Chapter - 2 Incorporation of Company

INCORPORATION OF COMPANY | 2.
CHAPTER – 2 INCORPORATION OF COMPANY

CHAPTER – 2 INCORPORATION OF COMPANY
QUESTION 1
Red Limited was incorporated on 1st April, 2014 is facing severe effects of depression of
the economy. Owing to its bad financial status most of the members have started withdrawing
their holding from the company. The company had 250 members on 10th January, 2019. By
15th January, 2019, 244 members had withdrawn their holding. No new member has
invested in the company after 15th February till 15th August 2019. Now, Mr. A, an existing
member has approached you to advise him regarding his liabilities in such a situation.
ANSWER
According to section 3A of the Companies Act, 2013, If at any time the number of members of a
company is reduced, in the case of a public company, below seven, in the case of a private company,
below two, and the company carries on business for more than six months while the number of
members is so reduced, every person who is a member of the company during the time that it so
carries on business after those six months and is cognisant of the fact that it is carrying on
business with less than seven members or two members, as the case may be, shall be severally liable
for the payment of the whole debts of the company contracted during that time, and may be
severally sued therefor.
Hence, in the given situation, the number of member in the said public company have fallen below 7
[250-244=6] and these members have continued beyond the specified limit of 6 months, the
reduced members of the company during the period of 1 month shall be severally liable for the
payment of the whole debts of the company contracted during that time, and may be severally
sued therefor.
QUESTION 2
Mr. A and B are partners in a firm AB & Co. since the last 10 years. Now their business has
crossed ` 20 crores and they want to form a private limited company to take over the firm's
business and to expand it at large scale. They approached their auditor to assist to
incorporate a company in the name of AB Trading Private Ltd. Explain in brief what
documents are required to be filed with the Registrar of Companies?
Answer
As per section 3 (1)(b) of the Companies Act, 2013, a Private company may be formed for any lawful
purpose with two or more persons by subscribing their names to a memorandum and complying
with the requirements of this Act in respect of registration of company.
Document to be filed with the Registrar of Companies:
After getting the name approved, the following documents along with the application and
prescribed fee, are to be filed with the Registrar:-
(1) Memorandum of Association
(2) Articles of Association
(3) The agreement, if any, which the company proposed to enter into with any individual for
appointment as its Managing or Whole Time Director or Manager.
(4) A declaration that the requirements of the Act and the rules framed there under have been
complied with. This declaration is required to be signed by an advocate of the Supreme Court
or High Court or an attorney or a pleader having the right to appear before High Court or a
Company Secretary or a Chartered Accountant in whole time practice in India who is engaged
in the formation of a company, or by person named in the Articles as a Director, Manager or
Secretary of the company.
(5) A company shall, on and from the 30th day of incorporation and all times thereafter, have a
registered office capable of receiving and acknowledging all communications and notices as
may be addressed to it.
INCORPORATION OF COMPANY | 2.2
(6) Apart from the above the company shall furnish to the Registrar a verification of a registered
office under Section 12(2) within 30 days of incorporation in such manner as prescribed.
Question 3
XY Ltd. has its registered office at Mumbai in the State of Maharashtra. For better
administrative conveniences the company wants to shift its registered office from Mumbai to
Pune (within the State of Maharashtra, but from Mumbai ROC to Pune ROC). What
formalities the company has to comply with under the provisions of the Companies Act, 2013
for shifting its registered office as stated above? Explain.
Answer
The Companies Act, 2013 under section 13 provides for the process of altering the Memorandum of
a company. Since the location or Registered Office clause in the Memorandum only names the
state in which its registered office is situated, a change in address from Mumbai to Pune, does not
result in the alteration of the Memorandum and hence the provisions of section 13 (and its sub
sections) do not apply in this case.
However, under section 12 (5) of the Act which deals with the registered office of company, the
change in registered office from one town or city to another in the same state, must be approved by a
special resolution of the company. Further, registered office is shifted from one ROC to another,
therefore company will have to seek approval of Regional director.
Question 4
Examine the validity of the following different decisions/proposals regarding change of
office by A Ltd. under the provisions of the Companies Act, 2013:
(i) The Registered office is shifted from Thane (Local Limit of Thane District) to Dadar
(Local limit of Mumbai District), both places falling within the jurisdiction of the
Registrar of Mumbai, by passing a special resolution but without obtaining the approval
of the Regional Director.
(ii) The Registered office is situated in Mumbai, Maharashtra (within the jurisdiction of the
Registrar, Mumbai, Maharashtra State) whereas the Corporate Office is situated in Pune,
Maharashtra State (within the jurisdiction of the Registrar, Pune). A Ltd. proposes to
shift its corporate office from· Pune to Mumbai under the authority of a Board·
resolution.
(iii) The registered office situated in certain place of a city is proposed to be shifted to
another place within the local limits of the same city under the authority of Board
Resolution.
Answer
Regarding the validity of Proposals w.r.t change of registered office by A Ltd. in the light of the section
12 of the Companies Act, 2013:
(i) In the first case, where the Registered office is shifted from Thane to Dadar (one District to
another District) falling under jurisdiction of same ROC i.e. Registrar of Mumbai.
As per Section 12 (5) of the Act which deals with the change in registered office outside the
local limit from one town or city to another in the same state, may take place by virtue of a
special resolution passed by the company. No approval of regional director is required.
Accordingly, said proposal is valid.
(ii) Section 12 talks about shifting of Registered office only, In the second case the corporate office
is being shifted from Pune to Mumbai under the authority of Board resolution. Shifting of
corporate office under the board resolution is invalid.
[Note: It may be assumed that corporate office and registered office are same. Then in this case,
registered office situated in Mumbai is changed from Mumbai to Pune falling the jurisdiction of
different of ROC’s in the same State.
In line section 12 (5) of the Act, where a company changes the place of its registered office
from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same
State, there such change is to be confirmed by the Regional Director on an application made by
the company. Accordingly, the said proposal may be treated as invalid, due to lack of
confirmation by Regional director of such change.]
(iii) In the third case, change of registered office within the local limits of the same city.
Said proposal is valid in terms it has been passed under the authority of Board resolution.
Question 5
Q. XY Ltd. has its registered office at Mumbai in the State of Maharashtra. For better
administrative conveniences the company wants to shift its registered office from Mumbai to
Pune (within the State of Maharashtra). What formalities the company has to comply with
under the provisions of the Companies Act, 2013 for shifting its registered office as stated
above? Explain.
Answer
The Companies Act, 2013 under section 13 provides for the process of altering the Memorandum of
a company. Since the location or Registered Office clause in the Memorandum only names the
state in which its registered office is situated, a change in address from Mumbai to Pune, does not
result in the alteration of the Memorandum and hence the provisions of section 13 (and its sub
sections) do not apply in this case.
However, under section 12 (5) of the Act which deals with the registered office of company,
the change in registered office from one town or city to another in the same state, must be approved
by a special resolution of the company. Further, presuming that the Registrar will remain the same
for the whole state of Maharashtra, there will be no need for the company to seek the confirmation to
such change from the Regional Director.
Question 6
Vintage security equipment’s limited is a manufacturer of CCTV cameras. It has raised
` 100 crores through public issue of its equity shares for starting one more unit of CCTV
camera manufacturing. It has utilized 10 crores rupees and then it realized that its existing
business has no potential for expansion because government has reduced customs duty on
import of CCTV camera hence imported cameras from china are cheaper than its own
manufacturing. Now it wants to utilize remaining amount in mobile app development
business by adding a new object in its memorandum of association.
Does the Companies Act, 2013 allow such change of object. If not then what advise will you
give to company. If yes, then give steps to be followed.
Answer
According to section 13 of the Companies Act, 2013 a company, which has raised money from
public through prospectus and still has any unutilised amount out of the money so raised, shall
not change its objects for which it raised the money through prospectus unless a special resolution is
passed by the company and—
(i) the details in respect of such resolution shall also be published in the newspapers (one in
English and one in vernacular language) which is in circulation at the place where the
registered office of the company is situated and shall also be placed on the website of the
company, if any, indicating therein the justification for such change;
(ii) the dissenting shareholders shall be given an opportunity to exit by the promoters and
shareholders having control in accordance with SEBI regulations.
Company will have to file copy of special resolution with ROC and he will certify the registration
within a period of thirty days. Alteration will be effective only after this certificate by ROC.
Looking at the above provision we can say that company can add the object of mobile app
development in its memorandum and divert public money into that business. But for that it will
have to comply with above requirements.
Question 7
The object clause of the Memorandum of Vivek Industries Ltd., empowers it to carry on
real-estate business and any other business that is allied to it. Due to a downward trend in
real-estate business the management of the company has decided to take up the business of
Food processing activity. The company wants to alter its Memorandum, so as to include
the Food Processing Business in its objects clause. Examine whether the company can make
such change as per the provisions of the Companies Act, 2013?
Answer
Alteration of Objects Clause of Memorandum
The Companies Act, 2013 has made alteration of the memorandum simpler and more flexible.
Under section 13(1) of the Act, a company may, by a special resolution after complying with the
procedure specified in this section, alter the provisions of its Memorandum.
In the case of alteration to the objects clause, Section 13(6) requires the filing of the Special
Resolution by the company with the Registrar. Section 13 (9) states that the Registrar shall
register any alteration to the Memorandum with respect to the objects of the company and certify
the registration within a period of thirty days from the date of filing
of the special resolution by the company. Section 13 (10) further stipulates that no alteration in
the Memorandum shall take effect unless it has been registered with the Registrar as above.
Hence, the Companies Act, 2013 permits any alteration to the objects clause with ease. Vivek
Industries Ltd. can make the required changes in the object clause of its Memorandum of
Association.
Question 8
The Board of Directors of Sindhu Limited wants to make some changes and to alter some
Clauses of the Articles of Association which are to be urgently carried out, which include the
increase in Authorized Capital of the company, issue of shares, increase in borrowing limits
and increase in the number of directors.
Discuss about the provisions of the Companies Act, 2013 to be followed for alteration of
Articles of Association.
Answer
Alteration in Articles of Association: Section 14 of the Companies Act, 2013, vests companies
with power to alter or add to its articles. The law with respect to alteration of articles is as follows:
(1) Alteration by special resolution: Subject to the provisions of this Act and the conditions
contained in its memorandum, if any, a company may, by a special resolution alter its articles.
(2) Filing of alteration with the registrar: Every alteration of the articles and a copy of the
order of the Tribunal approving the alteration, shall be filed with the Registrar, together with a
printed copy of the altered articles, within a period of fifteen days in such manner as may be
prescribed, who shall register the same.
(3) Any alteration made shall be valid: Any alteration of the articles registered as above shall,
subject to the provisions of this Act, be valid as if it were originally contained in the articles.
(4) Alteration noted in every copy: Every alteration made in articles of a company shall be
noted in every copy of the articles, as the case may be. If a company makes any default in
complying with the stated provisions, the company and every officer who is in default shall
be liable to a penalty of one thousand rupees for every copy of the articles issued without
such alteration. [Section 15]
Question 9
Yadav Dairy Products Private limited has registered its articles along with memorandum at
the time of registration of company in December, 2014. Now directors of the company are of
the view that provisions of articles regarding forfeiture of shares should not be changed
except by a resolution of 90% majority. While as per section 14 of the Companies Act, 2013
articles may be changed by passing a special resolution only. Hence, one of the directors is of
the view that they cannot make a provision against the Companies Act, 2013. You are required
to advise the company on this matter.
Answer
As per section 5 of the Companies Act, 2013 the article may contain provisions for entrenchment to
the effect that specified provisions of the articles may be altered only if more restrictive conditions
than a special resolution, are met.
The provisions for entrenchment shall only be made either on formation of a company, or by an
amendment in the articles agreed to by all the members of the company in the case of a private
company and by a special resolution in the case of a public company.
Where the articles contain provisions for entrenchment, whether made on formation or by
amendment, the company shall give notice to the Registrar of such provisions in prescribed manner.
In the present case, Yadav Dairy Products Private Limited is a private company and wants to protect
provisions of articles regarding forfeiture of shares. It means it wants to make entrenchment of
articles, which is allowed. But the company will have to pass a resolution taking permission of all the
members and it should also give notice to Register of Companies regarding entrenchment of articles.
Question 10
The persons (not being members) dealing with the company are always protected by
the doctrine of indoor management. Explain. Also, explain when doctrine of Constructive
Notice will apply.
Answer
Doctrine of Indoor Management
According to this doctrine, persons dealing with the company need not inquire whether internal
proceedings relating to the contract are followed correctly, once they are satisfied that the
transaction is in accordance with the memorandum and articles of association.
Stakeholders need not enquire whether the necessary meeting was convened and held properly or
whether necessary resolution was passed properly. They are entitled to take it for granted that
the company had gone through all these proceedings in a regular manner.
The doctrine helps to protect external members from the company and states that the people
are entitled to presume that internal proceedings are as per documents submitted with the
Registrar of Companies.
The doctrine of indoor management is opposite to the doctrine of constructive notice. Whereas
the doctrine of constructive notice protects a company against outsiders, the doctrine of indoor
management protects outsiders against the actions of a company. This doctrine also is a safeguard
against the possibility of abusing the doctrine of constructive notice.
Exceptions to Doctrine of Indoor Management (Applicability of doctrine of constructive
notice)
(i) Knowledge of irregularity: In case an ‘outsider’ has actual knowledge of irregularity within
the company, the benefit under the rule of indoor management would no longer be
available. In fact, he/she may well be considered part of the irregularity.
(ii) Negligence: If, with a minimum of effort, the irregularities within a company could be
discovered, the benefit of the rule of indoor management would not apply. The protection of
the rule is also not available where the circumstances surrounding the contract are so
suspicious as to invite inquiry, and the outsider dealing with the company does not make
proper inquiry.
(iii) Forgery: The rule does not apply where a person relies upon a document that turns out to
be forged since nothing can validate forgery. A company can never be held bound for
forgeries committed by its officers.
Question 11
Sound Syndicate Ltd., a public company, its articles of association empowers the managing
agents to borrow both short and long term loans on behalf of the company, Mr. Liddle, the
director of the company, approached Easy Finance Ltd., a non- banking finance company for
a loan of ` 25,00,000 in name of the company.
The Lender agreed and provided the above said loan. Later on, Sound Syndicate Ltd. refused
to repay the money borrowed on the pretext that no resolution authorizing such loan have
been actually passed by the company and the lender should have enquired about the same
prior providing such loan hence company not liable to pay such loan.
Analyse the above situation in terms of the provisions of Doctrine of Indoor Management
under the Companies Act, 2013 and examine whether the contention of Sound Syndicate Ltd.
is correct or not?
Answer
According to this doctrine, persons dealing with the company need not inquire whether internal
whether necessary resolution was passed properly. They are entitled to take it for granted that the
company had gone through all these proceedings in a regular manner.
The doctrine helps protect external members from the company and states that the people are
entitled to presume that internal proceedings are as per documents submitted with the Registrar of
Companies.
Thus,
1. What happens internal to a company is not a matter of public knowledge. An outsider can
only presume the intentions of a company, but do not know the information he/she is not privy
to.
2. If not for the doctrine, the company could escape creditors by denying the authority of officials
to act on its behalf.
In the given question, Easy Finance Ltd. being external to the company, need not enquire whether
the necessary resolution was passed properly. Even if the company claim that no resolution
authorizing the loan was passed, the company is bound to pay the loan to Easy Finance Ltd.
Question 12
Mr. X had purchased some goods from M/s ABC Limited on credit. A credit period of one
month was allowed to Mr. X. Before the due date Mr. X went to the company and wanted to
repay the amount due from him. He found only Mr. Z there, who was the factory supervisor of
the company. Mr. Z told Mr. X that the accountant and the cashier were on leave, he is in-
charge of receiving money and he may pay the amount to him. Mr. Z issued a money receipt
under his signature. After two months M/s ABC Limited issued a notice to Mr. X for non-
payment of the dues within the stipulated period. Mr. X informed the company that he had
already cleared the dues and he is no more responsible for the same. He also contended that
Mr. Z is an employee of the company to whom he had made the payment and being an
outsider, he trusted the words of Mr. Z as duty distribution is a job of the internal
management of the company.
Analyse the situation and decide whether Mr. X is free from his liability.Answer
Doctrine of Indoor Management: The Doctrine of Indoor Management is the exception to the
doctrine of constructive notice. The doctrine of constructive notice does not mean that outsiders are
deemed to have notice of the internal affairs of the company. For instance, if an act is authorised by
the articles or memorandum, an outsider is entitled to assume that all the detailed formalities for
doing that act have been observed.
The doctrine of Indoor Management is important to persons dealing with a company through its
directors or other persons. They are entitled to assume that the acts of the directors or other officers
of the company are validly performed, if they are within the scope of their apparent authority. So
long as an act is valid under the articles, if done in a particular manner, an outsider dealing with
the company is entitled to assume that it has been done in the manner required.
In the given question, Mr. X has made payment to Mr. Z and he (Mr. Z) gave to receipt of the same to
Mr. X. Thus, it will be rightful on part of Mr. X to assume that Mr. Z was also authorised to receive
money on behalf of the company. Hence, Mr. X will be free from liability for payment of goods
purchased from M/s ABC Limited, as he has paid amount due to an employee of the company.
Question 13
Q. The directors of Smart Computers limited borrowed a sum of money from Mr. Tridev. The
company's articles provided that the directors may borrow on bonds such sums as may, from
time to time, be authorized by resolution passed at a general meeting of the company. The
shareholders claimed that there had been no such resolution authorizing the loan, and
therefore, it was taken without their authority. Hence, the company is not bound to repay the
loan to Mr. Tridev, In the light of the contention of shareholders, decide whether the company
i s bound to pay the loan.
Answer
According to this doctrine, persons dealing with the company need not enquire whether internal
whether necessary resolution was passed properly. They are entitled to take it for granted that the
company had gone through all these proceedings in a regular manner.
The doctrine helps to protect external members from the company and states that the people are
entitled to presume that internal proceedings are as per documents submitted with the Registrar of
Companies.
Thus,
1. What happens internal to a company is not a matter of public knowledge. An outsider can only
presume the intentions of a company, but not know the information he/she is not privy to.
2. If not for the doctrine, the company could escape creditors by denying the authority of officials
to act on its behalf.
In the given question, Mr. Tridev being a person external to the company, need not enquire whether
the necessary meeting was convened and held properly or whether necessary resolution was passed
properly. Even if the shareholders claim that no resolution authorizing the loan was passed, the
company is bound to pay the loan to Mr. Tridev.
Question 14
Mr. Dinesh incorporated a new Private Limited Company under the provisions of the
Companies Act, 2013 and desires to commence the business immediately. Please advise Mr.
Dinesh about the procedure for commencement of business as laid under the provisions of
the Section 10A of the Companies Act, 2013.
Answer
As per Section 10A of the Companies Act, 2013, a company incorporated after the commencement
of the Companies (Amendment) Second Ordinance, 2019 and having a share capital shall not
commence any business or exercise any borrowing powers unless:
(i) A declaration is filed by a director within a period of 180 days of the date of incorporation of
the company in such form and verified in such manner as may be prescribed, with the
Registrar that every subscriber to the memorandum has paid the value of the shares agreed
to be taken by him on the date of making of such declaration; and
(ii) The company has filed with the Registrar a verification of it registered office as provided in
sub-section (2) of section 12.
Mr. Dinesh has to comply with the above requirements and procedure for commencing the business
of the company.
Question 15
Manglu and friends got registered a company in the name of Taxmann advisory private
limited. Taxmann is a registered trade mark. After 5 years When the owner of trade mark
came to know about the same, it filed an application with relevant authority. Can the
company be compelled to change its name by the owner of trade mark? Can the owner of
registered trade mark request the company and then company changes its name at its
discretion?
Answer
According to section 16 of the Companies Act, 2013 if a company is registered by a name which,—
 in the opinion of the Central Government, is identical with the name by which a company
had been previously registered, it may direct the company to change its name. Then the
company shall by passing an ordinary resolution change its name within 3 months.
 is identical with a registered trade mark and owner of that trade mark apply to the Central
Government within three years of incorporation of registration of the company, it may
direct the company to change its name.
Then the company shall change its name by passing an ordinary resolution within 3 months.
Company shall give notice to ROC along with the order of Central Government within 15 days of
change. In case of default company and defaulting officer are punishable.
In the given case, owner of registered trade mark is filing objection after 5 years of registration
of company with a wrong name. While it should have filed the same within 3 years.
Therefore, the company cannot be compelled to change its name.
As per section 13, company can anytime change it name by passing a special resolution and
taking approval of Central Government. Therefore, if owner of registered trade mark request the
company for change of its name and the company accepts the same then it can change it name
voluntarily by following the provisions of section 13.
Question 16
Define OPC (One Person Company) and state the rules regarding its membership. Can it be
converted into a non-profit company under Section 8 or a private company?
Answer
One Person Company (OPC) [Section 2(62) of the Companies Act, 2013]: The Act defines one
person company (OPC) as a company which has only one person as a member.
Rules regarding its membership:
 Only one person as member.

 The memorandum of OPC shall indicate the name of the other person, who shall, in the
event of the subscriber’s death or his incapacity to contract, become the member of the
company.
 The other person whose name is given in the memorandum shall give his prior written
consent in prescribed form and the same shall be filed with Registrar of companies at the time
of incorporation.
 Such other person may be given the right to withdraw his consent.
 The member of OPC may at any time change the name of such other person by giving notice to
the company and the company shall intimate the same to the Registrar.
 Any such change in the name of the person shall not be deemed to be an alteration of the
memorandum.
 Only a natural person who is an Indian citizen and resident in India (person who has stayed in
India for a period of not less than 120 days during the immediately preceding one calendar
year)-
 shall be eligible to incorporate a OPC;
 shall be a nominee for the sole member of a OPC.
 No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company.
 No minor shall become member or nominee of the OPC or can hold share with beneficial
interest.
 OPC cannot be incorporated or converted into a company under section 8 of the Act.
Though it may be converted to private or public companies in certain cases. OPC cannot
convert voluntarily into any kind of company unless two years have expired from the
date of incorporation, except where the paid up share capital is increased beyond fifty
lakh rupees or its average annual turnover during the relevant period exceeds two
crore rupees. .(Now OPC can convert into any other kind of company except Section
8 company at anytime)
Question 17
Mr. Anil formed a One Person Company (OPC) on 16th April, 2018 for manufacturing electric
cars. The turnover of the OPC for the financial year ended 31st March, 2019 was about ` 2.25
Crores. His friend Sunil wanted to invest in his OPC, so they decided to convert it voluntarily
into a private limited company. Can Anil do so?
Answer
As per the provisions of Sub-Rule (7) of Rule 3 of the Companies (Incorporation) Rules, 2014, an OPC
cannot convert voluntarily into any kind of company unless two years have expired from the date of
its incorporation, except threshold limit (paid up share capital) is increased beyond fifty lakh rupees
or its average annual turnover during the relevant period exceeds two crore rupees.
In the instant case, Mr. Anil formed an OPC on 16th April, 2018 and its turnover for the financial
year ended 31st March, 2019 was Rs. 2.25 Crores. Even though two years have not expired from the
date of its incorporation, since its average annual turnover during the period starting from 16th
April, 2018 to 31st March, 2019 has exceeded Rs. 2 Crores, Mr. Anil can convert the OPC into a
private limited company along with Sunil.
Question 18
MNO a One Person company (OPC) was incorporated during the year 2015 -16 with an
authorised capital of ` 45 lakhs (4.5 lakhs shares of ` 10 each). The capital was fully
subscribed and paid up. Turnover of the company during 2015-16 and 2016- 17 was ` 2
crores and `2.5 crores respectively. Promoter of the company seeks your advice in the
following circumstances, whether MNO (OPC) can convert into any other kind of company
during 2017-18. Please, advise with reference to relevant provisions of the Companies Act,
2013 in the below mentioned circumstances:
(i) If promoter increases the paid up capital of the company by ` 10 lakhs during 2017-
18
(ii) If turnover of the company during 2017-18 was `3 crores. Answer
As per Rule 3 of the Companies (Incorporation) Rules, 2014, One Person Company (OPC) cannot
convert voluntarily into any kind of company unless two years have expired from the date of
incorporation, except where the paid up share capital is increased beyond fifty lakh rupees or its
average annual turnover during the relevant period exceeds two crore rupees.
Besides, Section 18 of the Companies Act, 2013 provides that a company of any class registered
under this Act may convert itself as a company of other class under this Act by alteration of
memorandum and articles of the company in accordance with the provisions of the Chapter II of
the Act.
According to the above provisions, following are the answers to the given circumstances:
(i) Where, if the promotors increase the paid up capital of the company by ` 10.00 lakh during
2017-2018 i.e., to ` 55 lakh (45+10= 55), MNO (OPC) may convert itself voluntarily into any
other kind of company due to increase in the paid up share capital exceeding 50 lakh rupees.
This could be done by the MNO by alteration of memorandum and articles of the company
in compliance with the Provisions of the Act.
(ii) Where if the turnover of the MNO during 2017-18 was ` 3.00 crore, there will be no change in
the answer, as it meets up the requirement of minimum turnover i.e, ` 2 crore for
voluntarily conversion of MNO (OPC) into any other kind of company.
Question 19
Q. Mr. Raja along with his family members is running successfully a trading business. He is
capable of developing his ideas and participating in the market place. To achieve this, Mr.
Raja formed a single person economic entity in the form of One Person Company with his
brother Mr. King as its nominee. On 4th May 2020, Mr. King withdrew his consent as Nominee
of the One Person Company. Can he do so under the provisions of the Companies Act, 2013?
Examine whether the following individuals are eligible for being nominated as Nominee of
the One Person Company as on 5th May 2020 under the above said Act.
(i) Mr. Shyam, son of Mr. Raja who is 15 years old as on 5th May 2020.
(ii) Mr. Ashok, an Indian Citizen residing in India who is presently a member of a 'One
Person Company'.
Answer
As per section 3 of the Companies Act, 2013, the memorandum of One Person Company (OPC) shall
indicate the name of the other person (nominee), who shall, in the event of the subscriber’s death
or his incapacity to contract, become the member of the company.
The other person (nominee) whose name is given in the memorandum shall give his prior written
consent in prescribed form and the same shall be filed with Registrar of companies at the time of
incorporation along with its Memorandum of Association and Articles of Association.
Such other person (nominee) may withdraw his consent in such manner as may be prescribed.
Therefore, in terms of the above law, Mr. King, the nominee, whose name was given in the
memorandum, can withdraw his consent as a nominee of the OPC by giving a notice in writing to
the sole member and to the One Person Company.
Following are the answers to the second part of the question as regards the eligibility for being
nominated as nominee:
(i) As per the Rule 3 of the Companies (Incorporation) Rules, 2014, no minor shall become
member or nominee of the OPC. Therefore, Mr. Shyam, being a minor isnot eligible for being
nominated as Nominee of the OPC.
(ii) As per the Rule 3 of the Companies (Incorporation) Rules, 2014, a person shall not be a
member of more than one OPC at any point of time and the said person shall not be a nominee
of more than one OPC. Mr. Ashok, an Indian Citizen residing in India who is a member of an
OPC (Not a nominee in any OPC), can be nominated as nominee.
Question 20
Naveen incorporated a “One Person Company” making his sister Navita as the nominee. Navita
is leaving India permanently due to her marriage abroad. Due to this fact, she is withdrawing
her consent of nomination in the said One Person Company. Taking into considerations the
provisions of the Companies Act, 2013 answer the questions given below.
(a) If Navita is leaving India permanently, is it mandatory for her to withdraw her
nomination in the said One Person Company?
(b) If Navita maintained the status of Resident of India after her marriage, then can she
continue her nomination in the said One Person Company?
Answer
(a) Yes, it is mandatory for Navita to withdraw her nomination in the said OPC as she is leaving
India permanently as only a natural person who is an Indian citizen and resident in India shall
be a nominee in OPC.
(b) Yes, Navita can continue her nomination in the said OPC, if she maintained the status of
Resident of India after her marriage by staying in India for a period of not less than 120 days
during the immediately preceding financial year.
Question 21
Examine the following whether they are correct or incorrect along with reasons:
(a) A company being an artificial person cannot own property and cannot sue or besued.
(b) A private limited company must have a minimum of two members, while a publiclimited
company must have at least seven members.
Answer
(a) A company being an artificial person cannot own property and cannot sue or besued
Incorrect: A company is an artificial person as it is created by a process other than natural birth. It is
legal or judicial as it is created by law. It is a person since it is clothed with all the rights of an
individual.
Further, the company being a separate legal entity can own property, have banking account, raise
loans, incur liabilities and enter into contracts. Even members can contract with company, acquire
right against it or incur liability to it. It can sue and be sued in its own name. It can do everything
which any natural person can do except be sent to jail, take an oath, marry or practice a learned
profession. Hence, it is a legal person in its own sense.
(b) A private limited company must have a minimum of two members, while a public
limited company must have at least seven members.
Correct: Section 3 of the Companies Act, 2013 deals with the basic requirement with respect to
the constitution of the company. In the case of a public company, any 7 or more persons can
form a company for any lawful purpose by subscribing their names to memorandum and
complying with the requirements of this Act in respect of registration. In exactly the same way,
2 or more persons can form a private company.
Question 22
Flora Fauna Limited was registered as a public company. There are 230 members in the
company as noted below:
(a) Directors and their relatives 190

(b) Employees 15
(c) Ex-Employees (Shares were allotted when they were employees) 10
(d) 5 couples holding shares jointly in the name of husband and wife (5*2) 10
(e) Others 5
The Board of Directors of the company propose to convert it into a private company. Also
advise whether reduction in the number of members is necessary.
Answer
According to section 2(68) of the Companies Act, 2013, "Private company" means a company having
a minimum paid-up share capital as may be prescribed, and which by its articles, except in case of
One Person Company, limits the number of its members to two hundred.
However, where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this clause, be treated as a single member.
It is further provided that -
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of
the company while in that employment and have continued to be members after the
employment ceased,
shall not be included in the number of members.
In the instant case, Flora Fauna Limited may be converted into a private company only if the
total members of the company are limited to 200.
Total Number of members
(i) Directors and their relatives 190
(ii) 5 Couples (5*1) 5
(iii) Others 5
Total 200
Therefore, there is no need for reduction in the number of members since existing number of
members are 200 which does not exceed maximum limit of 200.
Question 23
Flora Fauna Limited was registered as a public company. There are 230 members in the
company as noted below:
(a) Directors and their relatives 50
(b) Employees 15
(c) Ex-Employees (Shares were allotted when they were employees) 10
(d) 5 couples holding shares jointly in the name of husband and wife (5*2) 10
(e) Others 145
The Board of Directors of the company propose to convert it into a private company. Also
advise whether reduction in the number of members is necessary.
Answer
According to section 2(68) of the Companies Act, 2013, "Private company" means a company
having a minimum paid-up share capital as may be prescribed, and which by its articles, except in
case of One Person Company, limits the number of its members to two hundred.
However, where two or more persons hold one or more shares in a company jointly, they shall, for
the purposes of this clause, be treated as a single member.
It is further provided that –
(B) persons who, having been formerly in the employment of the company, were members of
the company while in that employment and have continued to be members after the
employment ceased, shall not be included in the number of members.
In the instant case, Flora Fauna Limited may be converted* into a private company only if the
total members of the company are limited to 200. Total Number of members
(i) Directors and their relatives 5 Couples (5*1) 50

(ii) Others 5
(iii) 145
Total 200
Therefore, there is no need for reduction in the number of members since existing number of
members are 200 which does not exceed maximum limit of 200.
Question 24
Discuss the procedure to be followed by Board of a Company to convert a public company
into a private limited company.
Answer
Procedure for conversion of a Public Company into a Private Company:

Section 14 (1) of the Companies Act, 2013 states that subject to the provisions of the Companies Act
2013 and the conditions contained in the Memorandum, a company may, by special resolution, alter
its Articles including alterations which may have the effect of converting a public company into a
private company (or vice versa).
Further any alteration which has the effect of converting a public company into a private company
will not have any effect except with the approval of the CG which may pass such order as it deems fit.
Hence, the broad procedure for conversion of a public company into a private company would
comprise of the following steps:
1. Check that the Memorandum of Association does not contain any restrictive clause. If yes,
alteration of the Memorandum will be necessary through a special resolution;
2. Alteration of the Articles to incorporate the restrictions required under section 2 (68) by a
special resolution
3. Application to the CG for approval of the change
4. After the approval of the CG, every alteration of the articles and a copy of the order of the CG
approving the alteration shall be filed with the Registrar, within a period of fifteen days, who
shall register the same.
5. Any alteration of the articles registered as above shall be valid as if it were originally in the
articles.
Question 25
The paid-up capital of Ram Private Limited is ` 10 Crores in the form of 7,00,000 Equity
Shares of ` 100 each and 3,00,000 Preference Shares of ` 100 each. Lakhan Private Limited is
holding 3,00,000 Equity Shares and 3,00,000 Preference Shares in Ram Private Limited. State
with reason, Whether Ram Private Limited is subsidiary of Lakhan Private Limited?
Answer
According to Section 2(87) of Companies Act, 2013 “subsidiary company” in relation to any other
company (that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or together
with one or more of its subsidiary companies:
For the purposes of this section —
(i) the composition of a company’s Board of Directors shall be deemed to be controlled by another
company if that other company by exercise of some power exercisable by it at its discretion can
appoint or remove all or a majority of the directors;
(ii) the expression “company” includes anybody corporate;
It is to be noted that Preference share capital will also be considered if preference shareholders have
same voting rights as equity shareholders.
In the instant case, Ram Private Limited is having paid-up capital of `10 Crores in the form of
7,00,000 Equity Shares of `100 each and 3,00,000 Preference Shares of `100 each. Lakhan Private
Limited is holding 3,00,000 Equity Shares and 3,00,000 Preference Shares in Ram Private Limited.
As in the given problem it is not clear that whether Preference Shares are having voting rights or not,
it can be taken that there is no voting right with these shares. On the basis of provisions of Section
2(87) and facts of the given problem, Lakhan Private Limited is holding 3,00,000 Equity Shares of
total equity paid up share capital of Ram Private Limited. Therefore, as Lakhan Private Limited does
not exercises or controls more than one-half of the total voting power in Ram Private Limited, Ram
Private Limited is not subsidiary of Lakhan Private Limited.
Question 26
State Cricket Club was formed as a Limited Liability Company under Section 8 of the
Companies Act, 2013 with the object of promoting cricket by arranging introductory cricket
courses at district level and friendly matches. The club has been earning surplus. Of late, the
affairs of the company are conducted fraudulently and dividend was paid to its members. Mr.
Cool, a member decided make a complaint with Regulatory Authority to curb the fraudulent
activities by cancelling the licence given to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the licence? If so, state
the provisions.
(ii) Whether the Company may be wound up?
(iii) Whether the State Cricket Club can be merged with M/s. Cool Net Private Limited, a
company engaged in the business of networking?
Answer
(i) According to Section 8(6) of the Companies Act, 2013, the Central Government may by order
revoke the licence of the company where the company contravenes any of the requirements or
the conditions of section 8 subject to which a licence is issued or where the affairs of the
company are conducted fraudulently, or in violation of the objects of the company or
prejudicial to public interest, and on revocation, the Registrar shall put ‘Limited’ or ‘Private
Limited’ against the company’s name in the register. But before such revocation, the Central
Government must give it a written notice of its intention to revoke the licence and opportunity
to be heard in the matter.
Hence, in the instant case, the Central Government can revoke the license given to State Cricket
Club as section 8 company, as the affairs of the company are conducted fraudulently and
dividend was paid to its members which is in contravention to the conditions given under
section 8.
(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is
essential in the public interest, direct that the company be wound up under this Act or
amalgamated with another company registered under this section.
However, no such order shall be made unless the company is given a reasonable opportunity of
being heard. [Section 8(7)] Hence, the stated company may be wound up.
(iii) A company registered under this section shall amalgamate only with another company
registered under this section and having similar objects. [Section 8(10)]
In the instant case, State Cricket Club cannot be merged with Cool Net Private Limited as the
objects of both the companies are different and not similar.
Question 27
What do you mean by "Companies with charitable purpose" (section 8) under the Companies
Act, 2013? Mention the conditions of the issue and revocation of the licence of such company
by the government.
Answer
Formation of companies with charitable purpose etc. (Section 8 company):
Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed
to-
 promote the charitable objects of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment etc.
 Such company intends to apply its profit in promoting its objects and
 prohibiting the payment of any dividend to its members.
Examples of section 8 companies are FICCI, ASSOCHAM, National Sports Club of India,
CII etc.
Power of Central government to issue the license–
(i) Section 8 allows the Central Government to register such person or association of persons as a
company with limited liability without the addition of words ‘Limited’ or ‘Private limited’ to its
name, by issuing licence on such conditions as it deems fit.
(ii) The registrar shall on application register such person or association of persons as a company
under this section.
(iii) On registration the company shall enjoy same privileges and obligations as of a limited
company.
Revocation of license: The Central Government may by order revoke the licence of the company
where the company contravenes any of the requirements or the conditions of this sections subject to
which a licence is issued or where the affairs of the company are conducted fraudulently, or violative
of the objects of the company or prejudicial to public interest, and on revocation the Registrar shall
put ‘Limited’ or ‘Private Limited’ against the company’s name in the register. But before such
revocation, the Central Government must give it a written notice of its intention to revoke the
licence and opportunity to be heard in the matter.
Question 28
A company registered under section 8 of the Companies Act, 2013, earned huge profit during
the financial year ended on 31st March, 2018 due to some favorable policies declared by the
Government of India and implemented by the company. Considering the development, some
members of the company wanted the company to distribute dividends to the members of the
company. They approached you to advise them about the maximum amount of dividend that
can be declared by the company as per the provisions of the Companies Act, 2013. Examine
the relevant provisions of the Companies Act, 2013 and advise the members accordingly.
Answer
A company that is registered under section 8 of the Companies Act, 2013, is prohibited from the
payment of any dividend to its members.
The company in question is a section 8 company and hence it cannot declare dividend. Thus, the
contention of members is incorrect.
Question 29
Can a non-profit organization be registered as a company under the Companies Act, 2013? If
so, what procedure does it have to adopt?
Answer
Yes, a non-profit organization be registered as a company under the Companies Act, 2013 by
following the provisions of section 8 of the Companies Act, 2013. Section 8 of the Companies Act,
2013 deals with the formation of companies which are formed to-
 promote the charitable objects of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment etc.
Such company intends to apply its profit in

 promoting its objects and
 prohibiting the payment of any dividend to its members.
The Central Government has the power to issue license for registering a section 8 company.
(i) Section 8 allows the Central Government to register such person or association of persons as
a company with limited liability without the addition of words ‘Limited’ or ‘Private limited’ to
its name, by issuing licence on such conditions as it deems fit.
(ii) The registrar shall on application register such person or association of persons as a company
under this section.
(iii) On registration the company shall enjoy same privileges and obligations as of a limited
company.
Question 30
Alfa school started imparting education on 1.4.2010, with the sole objective of providing
education to children of weaker society either free of cost or at a very nominal fee
depending upon the financial condition of their parents. However, on 30th March 2018, it
came to the knowledge of the Central Government that the said school was operating by
violating the objects of its objective clause due to which it was granted the status of a
section 8 company under the Companies Act, 2013. Describe what powers can be
exercised by the Central Government against the Alfa School, in such a case?
Answer
Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to
promote the charitable objects of commerce, art, science, education, sports etc. Such company
intends to apply its profit in promoting its objects. Section 8 companies are registered by the
Registrar only when a license is issued by the Central Government to them. Since, Alfa School
was a Section 8 company and it had started violating the objects of its objective clause, hence in
such a situation the following powers can be exercised by the Central Government:
(i) The Central Government may by order revoke the licence of the company where the company
contravenes any of the requirements or the conditions of this sections subject to which a
licence is issued or where the affairs of the company are conducted fraudulently, or violative of
the objects of the company or prejudicial to public interest, and on revocation the Registrar
shall put ‘Limited’ or ‘Private Limited’ against the company’s name in the register. But before
such revocation, the Central Government must give it a written notice of its intention to
revoke the licence and opportunity to be heard in the matter.
(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is
essential in the public interest, direct that the company be wound up under this Act or
amalgamated with another company registered under this section. However, no such order
shall be made unless the company is given a reasonable opportunity of being heard.
(iii) Where a licence is revoked and where the Central Government is satisfied that it is essential in
the public interest that the company registered under this section should be amalgamated with
another company registered under this section and having similar objects, then,
notwithstanding anything to the contrary contained in this Act, the Central Government
may, by order, provide for such amalgamation to form a single company with such
constitution, properties, powers, rights, interest, authorities and privileges and with such
liabilities, duties and obligations as may be specified in the order.
Question 31
A group of individuals intend to form a club namely 'Budding Pilots Flying Club' as limited
liability Company to impart class room teaching and aircraft flight training to trainee pilots. It
was decided to form a limited liability company for charitable purpose under Section 8 of the
Companies Act, 2013 for a period of ten years and thereafter the club will be dissolved and the
surplus of assets over the liabilities, if any, will be distributed amongst the members as a
usual procedure allowed under the Companies Act, 2013.
Examine the feasibility of the proposal and advise the promoters considering the
provisions of the Companies Act, 2013.
Answer
According to section 8(1) of the Companies Act, 2013, where it is proved to the satisfaction of the
Central Government that a person or an association of persons proposed to be registered under this
Act as a limited company—
(a) has in its objects the promotion of commerce, art, science, sports, education, research,
social welfare, religion, charity, protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members;
the Central Government may, by issue of licence, allow that person or association of persons to
be registered as a limited liability company.
In the instant case, the decision of the group of individuals to form a limited liability company for
charitable purpose under section 8 for a period of ten years and thereafter to dissolve the club and
to distribute the surplus of assets over the liabilities, if any, amongst the members will not hold good,
since there is a restriction as pointed out in point (b) above regarding application of its profits or
other income only in promoting its objects. Further, there is restriction in the application of the
surplus assets of such a company in the event of winding up or dissolution of the company as
provided in sub-section (9) of Section 8 of the Companies Act, 2013. Therefore, the proposal is not
feasible.
Question 32
MNP Private Ltd. is a company registered under the Companies Act, 2013 with a, Paid Up
Share Capital of ` 45 lakh and turnover of ` 50 crores. Explain the meaning of the "Small
Company" and examine the following in accordance with the provisions of the Companies Act,
2013:
(i) Whether the MNP Private Ltd. can avail the status of small company?
(ii) What will be your answer if the turnover of the company is ` 15 crore?
Answer
Small Company: According to Section 2(85) of the Companies Act, 2013, Small Company means a
company, other than a public company,—
(1) paid-up share capital of which does not exceed 4 crore rupees or such higher amount as may
be prescribed which shall not be more than 10 crore rupees; and
(2) turnover of which as per its last profit and loss account does not exceed 40 crore rupees or
such higher amount as may be prescribed which shall not be more than 100 crore rupees.
Nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
(i) In the present case, MNP Private Ltd., a company registered under the Companies Act, 2013
with a paid up share capital of ` 45 lakh and having turnover of ` 50 crore. Since only one
criteria of share capital of ` 50 Lakhs is met, but the second criteria of turnover of `
40crores is not met and the provisions require both the criteria to be met in order to avail the
status of a small company, MNP Ltd. cannot avail the status of small company.
(ii) If the turnover of the company is ` 15 crore, then both the criteria will be fulfilled and MNP
Ltd. can avail the status of small company
Question 33
S. Ltd acquired 10% paid up share capital of H Ltd on 15th March 2017. H Ltd acquired 55%
paid up share capital of S Ltd on 10th March 2018. H Ltd. on 25th September, 2020 decided to
issue bonus shares in the ratio of 1:1 to the existing shareholders. Accordingly, bonus shares
were allotted to S Ltd. Examine under the provisions of the Companies Act, 2013 and decide
(i) the validity of holding of shares by S Ltd. in H Ltd.
(ii) allotment of Bonus shares by H Ltd. toS Ltd.
Answer
As per Section 19 of the Companies Act, 2013, no company shall, hold any shares in its holding
company and no holding company shall allot or transfer its shares to any of its subsidiary companies
and any such allotment or transfer of shares of a company to its subsidiary company shall be void.
However, this shall not apply where the subsidiary company is a shareholder even before it became a
subsidiary company of the holding company.
In the given case, H Ltd. has acquired 55% paid up share capital of S Ltd. on 10th March 2018.
Whereas, S Ltd. has been holding 10% paid up share capital of H Ltd. since 15th March, 2017. The
said instance as asked in the question falls under the exception stated above.
Therefore -
(i) Holding of shares by S Ltd. in H Ltd. is valid in view of the proviso (c) to sub-section (1) of
section 19 of the Act, which states that the restrictions of provisions of section 19(1) will not
be applicable where the subsidiary company is a shareholder even before it became a
subsidiary company of the holding company.
(ii) Allotment of bonus shares by H Ltd. to S Ltd. is also valid in view of the above proviso.
Question 34
Kavya Ltd. has a paid up share-capital of Rs. 80 crores. Amjali Ltd. holds a total of Rs. 50
crores of Kavya Ltd. Now, Kavya ltd. is making huge profits and wants to expand its business
and is aiming at investing in Amjali Ltd. Kavya Ltd. has approached you to analyse whether as
per the provisions of the Companies Act, 2013, they can hold 1/10th of the share capital of
Amjali Ltd.
Answer
In terms of section 2 (87) of the Companies Act 2013 "subsidiary company" or "subsidiary", in
relation to any other company (that is to say the holding company), means a company in which the
holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or together
with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not havelayers
of subsidiaries beyond such numbers as may be prescribed.
Since, Kavya ltd. is holding more than one half (50 crores out of 80 crores) of the total share capital
of Kavya Ltd., it (Amjali Ltd.) is holding of Kavya Ltd.
Further, as per the provisions of section 19 of the Companies Act, 2013, no company shall, eitherby
itself or through its nominees, hold any shares in its holding company and no holding company shall
allot or transfer its shares to any of its subsidiary companies and any such allotment ortransfer of
shares of a company to its subsidiary company shall be void:
Provided that nothing in this sub-section shall apply to a case—
(a) where the subsidiary company holds such shares as the legal representative of a deceased
member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary company of
the holding company
In the given question, Kavya ltd. cannot acquire the shares of Amjali Ltd. as the acquisition of shares
does not fall within the ambit of any of the exceptions provided in section 19.
Question 35
S Ltd. is a company in which H Ltd. is holding 60% of its paid up share capital. One of the
shareholder of H Ltd. made a charitable trust and donated his 10% shares in H Ltd. and
`50 crores to the trust. He appoints S Ltd. as the trustee. All the assets of the trust are held
in the name of S Ltd. Can a subsidiary hold shares in its holding company in this way?
Answer
According to section 19 of the Companies Act, 2013 a company shall not hold any shares in its
holding company either by itself or through its nominees. Also, holding company shall not allot
or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares
of a company to its subsidiary company shall be void.
Following are the exceptions to the above rule—
(a) where the subsidiary company holds such shares as the legal representative of a deceased
member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary company of
the holding company but in this case it will not have a right to vote in the meeting of holding
company.
In the given case one of the shareholders of holding company has transferred his shares in the
holding company to a trust where the shares will be held by subsidiary company. It means now
subsidiary will hold shares in the holding company. But it will hold shares in the capacity of a
trustee. Therefore, we can conclude that in the given situation S Ltd. can hold shares in H Ltd.
Question 36
Explain in the light of the provisions of the Companies Act, 2013, the circumstances under
which a subsidiary company can become a member of its holding company.
Answer
In accordance with the provisions of Section 19 of the Companies Act, 2013, a subsidiary
company cannot either by itself or through its nominees hold any sharesin its holding company
and no holding company shall allot or transfer its shares to any subsidiary companies. Any such
allotment or transfer of shares in a company to its subsidiary is void. The section however does
not apply where:
(1) the subsidiary company holds shares in its holding company as the legal representative of a
deceased member of the holding company,
(2) the subsidiary company holds such shares as a trustee, or
(3) the subsidiary company was a shareholder in the holding company even before it
became its subsidiary.
Question 37
Explain the provisions of the Companies Act, 2013 relating to the ‘Service of Documents’ on a
company and the members of the company.
Answer
Under section 20 of the Companies Act, 2013 a document may be served on a company or an
officer thereof by sending it to the company or the officer at the registered office ofthe company
by registered post or by speed post or by courier service or by leaving it at its registered office
or by means of such electronic or other mode as may be prescribed. However, in case where
securities are held with a depository, the records of the beneficialownership may be served by such
depository on the company by means of electronic orother mode.
Under section 20 (2), save as provided in the Act or the rule thereunder for filing of documents
with the registrar in electronic mode, a document may be served on Registrar or any member
by sending it to him by post or by registered post or by speed post or by courier or by delivering
at his office or address, or by such electronic or other mode as may be prescribed. However,
a member may request for delivery of any document through a particular mode, for which he
shall pay such fees as may be determined by the company in its annual general meeting.
Question 38
Ashok, a director of Gama Electricals Ltd. gave in writing to the company that the notice for
any general meeting and of the Board of Directors' meeting be sent to him only by registered
post at his residential address at Kanpur for which he deposited sufficient money. The
company sent notice to him by ordinary mail under certificate of posting. Ashok did not
receive this notice and could not attend the meeting and contended that the notice was
improper.
Decide:
(i) Whether the contention of Ashok is valid.
(ii) Will your answer be the same if Ashok remains in U.S.A. for one month during the notice
of the meeting and the meeting held?
Answer
According to section 20(2) of the Companies Act, 2013, a document may be served on Registrar or
any member by sending it to him by post or by registered post or by speed post or by courier or by
delivering at his office or address, or by such electronic or other mode as may be prescribed.
Provided that a member may request for delivery of any document through a particular mode, for
which he shall pay such fees as may be determined by the company in its annual general meeting.
Thus, if a member wants the notice to be served on him only by registered post at his residential
address at Kanpur for which he has deposited sufficient money, the notice must be served
accordingly, otherwise service will not be deemed to have been effected.
Accordingly, the questions asked may be answered as under:
(i) The contention of Ashok shall be tenable, for the reason that the notice was not properly
served.
(ii) In the given circumstances the company is bound to serve a valid notice to Ashok by registered
post at his residential address at Kanpur and not outside India.
Question 39
Parag Constructions Limited is a leading infrastructure company. One of the directors of

the company Mr. Parag has been singing all construction contracts on behalf of company
for many years. All the parties who ever deal with the company know Mr. Parag very well.
Company has got a very important construction contract from a renowned software
company. Parag constructions will do construction for this site in partnership with a
local contractor Firoz bhai. Mr. Parag signed partnership deed with Firoz bhai on behalf of
company because he has an implied authority. Later in a dispute company denied to accept
liability as a partner. Can the company deny its liability as a partner?
Answer
As per Section 22 a company may, by writing under its common seal, if any, authorise any person,
either generally or in respect of any specified matters, as its attorney to execute other deeds on
its behalf in any place either in or outside India.
However, in case a company does not have a common seal, the above authorisation shall be made by
2 directors or by a director and the Company Secretary, wherever the company has appointed a
Company Secretary.
A deed signed by such an attorney on behalf of the company and under his seal shall bind the
company.
Note : It can be observed from above that a company may or may not have a common seal. If
company decides to have a common seal then it has to affix the same for specified matters, execution
of deeds on behalf of the company.
In the present case company has not neither given any written authority not affixed common
seal of the authority letter. It means that Mr. Parag is not legally entitled to execute deeds on
behalf of the company. Therefore, deeds executed by him are not binding on the company.
Therefore, company can deny its liability as a partner.
Question 40
The Articles of Association of a Company may contain provisions for entrenchment under Section 5
of the Companies Act, 2013. What is meant by entrenchment provisions in this context? Also state the
relevant provisions of the said Act dealing with entrenchment provisions.
Answer
Entrenchment: Usually an article of association may be altered by passing special resolution but
entrenchment makes it more difficult to change it. So, entrenchment means making something more
protective.
Section 5 of the Companies Act, 2013 describes the provisions relating to entrenchment.
Articles may contain provisions for entrenchment [Section 5(3)]: The articles may contain
provisions for entrenchment to the effect that specified provisions of the articles may be altered only
if conditions or procedures as that are more restrictive than those applicable in the case of a special
resolution, are met or complied with.
Manner of inclusion of the entrenchment provision [Section 5(4)]: The provisions for
entrenchment shall only be made either on formation of a company, or by an amendment in the
articles agreed to by all the members of the company in the case of a private company and by a
special resolution in the case of a public company.
Notice to the registrar of the entrenchment provision [Section 5(5)]: Where the articles contain
provisions for entrenchment, whether made on formation or by amendment, the company shall give
notice to the Registrar of such provisions in such form and manner as may be prescribed.
Question 41
Following are some of the securities, issued by different companies related with each other,
as follows:-
Company Securities Issued Remarks
Kleshrahit Ltd. Listed non-convertible Has the power to appoint 2/3rd
redeemable preference shares directors in Indriyadaman Ltd.
issued on private placement basis in
terms of relevant SEBI Regulations.
Indriyadaman Listed non-convertible debt Holding 60% voting power inSajagta (P)
Ltd. securities issued on private Ltd.
placement basis in terms of relevant
SEBI Regulations.
Sajagta (P) Ltd. Listed non-convertible debt The company holds 52% equity shares in
securities issued on private Pratibodh Ltd. as aninvestment on behalf
placement basis in terms of relevant of another company in a capacity of a
SEBI Regulations. trustee.
Equity shares issued by the Kleshrahit Ltd. and Indriyadaman Ltd. are not listed in any of the
recognized stock exchanges.
In the context of aforesaid facts, answer the following question(s):-
A. Whether the aforesaid companies can be considered as listed company(ies)?
B. Explain the relationship between the aforesaid companies?
Answer
A. According to section 2(52) of the Companies Act, 2013, listed company means a company
which has any of its securities listed on any recognised stock exchange;
Provided that such class of companies, which have listed or intend to list such class of securities, as
may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as
listed companies.
According to rule 2A of the Companies (Specification of definitions details) Rules, 2014, the following
classes of companies shall not be considered as listed companies, namely:-
(a) Public companies which have not listed their equity shares on a recognized stock exchange but
have listed their –
(i) non-convertible debt securities issued on private placement basis in terms of SEBI
(Issue and Listing of Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on private placement basis in
terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares)
Regulations, 2013; or
(iii) both categories of (i) and (ii) above.
(b) Private companies which have listed their non-convertible debt securities on private
placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt
Securities) Regulations, 2008;
(c) Public companies which have not listed their equity shares on a recognized stock exchange but
whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section
(3) of section 23 of the Act.
Company Analysis and Conclusion

Name
Kleshrahit Equity shares issued by the company are not listed. However, the company
Ltd. has issued listed non- convertible redeemable preference shares issued on
private placement basis in terms of relevant SEBI Regulations which falls in
the exceptions to the listed company, given as per clause (a)(ii) to Rule 2A,
as aforesaid, and accordingly, Kleshrahit Ltd. shall not be considered as
a listed company.
Indriyada Equity shares issued by the company are not listed. However, the company
man Ltd. has issued listed non- convertible debt securities issued on private
placement basis in terms of relevant SEBI Regulations which falls in the
exceptions to the listed company, given as per clause (a)(i) to Rule 2A, as
aforesaid, and accordingly, Indriyadaman Ltd. shall not be considered as
a listed company.
Sajagta (P) The company has issued listed non-convertible debt securities issued on
Ltd. private placement basis on a recognised Stock Exchange in terms of
relevant SEBI Regulations which falls in the exceptions to the listed
company given as per clause (b) to Rule 2A, as aforesaid, and accordingly,
Sajagta (P) Ltd. shall not be considered as a listed company.
B. According to section 2(46) of the Companies Act, 2013, holding company in relation to one or
more other companies, means a company of which such companies are subsidiary companies.
According to section 2(87) of the Companies Act, 2013, subsidiary company or subsidiary, in
relation to any other company (that is to say the holding company), means a company in which
the holding company—
a. controls the composition of the Board of Directors; or
b. exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall
not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the
control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the
holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another
company if that other company by exercise of some power exercisable by it at its discretion can
appoint or remove all or a majority of the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries; As per the
notification dated 27th December 2013, Ministry clarified that the shares held by a company
or power exercisable by it in another company in a fiduciary capacity shall not be counted for
the purpose of determining the holding – subsidiary relationship in terms of the provision of
section 2(87) of the Companies Act, 2013.
(i) Relationship between Kleshrahit Ltd. & Indriyadaman Ltd.
It is given that Kleshrahit Ltd. has the power to appoint 2/3rd directors in Indriyadaman Ltd. i.e.
majority of the directors can be appointed by Kleshrahit Ltd.
Accordingly, as per sub-clause (i) to section 2(87) read with the Explanation given in point (b),
it can be understood that Indriyadaman Ltd. is the subsidiary company of Kleshrahit Ltd.
while the latter is the holding company of Indriyadaman Ltd.
(ii) Relationship between Indriyadaman Ltd. & Sajagta (P) Ltd.
It is given that Indriyadaman Ltd. is holding 60% voting power in Sajagta (p) Ltd.
Accordingly, as per sub-clause (ii) to section 2(87), it can be understood that Sajagta (P) Ltd. is
the subsidiary company of Indriyadaman Ltd. while the latter is the holding company of
Sajagta (P) Ltd. as Indriyadaman Ltd. controls more than one-half of the total voting power of
Sajagta (P) Ltd.
(iii) Relationship between Kleshrahit Ltd. & Sajagta (P) Ltd.
It is given that Indriyadaman Ltd. is holding 60% voting power in Sajagta (p) Ltd. and it has
been derived that Indriyadaman Ltd. is the subsidiary company of Kleshrahit Ltd. and Sajagta
(P) Ltd. is the subsidiary company of Indriyadaman Ltd., respectively.
Accordingly, as per sub-clause (ii) to section 2(87) read with the Explanation given in point (a),
that a company shall be deemed to be a subsidiary company of the holding company even if the
control is of another subsidiary company of the holding company i.e. subsidiary of subsidiary
company will be deemed to be a subsidiary of the holding company.
Hence, it can be understood that Sajagta (P) Ltd. is deemed to be subsidiary company of
Kleshrahit Ltd. while the latter would be considered as the holding company of Sajagta (P) Ltd.
(iv) Relationship between Sajagta (P) Ltd. & Pratibodh Ltd.
It is given that Sajagta (P) Ltd. holds 52% equity shares in Pratibodh Ltd. as an investment on
behalf of another company in a capacity of a trustee i.e. in a fiduciary capacity.
As per the notification dated 27th December 2013, Ministry (MCA) clarified that the shares
held by a company or power exercisable by it in another company in a fiduciary capacity shall
not be counted for the purpose of determining the holding–subsidiary relationship in terms of
the provision of section 2(87) of the Companies Act, 2013.
Accordingly, Sajagta (P) Ltd. & Pratibodh Ltd. do not share any holding– subsidiary
relationship as the former holds shares in latter just in a fiduciary capacity on behalf of another
company.
Question 42
One of the matters contained in the articles of Dhimaan Foundation, incorporated as a limited
company under section 8 of the Companies Act, 2013, was altered by passing a special
resolution in its general meeting and thereafter, intimation for the same was given to
Registrar of Companies.
However, such alteration in the articles was opposed by Dhwaj & Co., a partnership firm
which is its member that there such alteration was not valid.
Advise, as per the provisions of the Companies Act, 2013, whether the contention of Dhwaj
& Co. was valid and whether it can be a member in such company?
Answer
According to section 8 of the Companies Act, 2013, a company registered under this section shall not
alter the provisions of its memorandum or articles except with the previous approval of the Central
Government (the power has been delegated to Registrar ofCompanies).
Also, a firm may be a member of the company registered under section.
Here, one of the matters of articles of Dhimaan Foundation was altered by passing a special
resolution in its general meeting and thereafter, intimation for the same was given to Registrar of
Companies.
As per the provisions of the Act, it is necessary to take previous approval of the Registrar of
Companies for the same which was not done in the present case and thus the contention of Dhwaj
& Co. was valid.
Also, section 8 allows a firm to be a member of such company and hence, Dhwaj & Co. can be its
member.
Question 43
Chhavish, an Indian citizen and resident of India formed “Ekta Readymade Garments (OPC)
Private Ltd.” as One Person Company on 1st April 2018 with his wife Mrs. Jyoti as nominee.
The authorized and paid-up share capital of the company is `35 lakhs. He got in touch with a
readymade garments buyer and was expecting to receive a substantial order by August 2020
where final delivery will be completed by December 2020. To expand the production capacity,
the decided to invest an additional capital of ` 10 lakhs in plant and machinery. As a result,
the company’s authorized and paid-up share capital is now ` 45 Lakhs. Promoter of the
company seeks your advice. Considering the case and referring the provisions of the
Companies Act, 2013, advice:
(A) Who is eligible to act as a member of OPC?
(B) Whether “Ekta Readymade Garments (OPC) Private Ltd.” can convert into any other
kind of company as on 1st December 2020?
(C) If the company increases its paid up share capital by ` 30 lakhs in August, 2019, can it
be converted in any other kind of company immediately?
Answer
(A) The memorandum of OPC shall indicate the name of the other person (nominee), who shall, in
the event of the subscriber’s death or his incapacity to contract, become the member of the
company.
Only a natural person who is an Indian citizen whether resident in India orotherwise-
(a) shall be eligible to incorporate One Person Company (OPC);
(b) shall be a nominee for the sole member of One Person Company (OPC).
(B) OPC cannot convert voluntarily into any kind of company unless two years have expired
from the date of incorporation, except where the paid up share capital is increased beyond fifty
lakh rupees or its average annual turnover during the relevant period exceeds two crore
rupees. The Ministry of Corporate Affairs w.e.f 1st April, 2021 has removed the condition
whereby OPC cannot convert voluntarily into any kind of company unless two years have
expired from the date of incorporation, except where the paid up share capital is increased
beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds
two crore rupees.)
Ekta Readymade Garments Ltd. was incorporated on 1st April, 2018.
Ekta Readymade Garments Ltd. cannot voluntarily convert the OPC into any other kind of
company before expiry of two years from 1st April, 2018 i.e. upto 31st March, 2020. Thus, it can
convert into any other kind of company as on1st December, 2020.
(C) If the paid up share capital of Ekta Readymade Garments Ltd. is increased to ` 65 lakhs
(35+30), it will be converted into other forms company immediately.
Question 44
MNP Limited is a registered public company having the following:
I Directors and their Relatives 18

I Employees 26
I Ex-Employees (Shares were allotted during employment) 15
I Members holding shares jointly (7 x 2) 14
V Other Members 137
The Board of Directors of MNP Limited proposes to convert the company into a private limited
company. Referring the provisions of the Companies Act, 2013, advise:
i. Whether the company can be converted into a private company?
ii. Whether existing number of members need to be reduced for the proposed private
company?
Answer
According to Section 2(68) of the Companies Act, 2013, "Private company" means a company having
prescribed minimum paid-up share capital, and which by its articles, limits the number of its
members to two hundred.
However, where two or more persons hold one or more shares in a company jointly, they shall, for
the purposes of this clause, be treated as a single member.
It is further provided that following shall not be included in the number of members -
(B) persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment
ceased.
Accordingly, total Number of members in MNP Limited are:
) Directors and their relatives 18

( Joint shareholders (7x2) 7
) Other Members 137
Total 162
(i) MNP Limited may be converted into a private company only if the total members of the
company are limited to 200. In the instant case, since existing number of members are 162
which is within the prescribed maximum limit of 200, so MNP Limited can be converted into a
private company.
(ii) There is no need for reduction in the number of members for the proposed private company as
existing number of members are 162 which does not exceed maximum limit of 200.
Question 45
The Article of Association (AOA) of AB Ltd. provides that documents may be served upon
the company only through Speed Post. Suresh dispatches some documents to the company by
courier, under certificate of posting. The company did not accept it on the ground that it is in
violation of the AOA. As a result, Suresh suffered from loss. Explain with reference to the
provisions of the Companies Act, 2013:
(i) Whether refusal of document by the company is valid?
(ii) Whether Suresh can claim damages for it?
Answer
Serving of document to Company
In terms of Section 20(1) of the Companies Act, 2013, a document may be served on a company or
an officer thereof by sending it to the company or the officer at the registered office of the company
by-
 registered post, or
 speed post, or
 courier service, or
 leaving it at its registered office, or
 means of such electronic or other mode as may be prescribed.
In the instant case, Suresh dispatches some document to AB Ltd. by courier whereas the AOA of
said company provides that documents may be served upon the company only through Speed
Post. AB Ltd. did not accept the documents on the ground that it is in violation of the AOA.
Taking into account the above provision,
(i) Refusal of documents by AB Ltd. is not valid as sending of documents by courier to AB
Ltd. is complying with the provisions given under section 20(1) of the Act.
(ii) Since, the AB Ltd. is at fault by not accepting the documents sent by Suresh, YES, he can
claim the damages for any loss occurred to him.
Question 46
Mr. Ram along with his brothers got registered a company in the state of Telangana by
furnishing false information knowingly. What action may be taken against the company and its
promoters under the provisions of the companies act, 2013?
Answer
As per section 7 of the Companies Act, 2013 where a company has been got incorporated by
furnishing any incorrect information, the Tribunal may on an application made to it, on being
satisfied that the situation so warrants:
(a) pass orders for regulation of the management of the company including changes, if any, in its
memorandum and articles; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit:
Provided that before making any order under this sub-section,—
(i) the company shall be given a reasonable opportunity of being heard in the matter; and
(ii) the Tribunal shall take into consideration the transactions entered into by the company.
Also the promoters, the persons named as the first directors of the company and the persons making
declaration at the time of registration of company shall each be liable for action under section 447.
Multiple Choice Questions

1. The minimum number of members in a private company and public company are
(a) Three and Seven respectively
(b) Two and seven respectively
(c) Two and nine respectively
(d) None of the above
2. Which one of the following is not the content of the Memorandum of Association?
(a) Name clause
(b) Registered office clause
(c) Objects clause
(d) Board of Directors clause
3. The Registrar shall register any alteration of the memorandum with respect to the
objects of the company and certify the registration within a period of ______ from the
date of filing of the special resolution.
(a) 30 days
(b) 60 days
(c) 90 days
(d) 6 months
4. Only a natural person who is an Indian citizen and who has stayed in India for
a period of at least ___ days during the immediately preceding one calendar year
shall be eligible to incorporate a OPC.
(a) 120 days
(b) 181 days
(c) 182 days
(d) 183 days
5. A section 8 Company can call its Annual General Meeting by giving a clear at east
notice.
(a) 7 Days
(b) 14 Days
(c) 21 Days
(d) 27 Days
6. XYZ Co; is having 15% share capital held by X Company and 50% held by central
Government and 10% held by State Government and 25% held by other people
then that company will be _.
(a) Government Company
(b) Private Company
(c) Public Company
(d) None of these
7. Which one of the following statements is least likely to be true. A company is asubsidiary
if another company:
(a) exercises more than 50% of the total voting power
(b) controls the composition of its board of directors
(c) is subsidiary of a company which is subsidiary of the first mentioned company
(d) is holding of a company which is the holding for the first mentioned company
8. Forms of (1) Articles of guarantee company having a share capital (2) Articles of a
guarantee company not having a share capital (3) Memorandum of an unlimited
company with share capital (4) Memorandum of a company limited by shares; are
respectively given in:
(a) Table G; H; E & B
(b) Table G; H; E & A
(c) Table G; H; D & A
(d) Table G; H; B & A
9. Tweeter Ltd. has invested 51% in the shares of Snapchat Pvt. Ltd. on 31
March 2018. Snapchat Pvt. Ltd. have been holding 2% equity of Tweeter Ltd since
2011. Snapchat Pvt. Ltd. wants to increase its holdings in equity up to 4% in
Tweeter Ltd. after 31 march 2018.Can Snapchat Pvt. Ltd. increase its holdings in
equity up to 4% in Tweeter Ltd. after 31 march 2018?
(a) Yes; it can increase its holdings
(b) No; it cannot increase its holdings
(c) Can't say
(d) None of the above
10 A director member deposited with company ` 5000 and demanded that AGM
notice should be sent by Blue Dart courier only. Is that company bound to serve it
that way only?
(a) Yes because he is a director
(b) No because company is allowed to serve documents by ordinary post
(c) Yes because member has deposited money
(d) No because directors can't get special privileges
11. To entrench its article after incorporation a public company:

(a) will have to pass a special resolution
(b) will have to take consent of all members
(c) is not allowed to do so
(d) will have to pass special resolution and take approval of Tribunal
12. AOA of a private company says that Preference shareholders will have right to vote
only if last 3 years dividend is not paid. This is:
(a) Void as it is against the companies act
(b) Valid because section 47 is applicable to a private company subject to AOA.
(c) Void because as per section 6 act is superior
(d) Valid because companies act allows voting power to preference shareholders if there
dividend is not paid for last 3 years.
13. If a company is registered by incorrect information then its winding up may be
ordered by:
(a) Central Government
(b) Registrar of Companies
(c) National Company Law Tribunal
(d) Court
14. "A not for profit company shall not alter the provisions of its memorandum or
articles".
(a) False; it can freely change it
(b) False; It can do so with permission of Central Government
(c) True; because it will be violation of terms of licence
(d) True; because MOA/AOA of a section 8 company is unalterable
15. If a company changes its name; which of the following is most accurate:
(a) It is not allowed to use old name in any way
(b) New name should not be identical with old name
(c) Old name should be painted/printed for next 1 years along with new name
(d) Old name should be painted/printed for next 2 years along with new name
Answer to MCQs
1. (b) 2. (d) 3. (a) 4. (a) 5. (b) 6. (a)
7. (c) 8. (b) 9. (b) 10. (c) 11. (a) 12. (b)
13. (c) 14. (b) 15. (d)
Case Study
Ramesh started a new venture of on-line business of supply of grocery items at the door- step of
consumers. Initially it was having the area of operations of Jaipur City only. He employed some young
boys having their own bikes and allocated the areas which they were accustomed of it, for making
delivery of the grocery items as per their orders. He also got developed a website and Mobile App to
receive the orders on-line. His friend Sudhanshu who is a Chartered Accountant, suggested him to
corporatize this business form, from proprietorship business to a One Person Company (OPC).
Ramesh agreed and a OPC was incorporated in the name of “Ask Ramesh4Online Grocery
(OPC) Pvt Ltd.” (for short OPC-1). In this OPC Ramesh became the member and director and
Sudha (the mother of Ramesh) was made as nominee.
After a year Ramesh got married with Rachna. Since the business of on-line supply of grocery
was on rising trend, day by day, he thought to start a new business of supply of Milk and Milk
Products and another OPC in the name of “Rachna Milk Products (OPC) Pvt Ltd” (for short
OPC-2) was incorporated with the help of his professional friend Sudhanshu. In this OPC-2,
Rachna (his wife) became the member and director and Ramesh was named as Nominee.
To summarise the position, the information is tabulated as under:
Name of OPC Ask Ramesh 4 Online Rachna Milk Products (OPC)

Grocery (OPC) Pvt Ltd[OPC-1] Pvt Ltd [OPC-2]
Member and Ramesh Rachna

Director
Nominee Sudha Ramesh

(Mother of Ramesh) (Husband ofRachna)
After some time, Sudha (the mother of Ramesh) passed away. However, before the death,
Sudha had made a WILL, in which she mentioned that after her demise, her another son
Suresh be made nominee in the OPC-1. When Suresh came to know this fact, he argued with
Ramesh to fulfil the wish of Sudha as per her WILL (Mother of Ramesh and Suresh), but
Ramesh denied this and appointed Rachna (his wife) as nominee.
Aggrieved from the decision of Ramesh for not nominating him (Suresh), Suresh threatened Ramesh
to take appropriate legal action against him for not honouring the WILL of mother Sudha and
consulted his lawyer. Meanwhile due to continuous threatening and hot talks between Suresh
and Ramesh, Rachna became mentally upset and became insane, as certified by the medical
doctor, so lost her capacity to contract. In this situation, Ramesh being the nominee in OPC-2
became member and director of this OPC-2.
One of the friends of Ramesh advised him to do some charitable work of providing free
education to the girl children of his native village near by Jaipur. Ramesh thought about this
proposal and asked his professional friend Sudhanshu to convert this OPC-2 into Section 8
company.
Based on the above facts, answer the following MCQs:
1.1 Since Rachna, being insane, lost the capacity to contract, Ramesh (who was nominee)
became the member of OPC-2. Now who will make nomination for this OPC:
(a) Ramesh in the capacity of husband of Rachna can nominate any person as Nominee of
OPC-2
(b) Ramesh (who was nominee) of OPC-2 has now become member of this OPC and now as a
member of this OPC he can nominate any person as per his choice as Nominee for this
OPC.
(c) When no person is nominated, the Central Govt. will make nomination of such OPC-2.
(d) When no person is nominated the Registrar shall order the company to be wound up.
1.2 Whether conversion of OPC-2 into a company governed by Section 8 is permissible?

(a) Yes, OPC can be converted into Section 8 company
(b) No, OPC cannot be converted into Section 8 company
(c) This OPC-2 can be converted into section 8 company, provided the Central Govt give
license
(d) Providing of free education to girl child do not come under the specified objects
mentioned for eligibility incorporation of section 8 company
1.3 Ramesh is a member in OPC-1 and became a member in another OPC-2 (on 2nd April,
2020) by virtue of his being a nominee in that OPC-2. Ramesh shall, by what date, meet
the eligibility criteria that an individual can be a member in only one OPC:
(a) 17th May 2020
(b) 25th August 2020
(c) 26th August 2020
(d) 29th September 2020
1.4 After the demise of Sudha (the mother of Ramesh), Rachna was nominated by Ramesh
for OPC-1 as Nominee. But now Rachna has become insane, so what recourse you will
suggest to Ramesh:
(a) Ramesh is required to nominate another person as nominee
(b) Ramesh should wait till Rachna becomes good of her health and able to have the
capacity to contract
(c) Although Rachna has become insane, but if she is able to sign, her nomination in OPC-1
may continue
(d) Sudhanshu (the Chartered Accountant) who helped in incorporation of OPC-1,may act
as legal consultant on behalf of Rachna
Answers of Case Study 1
1.1 (b)
1.2 (b)
1.3 (d)
1.4 (a)
Case Study 2
I. Jai and Veeru, two friends, formed a private limited company as Basanti Taanga Private
Limited and got it registered on 10th January, 2018. The registered office of the company was
situated at Kolkata, West Bengal. The company had an authorised share capital of ` 50 lacs
divided into 5 lacs equity shares of ` 10/- each. The issued, subscribed and paid-up share
capital of the company was of ` 30 lacs divided into 3 lacs equity shares of ` 10 each. The
company was engaged in supplying various motor parts to the vehicles companies. ‘Basanti’
was a registered Trade mark of Basanti Motorwala Private Limited of Mumbai since 15th
January, 2016 under the Trade Marks Act, 1999. This company was also engaged in
manufacturing and supplying various auto parts to the vehicles companies.
Basanti Motorwala Private Ltd. of Mumbai came to know on 20th January, 2022 about Basanti
Taanga Private Limited of Kolkata who was using identical name and mark. Being a registered
proprietor of a trade mark, Basanti Motorwala Private Ltd. filed an objection with an appropriate
authority under Companies Act, 2013 on 15th March, 2022 that the name Basanti Taanga Private
Limited or the mark the company was using is found to be identical with or too nearly resembles to
the registered trade mark of Basanti Motorwala Private Ltd. and as such the appropriate authority
should direct Basanti Taanga Private Limited to change its name. The appropriate authority after
going through all the details rejected the application of Basanti Motorwala Private Ltd.
Thereafter on 14th July, 2020, Basanti Motorwala Private Ltd. requested Basanti Taanga Private
Limited to change its name and Basanti Taanga Private Limited accepted the same in good
relationship. Basanti Taanga Private Limited complied with all the formalities under Companies Act,
2013 such as passing of all necessary resolutions, taking approval from appropriate authority, filing
of documents with the Registrar of Companies etc. The name of the company Basanti Taanga Private
Limited was changed to Jai Veeru Private Limited. A fresh certificate of incorporation was issued to
the company by the Registrar after being satisfied with the name change application of the company.
Subsequent to the issuance of the new incorporation certificate, steps were taken up to incorporate
the new name in all copies of the Memorandum of Association, Articles of Association and other
documents of the company.
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks]
1. In the above case scenario, what can be the most evident reason for the appropriate
authority to reject the application of Basanti Motorwala Private Ltd?
(a) The appropriate authority rejected the application on the basis that the names of both
the companies are different- Basanti Motorwala Private Ltd and Basanti Taanga Private
Limited.
(b) The appropriate authority rejected the application as Basanti Motorwala Private Ltd
(owner of the registered mark) should had filed the objection within three years of the
registration of company with identical name.
(c) The appropriate authority could have rejected the application on the basis that both the
companies are located in different cities and thus can use almost similar names.
(d) The appropriate authority could have rejected the application on the basis that both the
companies have different years of incorporation and both are located in different cities .
2. In the above case scenario, what ought to have been the time limit within which Basanti
Motorwala Private Ltd, should have filed the objection for wrong name:
(a) On or before 9th January, 2021
(b) On or before 9th January, 2022
(c) On or before 9th January, 2023
(d) They can file the objection at any time
3. According to above case, a fresh certificate of incorporation was issued to the company
by the Registrar after being satisfied with the name change application of the company.
Which of the following statements is correct in this context?
(a) The change in name of the company is said to be complete and effective from the date of
passing of resolution in the general meeting of members.
(b) The change in name of the company is said to be complete and effective from the date of
issue of fresh certificate of incorporation by the Registrar.
(c) The change in name of the company is said to be complete and effective from the date on
which documents were filed with the Registrar.
(d) The change in name of the company is said to be complete and effective from the date of
the order of Ministry of Corporate Affairs approving the change of name.
Answers of Case Study

1. B
2. A
3. B
Extra Questions
Question 1
The Memorandum of Association of a company was signed by two adult members and by a
guardian of the other five minor members, the guardian signing separately for each minor
member. The Registrar registered the company and issued under his hand a Certificate of
Incorporation. The plaintiff contended that (a) conditions of registration were not duly
complied with, and (b) that there were no seven subscribers to the Memorandum. Will the
Court uphold his contention?
Answer
Yes, (being a fundamental right under the Constitution of India to go for legal proceedings)
the registration of the company can be challenged but it will not in any way affect or cancel the
registration of the company and the Memorandum and Articles.
Section 10 (1) of the Companies Act, 2013 states that subject to the provisions of the Act, the
Memorandum and Articles shall, when registered, bind the company and the members thereof, to
the same extent as if they respectively had been signed by the company and by each member, and
contained covenants on its and his part to observe all the provisions of the Memorandum and of the
Articles.
Question 2
RSP Limited, with a limited liability of its members by guarantee of `10 lac to each
member. The company increases the liability of the members from ` 10 lac to 15 lac by an
alteration made in the liability clause of the Memorandum of Association. Referring to the
provisions of the Companies Act, 2013 decide, whether the members of the company are
liable for the increased liability.
Answer
The limitation of liability is an essential clause in the Memorandum and on registration of
the company becomes binding on all present and future members.
The present question states that the liability of the members has been increased by the company
without clarifying the mode. The company can act only through its Board of Directors or through
its members. The Board of Directors do not have the authority to alter the clause; hence it means
that the alteration was approved by the members at a general meeting. However, section 13 of the
Act which deals with the alteration of the Memorandum does not provide for the alteration of its
liability clause. Hence, the liability of members cannot be altered once the company is formed.
The alteration in the given question is therefore invalid.
Question 3
The Articles of Association of a Limited Company provided that ‘X’ shall be the Law Officer of
the company and he shall not be removed except on the ground of proved misconduct. The
company removed him even though he was not guilty of misconduct. Decide, whether
company’s action is valid?
Answer
Section 5 (1) of the Companies Act, 2013 states that the Articles of a company contain the
regulations for the management of a company. Further section 5 (2) provides that the Articles of a
company shall contain all matters that are prescribed under the Act and also such additional matters
as may be considered necessary for the management of the company.
Removal of Law Officer: The Memorandum and Articles of Association of a company are
binding upon company and its members and they are bound to observe all the provisions of
memorandum and articles as if they have signed the same [Section 10(1)].
However, the company and members are not bound to outsiders in respect of anything contained in
memorandum/articles by which such outsiders have been given any rights. This is based on the
general rule of law that a stranger to a contract cannot acquire any right under the contract.
******************

Chapter - 2 Incorporation of Company

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INCORPORATION OF COMPANY | 2.

CHAPTER – 2 INCORPORATION OF COMPANY

 Only one person as member.

(a) Directors and their relatives 190

(i) Directors and their relatives 5 Couples (5*1) 50

Procedure for conversion of a Public Company into a Private Company:

Such company intends to apply its profit in

Nothing in this clause shall apply to—

Parag Constructions Limited is a leading infrastructure company. One of the directors of

Company Analysis and Conclusion

I Directors and their Relatives 18

) Directors and their relatives 18

Multiple Choice Questions

11. To entrench its article after incorporation a public company:

Name of OPC Ask Ramesh 4 Online Rachna Milk Products (OPC)

Member and Ramesh Rachna

Nominee Sudha Ramesh

1.2 Whether conversion of OPC-2 into a company governed by Section 8 is permissible?

Answers of Case Study

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