sources o8 8un&s: #s per Sec.22#, a Company may p&rchase its own sharesKother specified sec&rities 7herein after referred to as b&y=bac;8 o&t of9 a. 'ts free reserves :r b. The sec&rities premi&m acco&nt :r c. The proceeds of any sharesKother specified sec&rities. 3owever, b&ybac; of any ;ind of shares or other specified sec&rities C#G G:T be made o&t of the proceeds of an earlier iss&e of the S#(> $'GD of sharesKother specified sec&rities. Con&itions: Go Company shall p&rchase its own shares or other specified sec&rities &nless9 a. A S.1. 7special resol&tion8 has been passed in general meeting a&thorising the b&y=bac;. b. )O*. 3owever, a resol&tion by the B.:.D. 7board of directors8 is s&fficient, instead of a above, if the b&y bac; of shares is ">SS T3#G :A >BC#" T: -.O of the total paid &p capital 7e6&ity shares and preference shares8 and free reserves. Ta;ing into acco&nt these two provisions, the 6&estions as as;ed in the problems can be answered as &nder9 a. b. The Companys proposal for b&y=bac; is not in order as it has passed only an ordinary resol&tion and the percentage of <.O b&y=bac; is in violation of the provisions. The answer to the second 6&estion shall also be the same since there also the resol&tion passed by the Company is an ordinary resol&tion and not special resol&tion, thro&gh the percentage of b&y=bac;, i.e., 1.O is not violative.

Q.No.54. Preference shareholders have same voting rights as the e6&ity shareholders. Sol.: %alse., 'n general they have voting right only on matters directly relating to rights attached to preference share capital 7E.g.: Aesol&tion for winding &p of Company, change in dividend rate8 . 7Sec.028 9:ception: B&t they are entitled to vote on every resol&tion placed before Company at any meeting, if dividend on s&ch capital in f&ll or in part is remaining &npaid in the case of9 Cu,ulati-e pre8erence shares ; 'f dividends are in arrears for two years preceding the date of commencement of the meeting. Non;cu,ulati-e pre8erence shares ; 'f dividends are has not been paid for 1 financial years immediately preceding the meeting or for any < years d&ring the period of 5 years ending with the financial year preceding the meeting.

Q.No.55. Aeserve capital can be created o&t of net profits of the Company4 Sol.: %alse., Aeserve capital is created o&t of capital of the Company. This is that part of the &ncalled capital of the Company which can be called &p only in the event of its winding &p. # limited Company may, by a special resol&tion, determine that a portion of its &ncalled capital shall be called &p in the event of winding &p for the p&rposes of winding &p 7Sec. //8. Q.No.56. Companies are not permitted to iss&e shares by way of donation. Sol.: Tr&e. The #ct permits for iss&e and allotment of shares for cash or some consideration other than cash either at part or at disco&nt or at premi&m b&t there is no provision for iss&e and allotment of shares for no consideration. 'ss&e of shares by way of donation wo&ld amo&nt to iss&e of shares for no consideration and is, th&s, invalid in law. 7Sec.2,8

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Q.No.5$. 'nterest can be paid on share capital. Comment. Sol.: Sec.1.0 provides for payment of interest to shareholders, if following conditions are satisfied9 a. The <O< shall a&thorise s&ch payment Or a S.A. shall be passed a&thorising s&ch payment. b. The per,ission from the C.H. shall be obtained. c. The rate o8 interest will be determined by C.H. and it shall not exceed -1O. d. Before permitting the payment, the C.H. may appoint a person for en6&iry. e. "i,e li,it: The payment of interest shall be made only for s&ch period as may be determined by the central government. Q.No.5#. ,.. e6&ity shares in R)*FR "imited were ac6&ired by (r. RBR. B&t the signat&re of (r. R#R, the transferor, on the transfer deed was forged. (r. RBR. #fter getting the shares registered by the Company in his name, sold 1.. e6&ity shares to (r. RCR were not aware of the forgery. Dhat are the rights of (r. R#R, RBR and RCR against the Company with reference to the aforesaid shares4 Sol.: %orgery does not confer any title. 't is beca&se in case of forgery there is not merely an absence of free consent b&t there is not consent at all. 3ence a forged transfer can never confer ownership &pon the transferee thereof, however gen&ine the trans#ction may appear. Th&s, if a transfer is forged and the Company registers the transfer, the tr&e owner can apply to the Company for his name to be placed bac; in the register. #s a forged transfer is a n&llity, (r. #, the original owner contin&es to be the share=holder and the Company is bo&nd to restore the name of transferor in the register of members. # person who presents a transfer of shares for registration by a Company thereby represents that the instr&ment of transfer is gen&ine, and if it t&rns o&t to be a forgery, the Company is not stopped from denying his title to the shares, even tho&gh he did not ;now that the transfer was forged when he presented it. Conse6&ently, even if the Company iss&es a share certificate to the person who presents the transfer, and he relies on it, the Company may remove his name from the register of members and he cannot claim damages for wrongf&l removal. Therefore, B the transferee is not entitled to the shares on the contrary, he is liable to indemnify the Company against the conse6&ences of the damages which may have to be paid by the Company to the tr&e owner of the shares. #ccording to Sec.0+7-8 of the Companies #ct, a share certificate specifying any shares held by any member is a prima face evidence of the title of the member to s&ch shares of the Company has iss&ed a share certificate to the transferee and he has sold the shares to an innocent p&rchaser, the Company cannot deny his title, for the certificate stops it from doing so. Therefore the innocent p&rchaser is entitled to compensation from the Company. Q.No.5.. # Commits forgery and there by obtains a certificate of transfer of shares from a Company and transfers the shares to LB for val&e #cting in good faith. Company ref&ses to transfer the shares to LB. Dhether the Company can ref&se4 Decide the liability of L# and of the Company towards LB. Sol.: # forged transfer is a n&llity. 't does not give the transferee concerned any title to the shares. Since the forgery is an illegality therefore it cannot be a so&rce of a valid transfer of a title. #ltho&gh the innocent p&rchaser acting in good faith co&ld validly and reasonably ass&me that the person named in the certificate as the owner of the shares was really the owner of the shares represented by the certificate. >ven then the illegality cannot be converted into legality. Therefore, in this case Company has right to ref&se to do the transfer of the shares in the name of the transferee B. 3ere, as regards to the liability of # against LB, # does not stand directly responsible according to provisions of Company law as he has already committed forgery which is illegal b&t # is liable to compensate the Company as he has lodged the forged transfer and the Company has s&ffered the loss. #s regards to the liability of the Company towards B, the Company shall be liable to compensate Corporate & Other Laws Practical Questions________________________________ 15

Ph: 0863 22 42 355 to B so far as the Company had iss&ed a certificate to transfer and was, therefore, stopped from denying the liability accr&ing from its own #ct. %&rther as the Company has ref&sed to register him as a shareholder, Company has to compensate B. 3owever, in this case the interest of the original shareholder will be protected. Q.No.6/. S&shil, a shareholder, holding -.. shares in )*F "td. applied to the Company for iss&ing of a d&plicate shares certificate. #s a Company secretary advise the Company with partic&lar reference to the circ&mstances and conditions s&b?ect to which d&plicate shares certificates can be iss&ed. Sol.: Section 0+718 provides that a certificate may be renewed or a d&plicate of a certificate may be iss&ed if s&ch certificate9 a. b. 's proved to have been lost or destroyed or 3aving been defaced or m&tilated or torn is s&rrendered to the Company.

%or the term and conditions on which d&plicate certificates may be iss&ed, Companies 7iss&e of Share Certificates8 A&les.-/5. has to be followed. # d&plicate share certificate cannot be iss&ed &nless9 a. The consent of the Board is ta;en. b. Payment of fees, if any, not exceeding As.1 is made by the shareholder. c. Proper evidence and indemnity to the satisfaction of the Company is f&rnished. d. :&t of poc;et expenses estimated to be inc&rred by the Company in investigating the evidence, as the Board may thin; fit, are deposited with the Company. e. The fact that the certificate is d&plicate sho&ld be inscribed with the words Id&plicate iss&ed in lie& of share certificate noJ. f. (&tilated defaced or torn certificates s&rrendered shall be defaced by a cancellation mar; and destroyed after three years with the a&thority of the Board. # Company can, however, iss&e a d&plicate share certificate only to a registered shareholder. Q.No.61. 's a share warrant holder a member of the Company4 Sol.: Go, the share warrant holder is not member of the Company. #s per Sec.--, on iss&e of share warrant the Company shall stri;e o&t name of the person from its register of members. #s per Sec.+- of the #ct, a person can become a member of the Company by agreeing in writing to become the member of the Company and whose name is entered in the Aegister of (embers of the Company. Q.No.62. >very Company is re6&ired to ;eep the share certificate ready for delivery within three months from the date of allotment. Sol.: %alse., Cnder Sec.--< every Company is re6&ired to deliver 7Got ready for delivery8 the share certificates within a period of < months from the date of allotment and within 1 months from the date on which the certificates are lodged with the Company for transfer. Q.No.63. Cnder Sec.--< the GC"T can grant extension of time for delivery of shares certificates. Sol.: Cnder section --< of the #ct, the GC"T has been vested with the powers to extend the d&ration within which the certificates for debent&res are to be delivered by the Company to the debent&re holders. The GC"T is not vested with similar powers in respect of share certificates. Q.No.64. Share warrants can be iss&ed against f&lly paid &p preference share also.

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Sol.: # p&blic Company limited by shares, if so a&thoriMed by its articles, may, with the previo&s approval of the Central Hovernment, with respect to any f&lly paid=&p shares, iss&e &nder its common seal, a warrant stating that the bearer of the warrant is entitled to the shares therein specified. The words &sed in the section are If&lly paid=&p sharesJ. Cnder the section, there is no distinction between the e6&ity shares and preference shares and th&s, the Company can iss&e share warrants in respect of f&lly paid preference shares also. 7Sec.--+8 Q.No.65. ) "td. is a&thorised by its articles to accept the whole or any part of the amo&nt of remaining &npaid calls from any member altho&gh no part of that amo&nt has been called &p. S) a shareholder of the ) "td., deposits in advance the remaining amo&nt d&e on his shares witho&t any calls made by ) "td. Disc&ss the rights and liabilities of (r. ), which will arise on the payment of calls in advance. Sol.: # Company may, if so a&thorised by the articles, accept from any member the whole or a part of the amo&nt remaining &npaid on any shares, altho&gh no part of that amo&nt has been called &p. 1i hts & Lia'ilities o8 pa!,ent o8 calls in a&-ance: a. 2otin ri hts: The shareholders are not entitled to voting rights in respect of the calls so paid in advance by them &ntil the same wo&ld become presently payable. b. Lia'ilit!: The shareholderRs liability in respect of the call for which the advance call is paid, is exting&ished. c. =nterest: The shareholder is entitled to claim interest on the amo&nt of the call. 'f there are no profits, interest m&st be paid o&t of capital. The rate of interest can be &p to as provided in articles of association. Table # provides payment of interest at 5O p.a. d. Non re8un&a'le: The amo&nt received as calls in advances is not ref&ndable. e. 1an6 'e8ore: 'n the event of winding &p, the shareholder m&st be paid of his amo&nt with interest, if any, before other shareholders are paid off. Q.No.66. Strict compliance with the #rticles is necessary for forfeit&re of shares. Sol.: *es. %orfeit&re of shares is governed by the provisions of the articles of association of the Company and there sho&ld be strict compliance with the proced&ral formalities in respect of forfeit&re of shares. Q.No.6$. # Company ref&ses to register transfer of shares made by ) to *. The Company does not even send a notice of ref&sal to ) or * within the prescribed period. 3as the aggrieved party any right7s8 against the Company for s&ch a ref&sal4 #dvise. Sol.: 1. a. +hen entitle& to re,e&!: 'f a Company ref&ses to register the transfer or transmission of shares or debent&res, it shall, within 1 months from the date on which the application for transfer or transmission was delivered to the Company, send notice of s&ch ref&sal to the applicant, giving reasons for s&ch ref&sal. The applicants may appeal to the GC"T against any ref&sal of the Company to register the transfer or transmission, or against any fail&re to send notice of its ref&sal within 1 months. "i,e li,it 8or application: a. Dithin 1 months of receipt of notice of ref&sal or b. Dhere no reply has been received within + months of lodging doc&ments for registration. 3. NCL" *ecision. GC"T after the en6&iry, direct the Company to accept the transferKtransmission or to rectify its register. GC"T has the power to pass interim orders incl&ding s&spending the voting rights till the en6&iry is complete. 't may also direct the

b.

2.

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Ph: 0863 22 42 355 Company to pay the damages to the aggrieved person. 4. 5. a. The order of GC"T shall be complied within -. days of the receipt of the order. Penalt!. Defa&lt in complying with the order of GC"T will invite the Company and every officer of the Company who is in defa&lt p&nishable with a fine which may extend to As.-.,... and with a f&rther fine which may extend to As.-... per day d&ring which the defa&lt contin&es. Defa&lt in complying with this section will invite the Company and every officer of the Company who is in defa&lt p&nishable with a fine which may extend to As.,.. per day d&ring which the defa&lt contin&es.

b.

Q.No.6#. The Company, witho&t serving a proper notice, forfeited shares held by (r. P Can (r. P Claim rectification of the register of members. Sol.: *es. (r. P can claim rectification of register of members of the Company where shares held by him are forfeited by the Company witho&t serving a proper notice for the same. 7Sec.---8 Q.No.6.. 'nstr&ment of transfer is not re6&ired to be exec&ted in case of transmission. Sol. Tr&e., when the shares are transferred &nder the operation of law, either on the death of the shareholder or on his becoming insolvent or when the shareholder is the Co. and s&ch Co. goes into li6&idation. %or this no transfer deed ! payment of stamp d&ty is re6&ired. 7Sec.-./8 Q.No.$/. Before registering transfer of partly paid &p shares the Company is re6&ired to give a registered notice to the transferor. Sol.: 'f transfer is of partly paid &p shares and application for transfer is made by transferor transfer not to be registered by the Company, &nless Company gives notice of application to the transferee, and transferee ma;es no ob?ection to the transfer within two wee;s from the receipt of notice. Gotice deemed to be d&ly given if despatched by prepaid registered post to the transferee at address given in instr&ment of transfer. Board of Directors on satisfaction of above steps, recognise the transferee as new holder. 7Sec.--.8 Q.No.$1. Charge can be created on Aeserve Capital4 Sol.: %alse., Sec.-1, of the Companies gives the list of assets on which charge can be created. a. # charge on any immovable property. b. # floating charge on the &nderta;ing or any property of the Company incl&ding stoc; in trade. c. # charge for the p&rpose of sec&ring any iss&e of debent&res. d. # charge on &ncalled share capital of the Company. e. # charge on calls made b&t not paid. f. # charge on the boo; debts of the Company. g. # charge on Hoodwill, Patent, "icense. h. # charge created o&tside 'ndia comprising property sit&ated o&tside 'ndia. i. j. # charge created in 'ndia comprising property o&tside 'ndia. P&rchase of a property in 'ndia b&t already s&b?ect to charge.

. P&rchase of a property sit&ated abroad b&t already s&b?ect to charge. Corporate & Other Laws Practical Questions________________________________ 1#

The list given above does not contain IAeserve Capital and, th&s, no charge can be created on it. Q.No.$2. The Company was offered a term loan of As.1.. crores by a financial instit&tion against the sec&rity of entire fixed assets of its two factories sit&ated in #lwar ! Parwanoo. #fter repayment of more than 2,O of the loan amo&nt the financial instit&tion agreed to release fixed assets of one of its factory from charge. State whether Company can file part satisfaction of charge or it wo&ld amo&nt to modification of charge. Sol.: The concept of partial satisfaction of charge is not there. Satisfaction shall be in f&ll only. These amo&nts to modification of charge and the Company will have to file partic&lars of modification of charge, for registration. 7Sec.-<,8 Q.No.$3. Charge can be created on assets which are in possession of the Company on the date of creation of charge. Sol.: %alse., Charge can be created even on assets which will come into Companys possession at any f&t&re date e.g. f&t&re debts, c&rrent assets etc. This is called floating charge. Characteristics o8 a 8loatin char e:

a. 't is a charge on a class of assets of the Company, both present and f&t&re. 't does not mean only those assets which were in existence when the charge was created. b. The class of assets charged is one which in the ordinary co&rse of b&siness, is changing from time to time. c. Cntil some steps are ta;en to enforce the charge by the creditors, the Company may contin&e to deal with the assets charged in the ordinary co&rse of b&siness. d. The possession of assets charged is not given to the charge 7i.e. creditors8. Q.No.$4. #BC "td. observed on 1 nd (ay, 1..- that partic&lars of charge created on -1 th (arch, 1..- infavo&r of a Ban; were not filed with the Aegister of Companies for Aegistration. Dhat proced&re sho&ld the Co. follow to get the charge registered with the Aegistrar of Companies4 Do&ld the proced&re be different if the charge was created on -1 th %ebr&ary, 1..- instead of -1th (arch, 1..-4 >xplain with reference to the relevant provisions of the Companies #ct, -/,5. Sol.: The prescribed partic&lars of the charge together with the copy of instr&ment of charge shall be filed with the Aegistrar within <. days after the date of the creation of charge. 'n this case partic&lars of charge have not been filed within the prescribed period of <. days. 3owever, the Aegistrar is empowered to extend the period of <. days by another <. days on payment of s&ch additional fee not exceeding -. times the amo&nt of fee specified on Sched&le ). Ta;ing advantage of this provision, #BC "td., sho&ld immediately file the partic&lars of charge with the Aegistrar and satisfy the Aegistrar that it had s&fficient ca&se for not filing the partic&lars of charge within <. days of creation of charge. 'f the charge was created on -1 th %eb., 1..-, then the Co. has to apply to the GC"T &nder Sec.-+and see; extension of time for filing the partic&lars for registration. The Co. m&st satisfy the GC"T that the omission was accidental or d&e to some other s&fficient ca&se or was not of the nat&re to pre?&dice creditors, or that it is ?&st and e6&itable to grant relief on the other gro&nds. :n s&ch satisfaction, the GC"T may extend the term for the registration of charge on s&ch terms and conditions as it may thin; fit. Q.No.$5. # meeting was properly convened and was s&bse6&ently ad?o&rned by the Chairman. Go fresh notice is given for the ad?o&rned meeting which is held s&bse6&ently. State whether the ad?o&rned meeting is valid. Sol.: #ccording to sec.-2+ of the Companies #ct -/,5, if within half an ho&r from the time appointed for holding a meeting of the Company, a 6&or&m is not present, the meeting shall Corporate & Other Laws Practical Questions________________________________ 1.

Ph: 0863 22 42 355 stand ad?o&rned to the same day in the next wee;, at the same time and place &nless the directors determine otherwise. Go %resh notice is, therefore, re6&ired to hold the ad?o&rned meeting. Besides, no 6&or&m is necessary in the ad?o&rned meeting. Th&s, the ad?o&rned meeting in 6&estion is valid. Q.No.$6. The Chairman co&nts six votes in favo&r and seven against the resol&tion. Can the chairman cast his own vote, which he had not exercised earlier, in favo&r of the resol&tion and also casting vote which the #rticles a&thorise and declare the resol&tion as passed4 Sol.: The Chairman after ascertaining the sense of the meeting by show of hands, that 5 votes are in favo&r and 2 are against the resol&tion, may before declaration of res&lt cast his vote in favo&r of the resol&tion and also the casting vote and declare the resol&tion as passed. Q.No.$$. The articles of association of (Ks. BPA Private "imited provides that , members present in person constit&te the 6&or&m. The total n&mber of members of the Company is also ,. # general meeting of the Company was held on 1,K-K-/// and it was attended by + members as the ,th member had expired sometime earlier. 'n the said meeting a resol&tion was passed by a ma?ority of < to - removing one (r. Do&btf&l as a director for ind&lging in anti Company #ctivities. (r. Do&btf&l challenges the validity of the resol&tion on the gro&nd of lac; of 6&or&m in terms of the #rticles of #ssociation. Disc&ss with reference to the relevant provisions of Companies #ct whether the contention of (r. Do&btf&l is correct. Sol.: Section -2+ of the Companies #ct, -/,5 stip&lates that &nless the articles of association of the Company provide for a larger n&mber, two members personally present shall constit&te 6&or&m in case of Private Company. 3ence a private Company may provide a larger n&mber for 6&or&m. The general principle is that if no 6&or&m is present, the meeting and the proceedings are void. 3owever, there can be sit&ations when 6&or&m becomes immaterial. 'f all the members are present, it is immaterial that the 6&or&m re6&ired is more than the total n&mber of members th&s in this case. (r. Do&btf&l cannot s&ccessf&lly challenge the resol&tion. Q.No.$#. The #rticles of #ssociation of ) ltd., re6&ire the personal presence of six members to constit&te of Heneral (eetings. The following persons were present at the time of commencement of an extraordinary general meeting to consider the appointment of (anaging Director. 1. (r. H. the representative of Hovernor of H&?arat. 2. (r. # and (r. B shareholders of Preference shares. 3. (r. "., representing ( "td G "td and ) "td., 4. (r. P, (r. B, (r. A and (r. S who were proxies of shareholders. Can it be said that 6&or&m was present4 Disc&ss. Sol.: 'n this case 6&or&m for a Heneral meeting is six members to be personally present. %or the p&rpose of 6&or&m, only those members are co&nted who are entitled to vote on resol&tion proposed to be passed in the meeting. #gain, only members present in person and not by proxy, are to be co&nted. 3ence, proxies whether they are members or not will have to be excl&ded for the p&rpose of 6&or&m. 'f a Company is a member of another Company, it may a&thoriMe a person thro&gh resol&tion to act as its representative at a meeting of the other Company, then s&ch a person shall be deemed to be a member present in person and co&nted for the p&rpose of 6&or&m 7Section -028. Dhere two or more companies appoint a single person as their representative, then each of s&ch company will be co&nted 6&or&m at a meeting of the latter Company. #gain, section -02 a provides that the President of 'ndia or Hovernor of State if he is a member of a Company may appoint s&ch person, as he thin;s fit, to #ct as his representative at any meeting of the Company. # person so appointed shall be deemed to be a member of s&ch a Company and, th&s considered as member personally present. Corporate & Other Laws Practical Questions________________________________ 2/

'n view of the above there are only fo&r members personally present, namely, (r. H and (r. " 7representing three Companies and th&s effectively e6&al to three members8 (r # and (r. B the preference shareholders have been excl&ded since the agenda being the appointment of (anaging Director, their rights cannot be said to be directly affected and therefore, they shall not have any voting rights. Th&s it can be said that the re6&irement of 6&or&m being six, fo&r members personally present shall not constit&te a valid 6&or&m. Q.No.$.. 'mmediately &pon cond&cting the last general meeting held in @&ly, the Chairman went overseas for medical treatment. #ccordingly, the min&tes of the said meeting co&ld not be signed by him. To meet the re6&irements of the law, he sent a letter of a&thority to the secretary a&thoriMing the latter to sign the min&tes on the formers behalf. Can the Secretary #ct on the letter of a&thority4 if not, what proced&re sho&ld be followed4 Sol.: >ach page of the min&te boo; sho&ld be signed and in the last page of the record of proceedings of each meeting in the min&tes boo; shall be dated and signed by the Chairman of the said meeting. 'n the event of death or inability of the chairman, by the director d&ly a&thorised for the p&rpose. The Company Secretary cannot carry o&t the said f&nction, altho&gh he had been a&thorised by the Chairman. Q.No.#/. 'f a Chairman of Heneral (eeting is &nable to sign min&tes of Heneral meeting he may a&thoriMe any other person to sign the min&tes on his behalf. Sol.: %alse., Provisions of section -/<7-#87b8 provides that the min&tes of the proceeding of the general meeting shall be signed by the chairman of the same meeting within a period of <. days or in the event of death or inability of the chairman by a Director d&ly a&thoriMed by the Board for the p&rpose. Q.No.#1. The re6&ired 6&or&m is not present within ten min&tes of the sched&led time of holding of ann&al general meeting. Sol.: B&or&m is the minim&m n&mber of members of a Co. whose presence is necessary for commencing the meeting. 'f within half an ho&r for the time appointed for holding a meeting of the Co., a 6&or&m is not present, the ann&al general meeting shall stand ad?o&rned to the same day in the next wee;, at the same time and place or to s&ch other day and at s&ch other time and place as determined by the Board. 'n the present case, as the 6&or&m is not present within -. min&tes of the sched&led time of holding the ann&al general meeting, the legal position is that the people present will have to wait for another 1. min&tes to ascertain whether re6&isite 6&or&m is present or not, before any decision regarding the cond&ct of the meeting can be ta;en. Q.No.#2. )*F "td. wants to hold its ann&al general meeting on S&nday, the <.th @&ne to facilitate the share holders to attend it. #dvise the legal position. Sol.: #ccording to the provisions of Section -55718 read with Section -2-7-8 every #nn&al Heneral (eeting sho&ld be called with at least 1- clear days notice and m&st be held on a day other than a p&blic holiday i.e., it sho&ld be held on a wor;ing day d&ring b&siness ho&rs. 't is clarified that if any day is declared by the Central Hovernment to be a p&blic holiday after the iss&e of the notice convening s&ch a meeting, it shall not be deemed to be a p&blic holiday in relation to the meeting. 'n view of the above mentioned provisions, )*F "td. cannot hold the #H( on S&nday, the <.th @&ne as S&nday is a p&blic holiday. Q.No.#3. (r. ) a shareholder of -.. e6&ity shares of P "imited sent a letter to the Company that the notice of ann&al general meeting is to be sent to him only by registered post. 's Company &nder obligation to accept s&ch a re6&est from the shareholder4 Sol.: The Company is &nder obligation to accept s&ch re6&ests s&b?ect to the condition that the expenses to be inc&rred by the Company for giving the notice by registered post are deposited by the member with the Company, in advance. 7Sec.,<8 'n the given case since (r. ) has not deposited any s&ch amo&nt the Company is &nder no obligation to accept re6&est.

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Ph: 0863 22 42 355 Q.No.#4. Pref. shareholders, not being entitled to exercise voting rights are not entitled to attend the general meeting also. Sol.: %alse., Dhat the #ct prohibits is only their exercise of voting b&t not the attendance of the meeting. %&rther they have the right to receive the notice of general meeting of the Company and therefore, the right of preference shareholder to attend the general meeting of the Co. is implied. Q.No.#5. >very Company limited by g&arantee m&st hold a stat&tory meeting within the time limit prescribed &nder section -5, of the #ct. Sol.: %alse., 'n accordance with the provisions of section -5, only p&blic Companies having share capital or p&blic Companies limited by g&arantee and having share capital are re6&ired to hold the stat&tory meeting and, th&s, a Company limited g&arantee and having no share capital is not re6&ired to hold ann&al general meeting. Q.No.#6. # copy of the stat&tory report is re6&ired to be filed with the Aegistrar of Companies after having been placed before the shareholders in the stat&tory meeting. Sol.: %alse., 'n accordance with s&b=section 7,8 of section -5,, a copy of the stat&tory report is re6&ired to be filed with the Aegistrar immediately after having been sent to the shareholders. Q.No.#$. 'f a Company fails to hold the #H( it may be ordered to hold the ann&al general meeting by the central government on an application made by any person interested in the Company. Sol.: %alse., 'n accordance with the provisions of section -52 of the #ct if a Company fails to hold the ann&al general meeting it may be ordered to hold the ann&al general meeting by the Central government on an application made by any member of the Company. Q.No.##. >ven a single person present in the ann&al general meeting held on instr&ctions of the central government constit&tes valid 6&or&m. Sol.: %alse., Sec.-52 provides that the central government while iss&ing instr&ctions for holding the ann&al general meeting on a complaint of a member may also iss&e a direction that even a single member present in the meeting shall constit&te a valid 6&or&m. Th&s, except where special orders are made by the C.H., single member present in the meeting will not constit&te 6&or&m. Q.No.#.. #ll ordinary b&siness are re6&ired to be transacted by ordinary resol&tion and all special b&sinesses are re6&ired to be transacted by special resol&tion. Sol.: %alse., #ll ordinary b&sinesses are normally transacted thro&gh ordinary resol&tions except the appointment of a&ditor &nder Sec. 11+# where the appointment of a&ditor is re6&ired to be made by passing a special resol&tion. #ll special b&sinesses are not comp&lsorily re6&ired to be transacted by special resol&tion. The ;ind of resol&tion depends on the provisions of the #ct ! #rticles of the Co. Q.No../. <.th @&ne ! <-st December have been declared as P&blic holidays &nder the negotiable 'nstr&ment #ct, -00-. 3ence, #H( of any Company shall not be held on these dates. Sol.: %alse., <.th @&ne ! <-st December have been declared as p&blic holiday &nder the negotiable 'nstr&ment #ct, -00- only for the limited p&rpose of closing of acco&nts of ban;sTtreas&ries etc, and, th&s, these two dates shall not be treated as p&blic holiday for the p&rpose of holding ann&al general meeting of the Company. Q.No..1. The shareholders need not disclose reasons for re6&isitioning extraordinary general Corporate & Other Laws Practical Questions________________________________ 22

meeting while s&bmitting a re6&isition to the Company therefore. Sol.: Tr&e. 'n the case of "'C s. >scorts "td. the S&preme Co&rt has laid down that every shareholders has stat&tory right to call an extraordinary general meeting and he is not bo&nd to disclose the reason for the resol&tion proposed to be moved at the general meeting. Q.No..2. 'f 6&or&m is not present within <. min&tes from the appointed time in a general meeting called on a re6&isition of members of the Company the meeting stands dissolved. Sol.: Tr&e. Sec.-2+ provides that I'f within half an ho&r from the time appointed for holding a meting of the Company, a 6&or&m is not present, the meeting, if called, &pon the re6&isition of members, shall stand dissolvedJ. Q.No..3. B&or&m is re6&ired to be present thro&gho&t the meeting. Sol.: #s per Aeg.+/ of Table #, 6&or&m sho&ld be present at the commencement of the meeting and s&bse6&ent absence thereof will not invalidate the proceedings. 'n case of own articles, in the absence of a provision similar to Aeg.+/, then it is pres&med that 6&or&m sho&ld be present thro&gho&t the meeting. Q.No..4. The articles of association of a Company provided that the proxy to be valid shall be deposited at least 1+ ho&rs before the commencement of the general meeting. The Company cannot prescribe less than +0 ho&rs time. Sol.: %alse., The provisions of the #ct provide that the articles of a Company cannot provide more than +0 ho&rs time for lodging the proxy. This even, if articles of Company re6&ire proxy to be deposited more than +0 ho&rs before the commencement of the meeting, that shall have effect as if +0 ho&rs time has been provided. 3owever, Companies are free to provide any time less than +0 ho&rs for the same p&rpose in their articles. Q.No..5. # resol&tion p&t to vote in the general meeting shall be decided by poll &nless a demand is made for deciding the matter by show of hands. Sol.: %alse., Section -22 provides that, at any general meeting, a resol&tion p&t to vote of the meeting shall, &nless a poll is demanded, be decided on a show of hands. Therefore, the poll is to be ta;en only when demanded. Q.No..6. Poll demanded on the 6&estion of election of Chairman and on the 6&estion of ad?o&rnment of the general meeting m&st be ta;en forthwith. Sol.: Tr&e. 'n accordance with the provisions of section -2, and section -0. of the #ct, poll demanded on the 6&estion of election of chairman and on a 6&estion of ad?o&rnment of the meeting shall be ta;en immediately. Q.No..$. # body corporate can be represented in the general meeting of any other Company of which it is a member, only by its managing directors. Sol.: %alse, Section -02 provides that the Companies shall be represented in the general meeting of the other Companies thro&gh any person d&ly a&thoriMed by a resol&tion and that the presence of s&ch person in the general meeting shall be considered as personal presence of the body corporate represented by him. Q.No..#. #n ann&al general meeting is called on a fixed day. #fter the sending of the notice of the meeting, the Hovernment notifies that date as a p&blic holiday. Can be meeting proceed as sched&led4 Corporate & Other Laws Practical Questions________________________________ 23

Ph: 0863 22 42 355 Sol.: *es, the meeting can proceed, as sched&led. #ccording to Sec.-55 718 of the Companies #ct, -/,5 an ann&al general meeting m&st be held on a day which is not a p&blic holiday. B&t if the date of #H( becomes a p&blic holiday after iss&e of notice = (eeting can be held on s&ch p&blic holiday. Q.No.... # preference shareholder has lodged a complaint with the Company for not receiving notice of an ann&al general meeting. The secretary of the Company contends that he was not entitled to s&ch notice. #dvise the shareholder. Sol.: The shareholder contention is right and he is entitled to the notice of the ann&al general meeting. #ccording to section -21 of the Companies #ct, -/,5, notice of every general meeting of a Company shall be given to every member of the Company. # preference shareholder is also a member beca&se, &nder the Companies #ct, every shareholder= whether ordinary or preference= is a member. #s s&ch, he is entitled to the notice of the meetings. 'n the given problem, the preference shareholder sho&ld have been iss&ed a notice and the contention of the secretary is wrong. Q.No.1//. Dill a person representing one Company &nder Sec.-02 of the Companies #ct, -/,5, in addition to representing himself as a member in general meeting of a Company, be co&nted as two persons for the p&rpose of 6&or&m4 Sol.: *es, the person representing one Company &nder Sec. -02 of the Companies #ct, -/,5, and also himself as a member shall be co&nted as two persons for p&rposes of 6&or&m at general meetings of a Company. This is beca&se of the fact that a person representing a Company Sec. -02 is deemed to be a member of the Company. #s he presents himself in two different capacities, he is to be co&nted as two persons. Q.No.1/1. #t an ad?o&rned meeting 7Dhich was ad?o&rned previo&sly for want of 6&or&m8 of a p&blic Company, the chairman after waiting for half=an=ho&r after the sched&le time finds that only < persons are present. Can he declare the meeting closed for want of 6&or&m4 Sol.: Go, the chairman cannot declare the meeting closed for want of 6&or&m. 'n case of a p&blic Company, five members personally present shall be the 6&or&m for a general meeting. B&t, the Companies #ct, if at the ad?o&rned meeting, a 6&or&m is not present within U ho&r from the time appointed for holding the meeting, the members, present shall be a 6&or&m. This being an ad?o&rned meeting, the members present constit&te the 6&or&m and, th&s, the chairman cannot declare the meeting closed for want of 6&or&m in this case. Q.No.1/2. The Hovernor of a State is a member of a Company and has appointed ) as his representative for the p&rpose of attending meetings. 3is representative is &nable to attend the forthcoming general meeting. Can anything be done in these circ&mstances4 Sol.: Sec. -02=# of the Companies #ct, -/,5, provides that a person so appointed is entitled to exercise the same rights and powers as the Hovernor co&ld exercise. Since a member is entitled to appoint a proxy in his place to attend the meeting of the Company, therefore, a representative of the Hovernor by virt&e of Sec. -02=# of the Companies #ct, -/,5, is also entitled to appoint a proxy who can attend the meeting on behalf of the representative. Q.No.1/3. # proxy d&ly exec&ted by one of the ?oint shareholders was lodged +0 ho&rs before the commencement of an ad?o&rned general meeting of a P&blic "td Co. 'f the proxy so lodged valid4 Sol.: Go, the proxy lodged is invalid Sec. -25 of the Companies #ct, -/,5, provides that an instr&ment appointing a proxy m&st be in writing and m&st be signed by the appointer. 'n other words, the proxy form m&st be signed by the member who desires to appoint a proxy. 3owever, where the shares are held ?ointly by two persons, obvio&sly, s&ch right can be exercised by both Corporate & Other Laws Practical Questions________________________________ 24

of them ?ointly. #s s&ch, in case the shares are held ?ointly by two or more person, the proxy form m&st be signed by all of them. #ccordingly in the given problem as the proxy has been exec&ted by one of the ?oint shareholders it is invalid. Q.No.1/4. )*F Co. "td. called its #H( on 2th September -//2. The notice of #H( was posted on -5th #&g&st -//2. :ne member holding 1. shares wishes to challenge the resol&tions passed at the #H( on the gro&nd that the notice was not valid. #dvise him. Sol.: #ccording to Companies #ct a general meeting of a Company may be called by giving not less than 1- days notice in writing. Got less than 1- days means 1- clear days i.e. excl&ding both the date on which the notice was served and the date of the meeting. 'n case the notice of the general meeting is sent by post, service notice of the meeting shall be deemed to have been effected at the expiry of +0 ho&rs after it was posted. 'n the instant case, the notice was short of one day9 -5th #&g&st to 2th September Less. date of service and date of meeting Less. +0 ho&rs of positing b&t 1+ ho&rs are common between date of service and +0 ho&rs of posting. "otal *a!s. 1< days 1 days - day 1. days

Therefore, the meeting was invalid and the resol&tions passed were invalid. 3owever in case of #H(, where all members entitled to vote consent, the meeting may be held on shorter notice. Q.No.1/5. >xamine the validity of the following proxies and s&ggest remedies where possible. a. ", a member of a private Company, appoints B and C as proxies dividing his voting rights between them. B and C are not members of the Company. b. ), the director of * "imited is a&thoriMed to represent * "imited at the general meeting of #BC "imited. 3e in t&rns appoints a proxy F. c. *, a member of a Company not having share capital, appoints a proxy. #rticles of the Company are silent as to the power to appoint proxies. Sol.: a. b. 'n case of private Companies only one proxy can be appointed 7proviso b to -258 and the proxy need not be a member. By virt&e of Section -02, if a Company is a member of another Company, it may appoint a representative to vote. # person a&thorised by resol&tion as aforesaid shall be entitled to exercise the same rights and powers 7incl&ding the right to vote by proxy8 on behalf of the body corporate. Therefore the proxy F is a valid one. 'n the case of a Company not having share capital, the right to appoint a proxy is available only if the #rticles ma;e a specific provision abo&t the same and therefore appointment is invalid. The Company wo&ld have to pass a special resol&tion to alter the #rticles of #ssociationN when the same is done, this power may be exercised by the members.

c.

Q.No.1/6. The paid &p share capital of #BC "imited is As. , la;hs consisting of ,.,... e6&ity shares of As.-. each f&lly paid=&p. Certain members of the Company holding the following shares re6&isitioned an extra=ordinary general meeting on -.1.1...9 # = 1,1,. shares, B = 1,... shares incl&ding ,.. bon&s shares C = -,... shares incl&ding ,.. rights shares. The directors have failed to call the meeting on the contention that the articles have not permitted the same. Dhat is the co&rse of #ction open to the aforesaid members4 Sol.: #s per sec.-5/ of the Companies #ct the members of a Company may also as; for an extraordinary meeting to be held. Corporate & Other Laws Practical Questions________________________________ 25

Ph: 0863 22 42 355 Persons entitle& to re>uisition. # re6&isition for convening an extraordinary general meeting may be made by member?s@: a. b. 3olding -.O of the paid=&p share capital of the Company and having a right to vote at the date of deposit of re6&isition, on the matter to be disc&ssed Or Company has no share capital, members having -.O of the voting power of all members having a right to vote at the date of deposit of the re6&isition, on the matter to be disc&ssed.

3ere the total share capital held by the re6&isitionists amo&nts to As. ,1,,.. and exceeds one tenth of the total of As. , la;hs as on the date of re6&isition on -.1.1.... Bon&s and rights shares are at par with ordinary shares and are to be incl&ded in arriving at the eligible val&e. Therefore the re6&isition is a valid one. (embers can call themselves an >H( called re6&isitionists meeting satisfying the conditions li;e time limit, n&mber of re6&ired members etc. Q.No.1/$. >xamine the validity of the following9 a. @, a member of a private Company, being &nable to attend a meeting of the members of the Company appoints more than one proxy on the same occasion. The articles of association of the Company are silent on this iss&e. b. D, a member of (A ! Company "imited, holding shares in his own name on which final call money has not been paid, is denied voting right at a general meeting of the Company on the gro&nd that the articles of association do not permit a member to vote if he has not paid the calls on the shares held by him. Sol.: a. #s per the Companies #ct, &nless the articles otherwise provide a member of a private Company shall not be entitled to appoint more than one proxy to attend on the same occasion. Th&s based on the above provisions, @ in the given case cannot, appoint more than one proxy on the same occasion. Since the articles of the Company also do not provide for the above, he cannot do so. '. 1estrictions on -otin ri hts ; Section. 1#1.

The #:# may prohibit any member from excersing the voting rights if any call money is
d&e on s&ch shares on the date of voting. 7'f s&ch a provision is not available then a member cannot be prevented from exercising his voting right8. # p&blic Company or a dependent Company shall not p&t any other restriction on voting rights other than given &nder Sec.-0- of the #ct. 3owever, an independent private Company can provide in their #:# f&rther restrictions li;e only holders of shares for a specified period alone can exercise voting rights.

Q.No.1/#. State whether the following persons can be co&nted for the p&rpose of 6&or&m in a Heneral (eeting of a P&blic Company. a. b. Sol.: a. # representative of a body corporate appointed &nder Sec.-02 is a member personally Lpresent for p&rposes of co&nting of 6&or&m. 'f one individ&al represents three member Companies, his presence be co&nted as three members being present in person for p&rpose of 6&or&m. 0oint sharehol&ers. 'n the case of ?oint holders it wo&ld be seen prima facie that any one of them may be co&nted in a 6&or&m. # person representing three member Companies. Both the ?oint owners of shares are present at the meeting.

b.

Corporate & Other Laws Practical Questions________________________________ 26

 't sho&ld be noted that #ct specifically provides that for certain p&rposes where two or
more persons hold any shares ?ointly, they shall be co&nted only as one member. 7 9. . Cnder Sec.<7-8 7iii8 for the p&rposes of co&nting the n&mber of members in a private Company8 . 'f the #ct does not provide anything to the contrary, it appears that two or more ?oint holders when personally present can be co&nted as so many members for the p&rpose of 6&or&m. %&rther, in a case, it has been held that two ?oint holders are each member and are to be co&nted towards a 6&or&m as two members personally present.

Q.No.1/.. >xamine the va-idity of the following9 a. The Board of Directors of a Company ref&se to convene the extraordinary general meeting of the members on the gro&nd that the re6&isitionists have not given reasons for the resol&tions proposed to be passed at the meeting. The Board of Directors ref&se to convene the extra ordinary general meeting on the gro&nd that the re6&isitions have not been signed by the ?oint holder named first in the register in respect of the shares held by the ?oint share holders. 3olding of extra general meeting at a place other than the village in which the registered office of the Company is sit&ated, on the gro&nd that it is more convenient for the members to attend the meeting at a place other than the village in which the registered office of the Company is sit&ated. #d?o&rnment of extra ordinary general meeting called &pon the re6&isition of the members on the gro&nd that the 6&or&m was not present at the meeting.

b.

c.

d.

Sol.: a. #ction of the Board of Directors in the given case is not valid in view of the S&preme Co&rt decision in "'C s. >SC:ATS "TD. Ae6&isitionists are not bo&nd to give reasons for the resol&tions proposed to be passed at the meeting. b. Sec.-5/ provides that, in the case of ?oint shareholders re6&isition signed by one shareholder is s&fficient. The #ction of the Board of Directors is not valid. c. Provisions of Sec.-55718 of the Companies #ct, -/,5 apply to #H(. >H( can be held at any place. 'n the given case #ction of the Board of Directors is bonafide and hence it is valid. d. 'n the given case &nless the #rticles of the Company otherwise provide, the meeting shall stand dissolved, if called &pon the re6&isition of members, in case the 6&or&m is not present with half ho&r from time appointed for a meeting of the Company. Q.No.11/. The 6&or&m for a general meeting of a Company is / members personally present according to the provisions in the articles of association of the Company. >xamine with reference to the relevant provisions of the Companies #ct, -/,5 whether there is proper 6&or&m at a general meeting of the Company, which was attended by the following persons. a. 2 members personally present o&t of which 1 members are also proxies for , members. b. , members represented by proxies who are not members of the Company. c. :ne person representing two member Companies. Sol.: 'n this case, the 6&or&m for a general meeting is / members personally present according to the provisions in the #rticles of #ssociation of the Company. %or the p&rpose of ascertaining 6&or&m, only members present in person and not by proxies, are to be co&nted. 'f a Company is a member of another Company, it may a&thorise a person by a resol&tion to #ct as its representative at a meeting of the latter Company, then s&ch a person shall be deemed to be a member present in person and co&nted for the p&rposes of 6&or&m. Dhere two or more Companies being members of another Company appoint a single person as their representative, then each of s&ch Companies will be co&nted in 6&or&m. 3ence the meeting is attended by / members personally consisting of 2 members personally present ! 1 member companies and there is proper 6&or&m. Corporate & Other Laws Practical Questions________________________________ 2$

Ph: 0863 22 42 355

Q.No.111. #ny doc&ment sent to the member by the Company will be deemed to have been delivered to him on expiry of +0 ho&rs from the time of delivery. Sol.: %alse., Sec.,< provides that the notice of a meeting shall be deemed to have been served on members at the expiration of +0 ho&rs after the letter containing the same is posted and in case of any other doc&ments to be served on members it shall be deemed to have been delivered at the time at which the letter wo&ld be delivered to him in the ordinary co&rse of post. Q.No.112. (A Co. "imited co&ld not hold its first #H( with in -0 months from the date of its incorporation. The Board of Directors of the Company by a resol&tion decide not to call first #H( at all on the gro&nd that most of the directors were o&tside 'ndia on a b&siness trip and since the Company was &nder gestation period it wo&ld cost the Company heavily. Aeferring to the provisions of the #ct, examine whether9 a. The Board of Directors decision is legally ?&stified. b. Dhat co&rse of #ction is open to the Company if one of the members writes to the Company for holding the meeting tho&gh the stat&tory time limit is over4 Sol.: #ccording to Section -55 of the Companies #ct, -/,5 every Company shall in each year hold in addition to any other meetings a general meeting as its #H( and shall specify the meeting as s&ch in the notices calling it and not more than -, months shall elapse between the date of one #H( of a Company and that of the next. The 4irst #H( of the Company m&st be held within -0 months from the date of incorporation of the Company. 'f the #H( is held within that period and conse6&ent to which the Company had not held an #H( in the year of incorporation or in the following year there is no violation of the #ct. %&rther the Aegistrar may extend the time within which any #H( 7not being the first #H(8 shall be held by a period not exceeding three months. Th&s, applying the above provisions, the 6&estions can be answered as follows9 a. The Board of Directors decision is not legally ?&stified. 3olding of %irst #H( is a stat&tory re6&irement. Go Company can be exempted from this. b. The co&rse of #ction open is that any member sho&ld apply to the CH &nder Section -52 and the CH in t&rn shall call or direct the calling of a general meeting of the Company with necessary directions and a meeting held according shall be an #H(. The member sho&ld approach the CH and see; its assistance to f&lfill his demand. (ember may, therefore, be advised accordingly. Q.No.113. >xamine the possibilities of the following9 a. Signing of min&tes of general meeting of a Company by a person other than the Chairman of the said meeting. b. 3olding of ann&al general meeting of a Private Company in Gew Delhi when its registered office is sit&ated in "&c;now. Sol.: a. #s per the Companies #ct the min&tes of the proceedings of a general meeting m&st be signed by the chairman of the same meeting within a period of <. days of the concl&sion of s&ch meeting. B&t in the event of death or inability of that chairman within that period, the min&tes of the said general meeting may be signed by a director d&ly a&thorised by the Board for the p&rpose. b. #s per the Companies #ct every ann&al general meeting of a Co. m&st be held either at the registered office of the Co. or at some other place within the city, town or village in which the registered office of the Co. is sit&ate. B&t the proviso to Sec.-55718 permits a Private Co. which is not a s&bsidiary of a p&blic Co. to fix a place for holding the #H( by a resol&tion agreed to by all the members. So it is possible to hold the #H( in Gew Delhi provided it is agreed by all the members by a resol&tion and the private Company is not s&bsidiary of a p&blic Company. Corporate & Other Laws Practical Questions________________________________ 2#

Q.No.114. # ! B are ?oint=holders of -,... shares in #BC "td. which has adopted Table # as its #rticles. %or the general meeting of the Company, # whose name stands first in the order of names exec&tes a proxy a&thorising ) to attend the meeting. :n the other hand B appoints * as his proxy for the meeting. a. :f the two proxies ) and * who will have the right to attend and vote in the meeting4 b. Do&ld it ma;e any difference to yo&r answer if #s proxy is registered first with the Company and Bs proxy is registered later4 c. Dhat wo&ld be yo&r answer if B personally attends the meeting4 Sol.: a. #ccording to reg&lation ,2 of Table #, in the case of ?oint holders of shares, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the excl&sion of the votes of the other ?oint holders. #s s&ch, the seniority shall be determined by the order in which the names stand in the register of members. Cnless the Company has modified Aeg&lation ,2 of Table #, the proxy appointed by # will have the right to attend and vote in the general meeting. *, the proxy appointed by B, will have no right to attend and vote in the meeting. b. The proxy appointed by # will be valid. The time of its lodgment with the Company is immaterial. Tho&gh B has lodged his proxy later, b&t as given above 7Aeg&lation ,2 of Table #8 it cannot s&persede #s proxy. c. #fter giving a proxy if a member personally attends the meeting and votes thereat, the proxy is a&tomatically cancelled. 'f B personally attends the meeting, both the Proxies ) and * shall be revo;ed. Q.No.115. # Company served a notice of a general meeting &pon its members. The notice stated that a resol&tion to increase the share capital of the Company wo&ld be considered at s&ch meeting. # shareholder complains that the amo&nt of the proposed increase was not specified in the notice. 's the notice valid4 Sol.: Section -2< of the Companies #ct, -/,5 re6&ires a Company to annex an explanatory statement to every notice for a meeting of Company, at which some Special B&siness to be transacted. This explanatory statement is to bring to the notice of the members all material facts relating to each item of special b&siness. Section -2< f&rther specifies that all b&siness in case of any meeting other than ann&al general meeting is regarded as special b&siness. Th&s, the ob?ection of the shareholders is valid since the details on the item to be considered are lac;ing. The notice is, therefore, not a valid notice &nder Section -2< of the Companies #ct, -/,5. Q.No.116. The secretary of a Co. while sending o&t to members of the Co. notices of a special resol&tion to be proposed at the #H( inadvertently omitted to send notice to one member. The resol&tion was passed at the meeting. Disc&ss whether the resol&tion is valid or not. Sol.: Section -217<8 of the Companies #ct re6&ires that proper notice m&st be served on all the persons entitled to receive s&ch notice. Deliberate omission to give notice even to a single member entitled to receive notice, shall invalidate the proceedings of the meeting. B&t, however, it provides that an accidental omission to give notice to a member or if the member does not receive the notice, the meeting cannot be held invalid. Th&s, in the present case, the resol&tion shall be valid since the omission is stated to be inadvertent 7i.e. &nintentional8. Q.No.11$. The a&ditor of a Company complains that he was not given notice of a recently held general meeting of the Company. The secretary of the Company contends that as no part of the b&siness of that meeting concerned the a&ditor, no notice was re6&ired to be given to him. Do yo& agree with the secretary4 'f the a&ditor attends a general meeting, can he participate in the meeting4 Sol.: The contention of the secretary is not correct. The a&ditor has a stat&tory right &nder Companies #ct to receive all notices of any general meeting of a Company, which any member is entitled to have sent to him. %ail&re to send notice of general (eeting to the Companys a&ditor, whether he is concerned or not with any part of the b&siness to be transacted at the meeting, amo&nts to a defa&lt on the part of the Company. Sec.1<- f&rther entitles the a&ditor of a Corporate & Other Laws Practical Questions________________________________ 2.

Ph: 0863 22 42 355 Company to attend any general meeting of the Company. 3e cannot participate in the meeting. Q.No.11#. Disc&ss the validity of the following9 #BC 7Pvt.8 "td. provides in the #rticles of #ssociation of the Company special re6&irements for the forms of proxy. LF, a member, s&bmits a form of proxy to the Company in the form given in Sch. ') of Companies #ct. The Company re?ects the proxy. Sol.: Section -25758 provides that an instr&ment appointing a proxy, if in any of the forms set o&t in Sched&le ') shall not be 6&estioned on the gro&nd that it fails to comply with any special re6&irements specified for s&ch instr&ment by the #rticles. The aforesaid provisions are applicable to both p&blic as well as private Companies. #ccordingly, Company is g&ilty of wrongf&l re?ection. Q.No.11.. The Aegistrar of Companies on examining the stat&tory report filed by (Ks De @yoti Company "td finds that the report has been certified as correct, by all the directors of the Company except the (anaging director. The A:C ref&sed to register the doc&ment on the gro&nd that it is not signed by the (anaging Director of the Company, and f&rther wants to hold the Company liable to penalties for non=compliance of the provisions of the Companies #ct. State in this connection a. b. Sol.: a. Sec.-5, of the Companies #ct, -/,5 re6&ires the stat&tory report to be certified as correct by at least two directors of the Company one of whom m&st be a managing director, where there is one. Th&s, the aforesaid provision of Section -5,7+8 has not been complied with. *es, the Aegistrar can hold the officers of the Company liable. Dhat provisions of the Companies #ct have not been complied with by the Co. and its officers4 Dhether the Aegistrar of Companies can hold the officers of the Company liable4

b.

Q.No.12/. #t an ann&al general meeting held on 1,th Sept. -/0/, the a&ditor was appointed to hold office &p to the concl&sion of next ann&al general meeting. The next ann&al general meeting was convened on 1.th September, -//. b&t stood ad?o&rned witho&t transacting any b&siness. Does the retiring a&ditor contin&e in office4 Sol.: #ccording to the Companies #ct, -/,5, an a&ditor who is appointed at an ann&al general meeting holds office from the concl&sion of that #H( to the concl&sion of the next #H(. 'n the given case, the a&ditor was to hold office &p to concl&sion of the #H( d&ly convened b&t which stood ad?o&rned. #s the ad?o&rned meeting is merely a contin&ation of the original meeting, the retiring a&ditor contin&es to hold the office till the concl&sion of meeting. Q.No.121. #nn&al general meeting of a p&blic Company was sched&led to be held on -,.-1.-0//. (r.), a shareholder, iss&ed two proxies in respect of the shares held by him in favo&r of (r.# and (r. B. The proxy in favo&r of (r. B was lodged on -1.-1.-/0/ and the one in favo&r of (r. # was lodged on -,.-1.-/0/. The Company re?ected the proxy in favo&r of (r.B as the proxy in favo&r of (r. B was dated -1.-1.-/0/ and that in favo&r of (r.# was dated -<.-1.-/0/. 's the re?ection by the Company in order4 Sol.: 'n case more than one proxies have been appointed by a member in respect of the same meeting, one which is later in ti!e shall prevail and the earlier one deemed to have been revo;ed. Th&s, in the normal co&rse, the proxy in favo&r of (r. #, being later in time, sho&ld be &pheld as valid. B&t as per Sec.-25. # proxy sho&ld be deposited +0 ho&rs before the time of the meeting. 'n this case, the proxies sho&ld have, therefore, been deposited on or before -<.-1.-/0/ 7the date of the meeting being -,.-1.-/0/8. B&t, (r. # deposited the proxy on -,.-1.-/0/. Therefore, proxy in favo&r of (r. # has become invalid. Th&s, re?ecting the proxy in favo&r of (r. B is &ns&stainable. Proxy in favo&r of (r. B is valid since it is deposited in time.

Corporate & Other Laws Practical Questions________________________________ 3/

Q.No.122. :nce ann&al Heneral (eeting was called by a Company in December -//+. This meeting was ad?o&rned to march -//, and then held. S&bse6&ent meeting was held in %ebr&ary -//5. 's the Company liable for any irreg&larity4 Sol.: Sec.-55 of the Companies #ct, -/,5 re6&ires a Company to hold its ann&al general meeting every calendar year. Th&s, in the above case the meeting held in (arch -//, is act&ally the meeting of December -//+. Since, the next meeting is held only in %ebr&ary -//5, the meeting of December -//, has been missed. Cnder these circ&mstances, &nless permission of the registrar was obtained for extension of time, which may be granted &p to a period of < months &nder certain special circ&mstances, the Company shall be convicted. Q.No.123. #t an ad?o&rned extraordinary general meeting of a p&blic limited Company only three members are personally present. Comment. Sol.: #s per Section -2+7,8, if a meeting is ad?o&rned for want of 6&or&m and at the ad?o&rned meeting also 6&or&m is not present within half=an ho&r from the time appointed for holding the meeting, the members present shall be 6&or&m. #ss&ming that the given sit&ation, i.e. ad?o&rnment of the meeting is ca&sed beca&se of absence of 6&or&m, the above=stated position will prevail. #ccordingly, three members who are personally present can validly cond&ct the meeting. B&t if ad?o&rnment has ta;en place for any reason other than absence of 6&or&m, the 6&or&m as per #rticles or at least five members m&st be present. Q.No.124. (, a foreign shareholder, receives notice of the ann&al general meeting after it was held. Sol.: Cnder Sec.,< of the Companies #ct a Company is re6&ired to serve notice of meeting on foreign shareholders only if they have left their 'ndian address. %&rther, in s&ch cases it wo&ld be eno&gh if the notice excl&ding the explanatory statement is advertised in a newspaper circ&lating in the neighbo&rhood of the Aegistered :ffice of the Company. 3owever, the fact that the explanatory statement has been sent along with the notice of the meeting sho&ld be mentioned in the advertisement. Therefore, L( attention sho&ld be drawn to the notice p&blished in the newspaper. Q.No.125. #t a general meeting of a Company a matter was to be passed by a special resol&tion. :&t of +. members of the Company 1. voted in favo&r of the resol&tion, , voted against it and , votes are cancelled. The remaining -. members abstained from voting. The chairman declared the special resol&tion as passed. 's the decision valid4 Sol.: 'n case of a special resol&tion votes cast in favo&r of the resol&tion m&st be atleast three times the votes cast against it. otes cancelled or votes of members who abstain from voting are not ta;en into acco&nt. 'n the given case, since the votes cast in favo&r71.8 are more than three times the votes cast against the resol&tion7,8 the decision of the chairman treating the resol&tion passed is valid. Q.No.126. Dividend can be paid on the basis of called &p capital. Sol.: %alse. Dividend shall be paid &p only on paid &p capital. 7Sec./<8 Q.No.12$. Cnder section 1., Companies defa&lting in compliance with the provisions of section 0.# can not pay dividend on e6&ity share till defa&lt contin&es. Sol.: Tr&e. Section 0.# relates to redemption of irredeemable preference shares. Sec.1., of the companies act provides that the Company which fails to comply with the provisions of Sec.0.# shall not declared any divided on its e6&ity shares as long as the fail&re contin&es.

Corporate & Other Laws Practical Questions________________________________ 31

Ph: 0863 22 42 355 Q.No.12#. Dividend cannot be paid in ;ind. Sol.: Tr&e. Sec.1., provides that the dividend shall be paid in cash and that iss&e of f&lly paid= &p Bon&s shares is not prohibited by capitaliMing the profits or reserves of the Company. Q.No.12.. Company can ad?&st amo&nt of dividend payable to a shareholder against any s&m d&e to it from the shareholders. Sol.: Tr&e. #s per Sec.1.2 the dividend payable by the Company to any person can be lawf&lly ad?&sted by the Company against any s&m d&e to it from the shareholders. Q.No.13/. Stri;e in postal dept. co&ld be a valid reason for delay in dispatch of dividend warrants4 Sol.: Tr&e. Sec.1.2 provides that the Company shall not attract any penalty for delay in payment of dividend for any other reasons not d&e to any defa&lt on the part of the company. Q.No.131. #cademic 6&alification of a member is also re6&ired to be entered in the Aegister of (embers of the Company. Sol.: %alse., Sec.-,. of #ct re6&ires the following to be entered in Aegister of (embers9 a. The name and address, and the occ&pation, if any, of each memberN b. 'n the case of a Company having share capital, the shares held by each member, disting&ishing each share by its member and the amo&nt paid or agreed to be considered as paid on those sharesN c. The date at which each person was entered in the Aegister as a memberN and d. The date at which the person ceased to be a member. The partic&lars mentioned above are the only partic&lars of a member which are re6&ired to be entered in the Aegister of (embers maintained by the. There is no re6&irement of entering academic 6&alification of the members in the Aegister of (embers. Q.No.132. #ll private limited Companies are re6&ired to maintain index of members. Sol.: %alse., Cnder section -,- every Company in which n&mber of members exceed ,. is re6&ired to maintain an alphabetical index of all the members. Private limited Companies, generally, do not have more than ,. members and th&s these are not re6&ired to maintain an index of members. 3owever, if n&mber of members in private Companies also exceeds fifty, then s&ch Companies will also be re6&ired to maintain index of members. Q.No.133. Company can maintain its boo;s of acco&nt on single entry system of acco&nting. Sol.: %alse., Sec.1./ provides that the Company shall not be deemed to have maintained proper boo;s of acco&nt &nless these have been maintained on accr&al basis and on do&ble entry system of acco&nting. Q.No.134. 'n accordance with the provisions of section 1 7-28 of the #ct Ifinancial yearJ refers to a period of -1 months Sol.: %alse., Cnder Sec.17-28 Ifinancial yearJ meansJ, the period in respect of which any profit and loss acco&nt of the Company is made &p, whether that period is a -1 months or not. %inancial year of Company may extend &p to -0 months. Corporate & Other Laws Practical Questions________________________________ 32

Q.No.135. #ny partnership firm having more than 1. partners is necessarily re6&ired to be registered &nder the #ct as a Company4 Sol.: Tr&e. #n association of more than -. persons carrying on the b&siness of ban;ing :r #n association more than 1. persons carrying on any other type of b&siness, not registered &nder the Companies #ct or any other law is an L'llegal #ssociation 7Sec.--8. 'n s&ch a case s&ch association m&st have to be registered &nder the Companies #ct or any other 'ndian law. Q.No.136. (r. ( applied for allotment of shares in the name of (r.Dara. S&bse6&ently it transpired that the partic&lar application made in the name of (r.Dara was in fictitio&s name. Did (r. (. inc&r any penalty &nder the Companies #ct, -/,54 Sol.: a. 1st *eclaration. Sec.-02C provides that a person, whose name is entered in the register of members of a Company as the holder of a share in that Company b&t who does not hold the beneficial interest 7called registered holder8 in s&ch shares, shall ma;e a declaration to the Company in the prescribed form specifying the name and other partic&lars of the person who holds the beneficial interest in s&ch share. S&ch declaration shall be made by the registered holder within <. days after his name is entered in the register of members. 2n& *eclaration. Similarly a person who holds a beneficial interest in a share of a Company, shall, within <. days after his becoming s&ch beneficial owner, ma;e a declaration to the Company in the prescribed form specifying the partic&lars of the person in whose name the shares stand registered. Penalt!. 'f the registered holder or the beneficial owner fails to ma;e the aforesaid declarations, witho&t any reasonable exc&se to do so, he shall be p&nishable with the fine &p to As.-... for every day d&ring which the defa&lt contin&es.

b.

c.

Q.No.13$. The name of Shri #.$. (odi appears in the register of members of )*F "td. as holding ,,... >6&ity shares of As.-. each. 3owever, according to the information given to yo&, Shri A.S. Darna is the beneficial owner of the said shares. #dvise )*F "td. abo&t the proced&re to be followed &nder the provisions of the Companies #ct. Sol.: Aefer to the previo&s 6&estion. Q.No.13#. The rates of e6&ity dividend declared and paid by a Company are as follows9 *ear 1..1 = -,O, *ear 1..- = -1O, and *ear 1... = -1O. The Company has earned s&fficient profit after tax in 1..< and wishes to propose a dividend on e6&ity shares at --O of the c&rrent profits. 't also wishes to transfer more than -.O of C&rrent Profits to its Aeserves. The Company did not iss&e bon&s shares d&ring last few years. The Companys P#T for the past years are9 *ear 1..< = As. -....,..., *ear 1..1 = As.-2,..,..., *ear 1..- = As. -,,..,..., and *ear 1... = As. -0,..,.... Comment on whether the Company is allowed to transfer a higher rate of profits to Aeserves. Sol.: # company may transfer a higher percentage of profits 7i.e., more than -.O8 by satisfying the below given conditions9 a. Aini,u, rate: The company is to maintain a rate of dividend for the c&rrent year e6&al to the average rate of dividend for the immediately preceding < years. 'n the given case, the average rate of dividend for the previo&s three years V7-,E-1E-18K<V-<O and higher than the proposed dividend rate of --O. 3ence, the first condition is not satisfied. Aini,u, a,ount: Dhere bon&s shares have also been iss&ed in the financial year in which the dividend is declared or in the < years immediately preceding the financial year, a minim&m amo&nt of dividend e6&al to the average amo&nt of dividend declared over the < years immediately preceding the financial years is to be maintained. 'n the given case, there is no bon&s iss&e and this condition is hence not applicable.

b.

Corporate & Other Laws Practical Questions________________________________ 33

Ph: 0863 22 42 355 c. %owe-er, if the P<" for the c&rrent year is lower at least 1.O compared to the average P#T for the immediately 1 preceding years, the company will not be re6&ired to ens&re the maintenance of the average rateBa,ount of dividend mentioned earlier. 'n the given case, P#T of the c&rrent year is As.-. la;hs, which is <2.,O P7-5=-.8K-5Q lower than that of the average of the immediately preceding two years As.-5 la;hs. P7-2E-,8K1 *earsQ The Company may ta;e advantage &nder this exception.

9n& o8 the C. Law Practical Questions

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%/E PA2$E-% "F *"-#( A,%
Q.No.1. #n employer had been paying to his employees every year at the time of Deepawali one months basic wages as Deepawali Bon&s for the last -. years, in addition to the bon&s payable &nder the Payment of Bon&s #ct. The bon&s had been paid even in those years when there were losses. The employer now wants to ad?&st Deepawali Bon&s paid by him for the c&rrent acco&nting year against the bon&s payable by him &nder the #ct, for the c&rrent acco&nting year. State whether it is possible for the employer to ma;e the above ad?&stments. Q.No.1a@ #n employer had been paying to his employees every year at the time of RDiwaliR one months basic wages as bon&s for the last -. years, 'n addition to the bon&s payable &nder the P.B. #ct,-/5,. The bon&s had been paid even in those years when there were losses. The employer now wants to ad?&st RDiwaliR bon&s paid by him for the c&rrent acco&nting year against the bon&s payable by him &nder the #ct for the c&rrent acco&nting year. State with reference to the provision of the Payment of Bon&s #ct, -/5,, whether it is possible for the employer to ma;e the above ad?&stment. Sol.: #ccording to Sec.-2 of the Payment of Bon&s #ct, if the employer has paid in any acco&nting year, Deepawali, P&?a or any c&stomary bon&s to his employees, the employer is within his rights to ded&ct the amo&nt of bon&s so paid from the amo&nt of bon&s payable by him &nder the #ct in respect of that acco&nting year. Th&s, the employer can ded&ctKad?&st the Deepawali bon&s already paid against the bon&s payable &nder the #ct and the employees shall be entitled to receive only the balance. Q.No.2. # person has wor;ed only for <, days in an acco&nting year. 's he eligible or entitled to be paid bon&s by his employer for that year4 Sol.: The employee in the given case has not wor;ed for all wor;ing days in an acco&nting year. Sec.-< provides for proportionate red&ction of bon&s in s&ch cases. The employees shall hence be entitled to bon&s for <, wor;ing days only as a ratio of the bon&s payable for the total wor;ing days. Corporate & Other Laws Practical Questions________________________________ 34

Q.No.3. ), a temporary employee drawing a salary of As.<,... per month, in an establishment to which the Payment of Bon&s #ct, applies was prevented by the employers from wor;ing in the establishment for two months d&ring the financial year 1..-=1..1, pending certain in6&iry. Since there were no adverse findings L) was re=instated in service. "ater, when the bon&s was paid to other employees, the employers ref&se to pay bon&s to L), even tho&gh he has wor;ed for the remaining ten months in the year. >xamine the validity of employers ref&sal4 Sol.: The employee in the given case has not wor;ed for all wor;ing days in an acco&nting year. Sec.-< provides for proportionate red&ction of bon&s in s&ch cases. 7Sec.-<8 B&t Sec.-< does not cover a case where an employee was prevented from wor;ing by reason of an illegal order of termination. Th&s based on the above, the ref&sal by the employers to pay bon&s to ) is not valid and he 7)8 is entitled to get bon&s. Q.No.4. # Company in a partic&lar acco&nting year s&ffered losses and hence was not able to pay even the minim&m bon&s to its wor;men. State in this connection, whether the minim&m bon&s is payable irrespective of losses and any circ&mstances that the Company may get exemption &nder the Payment of Bon&s #ct, -/5,. Sol.: #s per the act, minim&m bon&s is payable whether or not the employer has any allocable s&rpl&s in the acco&nting year i.e. even if the employer s&ffers losses d&ring the acco&nting year he is bo&nd to pay this. 3owever, exemption can be granted by the central government = Drite Sec.<5. Q.No.5. 'n an acco&nting year, a company to which the payment of Bon&s #ct, applies, s&ffered heavy losses. The Board of Directors of the said company decided not to give bon&s to the employees. The employees of the company move to the Co&rt for relief. Decide in the light of the provisions of the said #ct whether the employees will get relief4 Sol.: #s per the act, minim&m bon&s is payable whether or not the employer has any allocable s&rpl&s in the acco&nting year i.e. even if the employer s&ffers losses d&ring the acco&nting year he is bo&nd to pay this 7Sec.-.8. #pplying the provisions of as contained in Section -. the employees shall s&cceed and they are entitled to be paid minim&m bon&s at rate 0.<<O of the salary or wage earn d&ring the acco&nting year or As. -.. 7As. 5. in case of employees below -, *ears of age8, whichever is higher. Q.No.6. (r. Sharma is a s&pervisor in a factory drawing a salary of As.<,,.. per month. 'n a partic&lar acco&nting year he was on one month leave with salary. 3is employer declared minim&m bon&s as per the Payment of Bon&s #ct, to all eligible employees. State in this connection9 a. b. c. d. Sol.: a. Dhere the salary or wage of an employee exceeds As.1,,.. per month, the bon&s payable to s&ch employee shall be calc&lated as if his salary or wages were As.1,,.. per month. 'n the instant case, (r. Sharma is drawing a salary of As.<,,.. per month. %or the p&rpose of bon&s his salary shall be ta;en at As.1,,.. per month. The total bon&s payable to him in that acco&nting year shall be As.1,,.. ) -1 ) 0.<<O. %or the p&rpose of calc&lating the total wor;ing days, leave with salary or wages shall be deemed to the wor;ing days of an employee. 7Sec.-+8 >ven if the company s&ffers losses, the employer has to pay the minim&m bon&s. Dhat shall be the salary that shall be ta;en into acco&nt for the p&rpose of calc&lating bon&s payable to him4 Dhat shall be the total bon&s payable to him in that acco&nting year4 Dhat wo&ld be yo&r answer if the company s&ffers losses in that acco&nting year4 's bon&s payable to him if he was illegally terminated4

b.

c.

Corporate & Other Laws Practical Questions________________________________ 35

Ph: 0863 22 42 355 d. Dhere an employee was prevented from wor;ing by reason of an illegal order of termination, Sec.-< and -+ do not apply.

Q.No.$. # Company co&ld not pay bon&s to its employees even after the expiry of six months from the close of its acco&nting year. Can the employees s&e the employer for this reason4 Sol.: #ll amo&nts payable to an employee by way of bon&s shall be paid in cash by his employer, within a period of 0 months from the close of the acco&nting year. This period of 0 months may be extended &pto a maxim&m of 1 years by the appropriate government, on an application being made by the employer. Since the periods of 0 months have not expired, employees cannot s&e the employer. Q.No.#. #n employee drawing a salary of As. ,,... per month is entitled to Bon&s. Tr&eKfalse. Sol.: %alse. #s per the Payment of Bon&s #ct, -/,5, an employee employed on a salary or wage not exceeding As. <,,.. per month is entitled to Bon&s. Q.No... S ?oins as a wor;er with Ho;ale S&gar %actory on 1 nd %ebr&ary, .+. Dill he be eligible for Bon&s for the financial year 1..<= .+4 Sol.: Sec.0 of the Payment of Bon&s #ct provides that an employee is entitled to bon&s if he has wor;ed in the establishment for not less than <. days. Since S has wor;ed for more than <. days in the acco&nting year, he wo&ld be eligible for Bon&s for 1..<=.+. Q.No.1/. T "td. Carried on three b&siness vent&res viM., man&fact&ring s&gar, cement and heavy engineering machinery, locating them in three different places in Gorth 'ndia. They employed wor;men on different terms in the different &nits. :ne of these &nits was financially feeling ill. The wor;ers of this &nit demanded bon&s on the basis of treating these three &nits as one composite establishment. Can the wor;men s&cceed in getting bon&s4 Sol.: The payment of bon&s act provides that, where an establishment consists of different departments or has branches, all s&ch departments or branches shall be treated as part of the same establishment. Therefore the wor;men s&cceed in getting bon&s. Q.No.11. State whether an employee is eligible for payment of bon&s for the following period = a8 #n employee laid off &nder an agreement. b8 #n employee on cas&al leave for , days in a year. c8 # woman employee on maternity leave. d8 #n employee absent d&e to temporary disablement. e8 #n employee prevented from wor;ing by reason of legal order of termination. Sol.: The eligibility of the following categories of employees to bon&s are disc&ssed below a8 #n employee laid off &nder agreement = >ligible for bon&s for the period of so laid off 7Sec.-+8 b8 #n employee on cas&al leave = >ligible for bon&s for the period of s&ch leaves 7Sec.-+8 as cas&al leaves are generally leave with salary. c8 Doman employee on (aternity "eave = >ligible if she has been on leave with salary wages. 'f she has been absent i.e. with salary Kwages, she is not eligible for that period of absence. d8 #n employee absent d&e to temporary disablement eligible only if the temporary disablement is ca&sed by accident arising o&t of and in co&rse of employment e8 #n employee prevented to wor; by order of legal termination is eligible for bon&s for that period.

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Q.No.12. 'n an acco&nting year, # company to which the Payment of Bon&s #ct, -/5, applies, s&ffered heavy loss. The B.:.D of the Company decided not to give bon&s to the employees. The employees of the company move to the co&rt for relief. Decide in the light of the provisions of the said #ct, whether the employee will get relief 7P>'' (ay 1..<8. Sol.: The employees are entitled to get minim&m bon&s even if the company s&ffered any loss. #s per Sec.-. of #ct, >very employer shall bo&nd to pay to every employee a minim&m bon&s which shall be 0.<<O of salaryKwages earned by the employee d&ring the acco&nting year or As. -.. whichever is higher, whether or not the company has allocable s&rpl&s. 'n case of an employee who has not completed -, years of age, s&ch min. bon&s wo&ld be As. 5. or 0.<<O of the salaryKwages, whichever is higher. 'n the present problem, >mployer is liable to pay minim&m bon&s to the employee. Q.No.13. Can the appropriate Hovernment exempt an establishment from payment of stat&tory minim&m bon&s4 'f so &nder what circ&mstances4 Sol.: #s provided in Sec.<5 of Payment of Bon&s #ct, -/5,, 'f the appropriate Hovernment, having regard to the financial position and other relevant circ&mstances of any establishment is of the opinion that it will not be in p&blic interest to apply, all or any of, the provisions of the #ct thereto, it may by notification in the :fficial HaMette exempt s&ch establishment for s&ch period as may be specified therein and s&b?ect to s&ch conditions as it may thin; fit. Q.No.14. (r. $, Dho is a cas&al employee of PBA Company act&ally wor;ed in a year for 12days. 3owever, he was absent d&e to temporary disablement ca&sed by an accident arising o&t of and in the co&rse of his employment for 2 days and has been laid off for 1 days as per the service agreement. 's he eligible to bon&s &nder the Payment of Bon&s #ct, -/5,4 Sol.: #s per Sec.0 of the Payment of Bon&s #ct, -/5,, #n employee is eligible to bon&s if he has wor;ed for not less than <. wor;ing days in the company. %&rther as provided in Sec.-+ of the said #ct, and employee shall be deemed to have wor;ed on the days on which he has been laid off &nder agreement or as permitted by the standing order of the company or &nder the '.D. #ct, -/+2 or has been absent d&e to temporary disablement ca&sed by accident arising o&t of and in co&rse of his employment. 'n the given problem, (r. ) has wor;ed for 12 days, temporarily absent for 2 days d&e to accident arising o&t of and in the co&rse of employment and laid off for 1 day as per an agreement. Therefore, the total days eligible for bon&s V 12E1E2V <5 days and (r. ) is eligible for bon&s &nder the Payment of Bon&s #ct, -/5,. Q.No.15. %or the financial years 1..-=.1, 1..1=.< and 1..<=.+ the amo&nt of available s&rpl&s allocable as bon&s to all employees of the company were As. 5,<,,..., As. 1,1.,... and As. <,2,,... respectively. (axim&m amo&nt of bon&s payable to all employee of the company as per the Payment of Bon&s #ct, -/5, is As. 1,,.,... for each of the said years. 'n terms of the provisions of the said #ct calc&late the amo&nt a company can pay as bon&s to its employees, the amo&nt set on in s&ch year and the c&m&lative set on amo&nt at the end of the year 1..<=.+. Sol.: Considering Sec.-, of P.B. #ct, Hiven problem can be solved in the following way9 2ear Avbl (urplus All;cable as b;nus =Rs.> 5,<,,... 1,1.,... <,2,,... A!;unt ;f b;nus pa<able =Rs.> 1,,.,... 1,,.,...7incl. As.<.$ for .1=.<8 1,,.,... (et ;n ;r set ;ff ;r 2ear c9f =Rs.> ,.,... Gil -,1,,... ,u!ulative set ;n ;r set ;ff =Rs.> 1,,.,... 1,1.,... <,+,,...

1..-=.1 1..1=.< 1..<=.+ 71.1" E-.1,"8

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Ph: 0863 22 42 355 Q.No.16. State with reference to provisions of the Payment of Bon&s #ct, -/5, whether the following employees are eligible to payment of bon&s in terms of provisions of said #ct. a8 #n employee wor;ing in "ife 'ns&rance Corporation of 'ndia. b8 >mployees of a &niversity or college. c8 >mployees employed tho&gh contractors on b&ilding operation. d8 >mployees of Gational 3o&sing Ban;. e8 >mployee of Aeserve Ban; of 'ndia. f8 >mployees of a (&nicipal Corporation. Sol.:Sec.<1 of the Payment of Bon&s #ct, -/5, specially provides employees to whom the provisions of the #ct shall not apply. Considering the said provision, the eligibility of the employees in the given problem are stated below. a. ......not eligible c. not eligible e. not eligible b. .....not eligible d. not eligible f. not eligible Q.No.1$. Sri. $. (&;her?ee, an employee of Bigboss "td. left the company on <..--..+ on health gro&nd. 3e was on sic; leave since ,th #&g&st 1..+ and did not wor; from that date. There was an agreement by the company with its wor;er in -//0 for payment of bon&s to employees. The company ref&sed to pay the bon&s for the year 1..<=.+ and threatened the employees of retrenchment in case of any labo&r tro&ble in connection with the bon&s iss&e. >xplain in terms of the payment of Bon&s #ct, -/5, i8 Dhat remedy is available to the wor;ers, ii8 Can Sri (&;her?ee after leaving the company move to recover amt from company4 iii8 Dhat is the power of the appropriate Hovernment to recover the amo&nt4 Sol.: #s per Sec.1- of P.B. #ct, 7i8. Dor;ers can apply to appropriate government for recovery of amo&nt d&e to them. 7ii8. Sri (&;her?ee can move to appropriate government within one year from the date the money became d&e to him. 7iii8. The appropriate government if satisfied that any amo&nt is d&e to Sri (&;her?ee, 't shall iss&e a certificate for that amo&nt to the collector who shall collect the amo&nt as an arrear of land reven&e. Q.No.1#. Sri. San?ib is an employee of the (egatele Co. "td. There are three trade &nions in the company. :ne of the &nions prevented the wor;ers belonging to the wor;ers of another &nion and as a res&lt Sri San?ib was prevented from attending to his wor; for few days. The company paid bon&s to its employees d&ring the year 1..<=.+ b&t ref&sed to pay f&ll bon&s to Sri San?ib beca&se of his not attending office d&ring the period he was prevented from attending office. >xplain in terms of the Payment of Bon&s #ct, -/5, whether Sri San?ib wo&ld be entitled to bon&s for those days. Sol.: #s per Sec.-+ of P.B. #ct, #n employee who is willing to wor; and is prevented from wor;ing is therefore eligible to bon&s. Sri San?ib is entitled to bon&s for those periods. Q.No.1.. Sri Bholanath, an employee of Gewtele "td. destroyed some electronic machines in the company premises after ta;ing alcoholic with his friends in the company premises. 3e was fo&nd g&ilty and p&nished &nder the ind&strial Disp&tes #ct, -/+2. The Company loose h&ge amo&nt d&e to brea; down of the machines. Dhen the company paid bon&s in that year to its employees it ded&cted the amo&nt from the bon&s payable to Sri Bholanath and he did not get any bon&s in that year. Did the company violate any provisions of the Payment of Bon&s #ct, -/5, in not paying bon&s to Sri Bholanath4 Sol.: #s per Sec.-0 of P.B. #ct, The company can ded&ct the amo&nt of loss from the bon&s payable to Shri Bholanath and it did not violate the provisions of the #ct.

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Q.No.1. # Co=operative Society with &nlimited liability wants to expel its member, who pre?&dices the society by his miscond&ct. %or this p&rpose, the society wants to amend its bye=laws. State the gro&nds which sho&ld be incl&ded in the bye=laws of the society so as to expel s&ch member from the membership of the society4 Sol.: The society has the right to expel a member who cond&ct or character is pre?&dicial to the society. The bye=laws of a society normally provide that a member may be expelled if9 a. 3e fails to f&lfill his obligations in the ,atter o8 &ues 7the n&mber of months arrears being specified8. b. 3e becomes a ,e,'er o8 another si,ilar societ! and ref&ses to withdraw 7beca&se each member has the right to inspect the boo;s of the society and may pass information to a rival society of which he is a member8. c. 3e is to be proceeded a ainst 8or &e'ts. d. 3e becomes insol-ent. e. 3e engages in s&ch acti-ities as ,i ht 'e contrar! to the principles o8 the societ!. f. 3e becomes unsoun& ,in&. g. 3e is con-icte& by as criminal co&rt, especially for bribery, forgery, theft or fra&d. h. 3e has co,,itte& an act that is considered &ishonora'le by the managing committee. Q.No.2. S is a member of a co=operative society registered with the &nlimited liability &nder the Cooperative Societies #ct, -/-1. 3olding shares of the society for ten months, S transfers his shares to (ohan. Decide whether transfer of shares in favo&r of (ohan is valid4 Sol.: 'n the case of an unli,ite& Societ!, a member cannot transfer any shares &nless9 a. b. 3e has held s&ch shares for not less than - year ! The transfer is made to the society or to a member of the society.

3ence, the transfer of shares by S is not valid since he had held these shares only for -. months. Q.No.3. (r. Aamam&rthy is a member of a co=operative society. #fter one year he becomes member of another society. :ne of the members of society complains to the society (r. Aamam&rthyRs membership in the other society and as;ed for his exp&lsion. B&t Aamam&rthy contended that it is his f&ndamental rights to be members of another society and no one can debar him. #dvise the society. Sol.: The membership of a society is governed by the bye=laws of the society and the Co= operative Societies #ct, -/-1. 't is based on the co=operative principles. The bye=laws of the society generally provide provisions for restriction of m&ltiple memberships of a member. This principle based on the concept that each member has the right to inspect the boo;s of the society and may pass information to other societies which may be against the interest of other member Co=operative societies are established for the benefit of the members. 'f (r. Aamam&rthy does not withdraw from the membership of the other society he may be expelled form the membership of the society. Q.No.4. # limited co=operative society earned a net profit of As. -,..,... in a year. The member want the profit to be divided among themselves e6&ally. The society has also divisible profit for the past year amo&nting to As. 1.,.... State how the profit will be divided among the members. Sol.: #s per Sec.<< of Co=operative Societies #ct, -/-1, Go part of the profit of a limited society shall be divided among the member &nless one=fo&rth of the net profit is transferred to a reserve f&nd. The divisible profit of the past year may also be divided among the members. Considering the provisions o&t of net profit of As.-,..,..., As. 1,,... being one=fo&rth of the amo&nt is to be transferred to reserve f&nd and the balance As.2,,... and the past profit of As.1.,...7total As./,,...8 may be divided among members s&b?ect to the bye=laws of society. Corporate & Other Laws Practical Questions________________________________ 3.

Ph: 0863 22 42 355 Q.No.5. (r. ) is a member of a co=operative society limited by shares with a share capital of As. -,..,.... There are 1. members in the society each holding shares of As. ,,.... , members of the society want to withdraw from the society and (r. ) wants to b&y their shareholding. Can he do so4 Dhat wo&ld be the position if a registered society as a member ac6&ires those share4 Sol.: (embership of co=operative society is based on the co=operative principles. (embers may withdraw from the membership. Dhen members withdraw their share val&e may be paid to the member. %&rther, as provided &nder Sec., of Co=operative Societies #ct, -/-1, in case of a co= operative society limited by shares no member other than a registered society as member shall shares s&b?ect to a maxim&m of -K,th of the share capital of the society. %rom the provision it can be seen that (r. ) can hold &pto As.1.,... shares. 'f he ta;es the shares of the , members, his total share wo&ld go &p to As. 1,,... which is not permissible &nder the #ct. 'n the second concept, if a registered society ac6&ires the shares of the , members, its shares wo&ld be As. 1,,... which does not prohibit the provision of law therefore, can ac6&ire the share s&b?ect to the bye=laws of the society. Q.No.6. (r. Bi?ay $&mar, a member of a registered co=operative society resigned from the society and his resignation was accepted w.e.f. .-..2..+. :n 15.-1..+ the society received a claim for As.1.,... relating to the year 1..1. The existing members are capable of meeting the debt. >xplain in terms of the provisions of the Co=operative Societies #ct, -/-1. i8 Dhether (r. Bi?ay $&mar is liable for the debt. ii8 Dhat wo&ld be yo&r answer if (r. Bi?ay $&mar had resigned as a member w.e.f. .-..2..1, iii8 'f (r. Bi?ay $&mar wo&ld have died, explain the position of his legal representative. Sol.: 'n terms of the provisions of section 1< and 1+ of the Co=operative Societies #ct, -/-1 a past member shall be liable for the debts of the society for two years from the date when he cased to be a member. 'n case a member is dead, his legal representative shall be liable for the debts of the society for one year from the date of the death of the member. So, i8 (r. Bi?ay $&mar is liable for the debt since he resigned w.e.f. .-..2..+ and the claim was made on 15.-1..+. 't is immaterial to which period it relates. ii8 'f (r. Bi?ay $&mar wo&ld have resigned w.e.f .-..2..1, he wo&ld not have been liable for the debt which arises in December .+ tho&gh it relates to the year 1..1. iii8 'f (r. Bi?ay $&mar wo&ld have died his legal representatives wo&ld have been liable if the death of (r. Bi?ay $&mar wo&ld have been within one year from 15.-1..+ i.e. Date of claim. Q.No.$. Sri H&ndicha Co=operative Society lent a s&m of As.1.,... to one of its members on mortgage of gold by the member. >xplain in terms of the provisions of the Co=operative Societies #ct= i8 Dhether the society can give loan to its members, if it is limited society, ii8 Dhether the society can give loan to its members, if it is an &nlimited society iii8 Do&ld yo&r answer be same if the member wo&ld have mortgaged his land to the society for ta;ing the loan4 Sol.: Sec.1. of Co=operative Societies #ct, -/-1 provides that a registered society can give loan to its members who are individ&als. "oan to members who are registered co=operatives re6&ires approval of Aegistrar. "oan to a member on sec&rity of immovable property may be restricted or prohibited by State Hovernment. So, i8. The society, if it is limited society, can give loan to its members on mortgage of gold. ii8.The society, if it is an &nlimited society, can give loan its members on sec&rity of gold 7movable property8 with approval of the Aegistrar. iii8.The society has to see whether there is any restriction or prohibition by the S.H as regards to s&ch loan on sec&rity of immovable property. 'f there is no s&ch restriction or prohibition, the society can give the loan. Q.No.#. #ll Brothers Co=operative Society made a good profit in the year 1..<=.+. The (anaging Committee of the society recommended payment of divided W -.O of the profits to its member and the Heneral Body of the society approved the same. >xplain in terms of the provisions of the Co=operative Societies #ct, -/-1= i8. Dhether the society can distrib&te dividend if it is a limited society, Corporate & Other Laws Practical Questions________________________________ 4/

ii8. 'n case it wants to pay dividend what wo&ld be the maxim&m 6&ant&m of dividend, iii8. Can &ndistrib&ted profits of past years be &tiliMed in paying divided in the c&rrent year4 Sol.: #s per Sec.<< of Co=operative Societies #ct, -/-1, i8. Society can distrib&te dividend after transferring -K+th of net profits to reserve f&nd. ii8.The 6&ant&m of dividend depends &pon the policy of the society and the provisions of the bye=laws. #fter transferring -K+th of net profits to reserve f&nd. The society can distrib&te balance amo&nt as dividend and even o&t of past years profit. iii8.Cndistrib&ted profits of the past years can be paid as dividend if the bye=laws permit. Q.No... (r. S.(. H&pta is a member of a registered co=operative society. State his rights to vote as a member in terms of provisions of the Co=operative Societies #ct, -/-1 = i8. 'f he has partly paid his membership feeN ii8. Go. of votes he is entitled to cast if the society is a limited society or &nlimited societyN iii8.Can he appoint a proxy to vote in his stead4 Sol.: #s per Sec.-1 of Co=operative Societies #ct, -/-1, no member shall exercise his right to vote &nless he has made the payment in respect of membership to the society as per the byelaws of the society. Sec.-< of the #ct provides that in case the liability of the member of the society is not limited by shares, he is entitled to one vote only. Dhere the liability is limited by shares he is entitled to as many votes as may be prescribed in the bye=laws of the society. # registered society if is a member of another society, it can appoint any member of the society as proxy to attend and vote at the meeting of the society where it is a member. So, i8. (r. H&pta is not entitled to vote as a member at the meeting of the society as he has not paid the membership fee. ii8. 'f the society is a limited liability society, (r. H&pta can cast as many as votes as bye laws of the society permits provided he has paid the membership fee and is entitled to vote. iii8. (r. H&pta cannot appoint a proxy to vote at the meeting of the societyN only societies which are members are entitled to appoint proxies. Q.No.1/. (r. B.Gaya; is a member of Bilana Co=operative Society. 3e has certain debts payable to the society. >xplain in terms of the provisions of the Co=operative Societies #ct, -/-1 i8. Dhether his shares in the society have a charge for the said debtN ii8. Can the society set of s&ch debt from s&ch shares. iii8.Can s&ch shares be liable to attachment are claimable by any :fficial AeceiverK#ssignee4 Sol.: #s per Sec.1. of Co=operative Societies #ct, -/-1, the share or interest of any member in the capital of the society will have a charge in respect of any debt d&e by the member to the society. The society can set off s&ch debt of the member from his share or interest in the society. Sec.1- of #ct provides that the share or interest of any member in the capital of the society shall not be liable to attachment claimable by any :fficial Aeceiver or #ssignee. So, i8. The shares of (r. B.Gaya; shall have a charge in society for his debts d&e to the society. ii8. The society can set off the debts d&e from (r. Gaya; from his shares or interest in the capital of the society. iii8. The shares or interest7(r.Gaya;8 cannot be claimable by any :fficial Aeceiver or #ssignee.

$#'%& (%A%E ,"3"PERA%&)E (",&E%&E( A,%

Q.No.1. >xamine the validity of the following acts of the society d&ring a partic&lar year9 a. b. The Society declares dividend --O on its paid &p share Capital. The society decides to donate a s&m of As.-. la;hs o&t of its LGet Profits.

Sol.: #s per the provisions of the m&lti state co=operative society, profits can be &sed for payment of dividend at a rate not exceeding -1O ! donations not more than , la;hs. Th&s applying the above provisions, the answers to the 6&estions as;ed are as &nder9 a. b. Declaration of dividend W --O on the paid share capital of the society is 6&ite valid as it does not exceed -1O. The decision to donate As.-.la;hs o&t of the societys Get Profits is not valid since the limit is As.,la;hs in a year.

Corporate & Other Laws Practical Questions________________________________ 41

Ph: 0863 22 42 355 Q.No.2. (r. P, a member of a m&lti=State co=operative society applied to the society for a loan on sec&rity of his shares in the society. >xplain with reference to the provision of the (&lti=State Co= operative Societies #ct, 1..1 i8 Dhether the (&lti=State Co=operative Society can given him the loan. ii8 'nstead of sec&rity of his own shares, if one of his relatives offer mortgages of his property. iii8 'f (r. P wo&ld have been a depositor, wo&ld the (&lti=State Co=operative society provide him he loan on mortgage of s&ch deposit4 Sol.: #s per Sec.55 of (&lti=State Co=operative Societies #ct, 1..1, i8. (&lti=State Co=operative Society cannot give loan to (r. P on sec&rity of his shares. ii8. >ven if relative provides any sec&rity, society cant give loan as his relative is non=member. iii8.'f (r. P wo&ld have been a depositor, the society might give him the loan on the sec&rity of his deposit in the society. Q.No.3. # (&lti=State Co=operative Society is formed with some 'ndivid&als as members. Some of the 'ndivid&al members want to transfer their shares to one of themselves. >xplain with reference to the provisions of the (&lti=State Co=operative Societies #ct, 1..1, i8 Dhether the individ&al members can transfer their shares to another, ii8 Dhat is the limit of shareholding of an individ&al shareholder4 iii8 3ow far the members who transfer their shares liable for the debts of the society. Sol.: #s per Sec.<+ of (&lti=State Co=operative Societies #ct, 1..1, Transfer of shares or interest of members in the capital of a m&lti=State Co=operative Society shall be s&b?ect to s&ch conditions as to maxim&m holding as specified in Sec.<< of the #ct. Sec.<< of the #ct provides that no member other than those specified in Sec.1, 7-8 7c8 to 7g8 shall hold s&ch portion of total share capital of the society not exceeding one=fifth thereof as may be prescribed in the r&les or bye= laws of the society. %&rther as provided in Sec.<2 of the #ct, the liability of a member shall contin&e form the date of transfer of the shares till two years from s&ch date. So, i8 # member can transfer his shares to another. ii8 #n individ&al member can hold shares as provided in the r&les of bye=laws of the society s&b?ect to a maxim&m of one=fifth of the share capital of the society. iii8 # member who transfers his shares shall be liable for any debts of the society from date of s&ch transfer and contin&e for a period of two years from s&ch date of transfer.

E$P'"2EE( PR")&+E-% F#-+ A,% ? $&(,. PR")&(&"-( A,%

Q.No.1. (rs. Ts&nami who was an employee of (Ks. Bac;bone "td. died in a s&dden accident. She had ta;en a loan from a ban; for p&rchasing a ho&se and the loan was still o&t standing. #fter her death her legal representative applied for payment of her P.% d&es. The ban; lodged a claim with the a&thorities for payment of its balance loan amo&nt from the P.% d&es. >xplain with reference to the provisions of the >mployeesR Provident %&nd and (iscellaneo&s Provisions #ct, -/,1 i8 Dhether the ban; can recover the loan amo&nt from the P.%. d&es and ii8 'f, 'nstead of the ban;, (rs. Ts&nami had ta;en any loan from her legal representative what wo&ld have been the answer4 Sol.: #s per Sec.-.718 of the >mployeesR Provident %&nd and (iscellaneo&s Provisions #ct, -/,1 any amo&nt standing to the credit of a member in the %&nd at the time of his death and payable to his nominee shall vest on the nominee and shall be free from any debt or other liability inc&rred by the deceased or the nominee before death of the member and shall not be liable to attachment by any decree or order of any co&rt. So, i8 The ban; cannot recover its loan d&es from the P.%. d&es, ii8 #nswer wo&ld be same in case the nominee had paid any loan to (rs. Ts&nami before her death. Q.No.2. (Ks 3arsh "td. has been reg&larly depositing the P.%. contrib&tions to the Hovernment in respect of the companyRs contrib&tion as well the employeesR contrib&tion. The company is doing well and earning h&ge profit. B&t d&e to reverse mar;et conditions the company s&ffered loss for the last two years. The management is thin;ing to red&ce the salaryKwages of the employees to red&ce the companyRs contrib&tion to P.%. and instead, to pay certain compensatory allowance so Corporate & Other Laws Practical Questions________________________________ 42

that the employeeRs pay pac;et remains same. >xplain in terms of the provisions of >mployeeRs Provident %&nd and (iscellaneo&s Provisions #ct, -/,1 whether the company can red&ce the salaryKwages. Sol.: #s per Sec.-1 of the >mployeesR Provident %&nd and (iscellaneo&s Provisions #ct, -/,1, (Ks 3arsh "td. cannot red&ce the salaryKwages of its employees so that lower contrib&tion will be made by the company to the %&nd which will red&ce the benefit to the employees &nder the Scheme. Q.No.3. (KS #twal ! Co. Pvt. "td. is engaged by (Ks. (ine managers "td. for doing operational wor; at its mines. There are abo&t <.. employees employed by (Ks #twal ! Co. Pvt. "td. to do the mining operation. (Ks (inemanagers "td. ded&cted from the amo&nt payable to (Ks #twal ! Co. Pvt. "td. a s&m of As.1,..,... being the P.%. contrib&tion of the employees engaged by it. (Ks #twal in response to s&ch ded&ction, ded&cted from the employees the entire amo&nt of As. 1,..,... in two installments to which the employees protested. >xplain in terms of the provisions of >mployeesR Provident %&nd and (iscellaneo&s Provisions #ct, -/,1. i8 Dhether (Ks #twal ! Co. "td. Can ded&ct from the salaryKwages of the employeeN ii8 Dhether it can ded&ct the employeeRs contrib&tion from the salaryKwages paid to the employees in one installment. iii8 Can it recover the amo&nt from the employees by entering into an agreement with employees4 Sol.: #s per Sec.0# of >mployeeRs Provident %&nd and (iscellaneo&s Provision #ct, -/,1, i8. (Ks #twal may ded&ct the employeeRs contrib&tion from the salaryKwages of employees. ii8. (Ks #twal may ded&ct the employeeRs contrib&tion only from the salaryKwages of the employees in one or more installments. iii8 (Ks #twal cannot recover the employerRs contrib&tion from the salaryKwages of the employees even by entering into any agreement with the employees. Q.No.4. (anorama Hro&p of 'nd&stries sold its textile &nit to Hiant Hro&p of 'nd&stries. (anorama Hro&p contrib&ted 1,O of the total contrib&tion in pension scheme, which was d&e before sale &nder the provisions >mployeesR Provident %&nd and (iscellaneo&s Provisions #ct, -/,1. The transferee company 7Hiant Hro&p of 'nd&stries8 ref&sed to bear the remaining 2,O contrib&tion in the Pension Scheme. Decide in the light of the >mployeeRs Provident %&nd and (iscellaneo&s Provisions #ct, -/,1, who will be liable to pay for the remaining contrib&tion in case of transfer of establishment and &pto what extent4 7P> '', GovR .+8 Sol.: #s per Sec.-2B of >mployeesR Provident %&nd and (iscellaneo&s Provisions #ct, -/,1, Both (anorama Hro&p of ind&stries and giant Hro&p of ind&stries are liable to bear the amo&nt of contrib&tion. 3owever, Hiant Hro&p of ind&stries will bear only &pto the val&e of the assets obtained by it. Q.No.5. The P. %. a&thorities passed an order in 1... determining d&es from %eedbac; Co. "td. in @&ly 1..< the concerned officer who passed the order iss&ed a notice to the company as to why the amo&nt determined earlier sho&ld not be re=determined. >xplain in terms of the >mployeeRs Provident %&nd and (iscellaneo&s Provisions #ct, -/,1 as to power of the concerned officer to re= open the case if any amo&nt hand been escaped his determination. Sol.: Based on Sec.2C of aforesaid #ct, the P.%. a&thorities may re=open the case.

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