ware Avttirwunation We ra 1 ABG | Syllabus University of Delhi B.Com. (Hons) Sement . -) Semester- Paper BCH 2.3" CORPORATE Laws ene Duration : 3 hrs, Marks: 100 Course Objective. To impart basic knowis Act, 2013 and the Depositories Act, 1996, laws are required to be discussed, Unit I : Introduction Meaning and characteristics of a cor " Law Appellate Tribunal (NCLAT), Special Courts}; 1 SD ecco and public company, government company, foreion c See , foreign company, one person company, small company, associate company, dormant company and producer company; Association not for profit; Illegal association; Formation of company, promoters, their legal position and pre incorporation contracts; Online registration of a company, ‘ Unit II : Documents and shares rs Memorandum of Association and its alteration, Articles of Association and its alteration, doctrine of constructive notice, doctrine of ultra vires and indoor management; Prospectus, Shelf and Red herring prospectus, misstatement in prospectus; book 7 building; Allotment and Forfeiture of share, Sweat Equity, ESOPs, Bonus issue, and Further issue of shares, buyback and provisions regarding buyback; Membership of - company. Unit III : Management and Meetings B.Com.(Hons) CBCS Department of Commerce, University of Delhi 21 Classification of directors-Additional, Alternate and Casual directors, Women directors, Independent = director, Small shareholder's director; Director Identity Number (DIN); Appointment, Disqualifications, Removal of directors; Legal postions, rou ae ey managerial personnel, Managing director, Manager and ee ee en —_ Meetings: meeting through video conferencing; ae ol aliens a EGM. Convening and Conduct of meetings: Requisites of a val 95 7 Postal ballot; e-voting. 7 fal dL caren iam? 1 ind, compen ‘Audit-auditor’s qualification oat Provisions relating to payment © I, ‘Auditor's appointment, Rotation of auditors, Auditor's removal, and disqualifications,9 Winding Up: Concept and Modes of Winding Code 2016. Auditors’ report and Auditor’s powers. Up; Provisions of winding up under Insolvency and Bankruptcy Unit V : The Depositories Act 1996 Definitions; Depositories system; Rights and obligations of depositories; Participants issuers and beneficial owners; Inquiry and inspections; Penalty.tnait. + ( MUENOds een 47 ~ Acttrwumation um vee tan Contents Preface Preface to First Edition i Table of Cases a p= “oo thom i i 1, The =>™~nanies Act and its Administration a ¥ » pi acreeanes Act, 2013 ; Amendments to the Companies Act, i Amendments to the Companies Act, 2013 introduced by the Insolvency and Bankruptcy Code, 2016 i Applicability of the Act ; Main Objectives ; Salient Features of the Companies Act, 2013 ; tration of the Companies Act, 2013; National tunal (NCLT) ; Constitution of NCLT ; Powers of the Tribunal ; Constitution of Appellate Tribunal ; Benches of Tribunal ; Orders of the Tribunal ; Appeal against the Orders of the Tribunal ; Appeal against the Orders of the Appellate Tribunal ; Procedure and Powers of the Tribunal and Appellate Tribunal ; Bar to Jurisdiction of Civil Court ; Transfer of Certain Pending Proceedings ; Special Courts ; Registrar of Companies ; Meaning ; Duties of Registrar ; Powers of Registrar ; Securities and Exchange Board of India ; Powers of SEBI ; Delegation of Powers to SEBI ; Questions, The Company Introduction ; Definition ; Characteristics ; Company vis-a-vis Body Corporate ; Company and Partnership Distinguished ; Advantages of Incorporation ; Disadvantages of Incorporation ; Lifting the Veil of Corporate Personality : Under Statutory Provisions ; Under Judicial Interpretation ; Illegal Associations ; Consequences of Illegal Association ; Penalty for Improper use of words “Limited” and "Private Limited” ; Questions. Kinds of Companies Kinds of Companies according to the mode of Incorporation— (1) Statutory Company ; (2) Incorporated or Registered Company ; Kinds of Registered Companies on the basis of Number of Members—(1) Private Company ; (2) Public Company ; (3) One Person Company ; Kinds of Registered Companies on the basis of Liability of Members—(1) Companies Limited by Shares; (2) Companies Limited by Guarantee ; (3) Unlimited Companies ; Other Kinds of Companies—Companies with Charitable Objects or Companies not for Profit ; Foreign Company ; Gevernment Company ; 15 34 contrasts CS raat acd | ABC vgnai) y Company j ASsocate Companies y/ and SUURIOIBEY cer Company} Exemption, Dormant COMPA ne ee between 4 yf Pre ayy conversion of Companie, ; es a Public Company ; Conversion of Compan Holding Compan small Company 7 so iviteges of F and ie and Public Comp Private ofa Private Compal Questions Caner ory into a Private Company | Ques pic Company i a Put 4, Formation of company ie ; Legal Position of a Promoter ; Promoter's Labi ; Promoter Incorporation or Registration ; Effect of Deed coreratont Iconcoelvencsulericert tte of Certificate of rea Subscription ; Online Registration of ae ; Integrated Process of Registration ; Questions, pat n jorandum of Association ; ace tion ; Importance ; Contents of the Memorandum ; Alteration of the Memorandum ; The Doctrine of Ultra-vires ; Effects of es Transactions; Questions, 6. Articles of Association 87 Mezning ; Formats of Articles ; Contents of Articles ; Alteration of Articles ; Limitations regarding Alteration of Articles ; Binding Force of Memorandum and Articles ; Constructive Notice of Memorandum ené Articles; The Doctrine of “Indoor Management” 7 Exceptions Doctrine of Indoor Management” ; Distinction between andum and Articles ; Questions, 7. Prospectus 101 Definition ; The Offer of Securities for sale to be Deemed Prospectus ; ©: to be in Demnaterialised Form : Advertisement has not recovery because mbers of ‘d.,? case ostantial his own surance interest e Court n these ry of its oldersi gistinct rpose? The Company 1° Foing ar its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; imilarly the creditors or the members have no right to the assets of the corporation. This position has been well established ever since the decision in the case of Salomon vs. Salomon & Co. Ltd, was pronounced in 1897 and indeed it has always been the well recognised \ciple of common law.' Not a citizen. Although a company is a legal person having nationality in accordance with the country of its incorporation and a domicile in accordance with the place or State of ts incorporation or registration, itis nota citizen (State Trading Corporation of India Ltd. vs. Commercial Tax Officer +). A company cannot, therefore, claim the protection of those fundamental rights which are expressly guaranteed to citizens only, e.g, the right of franchise, the right to assemble peacefully, the right to practise a profession, etc. But still they are sufficiently protected under the Constitution. For instance, their freedom of trade or commerce cannot be curtailed, there can be no compulsory acquisition of their property, and no unjust discrimination in any matter whatsoever can be done against them. The company has the right to challenge a law if the law happens to violate fundamental rights of citizens (Prithivi Cotton Mills vs. Broach Borough Municipality *). 4. Perpetual existence: A company is a stable form of business organisation. Its life does not depend upon the death, insolvency or retirement of any or all sharholder(s) or director(s). The provision for transferability of shares in case any shareholder wishes to drop out, as also for transmission of shares to the successor(s) of the deceased in case any shareholder dies, helps to preserve the perpetual ‘existence of a company. Law creates it and law alone can dissolve it. Members may ‘come and go but thé company can go on for ever. "During the war all the members of one private company, while in general meeting, were killed by a bomb. But the company survived; not even a hydrogen bomb could have destroyed ft The company may be compared with a flowing river where the water keeps on changing continuously stil the identity of the river remains the same. Thus, a company has perpetual existence, respective of changes in its membership. 5. common Seal. As was pointed out earlier, a company being an artificial person has 10 Body similar to a natural person and as such it cannot sign documents for itself Tt acts through natural persons who are called its directors. But having 2 legal personality, it can be bound by only those documents which bear its signature. Therefore, the law has provided for the use of a common seal, with the name of the company engraved on it, as a substitute for its signature ‘Any document bearing the common seal of the company and duly witnessed by at least two directors will be legally binding on the company. 1(1963), S.C.J. 605. 2(1968), A.LR. Guj. 124. sGower, L.C.B,, The Principles of Modern Company Law, 6th Edn., at p. 86.Corporate iy, nade the requirement of hay O15 ha aL jes (Amendment) Act, 26 /" after the words “ogi esto by ating te words" 2” ution of document a eoiy ease of provisions dealing With ¢ uments gy seat” [See. 1263]. In case of Powe aw provision has been inserted Wohi Bis of Exchange and Shave Cer ave a common seal, the Ptottay in favoy, . ‘company does not ha L eiucen Fea ca co ay de by two directors OF by a decor an a Compas of any person anal he company has appointed a Company Secretary (Amencime, Secretary, wherever the compa of Secs. 22(2) and 46(1)]- of the members for the debts of the company ited liability. The liability etal losses th oe a e amount unpaid on thelr shares howsoever heavy fe compar is limited to the a if'a shareholder buys 100 shares of ® 10 each t have suffered. For example, x el pa 5 on each share, he has paid up % 500 and em eed if ay arabe 500, but he cannot be made to pay more than & 1000 in all. lean face value of shares held by him, in On ta lbly (ater we alse thatthe Atal prow aie company ‘limited by guarantee’ and a company with ‘unlimited liability’,but companies with ‘limited liability’ are most popular). Thus, by virtue of this characteristic the personal property of the shareholder cannot be seized for the debts of the company, if he holds a fully paid-up share. 7. Transferability of shares, The shares of a public company are freely transferable and members can dispose of their shares whenever they like without seeking any permission from the company or the other members. In a private company, however, some restriction on the right to transfer shares is essentia/in its articles as per Section 2(68) of thé Act., but absolute restriction on the right of the members to transfer shares contained in the articles shall be void, Ttmay, however, be noted here that a company possesses the above mentioned characteristics by virtue of its incorporation or registration under the Companies Act. Although a partnership firm—the main alternative to the company as a form of business organisation, may also be registered under the Indian Partnership Act, 1932, yet It does not possess any of these characteristics. Company vis-a-vis Body Corporate As per Section 9, on incorporati Sub-section (11) of Sectioy n2 i tay ert yt of the Companies Act, 2013 defines the expression body corporate" or ' F "corporation" ind Bat doesnot include" MtUdeS @ company incorporated outside ”)@ cooperal : cr erative society Fegistered un ider any law relating to Cooperative societies; The ¢ the ¢ cont GThe Company 2 (i) any other body corporate erect oot being a company as defined in the Act) which Thus, the words ‘bod : 'Y corporate’ are not equivalent to the words ‘incorporated company’. An incorporated company i Cale ee spany s a body corporate but many bodies corporate The expression ‘bo Sor pohte cere pay fexpaelod saypectt is, thus, wider than the word ee oo C 8 is re ™m a includes the following : (4) Corporations for paler med under Special Act of Central Government or State : Rae Financial Institutions under Sectien 2(72), e.g,, LIC, ICICI, IDBI, GIC, ower Finance Corporation Ltd., Rural Electrification Corporation Ltd. Infrastructure Development Finance Company Ltd., etc, ’ (d) Nationalised Banks, (@) All Indian Companies. (A) Limited Liability Partnership formed and regist it itt partnership Act, 2008, registered under the Limited Liability (g) One Person Company. Since such a company has been introduced as one of the kinds of companies under Section 3 of the Companies Act, 2013, hence corporation sole is no more excluded from the definition of body corporate as defined under Section 2(11), Earlier, under Section 2(7) of the Companies Act, 1956, ‘corporation sole’ was excluded from the definition of body corporate. Company and Partnership Distinguished The main points of difference between a company and a partnership firm are as follows : (1) Regulating Act. A company is regulated by the Companies Act, 2013, whereas a partnership firm is governed by the provisions of the Indian Partnership Act, 1932. (2) Number of members. The maximum number of members in the case of a partnership firm is fixed at 50; but no such maximum limit is fixed in the case of a public company. The maximum number of members of a private company, however, must not exceed 200 excluding members who are or were in the employment of the company. The minimum number of members ina public company is seven and in case of a private company two, In case of a partnership the minimum number of partners is two. (3) Entity. A company is an artifical person and has a distinct legal entity separate from its members. A partnership, on the other hand, does not have a distinct legal entity separate from the members composing it and its existence comes to an end upon the death or lunacy or insolvency of its partners. (4) Liability. In partnership each partner has unlimited liability and is personally liable for all the debts of the firm. In a company, on the other hand, a shareholder