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TRANSFER AND TRANSMISSION OF SHARES


Learning Outcomes:
Transfer of shares is a transaction resulting in a change of share ownership. A shareholder,
whether in public or private company, has a property in his share which he has a right to
dispose of, subject only to any express restriction which may be found in the articles of the
company. In other part Transmission is the automatic process; when a shareholder dies, his
shares immediately pass to the personal representatives or, if a member is declared bankrupt,
their shares will vest in the trustee in bankruptcy.
Introduction:
Shares are like any other goods. Section 82 states that the share shall be a movable property
and transferable in a manner provided by the articles of the company. It has, however, been
consistently held by the courts that subject to restrictions imposed by the articles, a
shareholder is free to transfer shares to a person of his own choice and that the articles cannot
put a complete ban or unreasonable restriction on the transfer. While shares in a private
company are not freely transferable and are subject to the restrictions imposed by the articles
of the company, shares in a public company are freely transferable. There are different types
of transfer such as transfer of share by gifts, in case of joint holdings and transfer in private
companies.
Transfer of shares: Transfer of shares is a transaction resulting in a change of share
ownership. A shareholder, whether in public or private company, has a property in his share
which he has a right to dispose of, subject only to any express restriction which may be found
in the articles of the company.
Transmission is the automatic process; when a shareholder dies, his shares immediately pass
to the personal representatives or, if a member is declared bankrupt, their shares will vest in
the trustee in bankruptcy.

Transfer Of Shares – Procedure And Scope


"When joint stock companies are established, the great object was that the shares should be
capable of being easily transferred.”

1.1 Need for an Instrument of Transfer


Shares are moveable goods. The ownership of moveable goods may be transferred by
delivery of possession, but as per section 36 there is a contractual relationship between the
members and the company. When shares are transferred the contractual relationship is
assigned to the transferee which requires an instrument of transfer. Transferring a share
involves a series of steps, first an agreement to sell, then execution of a deed of transfer and
finally registration of the transfer. Section 108 lays down the procedure for transfer.

1.2Procedure for Transfer of Shares


1) Instrument of transfer must be executed by both transferor and transferee.
2) It must be duly stamped
3) It must be delivered to the company along with certificate relating to shares transferred
4) Must be in the prescribed form and presented to prescribed authority.
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Transfer Form’ Section 108 requires the transfer to be in a proper instrument of transfer
known as ‘Share Transfer Form’ which is required to be presented to the Registrar of
Companies before it is signed and filled up by the transferor .
Any instrument of transfer which is not in agreement with these provisions shall not be
accepted by the company. The transferee becomes a member of a company only when the
transfer is registered by the company.
In Prafulla Kumar Rout v. Orient Engg. Works (P.) Ltd it was observed that all that section
108 requires is that before delivery, the stamps should be affixed. However, in Mathrubhumi
Printing & Publishing Co. Ltd. v. Vardhaman Publishers Ltd . the Kerala High Court
observed that instrument is unstamped if the it is not properly executed. Cancellation of the
stamps by the staff of the company does not make the transfer instrument duly stamped .
Provisions of Section 108 are inapplicable to transfer where transferee or transferor are
entitled as beneficial owners in the records of depository.

1.3Demat Shares
In the case of fresh issue (IPO), the investor would indicate his choice in the application
form, if he opts to hold the security in the depository mode, commonly known as 'demat'
mode. An investor, who opts for a depository mode may at any time, opt to choose out of it
and claim share certificate from the company by substituting his name as the registered owner
in the place of the depository. Ownership changes in the depository system will be made
automatically on the basis of delivery vs. payment. The provisions of section 108 are
inapplicable to transfer where transferee and transferor are entered as beneficial owners in
records of depository.

1.4Time Limit
As per section 113, a company is required, within 2 months after the application for transfer,
to deliver the share certificates duly transferred. In Re, Reliance Industries Ltd. the company
failed to deliver shares within the prescribed time of 2 months. CLB fined the company and
share transfer agents. The default under section 113 is a continuing offence and, therefore,
shall not be subject to limitation.

1.5 Board Of Directors- Power Of Refusal


Where the AoA of a Company give power to the Board to refuse registration of a transfer of
shares, such power must be exercised by a resolution of the Board. The Board may refuse to
register the transfer as long as they are acting in the interests of the Company, but if they
exercise their discretion to refuse malafide, i.e. they act oppressively or corruptly, the
CLB or the Court will now interfere and order registration.

1.6rights Of Transferees
Till the company has registered the transfer, the name of the transferor continues to appear in
the register of members and thus he continues to be the lawful owner but transferee is the
beneficial owner (cestui que trust). In order to protect the interest of the transferees; section
206A was added by the Amendment Act, 1988 which provides that where any instrument of
transfer of shares has been delivered to the company for registration and transfer has not been
registered, the right to dividend, rights shares and bonus shares will be kept on hold.
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1.7Blank Transfer
Where a shareholder signs a share transfer form without filling in the name of the transferee
and hands it over along with the share certificate to the transferee thereby enabling him to
deal with the shares, he is said to have made a transfer ‘in blank’ or a ‘blank transfer’. It is
not a negotiable instrument because it may be transferred by mere delivery.

1.8Right To Pre-Emption
It is a common practice to provide in the articles that any member intending to transfer his
shares must offer the shares first to other members of the company. Such restrictions are not
invalid. The conditions imposed and the formalities prescribed by the articles are
mandatory. The pre-emption clause does not, however, completely bar transfers to outsiders .
1.9 Restrictions On Transfer Of Shares
I General Grounds - Malafide instrument of transfer, inadequacy of reasons, irrelevant
considerations and bad delivery of transfer documents, contravention of law, prejudicial to
company or public interest and stay order by Court are the reasons when transfer of shares
can be restricted.

II Special Circumstances
1) On transfer with regard to the company's borrowing
2) Under SEBI Guidelines shares allotted to certain categories of shareholders such as
promoters, employees, etc are subject to condition of non-transferability for a period of 3-5
years accordingly.

 Transmission Of Shares
Transmission of shares takes place, when the registered shareholder dies; or when he is
adjudicated an insolvent; or where the shareholder is a company it goes into liquidation. On
the death of a shareholder, his shares vest in his legal representative. The legal representative
may transfer the shares devolved upon him by transmission.
Transmission of shares in favour of a member of a private company who is engaged in a
competing business cannot be refused. In S.M. Hagee Abdul Hye Sahib v. KNS Hajee Shaik
Abdul Kadar Labbai Sahib Co. (P.) Ltd ., the CLB held that a transfer of shares in a private
company may be refused in case the transferee is engaged in a competing business but
transmission cannot be refused on that ground. Succession certificate covering shares held by
a deceased member on the date of his death would cover subsequent issue of bonus shares
and no fresh succession certificate would be required .

3.1Transmission V Transfer
Transfer is by the act of the parties. Transmission is by devolution of law, i.e. death or
bankruptcy. In transmission of shares no procedures are required to be followed unlike in
transfer of shares.
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SEBI And RBI Control Over Corporate Finance


Objective: After reading this module, the learners will have a clear picture of :
It is the duty of the Board to protect the interests of the investors in securities and to promote
the development and regulate the securities market.
Learning Outcomes:
The acceptance of deposits by companies is regulated by Reserve Bank of India, SEBI and
control over the deposit acceptance activity of non financial companies is vested in
Department of Company affairs.
Introduction:
Prior 1992 there are three principal act governing to the securities Market were:
1. The Capital issue control Act 1947 which restricted the issuer’s access to the securities
marketand controlled the pricing of issues.
2. The companies act 1956 which set out the code of conduct for the corporate sector in
relation to issue allotment and transfer of securities.
3. The securities contract Regulation act 1956 which provides for regulation of transactions in
securities through control over stock exchanges.
In addition a number of other Acts I’e The Public Debt act 1944, The income tax act 1961,
the Bnaking Regulation act 1949 etc.
The Securities and Exchange Board of India (SEBI), which was established on april 12,1988
through an extraordinary notification of the Government of India. The Ordinance was
replaced by the SEBI Act 1992. The Board consist of a chairman and five other members:
One each from the Ministry of Finance, One from Ministry of Law and Justice and company
affairs and one from the Reserve Bank of India and two others to be appointed by the Central
Government. The duty of the Board to protect the interests of the investors in securities and
to promote the development and regulate the securities market.
Power and function of the Securities and Exchange Board of India (SEBI):
I. Regulating the business in stock exchanges and any other securities markets.
ii Registering and regulating the working of stock Brokers,sub-Brokers,Share transfer agents,
Registrar to an issue, Merchant Bankers, Portfolio managers etc.
iii Registering and regulating the working of collective investment schemes including Mutual
fund
Iv.Promoting and regulating self regulatory organizations.
V.Prohibiting fraudulent and unfair trade practices in securities market.
Vi.Promoting investors education and training of intermediaries in securities market.
Vii.Prohibiting insider trading in securities.
viii. Regulating substantial acquisition of shares and takeover of companies.
ix. Calling for information, undertaking inspection, audit of the stock exchanges etc.
x levying fees or other charges for carrying out of this section.
xi.Conducting research for the above purpose
xii performing such other functions as may be prescribe by the Government.
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Power of the Board:


1.The Board shall have the same powers as are vested in a Civil Court under the code of Civil
procedure 1908 while trying suit in following matters namely:-
i. The Discovery and production of books of account and other documents at such place and
such time as may be specified by the board.
Ii. Summoning and enforcing the attendance of persons and examining them on oath.
Iii Inspection of any books, register and other documents of any person I;e stock-broker,
share transfer agent etc at any place.
iv. Inspection of any book, or Register or other document or record of the company I;e listed
public company or any recognized stock exchange.
V Issuing commissions for the examination of witness or documents.
vi. Suspend the trading of any security in a recognized stock exchange
Vii. Restrain persons from accessing the securities market and prohibit any person associated
with securities market to Buy, sell or deal in securities.
Viii. Suspend any office- Bearer of any stock exchanges.
Ix Board to regulate or prohibit issue of prospectus, offer document or advertisement
soliciting money for issue of securities.
X power to issue direction and investigation.
RBI Regulation:
1. RBI Empowered: Deposits of non-banking companies attracted official attention only in
1964 when the RBI was empowered to regulate the quantum of company deposits.
2. Objective: The primary objective of exercising control over deposit acceptance on
companies is to regulate the growth of deposits outside the banking system as also afford a
degree of indirect protection to the depositors.
3. Acceptance of Deposits: The acceptance of deposits by companies is regulated by Reserve
Bank of India and control over the deposit acceptance activity of non financial companies is
vested in Department of Company affairs.
4. Celling of Interest: Restrictions on quantum and tenure of deposits and ceiling of interest
rates.
5. Mantain Liquid assets: They require certain type of companies to maintain liquid assets
and all companies to submit returns/Balncesheet etc.
6 The RBI Regulation of Public Deposits has six main aspects:
1. Ceilling of Quantum Deposits: There is a ceiling on the quantum of deposits in terms of
paid-up capital and reserves by the company because undue accumulation of short-term
liabilities in the form of deposits can lead a company into financial difficulties.
i. Deposits: Any money received by a non banking company by way of deposits or loan or in
any other form but excludes money raised by way of share capital or contributed as capita by
proprietors.
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2. Limit on Period: The Reserve bank Regulation is the limit on the period of such deposits.
Formerly in order to avoid direct competition with short-term public deposits, companies
were prohibited from accepting deposits for a period of less than 12 months. But the
amendment of 1973 reduced the period to less than 6 months. The short term deposit is now
pegged down to 10% of the aggregate to the paid-up capital.
3. Information about Repayment: The Reserve Bank has made obligatory on the part of the
companies accepting deposits to regularly file returns giving detailed information about them
their repayment etc.
4. While issuing Newspapers: The Reserve Bank has stipulated that while issuing
newspaper advertisement certain specified information regarding the financial position and
the working of the company must accompany.
5. Auditors: The RBI has entrusted the auditors of the companies with additional
responsibility of reporting to it that the provisions under the Act had been strictly followed by
the company.
6. Issued Brochure: The RBI has issued brochure RBI directives and company Deposits in
order to clarify its role in protecting depositors.

Rights In Making Company Decisions Affecting


Creditor’s Interest
The Administration of a company is vested in the Board of Directors and other officials who
are answerable to the shareholders. In all meeting the decision taken by the majority is final
and it is binding to all. But sometimes the majority view may affect the interests of the
remaining minority shareholders. Than minority shareholders can protect their interests
through law.

1. Illegal or Ultra Vires Act: A shareholder is entitled to bring an action against the
company and its officers in respect of matter which are ultra vires.

2. Prevention of oppression and mismanagement: A member who complaints that the


affairs of the company are being conducted in a manner injury to public interest or any
shareholders interest he may apply to tribunal for relief on the ground of mismanagement
of the company under sec 241 of the companies Act.

3. Class Action Sec 245:Member or number of members, depositors or any class of


them are of the opinion that the management or conduct of the affairs of the company are
being conducted in a manner injury to the interests of the company or its members or
depositors file an application before the Tribunal on behalf of the members. Or depositors
1. To restrain the company from committing an act which is ultra vires the articles or
memorandum.
2. To restrain the company from committing breach of any provision of the company’s
memorandum.
3. To declare a resolution altering the memorandum or articles.
4. To restrain the company from taking action contrary to any resolution passed by the
members.
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Payment of Dividends:
1. The payment of dividends is having two fundamental principles. The first dividends must
never be paid out of capital.
2. The dividends shall be paid only out of profits.
Case: K.Madhava v Popular Bank,(AIR 1970 Ker.131): It has been held that payment of
dividend out of capital is a breach of trust.Howerver the directors may recover indemnity
from he shareholders who have received the dividends out of capital.
Case: Flitcroft’s case (i.e in re Exchange Banking Co,(1882) 21 Ch D 519) certain bad debts
were credited to the accounts and not real profit created were paid away as dividends. The
directors were held responsible.

SECURITIES AND BORROWING


Objective: After reading this module, the learners will have a clear picture of :
Borrowing is the act of taking or obtaining anything on Loan. Borrowing is contracting a loan
taking money on credit.

Learning Outcomes:
A "security" varies by legal and regulatory jurisdiction. In some jurisdictions the term
specifically excludes financial instruments other than equities and fixed income instruments.

Introduction:
Securities: A security is a tradable financial asset. It is commonly used to mean any form of
financial instrument but the legal definition of a "security" varies by legal and regulatory
jurisdiction. In some jurisdictions the term specifically excludes financial instruments other
than equities and fixed income instruments.
1. Corporate Securities: Corporate Securities means raising of the Capital.
2. Classification of Securities: (i) Ownership: known as Capital Stock and (ii) Creditorship:
Securities as Debt
3.Ownership Securities: Ownership securities includes Ordinary shares(equity), preference
shares and cumulative convertible preference shares.
4. Ordinary Shares: Ordinary shares may be regarded as the corner-stone of financial
structure. Ordinary shares are takes responsibility which are usually associated with
ownership
5. Advantage of Ordinary Share: The Corporation by issuing equity shares can have the
funds permanently and there is no obligation to return the creation of any charge against the
assets of company.
ii Legal Restriction: Individual and Institutional investors cannot purchase equity shares
because of choice.
Iii Over-Captalisation: Excessive issues of equity shares may result in over-capitalisation in
future.
6.The Right of Ordinary Shares:
i Right to Vote: The shareholders having Right to vote. Vote issues like the amendment of
Memorandum of Association or Alternation of article etc.
ii Right against ultra vires acts of the Company: Share holders consent is required to
investment their Capital. Shareholders may bring legal action to prevent the corporation.
iii Pre-emptive right: It is vital right which serves to protect the shareholders by giving
themfirst option to buy of additional issues.
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iv. Right to have knowledge of corporate affairs: the equity shareholders have the
fundamental right of being informed about various developments in a corporation at least
once in a year in annual general meeting.
v.Right to transfer the shares: The shareholders are always at liberty in a public limited
company to transfer their holding to anyone.
vi. Miscellaneous Rights: besides the above rights the shareholders have the privilege of
participating in exceptional profits.

Borrowing:Borrowing is the act of taking or obtaining anything on Loan. Borrowing is


contracting a loan taking money on credit.

Restriction on Borrowing (Sec11):A company having share Capital shall not start any
business having borrowing power unless following condition fulfill:
1.Decleration:A declaration is filled by a director with the Registrar that every subscriber to
the memorandum has paid value of the shares. The paid Capital value of the shares is not less
than five lakh rupees in case of public company and not less than one lakh rupees in case of
Private company.
2. Registered office: The company has filed with the Registrar a verification of its registered
office.
3. Penalty:if any default is made in complying with the requirement of this section.
4. Removal of the Name: No declaration has been filed Within a period of one hundred and
eighty days of the date of incorporation of the company Registrar believe that company is not
carrying on any business he may removal of the name of the company.
5. Borrowing by the Board of Directors: Sec.180 (1) (c) :Consent of the shareholders: The
Board of Directors of the company borrow the money with the consent of the company by a
special resolution passed in the company general meeting shall .
6. Un Authorized borrowing (Ultra Vires Borrowing):If company borrows money beyond
its powers the borrowing is ultra vires.
7. Right to Recover: If the money lent to the company has not been spent the lender may get
injunction from the court to restrain the company. The lender has the right to recover the
amount from the company.
8.Recover Original Form: As long as the money of the lender is in the hands of the
company in its original form or its products are still capable of identification he may claim
that money or its products. In case of winding up of company he may claim the distribution
of assets of the company.
9.Ultra Vires discovered in Public docouments:The Lender under a transaction Ultra Vires
the directors may recover damage from the directors. But if the fact that the borrowing is
ultra vires have been discovered from the public documents of the company I;e Memorandum
and Articles than the lender cannot recover from the company.
10.Regular Borrowings: If the borrowing is with in the powers of company, and misused the
fund in unauthorized activities without knowledge of the lender than lender can recover. If
lender provides finance for a business which( with his knowledge) is not within the
company’s objects the loan is ultra vires and the lender cannot claim from the company.
11.Case:I. In Equity Insurance Co Ltd v Dinshaw & Co.(AIR 1940) it was held that where
the managing agent of a company who is not authorized to borrow has borrow money which
is not necessary, neither bona fide nor for the benefit of the company,the company is not
liable for amount borrowed.
ii.Suraj Babu v Jaitly & Co AIR 1946 :where loan has not been taken in the name of
company it will not be liable even though it may have benefited.
12.Borrowing methods:I Long term finance ii Short term finance
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13.Long Term finance can be raised :By mortgaging immovable property such as land and
Building,Machines etc.
Ii By securing long term loans from specialized financial institutions.
Iii By securing loan from central Government and state Government,
Iv By issuing Debentures

Short term finance:


I Loans from money lenders
Ii Loans by accepting deposits from the public for fixed period
Iii Loans by creating a charge on property and assets of the company.
Iv Loans borrowed from banks in the form of cash credits, over draft, loan etc.

WORKING CAPITAL
Objective: After reading this module, the learners will have a clear picture of :
This refers to that minimum amount of investment in all Current assets which is required at
all times to carry out minimum level of business activities. it represents the current assets
required on a continuing basis over the entire year

Learning Outcomes:
The term “working capital” is often referred to “circulating capital” starting from cash,
changing to raw materials, converting into work-in-progress and finished products, sale of
finished products and ending with realization of cash from debtors.

Introduction:
Working Capital: The term working capital is commonly used for the capital required for
day-to-day working in a business concern, such as for purchasing raw material, for meeting
day-to-day expenditure on salaries, wages, rents rates, advertising etc.

Definition: According to Weston & Brigham - “Working capital refers to a firm’s investment
in short term assets, such as cash amounts receivables, inventories etc. But as per accounting
terminology, it is difference between the inflow and outflow of funds.

Circulating Capital : The term “working capital” is often referred to “circulating capital”
starting from cash, changing to raw materials, converting into work-in-progress and finished
products, sale of finished products and ending with realization of cash from debtors.

Kinds of Working Capital:


Permanent Working Capital: This refers to that minimum amount of investment in all
Current assets which is required at all times to carry out minimum level of business activities.
it represents the current assets required on a continuing basis over the entire year. For
example: maintain minimum stock of raw material, finished products salaries and wages
throughout the year. It also grows with the size of the business. In other words, greater the
size of the business, greater is the amount of such working capital and vice versa

Temporary Working Capital: The amount of such working capital keeps on fluctuating
from time to time on the basis of business activities. For example, extra inventory has to be
maintained to support sales during peak sales period
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DETERMINANTS OF WORKING CAPITAL:


The factors influencing the working capital decisions of a firm may be classified as two
groups,
Such as internal factors and external factors.

The internal factors includes: Nature of business Size of business, firm’s product policy,
credit policy, dividend policy, and access to money, and capital markets, growth and
expansion of business etc.
The external factors include business:
Fluctuations, changes in the technology, infrastructural facilities, import policy and the
taxation
Policy etc. These factors are discussed in brief in the following lines.

I. Internal Factors
1. Nature and size of the business
The working capital requirements of a firm are basically influenced by the nature and size of
the business. Size may be measured in terms of the scale of operations. A firm with larger
scale of operations will need more working capital than a small firm.
Similarly, the nature of the business - influence the working capital decisions. Trading and
financial firms have less investment in fixed assets. But require a large sum of money to be
invested in working capital. Retail stores, business units require larger amount of working
capital.

2. Firm’s production policy


The firm’s production policy (manufacturing cycle) is an important factor to decide the
working
Capital requirement of a firm. The production cycle starts with the purchase and use of raw
Material and completes with the production of finished goods. On the other hand production
Policy is uniform production policy or seasonal production policy etc., also influences the
Working capital decisions. Larger the manufacturing cycle and uniform production policy –
Larger will be the requirement of working capital. The working capital requirement will be
Higher with varying production schedules in accordance with the changing demand.

3. Firm’s credit policy


The credit policy of a firm influences credit policy of working capital. A firm following
liberal Credit policy to all customers requires funds. On the other hand, the firm adopting
strict credit Policy and grant credit facilities to few potential customers will require less
amount of working Capital.

4. Availability of credit
The working capital requirements of a firm are also affected by credit terms granted by its
suppliers – i.e. creditors. A firm will need less working capital if liberal credit terms are
available to it. Similarly, the availability of credit from banks also influences the working
capital needs of the firm. A firm, which can get bank credit easily on favorable conditions,
will be operated with less working capital than a firm without such a facility.

5. Growth and expansion of business


Working capital requirement of a business firm tend to increase in correspondence with
growth In sales volume and fixed assets. A growing firm may need funds to invest in fixed
assets in Order to sustain its growing production and sales. This will, in turn, increase
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investment in Current assets to support increased scale of operations. Thus, a growing firm
needs additional Funds continuously.

6. Profit margin and dividend policy


Distribution of high proportion of profits in the form of cash dividends results in a drain on
cash resources and thus reduces company’s working capital to that extent. The working
capital position of the firm is strengthened if the management follows conservative dividend
policy andvice versa.

7. Operating efficiency of the firm


Operating efficiency means the optimum utilisation of a firm’s resources at minimum cost. If
a firm successfully controls operating cost, it will be able to improve net profit margin which,
will, in turn, release greater funds for working capital purposes.

8. Coordinating activities in firm


The working capital requirements of a firm is depend upon the co-ordination between
Production and distribution activities. The greater and effective the co-ordinations, the
pressure on the working capital will be minimized.

II. External Factors


1. Business fluctuations
Most firms experience fluctuations in demand for their products and services. This business
Variations affect the working capital requirements. When there is an upward swing in the
Economy, sales will increase, correspondingly,

2. Changes in the technology


The technological changes and developments in the area of production can have immediate
effects on the need for working capital. If the firm wish to install a new machine in the place
of old system, the new system can utilise less expensive raw materials, the inventory needs
may be reduced there by working capital needs.

3. Import policy
Import policy of the Government may also effect the levels of working capital of a firm since
they have to arrange funds for importing goods at specified times.

4. Infrastructural facilities
The firms may require additional funds to maintain the levels of inventory and other current
assets, when there is good infrastructural facilities in the company like, transportation and
Communications.

5. Taxation policy
The tax policies of the Government will influence the working capital decisions. If the
Government follow regressive taxation policy, i.e. imposing heavy tax burdens on business
firms, they are left with very little profits for distribution and retention purpose. Consequently
the firm has to borrow additional funds to meet their increased working capital needs. When
there is a liberalised tax policy, the pressure on working capital requirement is minimised.
Thus the working capital requirements of a firm is influenced by the internal and external
factors.
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PREVENTION OF OPPRESSION AND


MISMANAGEMENT
Chapter XVI of the Companies Act, 2013 deals with the provisions relating to prevention of
oppression and mismanagement of a company. Oppression and mismanagement of a
company mean that the affairs of the company are being conducted in a manner that is
oppressive and biased towards the minority shareholders or any member or members of the
company. To prevent the same, there are provisions for the prevention and mismanagement
of a company.

Application to tribunal for relief in cases of oppression, etc


According to section 241, any member of the company who complains that the affairs of the
company are being conducted in a manner that is prejudicial to public interest or in a manner
prejudicial or oppressive to him or any material change that is being brought about by, or in
the interests of, any creditors, including debenture holders or any class shareholders of the
company etc. that would materially affect the management of the company and would make
its affairs prejudicial to public interests or any of its member or class of members, may make
an application to the tribunal in accordance with the provisions of section 244 of the Act.

The central government may also make an application to the tribunal for its orders where it
thinks that the affairs of the company are prejudicial to public interest.

Powers of Tribunal : Under section 242 of the Act, the Tribunal has the power to order for
the regulation of the conduct of affairs of the company in future, the purchase of shares,
restriction on the transfer of the share, termination, setting aside or modification of any
agreement, setting aside of any transfer, delivery of goods, payment, execution or other act
relating to property, removal of managing director, manager, or any of the directors of the
company, recovery of undue gains made by any managing director, manager or director
during the period of his appointment as such, imposition of costs as may be deemed fit.

A certified copy of the order shall be filed with the registrar within 30 days of the order by
the tribunal.

Any contravention of the provisions of this chapter shall lead company towards the imposing
of fine which shall not be less than 10 lakh rupees and which may extend to 25 lakh rupees
and every officer of the company who is in default shall be punished with an imprisonment of
six months and with fine which shall not be less than twenty-five thousand rupees and which
may extend to one lakh rupees.

Consequences of termination or modification of certain agreement: If an order of the


tribunal set asides, modifies or terminates any ongoing agreement then as per the provisions
of section 243 of the Act, such an action shall not give rise to any claims against any director
or any person of the company for compensation for damages, etc. Any director, managing
director, etc who has been terminated from the post as per the orders of the tribunal shall not
hold the office of the same before the expiry of a period of five years from the order of the
tribunal.

Right to apply under section 241: According to section 244 of the Act, the following people
can apply for the orders from the tribunal-
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In the case of a company having share capital of not less than one hundred members of the
company or not less than one-tenth of the total number of its members, whichever is less, or
any member or members holding not less than one- tenth of the issued share capital of the
company, subject to the condition that the applicant or applicants has or have paid all calls,
and other sums due on his or their shares.
In the case of a company not having a share capital, not less than one- fifth of the total
number of its members.

Section 245 of the act talks about class action suits, wherein the class of members having a
similar cause of action can file an application before the tribunal to seek necessary orders.

Conclusion
The prevention and oppression of mismanagement of a company is required so that there is
no prejudice towards the public interest and there is no biasness towards the minority
shareholders. Thereby the Act incorporates the wide provisions for the same so that there is
smooth functioning of the companies, as well as the interest of all the shareholders, is put to
forth.