5. Distinguish between a floating charge and a fixed charge.

When does a floating charge

crystallize? [Nov-Dec’10, Nov-Dec’09, May-June’08]

A fixed charge is one which creates legal interest of a specific property of the company or all
the properties of the company. Thus a fixed charge is equivalent to mortgage. The company can
sell, lease etc. of the property, subject to the right of the charge holder.

The floating charge does not amount to mortgage. The owner of such a property can deal with
it and the transferee gets it, free of the charge.

The floating charge crystallize on happening of the following events-

1. Inability of the company to pay interest for 3 months.
2. When the court issues warrant for confiscation properties for 7 days
3. When the receiver of the company is appointed on application of debenture holders.
4. When the liquidation process of the company commences.

9. In which ground the Registrar of Joint Stock Company can present a petition for winding up
a company? [Nov-Dec’10]

Petition for winding up by the Registrar:

Under the following grounds as contained in Section - 197(b) the Registrar of Joint Stock
Companies and
firms can present a petition for winding up a company as per Section-204 of CA 1994:
i. That the business of the company is being conducted with intent to defraud its creditors,
members, any other persons or otherwise for a fraudulent or unlawful purposes; or
ii. That the persons concerned in the formation of the company or the management of its
affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct
towards the company or towards any of its members; or
iii. That the members of the company have not been given all the information with respect to
its affairs which they might reasonably expect.

13. State the rules relating to conversion of a public company into a private company. [May-
June’10]
According to section 232-
1. A public company, having not more than fifty members at the time of conversion, may be
converted into a private one by passing a special resolution altering its articles so as to exclude
provisions if any, in the articles of association applicable to public company and include therein
provisions applicable to a private company.
2. lf the company has secured creditors, their written consent shall have to be obtained before
passing a resolution as per provision of sub section (l) and the shares enlisted with the Stock
Exchange shall have to be de-listed.

17. Explain how the share capital of a company can be increased? [May-June’10]
(1) Where a company having a share capital, has increased its share capital, beyond the
registered
capital, it shall file with the Registrar, in the case of an increase of share capital, within fifteen
days after
the passing of the resolution authorizing the increase and the Registrar shall record the
increase.
(2) The notice under sub section (1) shall include particulars of the classes of shares, affected
and the
conditions, if any, subject to which the new shares are to be issued.

20. Can a director be removed? How? [May-June’10]

As per section 106 of the Companies Act 1994 –
(1) The company may be extraordinary resolution remove any share-holder director before the
expiration of his period of office and may by ordinary resolution appoint another person in his
stead and
the person so appointed shall be subject to retirement at the same time as if he had become a
director
on the day on which the director in whose place he is appointed was last elected director.
(2) A director so removed shall not be re-appointed a director by the Board of Directors.

25. State the circumstances in which a company may be wound up by the Court. [Nov-Dec’09]
Section 241 states the following circumstances under which a company may be wound up by
the Court:
i. lf the company has by special resolution resolved that the company be wound up by the
Court;
or
ii. lf default is made in filing the statutory report or in holding the statutory meeting; or
iii. lf the company does not commence its business within a year from its incorporation, or
suspends its business for a whole year; or
iv. lf the number of members is reduced, in the case of a private company below two, or, in the
case of any other company, below seven; or
v. lf the company is unable to pay its debts; or
vi. If the Court is of opinion that it is just and equitable that the company should be wound up.

26. What are the procedures for reduction of share capital and how the same is confirmed?
[Nov-
Dec’09]
Reduction of share capital
The power to reduce capital must be given by the articles. If no such power, the articles may be
changed
by a special resolution. According to section 59, the share capital may be reduced by:
a) reducing or extinguishing the liability of members for uncalled share capital; or
b) writing off lost share capital; or
c) paying off share capital which is in excess of the wants of the company; or
d) All these are to be done only by way approve by the court.
Procedure for Reduction of Share Capital
Reduction of capital is possible only by passing a special resolution and confirmation by the
court. The
court would inquire into the objections, if any, raised by the creditors. In this respect the court
settles
the list of creditors entitled to object and issues public notices (sec. 62). On hearing the
objections, the
court may confirm the reduction on such terms and conditions as it may dam fit (sec. 64).
36. What is the effect of carrying on business by a Company with less than the legal minimum
number of members? [Nov-Dec’08]
If at any time the number of members of a company is reduced, in the case of a private
company, below
two or, in the case of any other company, below seven and it carries on business for more than
six
months, while the number is so reduced every person who is a member of the company during
the time
that it so carries or business during that periods and is cognizant of the fact that it is carrying on
business with fewer than two members or seven members, as the case may be, shall be
individually
liable for the payment of the whole debts of the company contracted during that time and may
be used
for the same without joinder in the suit of any other member.
39. Distinguish between member's voluntary winding up and creditor's voluntary winding up.
[Nov-
Dec’08]
Members' voluntary winding up: When the company is solvent and is able to pay its debts in
full, in
which case it is not necessary to consult the creditors or call their meeting, then the company in
general
meeting must appoint one or more liquidators for winding up the affairs of the company and fix
his or
other remuneration. On such appointment, all the powers of the directors of the company
come to an
end except in so far as the company in general meeting, or the liquidator, sanctions the
continuance
thereof (Section 292).
Creditors' voluntary winding up: In the case of the creditors' voluntary winding up, the
company is
obliged to convene a meeting of the creditors on the day on which the meeting for passing the
resolution for winding up is to be held. The company must send the notices of such meeting to
the
creditors simultaneously with the notice of the company's meeting. The duty of the creditors of
the
company is to cause a full statement of the position of the company's affairs, together with a
list of the
creditors of the company and the estimated amount of their claims, to be laid before the
creditors'
meeting to be held as aforesaid. They must also appoint one of their members to preside at the
meeting. At the same meeting, the creditors and the company may respectively nominate a
person to
be a liquidator or the purpose of the winding up. lf they each nominate a different person, the
one
nominated by the creditors shall be the liquidator unless, on an application of any director,
member or
creditor of the company made within seven days after the date of the nomination by the
creditors, the
Court orders that the person nominated by the company shall be the liquidator instead of or
jointly with
the one nominated by the creditors (Section - 299).

42. What are the pre-conditions of reduction of share capital of a Company? [Nov-Dec’08,
May-
June’03, Nov-Dec’04]
Reduction of share capital:
As contained in section 59 of the companies Act 1994, any company limited by share if it is
authorized
by its articles, by passing a special resolution, having approval from the Court can reduce the
share
capital as follows:
By reducing or extinguishing the liability on any shares not paid-up;
Cancel any paid-up share capital which is lost or not represented on the assets;
Repay the capital, which is in excess of the wants of the company;
Reduce the share capital and shares as required by alteration of memorandum.