JAMNALAL BAJAJ INSTITUTE OF MANAGEMENT STUDIES

COMPANY LAW
BUSINESS LAW

PROFESSOR : DHONGADE PREPARED BY: Mr. SELVAKANI G. NADAR MMM (BATCH 1) FIRST SEMESTER ASSIGNMENT 1 ROLL NO: 59 NOVEMBER 2009.

COMPANY LAW

CONTENTS
1: CLASSIFICATION OF COMPANY. ........................................................................................................ 3 COMPANIES REGISTRABLE UNDER THE COMPANIES ACT ................................................................................. 3 COMPANY LIMITED BY GUARANTEE ................................................................................................................... 3 UNLIMITED COMPANY ......................................................................................................................................... 3 COMPANY LIMITED BY SHARES .......................................................................................................................... 3 PRIVATE COMPANY AND PUBLIC COMPANY ...................................................................................................... 4 PRIVATE COMPANY ............................................................................................................................................ 4 2. FORMATION OF COMPANY. ................................................................................................................. 5 3. MEMORANDUM OF ASSOCIATION. ..................................................................................................... 6 OBJECT CLAUSE AND ITS CONSTRUCTION ........................................................................................................ 7 CAPITAL CLAUSE :- ............................................................................................................................................. 7 DECLARATION OF ASSOCIATION OR THE ASSOCIATION CLAUSE – ................................................................... 7 4. ARTICLES OF ASSOCIATION ............................................................................................................... 8 CONTENTS OF ARTICLES .................................................................................................................................... 8 5. P R O S P E C T U S .............................................................................................................................. 10 PROVISION COVERING PROSPECTUS. ............................................................................................................. 10 6. SHARE CAPITAL ................................................................................................................................... 12 TRANSFER AND TRANSMISSION OF SHARES .................................................................................................... 12 7. ALLOTMENT OF SHARES.................................................................................................................... 14 8. GENERAL MEETING ............................................................................................................................. 16 9. DIRECTORS ............................................................................................................................................ 20 FIRST DIRECTORS ............................................................................................................................................ 20 APPOINTMENT OF DIRECTORS RETIRING BY ROTATION AND FILLING OF VACANCIES .................................... 20

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The Memorandum and Articles of Association of such companies are required to be in the form set out in Schedule I-Tables C and D. A company limited by shares obtains its working funds by the issue of shares which may be subscribed by the signatories to the Memorandum of Association. unpaid on the shares held by them (Section 12(2)(a)). for transfer of machinery or knowhow. brief mention may be made of the other two types of companies. or more than twenty persons if formed for carrying on any other business. 1956 may be divided into the following 3 categories on the basis of the liability of their members : a) b) c) Companies limited by shares. the shareholders may or may not Page 3 of 23 . UNLIMITED COMPANY An unlimited company is one which does not place any limit on the liability of its members (Section 12(2) (c)). Companies having unlimited liability – these again may or may not have share capital. Professional associations. COMPANIES REGISTRABLE UNDER THE COMPANIES ACT Companies registration under the Companies Act. trade associations and research associations favour this form or organisation. of their number is larger than ten or twenty as the case may be. However. Section 11 of the companies Act prohibits the formation of partnerships and unincorporated business association consisting of more than ten persons if formed for the purpose of banking. Persons normally form partnerships or unincorporated larger form of unlimited company.COMPANY LAW 1: CLASSIFICATION OF COMPANY. The Articles of Association of such a company are required to be in the form set out in Schedule I-Table A. The Memorandum and Articles of Association of unlimited companies required to be in the form of Schedule I-Table E. or allotted to applicants for cash or for consideration other than cash e. A company limited by guarantee in one where the liability of the members is limited by the Memorandum to a fixed amount in the event of the company being woundup (Sec. if any. COMPANY LIMITED BY SHARES A company limited by shares is one where the liability of the members is limited by the Memorandum to the amount. In a company limited by shares. subject to the approval of the Central Government dispense with the word. 12(2) (B)).g. Such companies may. Companies limited by guarantee – these may or may not have a share capital. COMPANY LIMITED BY GUARANTEE The Companies Act is mainly concerned with companies limited by shares. “Limited” under section 25 of the Act.

It is important to remember that the unpaid portion may be made payable either during the existence of the company or on winding up. It does not invite the public to contribute to its capital or join its activities. A public company has not been specifically defined but Section 3(1) (iv) states that a “Public Company” means a company which is not a private company. Loosely speaking a company which is the opposite of such company is a public company. One category is closer to family groups. The practice is to pay some amount at the time of application. It restricts its memberships to fifty persons and even in respect of this small number. PRIVATE COMPANY Section 3(1) (iii) of the Companies Act defines a private company as a company which by its articles. that the minimum number of members that a private company is required to have is two against seven members required for a public company. PRIVATE COMPANY AND PUBLIC COMPANY Companies can also be classified on yet another basis. It is unfortunate that the definition of private company omits one important distinguishing features between a private company and a public company. the members are prohibited from freely transferring their shares. Page 4 of 23 . This is given in Section 12. if any. Such a company is called a private company. a) b) Restricts the right to transfer its shares. viz.COMPANY LAW pay the whole nominal amount to his share to the company when acquiring the shares. thereafter the Directors may call upon the shareholders at any time to pay up the unpaid portion of the nominal amount. were members of the company while in that employment and have continued to be members after the employment ceased and c) Prohibits any invitation to the public to subscribe for any shares or debentures of the company. Limits the number of its members to fifty not including : i) ii) Persons who are in the employment of the company and Persons who are having been formerly in the employment of the company.

The above documents are all that a private company has to file.COMPANY LAW 2. 4. A statement of nominal capital. that all requirements of the Act and Rules thereunder in respect of registration have been complied with. Ordinarily. competent to enter into contracts. 5. 3. The agreement. both the private and public companies will file the notice of their addresses of the Registered office. engaged in the formation of the company. A list of persons who have consented to be directors of the company. 2. A written consent duly signed to act as directors. A statutory declaration by an advocate or an attorney or a chartered accountant. having share capital. Page 5 of 23 . The Memorandum of Association. if any. The Articles of Association. the following documents :6. if any. 8. in addition to the above. which the company proposes to enter into with the proposed managing agent. FORMATION OF COMPANY. A public company. This certificate is a conclusive evidence that everything is in order as regards registration and that the company has come into being with rights and obligations of a natural person. An undertaking in writing signed by each such director to take and pay for their qualification shares. The promoters (persons wishing to form a company) must file with the Registrar of the State in which the registered office of the company is to be situate – 1. When the necessary stamp duty and the registration fee have been paid and the Registrar is satisfied that everything is in order. 7. must file. he will enter the name of the company in the register of companies maintained by him and issue a Certificate of Incorporation with gives the company a legal existence from the date given on it.

Section 13 and 15 set put the essential features of a Memorandum. 1956. This does not apply to trading corporations. The objects to be pursued by the company. Where the objects extend to more that one state the Memorandum must mention the States to which the objects extend. Section 13. the name must have the word “Limited” as the last word of the name. MEMORANDUM OF ASSOCIATION. Where the company is formed after the commencement of the Company Act. The Memorandum of Association should be in one of the forms set out in Schedule to the Companies Act depending on the kind of company that is being promoted viz.. which deals with the essential components.COMPANY LAW 3. In the case of a company having a share capital and limited liability. Further. If the company is a public limited company. Page 6 of 23 . the object have to be divided into (i) the main objects and objects incidental or ancillary to the attainment of the main objects and (ii) other objects. Section 15 which describes its format states that – The Memorandum must be printed : It should be divided into paragraphs numbered consecutively. if it is a private limited company. provides that Memorandum must state : The name of the company. the name must be followed by the words “Private Limited”. it is worth describing the salient features of the Memorandum and “Making mention of some important aspects relating to it”. It should be signed by the requisite number of persons whose signatures must be attested. each subscriber must be indicated against his name his share. In view of its importance. Where the liability of the members if limited by guarantee the memorandum must state (1) that the liability of the members is limited and (2) the amount to which it is limited. The state in which the registered office of the company is situated. whether it is a company limited by shares or guarantees or an unlimited company (Section 14). the memorandum must in addition to stating that the liability of the members is limited also state the amount of share capital with which the company is to be registered and the division of the capital into shares of a fixed amount.

divided into shares of a certain amount. Articles may place certain restrictions on the powers of directors and such powers are nevertheless exercised by the directors. an act ultra vires the directors may be regularized. Page 7 of 23 . The effect of this caluse is that the company cannot issue more shares than are authorised by the memorandum for the time being. Then follow the names. At least 7 subscribers must sign the memorandum in the case of a public company although 2 are sufficient in the case of private company. “nominal” or “authorised” capital. CAPITAL CLAUSE :The capital clause in the memorandum of a company. addresses. states the amount of capital with which it is registered. the several persons whose names and addresses and occupations are subscribed. the number of shares of each person has taken and his signature attested by a witness. DECLARATION OF ASSOCIATION OR THE ASSOCIATION CLAUSE – At the end of the memorandum of every company there is a declaration of association or an association clause which reads something like this: “We. linked with the object clause is the ultra vires doctrine. A private company may however. A company exits the only for the particular purpose of its incorporation as defined in its object clause. neither the company nor the other contracting party can act on it. A public company can issue only two kinds of shares – Preference and Equity and the shares must not give disproportionate voting rights. occupations. A distinction must be made between acts which are ultra vires the company and acts which are ultra vires the directors. An act which is ultra vires the company is null and void. it is open to the shareholders to ratify them not if the acts are ultra vires the company. by preventing the company from frittering them on objects unrelated to the authorised objects. 88.COMPANY LAW OBJECT CLAUSE AND ITS CONSTRUCTION The object Clause is obviously the most important clause of the Memorandum for it has a two fold purpose ( I ) It define the powers of the company and (ii) it limits the powers of the company to those that are specifically set out in the Memorandum. having a share capital. The main purpose of this doctrine in early times was to protect the investor against a misuse of funds of company. Further. are desirous of being formed into a company in pursuance of this memorandum of association and respectively agree to take the number of shares in the capital of the company set opposite our respective names”. An Act which is ultra vires. For example. 90). This capital is called the “registered”. issue any kinds of shares and with disproportional voting rights (Sections 85.

rights of different classes of shareholders. viz. GENERAL MEETINGS : Manner of convening general meetings. (Section 9).e. This document will therefore. conversion of shares into stock. It is not necessary for a company limited by shares to have a separate set of Articles of Association. preocedure for conducting meetings. procedure for transfer and transmissions. It has been mentioned that the Articles of Association are the detailed regulation of the company relating to the internal management of the company and the conduct of its business.COMPANY LAW 4. lien etc. For convenience. then Table A will apply to the extent that provision is not made in the articles in respect to the matters dealt with in Table A (Section 28 (2) ). length and manner of giving notice. if there is no specification that Table 'A' is excluded. it may adopt some of the provisions of Table A in Schedule I. they must be in the form mentioned in section 80 and be registered (Section 28). the provisions of Table A would apply (Section 28). where such a company does not have its own set of articles. The Articles of Association of a private company must contain the restrictions set out in section 3 (1) (iii). manner of voting. define the respective powers of the shareholders and the directors as also the rights of the company in relation to its shares such as forefeiture. when registered bind the company and the members as if they had been signed by the company and by each member separately (Section 36). This articles of Association may be altered by a special resolution where the alteration result in a public company becoming a private company in which case further approval of the Central Government is necessary (Section 81). lien on party paid shares. forfeiture of shares. 2) Page 8 of 23 . frequency of calls. form of proxy. Where the company does have its own Articles of Association. Even where a company has its own set of articles. rights of the company vis-à-vis shareholders. i. ARTICLES OF ASSOCIATION The essential features of the Articles of Association have been dealt with at several different places earlier whenever a reference to such features was necessary. appointment of the Chairman. 3) 4) 5) 6) 7) CONTENTS OF ARTICLES The matters dealt with in the Articles of Association are generally the following :1) CAPIT AL AND SHARES : The amount of capital of the company method of increasing and reducing capital. The Memorandum and the Articles.. those essential features and the relevant provisions relating to the articles are recaptitulated and summarized below :1) 2) The Articles of Association cannot overide the provisions of the Act. In fact. etc.

their qualification remuneration. 4) 5) 6) 7) Common Seal : The manner of affixing the common seal. rights and duties of auditors. AUDIT: Provision relating to audit of accounts. capitalization of reserves stc. etc. manner of signing accounts. any special provision for appointment of nominees director. method of appointment and removal. qualifications. remuneration. right of inspection of such books. MISCELL ANEOUS PROVISIONS : Indemnity to officers of the company. Powers. ACCOUNTS : Provisions relating to dividends books of accounts where they are to be kept. appointment. Page 9 of 23 . authentication and service of documents. provisions relating to wholetime directors.COMPANY LAW 3) DIRECTORS : The number of directors. etc. procedure to be followed at Board meetings.

6. and are dealt with an a stock exchange. The provision of this section does not apply where the application form is issued (a) in connection with an invitation to a person to enter into an underwriting agreement with respect to the shares or debentures or (b) in relation to share or debentures not offered to the public (Section 56 (3)). If the company issue the prospectus knowing that the expert is connected with the formation of the management of the company or the statement is not in the form approved by him or he was withdrawn his consent to the issue of the prospectus. 4. 3. A prospectus is required to state the matters specified in Part I of Schedule II and to set out the reports specified in Part II Schedule II and is further subject to the conditions in Part III of that Schedule (Section 56 (1)). PROVISION COVERING PROSPECTUS. (Section 53). The date of issue is the date on which the prospectus first appears as in advertisement. a valuer. the 2. the expert must be a person who is not connected with or interested in the promotion or the management of the company. However copy of prospectus will be required to be furnished on a request being made be any person before closing of the subscription list. Where the prospectus includes a statement purporting to be made by an expert. An expert includes an engineer. 5. or an accountant and any other person whose profession gives authority to statement made by him. (Section 57 and 59 (2)). if issued to existing members or debenture-holders of the company or (b) the issue of the prospectus or application related to shares or debentures which will be in all respects uniform with the shares or debentures previously issued. and present difficulty in their interpretation not only to the students but sometimes to the lawyers also. A prospectus is required to be dated and the date on the prospectus will be assumed to be the date of publication of the prospectus. (Section 56 (5)). The provisions governing prospectus are summarised below :1. A statement purporting to be made by an expert can be included in a prospectus only if the expert has approved the form of the statement and the context in which it is included and had given his written consent to the issue of the prospectus with the statement in such form. (Section 55). P R O S P E C T U S The provision relating to a prospectus. are some of the most confusing in the Companies Act. Every form of application of shares or debentures must be accompanied by a memorandum containing such salient features of a prospectus as may be prescribed. The application need not be accompanied by a prospectus and the prospectus need not comply with the requirement mentioned above. The date of publication of the prospectus must be construed as the date of issue of the prospectus. It may be some consolation to know that the provision of the English law on the subject are very similar. Page 10 of 23 . and further statement appears in the prospectus that the expert has given his consent and has not withdrawn it.COMPANY LAW 5.

a)The consent of the expert to the issue of the prospectus. (Section 60 (4)). Page 11 of 23 . not being a contract in the ordinary course of Business. attorney. The reason for imposing the limit is that if the issue of the prospectus is delayed too long. for registration a copy of the prospectus signed by every person who is named in the prospectus as a director or proposed director of the company or by the agent of such director and unless further the following documents are attached. conditions may alter and what is stated in the prospectus may no longer be valid. 12. b) The consent of every person named in the prospectus as an advisor. (It will be noted that the English Act contains no such time limits). 8. Register the prospectus after being satisfied that all the requirements have been complied with (Section 60 (3)). and a copy of every contract appointing or fixing the remuneration of a managing director or manager (Section 60 (1) (b) (1)). This consent may be either attached to the prospectus or endorsed on it (Section 601 91) (a)). d) Where any adjustments have been indicated by auditors or accountant in their report a written statement signed by such persons setting out the adjustments and indicating the reasons for such adjustments (Section 60 (1) (b) (ii)). The prospectus must on the face of it state that a copy has been delivered to the Registrar and specify the documents which are attached to the copy (Section 60 (2)). A prospectus cannot be issued more than 90 days after the copy is delivered for registration to the Registrar. The term of any contract referred to in the prospectus cannot be varied by a company except with the concept of the shareholders in general meeting (Section 61).COMPANY LAW company and every person who is a party to the issue is punishable with a fine which may extent the rupees five thousand (Section 59). A Prospectus cannot be issued unless before its publication there has been delivered to the Registrar. legal advisor. 9. 11. or broker of the company(Section 60 (3)) c) A copy of every material contract entered into by the company in the last two years. 7. The various reports and contracts referred to in the prospectus can be inspected by any member of the public. banker. solicitor. 10. at the office of the Registrar for a period of 14 days beginning with the date of publication of the prospectus (Section 610).

(Section 11A). Non-compliance with these formalities does not nullify a sale which becomes complete as soon as the property in the shares is intended to be transferred and Page 12 of 23 . the subject is not dealt with in detail.COMPANY LAW 6. before the form is executed by the transferor and transferee. Since the prevalent practice in both large and small companies is to have this work done by specialized agencies. SHARE CAPITAL Reduction of capital may involve a reduction in the nominal capital. or any schedule Bank. or banking company or financial Institution approved by the Government or the Central or State Government or any corporation owned or controlled by such Government as security for the repayment of any loan or advance. TRANSFER AND TRANSMISSION OF SHARES The procedure for the transfer of shares in a company is set out in section 108 of the Act. Any share held in any company by the Central or State Government in the name of its nominee. except that the instrument of the transfer shall be in the prescribed form. Briefly. The following other conditions are complied with which are set out in section 108 ( C) The qualification shares of a director who is a nominee of another company : Any shares deposited by any person with the State Bank. and a special resolution is necessary to effect the reduction. The prescribed form is form 78 of the companies (Central Governments) General Rules & Forms. The reduction must be authorized by the articles. It should be noted however that Section 108 prescribes the conditions that have to be complied with before a company registered any transfer of shares. Further the reduction is not effective until it has been confirmed by the court. the form must be presented to the company within twelve months of presentation to the prescribed authority or before the closing of the registrar of members for the first time after it is presented to the prescribed authority (whichever is after) and in the case of shares not listed. In the case of share listed on the Exchange. it has to be stamped by the prescribed authority (the Registrar of Companies) and after execution by both. the transfer is not to be registered unless the company gives notice of the application to the transferee and he makes no objection to the transfer within two weeks from the receipt of the notice. or issued capital. The application for transfer may be made either by the transferor or the transferee and where the application is made by the transferor and relates to partly-paid shares. the procedure is that the transfer must be executed in the Prescribed Form. A transfer is incomplete until it is registered and the transferee becomes the legal owner only when his name is entered on the register. within two months from the date of presentation. 1956. the intent being that of the court will before giving its approval ensure that the interest of the creditors is safe guarded. delivered to the company long with the share certificates. or paid up capital.

COMPANY LAW which intention has to be gathered from the facts of each particular case. However. The broker puts the blame on the company concerned and the companies when contacted do not give satisfactory explanation. It is fit matter to be taken up by the shareholders as a body. up to period of nine months on an application made by the company on this behalf (Section 113). Any person who has purchased shares recently will vouch for the fact that he does received the certificate for the share purchased sometime for period as long as six months or one year. ATR 1971 Cal 18. See Unity company limited V. Where shares pass by transmission by operation of law. This particular condition is today observed more in the breach. Diamond Sugar Mills and another. Company Law Board has been empowered to extend the time limit for issue of debentures certificate. The company is required to complete and have ready for delivery the certificate of shares or debentures within three months of allotment of the shares and debentures of within two months of the application for registration of transfer. Page 13 of 23 . these provisions relating to transfer do not apply although it would be necessary for the legal representative to establish proof of his title and follow the procedure laid down by the company for this purpose. A transfer of shares by a legal representative would be as valid as if made by a member (Section 108 (1) second provision and section 109).

(Section 69 (1)). ALLOTMENT OF SHARES The following relating to allotment may be summarized as follows :1) No allotment of shares offered to the public can be made by a company unless the minimum amount intended to be raised by the issue has been subscribed and the sum payable on application for the amount so stated has been paid to and received by the company. until the minimum subscription has been received (Section 69 (4)). these conditions (Except condition (2) do not apply to the allotment of shares subsequent to the first allotment offered to the public for subscription. 2) The amount payable on application must be not less than five percent of the nominal value (Section 89 (3)). (Section 68 A). (Section 72 (5)). It should be noted that the above conditions apply only to shares and not to debentures. before such day. Further. If however. The prospectus is deemed is to be issued on the day of such notice. and where shares have been allotted as fully or partly paid up otherwise than in cash. and the fifth day after the issue of the prospectus or any later date specified in the prospectus is the day of opening of the subscription list. (Section 72). 3) All the moneys received from the applicants must be kept in a schedule bank until (a) the certificate to commence business has been obtained or (b) if the certificate has already been obtained. the five days will be counted from the day of such notice. 8) A company has to file a return to allotment within thirty days of the allotment of its shares. 4) If the company has not obtained the certificate to commence business or not received the amount payable on shares in respect of the minimum subscription within one hundred and twenty days after the issue of the prospectus.COMPANY LAW 7. The prospectus is deemed is to be issued on the day on which it first appears as a newspapers advertisement. If the money is not returned within one hundred and thirty days after the issue of the prospectus. any person associated with the prospectus (director or promoter) gives a public notice limiting or excluding his responsibility. interest at six percent would be payable on such moneys from the expiry of the one hundred and thirtieth day (Section 69 (5)). 7) A person who makes an application for acquiring shares in fictitious name or induces a company to allot or register a transfer of shares to him in a fictitious name would be punishable with imprisonment. Page 14 of 23 . 6) An application for shares or debentures in pursuance of a prospectus can be revoked only on the expiry of 5 days after the opening of the subscription list. it has to file with the Register copies of the contract in terms of which the allotment was made (Section 75 (1) (b)). it must return the money without interest. 5) No allotment shall be made of shares or debentures until the beginning of the fifth day after the issue of the prospectus.

12) In computing the various time limits mentioned above. should be excluded. Page 15 of 23 . (Section 7). any day which is a holiday under the negotiable Instruments Act.COMPANY LAW 9) Allotment to non-residents and foreigners would be subject to the approval of the Reserve Bank Of India. 1881. having a 11) A public company and a private company which is a subsidiary of a public company cannot give financial assistance to any person for purchase of its own shares of its holding company (Section 77 (22)). 10) A company limited by shares and a company limited by guarantee and share capital cannot buy its own shares.

Meetings of classes of shareholders. Thus. at least twenty one days before the meeting unless all the members agree to have it forwarded later (Section 165 (2)). Annual General meeting. The notice calling the Statutory Meeting must refer to the meeting as a Statutory Meeting (section 165 (1)). and not more than six months from the date on which it is entitled to commence business (section 165). however. GENERAL MEETING The Provisions relating to meeting are covered by sections 165 to 197 or the Companies Act. the articles of incorporating a company initially as a private company and converting it into a public company after six months is sometimes resorted to. within a period of not less than one month. Extra ordinary General meeting. 4. e. while the articles cannot contain provisions which would make an invalid meeting valid. the meetings of a company are governed by its articles of association. As this requirements applied only to public companies and not to private companies. PUBLICATION OF THE COMPANY The name of the company and the address of the registered office is required to be painted or affixed outside every office or place where the business of the company is carried out in the locality. promissory notes.g. that apart from the Statutory provisions. they may provide that a resolution should be passed by a special majority when the Act required it to be passed by an ordinary majority. 2. as well as bills. A report known as the Statutory Report certified by atleast two of the Directors of the company is required to be sent to every member of the company. stricter than these provided under the law. Statutory meetings. cheques and orders for money of goods. or the quorum necessary for constituting a meeting. The matters that are required to be contained in this report are set out in sub-section (3) of Page 16 of 23 . It is possible that the Articles of Association may impose on the company conditions. 3. they would contain provisions on matters that the law leaves a for passing resolutions on matters like borrowing investments.It is important to remember. The object of the statutory meetings is to put the shareholders is possession of all important facts relating to the new company at an early date. hundies. Further the name of the company is engraved in legible characters on the seal. Meeting of members may be classified into the following : 1.COMPANY LAW 8. Failure to observe these provisions make the company and every officer in default liable to fine (Section 147) STATUTORY MEETINGS Every public company limited by shares and every public company limited by guarantee is required to hold a meeting known as “The Statutory Meetings”.

but adjourned to a date when the accounts will be ready. a company shall held each year a general meeting as its Annual General Meeting. and (section 166 (1)).One meeting at least must be held in a calendar year. happen that an Annual Meeting may have to be held before the expiry of the period of fifteen months from the previous meeting in order to comply with the provisions of section 210. viz. ANNUAL GENERAL MEETING Section 166 of the companies Act provided that in addition to any other meeting that may be held. equally there would be a contravention if the Meeting is not held in each calendar year e.g. This section must be read together with section 210 (3) in terms of which are the period for which the accounts are submitted to a meeting should not precede the day of the meeting by more than six months or six months plus the extension of time granted by the Registrar.There must not be a gap of more than fifteen months between one meeting and another (section 166 (1)). 1979. a) the first Annual General Meeting of Company may be held within a period of not more than eighteen months from the date of its incorporation. Equally it may be possible that the accounts may not be ready to be held to comply with the condition that one meeting must be held per year. These are two cumulative conditions to be satisfied in this connection. The Statutory Report has to be made out in Form 22 of the Appendix I of the companies (Court) Rules 1959. therefore. If default is made in calling the meeting in accordance with section 166. Default under section 166 is punishable with a fine upto five thousand rupees which can be imposed separately on the company and the office in default. but there is a gap of more than fifteen months between one meeting and another. a company incorporated in the month of August of any year need not held meeting in that year or in the subsequent year. It may be noted that if the Statutory Re[ort is not delivered to the Registrar. Therefore. (this provision enables a company to draw up its accounts for a period of more than one year and present them to the first Annual General Meeting and (b) the Registrar may extend the period of fifteen moths by a further period of three months. it would be a contravention of the section if the meeting is held in consecutive calendar years. the Central Government may on the application of member call the meeting or direct that the meeting be called. the court may order a winding of the company. The notice required for such a meeting is also twenty one days as in the case of any other general meeting. and the next is held in January. There are two exception of the above. (section 167 & 168). The report is required to be forwarded to the Registrar immediately after it has been forwarded to the members (section 165 (5)).COMPANY LAW this section. In that case it would not be necessary for the company to be held any Annual General Meeting in the year of its incorporation or in the following year e. It may. In such a case the meeting should nevertheless be held within one statutory time limit. Page 17 of 23 .g. if one meeting is held in October 1977.

other than the annual general meeting and the statutory meeting. Provisions (a) and (b) of the sub-section (2) of section 166 cast some doubt on the point on the point whether the articles of a company of the resolution passed by the shareholders at the Annual General Meeting can fix a time which falls outside business hours. therefore. An extraordinary general meeting may be called if a requisition is made from any of the following. do not attach to an extraordinary meeting. town or village in which the registered office is situated. It should be noted that the conditions that attach to an annual general meeting viz. Such meeting may be called for the management to transact any business of special character or may be called following requisition by shareholders under section 169 convened by the management on its own. The correct view would be that this cannot be done. be held during business hours. be accompanied by a statement setting out all the material facts relating to the business to be transacted including in particular the nature of the interest in that business of every director and manager.e. of the general body of shareholders as opposed to a particular class of shareholders). etc. and advance notice of twenty one days the Annual General Meeting is given. In the case of a company having a share capital such number of members as hold not less than one-tenth of cash of the paid up capital of the company as at that date carries the right of voting in regard to the matter. The Central Government. 1. Section 173. The notice relating to an extraordinary meeting must. The condition requiring the meeting to he held during business hours is intended to make it convenient for the majority of shareholders to attend a meeting which would not be possible if the meeting were held outside business hours and this condition must still be complied with. It must also be noted that while a private company which is not the subsidiary of a public company can fix both the time and place of the meeting. In the case of a company having a share capital such number of members as have not less than one-tenth of total voting power of the members entitled to vote on that matter (section 169). a public company and a private company which is subsidiary of a public company can fix only the time.COMPANY LAW Annual General Meeting must be called for a time during business hours. Page 18 of 23 . 2. If the business to be transacted concerns another company the extent of shareholdings of every director and manager in the company must be stated provided the shareholding exceeds twenty per cent. and must be held either at the registered office of the company or at some place within the city. on a day that is not a public holiday. states that all items transacted at an extraordinary general meeting shall be deemed to be special. EXTRAORDINARY GENERAL MEETING An extra-ordinary General Meeting is any general meeting (i. however has the power to exempt any class or companies from these provisions.

the right to compel directors to call meeting on the requisition of holders of only one-tenth of the paid up capital of a company. Class meetings to be held when the Act or the Articles of Association or the terms of issue of the shares provide that they should be called. MEETING OF CLASSES OF SHAREHOLDERS The shares of a company are divided into various classes.COMPANY LAW Section 169 contains an important right granted to minority shareholders viz. Page 19 of 23 .

the place of the retiring director may be filled either by re-electing the retiring director or by appointing some one else. the persons to retire shall agree among themselves who shall retire. As the notice of the Annual General Meeting has to be sent out twenty one days before the meeting. In case where such notices are received after the notice of the meeting is issued the company would have to comply with the formality. in a majority of cases. in the alternate. In such cases the management ensure that it has no record notices from some shareholders recommending the candidature of the person concerned before the notice is issued to the members. since their last appointment. APPOINTMENT OF DIRECTORS RETIRING BY ROTATION AND FILLING OF VACANCIES Section 256 states that out of the directors liable to retire by rotation one third (or the number nearest to one third) shall retire from the office every year. such director shall be ascertained by drawing lot. who are individuals.COMPANY LAW 9. no such difficulty arises. If there in none. as the candidates for directorship are approved by the Board and agree upon. it would not be possible to give notice of the candidatures to the shareholders by way of an item in the notice. It is important to note that under section 255 not less than two third of the total number of directors must be liable to retire by rotation. DIRECTORS FIRST DIRECTORS The first directors of a company are usually named in the Articles of Association. However. If it is intended to appoint some one else than the directors himself or any member proposing his candidature must give to the company notice in writing signifying such intention fourteen days before the meeting and the company in turn must inform the members of the candidature of such person seven days before the meeting. under section 256 the number of directors to retire must be the number nearest to the fraction even if it is lower. If the directors are being appointed by the Articles. If the vacancy is not filled and the shareholders have not decided not to fill the vacancy than the meeting will be adjourned to the same day in the next week and if at the adjourned Page 20 of 23 . they cannot act unless they have a acquired their qualification shares when the Articles provide for qualification shares for directors. whereas. At the meeting. however. will be deemed to be the first directors under section 254 of the Act. it is obvious that if the notice of the candidature of a director is received fourteen days before such meeting. the subscribers to the Memorandum. The directors who are to retire must be those who have been longest in office. If directors have been appointed on the same day.

nine. Such a vacancy may unless the articles provide otherwise be filled by the Board (section 262). It cannot be said that the Board is not validly constituted because the number liable to retire by rotation is less than two third of the total number viz. or resignation. by the Articles or by a resolution passed by the company in general meeting. Similarly the number of directors that should be one-third of seven and not one-third of nine. may if authorised. then the retiring director shall be deemed to have been elected. any death. the vacancy may be filled by the Board or by the shareholders. ALTERNATE DIRECTORS Section 313 states that the directors. therefore exercise. the Board cannot appoint two more additional directors. Suppose there are twelve directors of whom two are additional directors and seven are directors liable to retire by rotation. While the original director is out of the state when meetings are held. At the same time. unless it is necessary under any provision of his appointment. The Board can. If the original director returns to the state.g.COMPANY LAW meeting also the vacancy is not filled. the alternate director automatically vacate his office. directors may appoint additional directors. The following example illustrates this point. An additional director holds office only up to the next annual general meeting. the alternate director has the right to receive notices of meeting and any other communications and to attend such meetings and vote. If the Articles are silent. when he must be elected by the shareholders. The power to appoint additional Page 21 of 23 . and there are already twelve directors. While the additional director must be included in the total number of directors for purposes of calculating the maximum directors but not to be taken in to account when calculating the proportion liable to retire by rotation or the number that must actually retire every year. if the maximum number fixed by the Articles is twelve. this power only if (i) the articles so authorised and (ii) the directors on whose place the alternate is appointed is likely to be out of the state for more than three months. The proper way to calculate would be to deduct the additional director from the total number (12-2 = 10) and Board is therefore validly constituted. ADDITIONAL DIRECTOR Section 260 provides that where the Articles permit. he vacates his office when the original regarding the automatic re-appointment of retiring director will apply to the original director and not the alternate director. CASUAL VACANCIES A caused vacancy is caused when the office of a director falls vacant before the term would expire in the normal course e. appoint an alternate director to act for a director during his absence for a period of not less than three months from the state in which meetings of the Board are ordinarily held. In any case. Under English Law it is the director who ahs the right to appoint an alternate in India it is one Board.

he would be entitled to resign after giving notice in writing to the company. RESIGNATION There is no provision in the Act permitting a director to resign from his office. The director has the right to make a representation to the company against the proposal of his removal and if he requested the company to do so.COMPANY LAW directors gives the director freedom to bring on the Board men whose knowledge and experience would benefit the company without their having to be elected immediately by the shareholders. 1952. in turn must inform the director concerned. The power has been given to the shareholders because although in theory they have the right to choose their directors and manage the affairs of the company. the vacancy may be filled either at the general meeting at which the director is removed (providing notice of the intention to appoint the director has been given) or as a casual vacancy by the Board and as in the case of a casual vacancy the director who is appointed will retire when the original director would have retired. A director removed from office before his normal period of office is over would be entitled to compensation for premature termination of an office. However. cannot be so removed and a company that has adopted the procedure of proportional representation cannot also avail of this provision. the company is bound to circulate to the members his representation (provided it is of a reasonable length). Under this section in an extreme situation they can at least remove a director. Where a director is removed in this manner. However. under the rule as master and agent. Page 22 of 23 . REMOVAL OF DIRECTORS Section 284 provided that a company may by ordinary resolution remove a director before the expiration of his period of office. the shareholders must give special notice of their intention to do so to the company. a director of a private company who holds office for life on the 1st April. This section applied both to a public company and a private company. where it is intended to remove a director.

581-590: 'Limited and extended liability regimes' Cornish and Clark. New Delhi. ADVENTURES OF THE LAW (2005) 267-88. Utrecht: HGS Publishers. John.com Page 23 of 23 . THE TRANSFORMATION OF AMERICAN LAW. Brand. available at SSRN. 1991. THE WEALTH OF NATIONS (Glasgow edition. 1. K. THE OXFORD ENCYCLOPEDIA OF LEGAL HISTORY. 1976) pp. in P. 1720-1844 (2000) pp. by Davies 1997) pp. A Guide to the Companies Act. Moolchandani Indian Companies Act 1956 Company law by Singh and Avatar Company law and Practice. 731-758 Newman (ed. 1780-1860 (1977) pp. 109139 Horwitz. 'Corporate identity and limited liability in France and England 1825-67' (1996) 25 ANGLO-AMERICAN LAW REVIEW 397-440 *Getzler and Macnair. 2005 Landwehr. Wadhwa and Company. 1. Taxmann. 'The Formation of the East India Company as a Cooperation-Enhancing Institution' (December 2005). LAW AND ENGLISH RAILWAY CAPITALISM (1994) pp. 1-81. pp. Adam.. Ella. 140-146. Gepken-Jager.. www.).266-268: 'Coase' vol. 1870-1960: THE CRISIS OF LEGAL ORTHODOXY (1992) pp. VOC: A Bibliography of Publications Relating to the Dutch East India Company 16021800. Gerard van Solinge. LAW AND SOCIETY IN ENGLAND 1750-1950 (1989) pp. Nagpur. ‘Company Law: English Common Law’ forthcoming in Katz. THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW (1998) vol. ‘The Firm as an Entity before the Companies Acts’. Legal aspects of Banking operations by Macmilan Business law for management by K. on request from author. Campbell and Skinner. chief ed. eds. 110-167. pp. Costello and W. Deventer: Kluwer. 18-48 *Harris. R.110-143 Horwitz. INDUSTRIALIZING ENGLISH LAW: ENTREPRENEURSHIP AND BUSINESS ORGANIZATION. & Levinus Timmerman. PRINCIPLES OF MODERN COMPANY LAW (6th ed.N. 2. 'The Nature of the Firm' (1937) 4 ECONOMICA 386-405 (you are welcome to explore the literature generated by Coase's 'other classical article' if you wish) Smith.google .503-511: 'Corporate law' vol. 287-293 Harris. pp. THE TRANSFORMATION OF AMERICAN LAW. Osborough. VOC 1602-2002: 400 Years of Company Law. 65-107 Lobban. Kostal. Getzler. ed.COMPANY LAW 10: BIBLIOGRAPHY • • • • • • • • • • • • • • • • • • • • • • • Coase. 244266 Gower.

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