You are on page 1of 14

Swapnil Dugad P-37 Corporate Law Question Bank

1. “The Certificate of Incorporation is conclusive evidence that all the requirements of the Act have been complied with.” Elucidate. 2. Explain the Doctrine of “Lifting of the Corporate Veil.” Cite relevant decisions and provisions of the Companies Act, 1956. 3. Discuss the Doctrine of Ultra Vires. What are the effects of ultra vires transactions? Ans: The Company must function within its frame work of its objects. The objects of a company serve two fold functions. They are: i. It tells what the company can do. ii. In the negative, it tells us what a company cannot do. Anything that a company does which is beyond the scope of the object clause is called ultra virus. The word ‘ultra’ means ‘beyond’ and ‘vires’ means ‘power’. The expression ultra vires is used to mean that the act of the company is beyond the scope of object clause of the company. Effect of Ultra Vires Transaction: 1. Contract void: Ultra vires transactions render the contract void, giving no legal rights to the company or the outsiders. Such contracts can never be ratified. 2. Property acquired under ultra vires transaction: If a company acquires property under an ultra vires transaction, the company’s right over the property shall be protected because assets so acquired represent corporate capital. 3. Injunction: Any member may obtain an order of injunction from the court to restrain the company from persisting in ultra vires act. 4. Ultra vires borrowing: In case of an ultra vires borrowing, the lender has no right of action in respect of the loan to the company. But he has certain rights in respect of money received by the company, provide the same is traceable. But the money lent by company not authorized to lend, can be recovered by it because the debtor will be stopped from pleading that company had no power to lead. 5. Directors personally liable: Directors who part with the company’s money or property for ultra vires objects, will be personally liable to restore to the company the funds used for such purpose. 6. Liability for torts: A company can be made liable for any tort, if the following two conditions are satisfied, viz.

4. “The Memorandum of Association (MoA) and the Articles of Association (AoA) are the title deeds of a company.” Elaborate by stating the differences between the AoA and MoA. Ans: Fundamental conditions or internal regulations: The memorandum contains the fundamental conditions upon which the company is allowed to be incorporated. The conditions are introduced for the benefit of the creditors, the shareholders and the outside public.

While the articles of the association are the internal regulations of the company. They provide the manner in which the company is to be carried and its proceedings disposed of. Dominant or subordinate: the memorandum is dominant instrument, as it states the purposes for which the company has come into existence. While the article are always held to be subordinate to memorandum because they are more internal regulations of the company. Effect of acts done in contravention of MOA & AOA: If company does outside the scope of the objects stated in the memorandum it is absolutely null and void and incapable of rectification. While if a company does something in contravention of the provisions of its articles, it is only an irregularity and can always be confirmed by the shareholders, and thus rectified. 5. Define a Member. How is membership in a company acquired and terminated? Ans: Definition: According to Sec.41 of the Companies Act, a member of a company means a person – i. Who has subscribed his name to the memorandum. ii. Any other person, who has agreed in writing to become a member and whose name is entered in the registered of members. iii. Every person, holding equity share capital of a company and whose name is entered as beneficiary owner in the records of the depository. Acquisition of Membership: A person may become a member of company in the following ways: i. By subscribing to the memorandum: Signatories to the memorandum ipsofacto become members of the company on its incorporation. By virtue of being subscribers, they are deemed to have become members and must be entered in the register of members. Hence neither application nor allotment of shares is necessary. ii. By undertaking to buy qualification shares: where a person has a signed an undertaking, to take and pay for his qualification shares, he shall as regards those shares, be in the same position as if he had signed the memorandum for shares of the number value. Thus, an undertaking on the part of the director to buy qualification shares puts him in the position of subscriber to the memorandum. He is deemed to be member of the company and must be entered in the register of member. iii. By allotment: A person may acquire membership of a company, by application and allotment of shares. iv. By Transmission: On the death of shareholders shares are transmitted to his legal representatives, who become members of the company on their being entered in the register of the members. v. By transfer: A person who take shares from an existing member by sale, gift or some other transaction, acquires membership, on his name appearing in the register of members. vi. Membership by acquiescence and estoppels: A person is deemed to be a member of a company, if he allows his name to be put on the register of members or otherwise holds himself out as member, even if there is no agreement to become a member. Thus, this liability springs into existence as a result of acquiescence estoppels. vii. Joint members: when two or more persons (maximum three) hold share in company in their joint names, it is called as joint membership. Termination of Membership: Termination of membership happens under the following circumstances:

i. Transfer of shares: The transferor ceases to be a member when the transferee is placed on the register of members. However, he remains liable to be placed in the ‘B’ list for one year, if the company goes into liquidation. ii. If his shares are forfeited by the company. iii. If the company sells his shares under some provision in its Articles, as for example, in the exercise of its rights to enforce a lien. iv. If he validly surrenders shares to the company, where such surrender is permitted. v. If his shares are sold in execution of decree of the court. vi. If he rescinds the contract to take shares, on the ground of misrepresentation in the prospectus or of irregular allotment. vii. If he adjudicated insolvent. The shares of an insolvent, vest in the official Receiver or Assignee. viii. If he dies. However, the estate of the deceased member remains liable until the shares are registered in the name of his legal representative. ix. If redeemable preference shares are redeemed. x. If the company is being wound up, a member remains liable as contributor and is also entitled to shares in the surplus assets, if any. 6. What is a Prospectus? Discuss the remedies available for mis – statement in the Prospectus. Ans: Sec.2 (36) defines a prospectus as – “Any document describes or issued as prospects and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public or inviting offers for the public for the subscription or purchase of shares in or debenture of a body corporate.” In simple words, a document may be called prospectus, if invitation is made to public for subscription to shares or debentures or inviting deposits. Remedies for Mis-statement in the prospectus: Civil Liability: Whenever a person subscribe to the shares or debentures of a company on the basis of untrue statement in the prospectus, has the right of action both against persons responsible for the issue of such mis statement as well as against the company. 1. Against the company: a) Rescind the contract b) Claim damages from the company The shareholders would have the right to return the shares and get back his money with interest. This right can be exercised by the shareholders provided he has not done anything inconsistent with his right to respudiate and action was bought within reasonable time. Damages can be claimed provided the shareholder/allotee is able to prove the company acted fraudulent through person authorized to act on behalf of the company. Further the allottee/shareholders suffered a loss or damage. However, this right is available only to the original allottee. 2. Against Person: Whereas, prospects is issued inviting persons to subscribe for shares in, or debenture of a company the following person shall be liable to pay compensation every subscriber, for the loss he may suffer on account of the mis-statement. a)Every person who is director of the company at the time of issue of the prospectus;

b) Every person who has authorized himself to be named and is named in the prospectus as a director, or as one having agreed to become a director, either immediately or after interval of time; c) Every promoter of company: and d) Every person who has authorized the issue of the prospectus. But an export is liable only in respect of his own un-true statement. Remedies available: a)Damages for fraudulent misrepresentation; b) Compensation c) Damages for non-compliance with the requirements regarding contents of prospectus. Criminal Liability: Criminal liability against the company is a fine up to Rupees fifty thousand. Where the prospectus contains any untrue statement, every person who authorizes the issue of the prospectus is punishable with: a) Imprisonment Up to 2 years; b) Fine Up to Rupees 50,000; or c) Both He will not be liable is he proves either, that a) The statement was immaterial; or b) He had reasonable ground to believe and did up to the time of the issue of the allotment believe the statement to be true. 7. *Explain calls on shares, forfeiture and surrender of shares. What are the requirements for a valid forfeiture? Ans: Calls on share: is the demand by the company on its shareholders to pay up the whole or part of the unpaid amount on shares. Call on shares can be made at any time during the lifetime of the company or during the winding up. The following rules needs to be followed: a. Call must be made in accordance with the Articles. b. A resolution must be passed by, the board of Directors. c. The resolution must state the amount and the time, within which the payments is to be made. Minimum fourteen days notice to be given. d. It must be made on uniform basis. e. The maximum amount per call cannot exceed twenty five percent of the nominal value of the share. f. Call to be made only in bona fide interest of the company. Forfeiture of Shares: If a member, having been called upon to pay, defaults the company may, of course, bring an action against him. But articles of association often provide that in such a case the company may proceed to forfeit his shares. Shares cannot be forfeited unless there is a clear power to that effect in the articles. The right to forfeit become shares must be pursued with the greatest exactness: it must be exercised by the proper parties, that is, by directors properly appointed, and by requisite number of them and in proper manner and for the proper cause. The right must be exercised bona fide for the purpose for which it is conferred. The power of expulsion is a trust the execution of which will be narrowly scanned by the courts. Surrender of Shares:

Every Surrender of shares, like forfeiture, amounts to reduction of capital. But while forfeiture is recognized by the act, surrender is not. “There is no reference in the act to surrender of shares, but these have been admitted by the courts, upon the principle, that they have practically the same effect as forfeiture, the main difference being that one is a proceeding in invitum and the other a proceeding taken with the assent of the shareholders who is unable to retain and pay further calls on the shares.” Hence a company can only accept surrender under conditions and limitations subject to which shares can be forfeited. A valid call and default must exist and directors may, instead of going to the length of forfeiture, in a good faith accept surrender from the shareholders. Surrender should not be used as a device for relieving a shareholder from his liability. 8. What are shares in company and what is stock? What are the different types of shares and share capital in a company? Ans: Shares means an individual shares and stock means bundle of shares. Sec 2 (46) defines shares as “a share in the share capital of company, and includes stock except where there is a distinction between stock and shares is expressed or implied.” Kinds of Shares: The most common types of shares are: 1. Equity Share 2. Preferential shares 1. Equity Shares: Equity shares, which are not preference shares. The rate of dividend is not fixed. At the time of winding up of the company, equity share capital is repayable only, after repayment of claims of the creditors and preference share holders. 2. Preference Shares: A preference shares is one who carries the rights over holders of equity shares: a.) Preferential right in respect of dividends, at a fixed amount or rate, and b) A preferential right in regards to repayment of capital on winding up. Preference shares are further classified as follow: a. Cumulative and Non-cumulative: when a company fails to declare the dividend in a particular year, but carries forward the arrears of dividend and pay out of the profit of subsequent year is called as cumulative preference shares. Non-cumulative pref. shares are, when the dividend of previous year if unpaid, cannot be carried forward. b. Participating and Non-participating: Preference shares holders who participate in surplus profit, after paying of pref. share holders and equity share holders are called participating preference shares holders. On the other hand, if pref. share holders do not participating in the surplus profit they are called non-participating pref, share holders. c. Redeemable and Irredeemable preference shares: Are when shares become payable during the lifetime of a company after the expiry of a fixed period are redeemable pref. shares. On the other hand, if the shares become payable only at he time of liquidation of the company, is irredeemable pref. shares. d. Convertible and Non-convertible preference shares: Preference shares carrying the option being converted in to equity shares are convertible pref. shares. On the other hand, if they do not carry any option of conversion, they are non convertible pref. shares. Share Capital:

The sum total of the nominal value of shares of a company is called ‘share capital’. a. Authorized Capital: Also called nominal or registered capital. This is the amount specified in the memorandum of association. This is a maximum amount the company is authorized to raise by issue of shares. b. Issue Capital: It is that part of capital that has been issued by the company for subscription. c. Subscribed Capital: It is the amount of shares that has been subscribed by the public. d. Called-up Capital: It is that part of the nominal capital amount of the subscribed capital, which has been demanded from subscriber for payment. e. Reserve Capital: It is that part of the company’s uncalled capital, which shall be called except in the winding up.

9. Discuss the various meetings in a company and the statutory provisions regarding them. Ans: 1. Shareholders meeting: i. Statutory meeting: This meeting is held by every public company limited. The object of meeting is to acquaint the members with matter is arising out of promotion and formation of the company. It is conveyed after one month and not later than 6 month of commencement of business. The directors are required to give minimum 21 days notice to the members. Along with a copy of report should be sent to all members and Registrar. If any default is made in filing the statutory report or in holding the statutory meeting, those in default are liable to fine, which may extend to five thousand. ii. Annual General Meeting: Every company is required to hold the AGM, in addition to any other meeting held by the company. This meeting enables the share holders with the opportunity to exercise their powers of control, to place their views, and seek clarification on matters that matters may not have convinced them. The first general meeting is required to be held within a period of not more than 18 months from the date of its incorporation, and if such a general meeting is held within that period, it shall not be necessary for the company to hold any AGM in the year of its incorporation or in the following year. AGM must be held once in a year. The gap between two consecutive AGM can not be more than 15 months. At least 21 days notice of the meeting must be given to every member of the company. The meeting must be held on a day, which is not public holiday and during business hours. Where the meeting is not held accordance with the law, the company and every officer of the company who is in default shall be punishable with the fine which may extend to Rs.50,000 and in case of continuing default with further fine which may extend Rs.2500 per day during the continuance of default. Further the central govt has power to call the AGM. iii. Extraordinary or Special General meeting: Any meeting held between two AGM is called EoGM. It is called to transact some urgent or special business, which can not be postpones till next AGM. The meeting may be called by the Director. iv. Class meeting: Class meeting is the meeting of shareholders and creditors. Class meeting is held to pass resolutions which will bind only the member of the

particular class concerned. According to regulation 3(1), if right attaché to any class of share are to be varied, it can be done with the consent of holders of ¾ of issued share of that class in separate meeting of that class of holders. Similarly under sec.394, where the scheme of arrangement or compromise is proposed, the meeting of several classes of shareholders and creditors are required to be held. Class meeting can only be attended by member of that class. Whenever it is necessary to alter or change rights or privileged of a class as provided by the Articles, a class meeting must be called. 2. Directors Meeting: i. Board of Directors meetings: Must be held at least once in every 3 calendar month and 4 such meetings in a year. Notice of the board meeting must be given, which is generally a fortnight notice. Notice should also specify the day, date, time, address of the venue. Agenda of business transacted is not a must, although good companies generally specify the agenda in the notice. Quorum for board meeting is 1/3 rd of its total strength or 2 directors which ever is higher. Where quorum is not there, the meeting shall be adjourned to the next week, same place and time. For passing of resolution, simple majority of votes is required. ii. Committee Meetings: The board of Director may appoint committees together with its chairman. The committee shall meet as often as stipulated by the board or as prescribed by any other authority. Minutes of the meetings to be signed within 30 days of the conclusion of meeting. 3. Creditors Meeting: i. Meeting of Debenture holders: a company issuing debentures may provide for the holding of meetings of the debenture holders. At such meetings, generally in matters pertaining to the variations in terms of security and or to alterations of their rights are discussed. All matters connected with the holdings, conduct and proceedings of the meetings of debenture holders are normally specified in the Debenture Trust Deed. The decision at the meeting made by prescribe majority are valid and lawful and binding upon the minority. ii. Meeting of Creditors: Sometimes, a company, either as a running concern or in the event of winding up, has to make certain arrangements with its creditors. Meeting of creditors may be called for this purpose. For e.g. Under Sec. 393, a company may enter in to arrangements with creditors with the sanction of the court for reconstruction or any arrangement with its creditors. The court, on application, may order the holding of a creditors meeting. If the scheme of arrangement is agreed to by majority in number of holding debts to value of the three-forth of the total value of the debts. The court may sanction the scheme. A certified of court’s order is then field with the registrar and it is binding on all the creditors and the company only after it is filed with registrar. Statutory Provision regarding meetings of the Company: Following are the provision regarding the meeting: i. Proper Authority: the meeting must be called, for by the proper authority. The proper authority to call a general meeting is the board of directors. ii. Proper Notice: a proper notice should be given to every member of the company. A deliberate omission of notice, even to a single member shall invalidate the meeting. The notice should be given minimum 21 days prior to the date of the meeting. In computing the period, the date of receipt of notice and date of meeting shall be excluded.

iii. Content of Notice: the notice must specify the: a) the place, day and hour of the meeting. b) The nature of the business to be transacted at the meeting. iv. Quorum: The quorum that is required to hold the meeting as valid is stated in the Articles of Association. However the minimum required are 2 members in case of private company and 5 members in case of public company. v. Chairman of the meeting: The chairman is necessary for the conduct of the meeting. He is the person to put resolution to the meeting, count the votes, declare the result and authenticate the minutes by signing. The appointment of the chairman is regulated by Article of Association of the company. But, if Article is silent, then the members shall elect a chairman for the meeting.

10. “A director includes any person occupying the position of a director by whatever name called.” Explain. Ans: Directors have sometimes been called trustees, or commercial trustees, and sometimes as managing partners. It does not matter what you call them so long as you understand what their true position is, which is that they are really commercial men managing as trading concern for the benefit of themselves and of all other shareholders in it. 1. Directors as an Agent: Directors is primarily recognized as an agent of the company. Director’s role is a kin to the agent in the following aspect: i. Act of the director are act of the company: The directors is the agent, while the company is the principal. Generally, for the act of the agent falling within the scope of authority, the principal is liable. So is it in case of company i.e. the company is liable for the director’s act. ii. Notice to the Director is notice to the company: Just a notice given to the agent is noticed is notice to the principal, any notice given to the director will be taken to be given to the company. iii. Ratification: Like a principal who may ratify the act of an agent, company can also ratify acts of a director provided it is not ultravires. 2. Director as a trustee: Though a director is not a trustee in the strict sense of the term yet he has been held to be so since he stands in a fiduciary relation towards the shareholders. Director is the trustee of company’s property and money like trustee. Director is the trustee of the powers delegated to him by the shareholders. Like trustee, he cannot retain secret profits. 3. Director as a Managing Partner: In automatic self cleansing filter syndicate Co. ltd. Vs. Cunningham (1926) it was held director’s role is akin to that of managing partner. This is because directors while holding the interest of the company are authorized by the shareholders to manage and control the affairs of the company in which shareholders are considered as inactive partner. 4. Director as a Employee: Although a director may be compared to an employee as he gets paid for the work done, it may not be correct to call him so. 5. Director as an organ of Body: A director is many a time compared to the brain, because the company operates through the Director. In conclusion one may say, director perform all the roles, but not any one role exclusively.

11. Distinguish between: a. Additional director and Alternate director b. Annual general meeting and Statutory general meeting 12. Write short notes: c. WHO IS AN AUTHORIZED PERSON UNDER FEMA, 1999? Ans: Foreign exchange can be dealt with authorized person only. Under this act the Authorized dealer means, money changer, off-shore banking unit or any other person for the time being authorized under this Act to deal in foreign exchange or foreign securities. Duties of Authorized Person: i. An authorized person shall, in all his dealing in foreign exchange or foreign security, comply with such general or special directions or orders as the Reserve. ii. An authorized person shall no engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorization under this section except with the permission of the Reserve Bank of India. iii. An authorized person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonable satisfy him that the transaction will not involve and is not designed for the purpose of any rule, regulation, notification, direction or order made there under. iv. If said person refuses to comply with any such requirement or make only unsatisfactory compliance therewith, the authorized person shall refuse in writing to undertake the transaction. d. POWERS OF SEBI TO ORDER AN INVESTIGATION UNDER SEBI ACT, 1992: Ans: Grounds on which investigation may be ordered: Investigation may be ordered by SEBI if it has reasonable ground to believe that:-a) The transactions in securities are being dealt within a manner detrimental to the investors or the securities market. b) And intermediary or any person associated with the securities market has violated any of the provisions of this Act or the regulations made or directions issued by the Board thereunder. Investigating Authority a) SEBI is empowered to appoint any person as investigating authority b) Such appointment is done by making an order in writing c) The order of appointment specifies to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. Powers of Investigating Authority: 1) The investigating authority for the purpose of investigation, may require any intermediary or any person associated with securities market in any manner to furnish: i. Such information to, or ii. Produce such books or registers, or iii. Other documents or records

2) The investigating authority may keep such books, registers, other documents and records in its custody for SIX months. After six months they shall return the same to any intermediary or any person associated with securities market by whom or on whose behalf the books, registers, and other records is produced. 3) If the person on whose behalf the books, registers, other records are produced requires certified copies of the same, the investigating authority shall give it to such person or on whose behalf the books, registers, other records were produced 4) Investigating authority is empowered to examine an oath, any manager, managing director, officer & other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business 5) Notes of such examination shall be taken down in writing. It can be used as evidence only after it is read over to and signed by, the person examined. 6) A person shall be punishable with imprisonment for a term which may exceed to one year, or with fine, which may extend to One crore rupees, or with both, and also with a further fine which may extend to five Lakh rupees for every day after the first during which the failure or refusal continues if he fails without reasonable cause or refuses: i. To produce to the investigating authority or any person authorized by it any book, register, other document and records ii. To furnish any information which he is bound to do under this Act. iii. To appear before the Investigating Authority personally when required to do so or to answer any question which is put to him by the Investigating Authority Every search or seizure made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 e. Enquiry by the Commission under the MRTP Act, 1969 f. FOSS VS. HARBOTTLE: Ans: Introduction: The company is an artificial person. The number of members involved in case of a company, may range from minimum 2 in case of a private company to a maximum of 50, while in case of a public comapany the minimum is seven and maximum is unlimited. For all important matters governing the administration and management, other than those delegated to the board of directors, decision is by, the majority of votes of shareholders. The majority vote may be either simple or special majority. Thus the comapny is governed and managed by the will of the majority and thus bind the minority. This rule is known as “Majority Rule” or the “Rule of supremacy of the majority.” Majority rule Or Rule in FOSS V/S HARBOTTLE In this case, two shareholders brought an action against the directors and promoters of the company alleging, that they were responsible for “concerting and affecting various fradulent and illegal transaction, whereby the property of the company was misapplied, alienated and wasted” and so, the directors be asked to make the loss suffered by the company. However, the company in its general body meeting had already decided not to take action against the directors. The court held, the acts of the directors were capable of confirmation by the majority of members, and the proper plaintiff for wrongs done to the company, it is the company itself and not the minority shareholders. It is further held, that the company can act only through its majority shareholders.

Basis of the Rule of Supremacy of Majority The basis of the rule of supremacy of minority may be stated as follows: i. To honour the will of the shareholders: the will of the majority must prevail. It is also inferred that the shareholder agrees to be guided, by the will of the majority shareholders. ii. To avoid Multiplicity of suits: The rule of majority seeks to ensure that unnecessary litigation should be avoided and there should be an end to the litigation. iii. To recognize the separate legal entity of the company: It is believed that any wrong to the company, the company itself should bring an action and not the individuals. iv. To preserve the right of the majority to decide: in a democracy, majorities will, that shall prevail. Exceptions to the Rule of Supremacy of Majority: Although law firmly believes in the majority rule, but one cannot totally ignore voice of the minority. This resulted in the exceptions to the majority rule wherein every shareholder may bring an action. This is called “Minority Rights.” Under the following circumstances the minority can exercise their right: i. Ultravires Acts: The acts that are UltraVires, cannot be ratified even by the majority. Every shareholder has right to bring an action to restrain the company from doing such acts. ii. Fraud on the Minority: Sometimes , the decision of the majority constitutes a fraud on the minority. In such case, the minority can challenge it. iii. Acts requiring Special Majority: When the act requires approval of Special Majority, a simple minority cannot approve it. If done so, and shareholder can bring an action restraining the majority from doing so. iv. Oppression & Mismanagement: Sometimes there is oppression of minority, or the mismanagement of company's affairs. The minorty can bring an action then. g. AUDITORS IN A COMPANY: Ans: A person cannot be appointed as auditor of a company unless he is a charted accountant. But a firm may be appointed in its firm name provided all its partners are qualified for appointment. The auditors of a company are appointed at its AGM. An auditor appointed at one AGM holds office from the conclusion of that meeting until the conclusion of next AGM. Unless he is retiring auditor, he should be informed of his appointment within seven days and he should inform the registrar within thirty days whether he has accepted the appointment or not. Every auditor has the right to access to the books and accounts and vouchers of the company. He may require from the officers of the company any information he thinks necessary for the performance of his duties. h. PROXY: Ans: “A proxy is a person representative of a shareholder at a meeting of the company, who may be described as his agent to carry out a course which the shareholder has himself decided upon.” A proxy is not entitled to act contrary to the instructions of the shareholder in the matter. It is the relationship of principal and agent. A proxy does not have the right to speak. The instrument appointing a proxy must be in writing and signed by the shareholder and should be deposited with the company forty-eight hours before the meeting. The act requires proxy forms to be supplied to members along with the notice for the

meeting. The forms should be in blank and should not carry any suggested names. It would be misuse of privilege to influence voting that way. i. REPATRIATION OF FOREIGN EXCHANGE UNDER FEMA, 1999 Ans: Repatriation to India means bringing into India the realized foreign exchange and – The selling of such foreign exchange to an authorized person in India in exchange for rupees, or The holdings of realized amount in an account with an authorized person in India to the extent notified by Reserve Bank, and includes use of realized amount for discharge of a debt or liability denominated in foreign exchange and the expression “repatriation” shall be construed accordingly. j. ESTABLISHMENT AND MANAGEMENT OF SEBI UNDER SEBI ACT, 1992 Ans: Establishment Of SEBI : SEBI is set up by the notification of the Central Government It is established as a body corporate, having perpetual succession and common seal It has the powers to acquire, hold and dispose of property, both movable and immovable It can sue or be sued in the name of SEBI Constitution of SEBI- Section 3(2): SEBI shall consist of the following members to be appointed by the Central government: Chairman Two members from amongst the officials of the Ministry of the Central Government dealing with finance and administration of the Companies Act,1956, nominated by the central government One member amongst the officials of the Reserve Bank, nominated by the Reserve Bank of India Five other members of whom at least three shall be the whole time members Management of SEBI: The general superintendence, direction and management of the affairs of the SEBI shall vest in a Board of Members. Board Of Members may exercise all powers and do all acts and things which may be exercised or done by the SEBI. However it is subject to regulations by SEBI. Qualifications/ Eligibility of Chairman and members : The Chairman and other members shall be persons of ability, integrity and standing who have shown the capacity in dealing with problems relating to securities market or have special knowledge or experience in law, finance, economics and accountancy, administrative or in any other discipline, which in the opinion of the Central Government shall be useful to SEBI. APPOINTMENT OF CHAIRMAN AND MEMBERS: The term of office and other conditions of service of chairman and other members of the SEBI appointed by the Central Government, are as prescribed by the rules made under the Act. The central government has the right to terminate the services of the Chairman or other members appointed to the SEBI. The Chairman and other members, shall equally have the right to relinquish office at any time before the expiry of the tenure by giving notice of 3 months in writing to the Central Government. Removal of members: The Central Government shall remove a member from office if he :

a. Is adjudicated as an insolvent b. Is of unsound mind c. Has been convicted opt an offense which in the opinion of the Central Government involves anything done contrary to justice, honesty or principle or good morals. d. If in the opinion of the Central Government, he has abused his position as to render his continuation in office detrimental to the public interest. Before removing any member, reasonable opportunity of being heard must be given to such member. i. MEETINGS OF SEBI: The provisions relating to meetings of SEBI are made by the Central Government. The SEBI shall meet at such times and places and shall observe such rules of procedure with regard to the transaction of the business at its meeting as stated in the regulations made by the Central Government. If the Chairman is unable to attend a meeting of the board, members present can choose any other member present to preside at the meeting All questions which come up before any meeting of the Board shall be decided by a majority of votes of the members present and voting. In case of equality of votes, the Chairman has casting vote or second vote. Any member, who is a director of a company and has any direct or indirect pecuniary interest in any matter which is to be discussed at the meeting, shall disclose the nature of his interest at such meeting. k. Appointment of Directors by the Board l. POSTAL BALLOT: Ans: The Company is permitted to seek votes of its members through postal ballot. The company shall send a notice to all the shareholders, along with a draft resolution explaining the reasons thereof, and requesting them to send their assent or dissent in writing on the postal ballot within a period of 30 days from the date of posting the letter. The company shall appoint one Scrutinizer to conduct the postal ballot voting process in a fair and transparent manner. The following are the matters where resolutions may be passed through postal ballot: i. Alteration of the object clause of the memorandum’ ii. Alteration of the Articles of Association in relation to deletion or insertion of provisions defining private company iii. Issue of shares with differential voting rights as to voting or dividend or otherwise iv. Buy back of own shares by the company v. Change in place of registered office outside the local limits of any city, town or village vi. Sale of whole or substantially the whole of the undertaking of a company vii. Election of a director viii. Giving loans or extending guarantee or providing security in excess of the prescribed limit m. PRIVATE COMPANY: In a private company a minimum number is two and maximum fifty. In addition the following are characteristics of a private company:

ii. iii. iv.

i. With minimum paid up capital is one lakh Rupees or such higher paid up capital as may be prescribed in the articles. Any private company having paid up capital of less than one lakh rupees shall within a periods of 2 years of the commencement of ‘The companies (amendment) Act,2000’, raise the capital to minimum of rupees one lakh, failing which the registrar shall strike out the name from the Register of members. ii. Prohibits an invitation to the public to subscribe to the shares or debentures. iii. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. iv. Restricts the rights of the members to transfer shares. However, this provision does not apply to private company having no share capital. Private company is classified in to: i. Companies limited by shares ii. Companies limited by guarantee iii. Unlimited company n. DIVIDEND: Ans: Dividend means the shares of profit that falls to the share of each individual member of a company. It is that portion of the corporate profits which has been set aside and “declared by company as a liable to be distributed among the shareholders”. Almost all commercial corporate enterprises are undertaken with the view of making of profits for their members. The profits of a company when distributed among the shareholders are called “Dividends”. No special authority either in the memorandum or in the articles is necessary to enable a company to pay dividends. o. FIRST DIRECTORS OF A COMPANY: (Sec.254) Ans: The first directors of a company are to be appointed by the subscriber of memorandum. They are generally listed in the articles of the company. If they do not appoint any, all the subscribers who are individuals become directors. The very fact of incorporation makes them the first directors of the company. The first directors, howsoever appointed, hold office only up to the date of the first AGM of the company and the subsequent directors must be appointed in accordance with the provision of section 255. p. RESTRICTIVE TRADE PRACTICE: Ans: Restrictive trade practice is one which tends to bring about manipulation of price or its conditions of delivery or to affect flow o supplies in the market relating to goods and services in such a manner as to impose on the consumers unjustified costs or restrictions. Restrictive trade practice include:i. Delay beyond the period agreed to by a trader in supply of such goods or in providing the services which has led or is likely to lead to a rise in price. ii. Any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, service as condition precedent to buying, hiring or availing of other goods or services. Thus, no trader can put any preconditions for sale of a particular type of goods or services if the consumer requires to buy, hire or avail of services of other goods or services. For e.g. A Consumer cannot be compelled to buy air cooler as a condition precedent if he wants to but air conditioner of a particular make only.