INDIAN CCMÞANIL5 AC1ţ 1956

Þresentat|on 8y ť
kkI5nMAN 5INGn
IN1LkNA1ICNAL
8U5INL55
MLANING Ǝ DLIINI1ICN CI A CCMÞAN¥
A volunLarv assoclaLlon of personsŦ A companvţ ln
broad senseţ mav mean as AssoclaLlon of lndlvlduals
formed for some common purposeŦ
ecLlon 3(1)(l) of Lhe Companles AcLţ 1936 deflnes a
companv asť ºa companv formed and realsLered under Lhls AcL
or an exlsLlna Companv"Ŧ
' LxlsLlna Companv' means a companv formed and realsLered
under anv of Lhe earller Companv Laws
CnAkAC1LkI51IC5 CI A CCMÞAN¥
W 5eparate Lega| Lnt|ty
Caseť alomon vŦ alomon Ǝ CoŦ LLdŦ
W L|m|ted L|ab|||ty
oweverţ llablllLv of a companv ls never llmlLedŦ lL's
llablllLv of members onlv LhaL ls llmlLedŦ
W Iree 1ransferab|||ty of 5hares
W Þerpetua| 5uccess|on
W Common 5ea|
@he common seal acLs as Lhe offlclal slanaLure of Lhe companv
W 5eparate Þroperty ť @he companv ls real person ln whlch all lLs
properLv ls vesLed Ǝ bv whlch lL ls conLrolledţ manaaed Ǝ dlsposed
ofŦ
W Capac|ty to sue ť A companv can sue Ǝ can be sued ln lLs corporaLe
name
kIND5 CI CCMÞANIL5
Companles mav be classlfled lnLo varlous klnds on Lhe
followlna basls Ť
IŦ C|ass|f|cat|on on the bas|s of Incorporat|on
1Ŧ 5tatutory Compan|es ť @hese are Lhe companles whlch are
creaLed bv a peclal AcL of Lhe LealslaLureŦ LŦaŦţ Lhe 88lţ 8lţ
u@lţ llCţ @he llfe lnsurance CorporaLlon
2Ŧ keg|stered Compan|es ť @hese are Lhe companles whlch are
formed Ǝ realsLered under Lhe Companles AcLţ 1936Ŧ @hese
are bv far Lhe mosL commonlv found companlesŦ
llŦ ClasslflcaLlon on Lhe 8asls of LlablllLv
Cn Lhe basls of llablllLv companles mav be classlfled lnLo ť
1Ŧ Companles wlLh llmlLed llablllLv Ŧ @hese mav beŴ
a) companles llmlLed bv shares
Where Lhe llablllLv of Lhe members of a companv ls llmlLed
Lo Lhe amounL unpald on Lhe sharesŦ
b) companles llmlLed bv auaranLee
Where Lhe llablllLv of Lhe members of a companv ls llmlLed
Lo a flxed amounL whlch Lhe members underLake Lo
conLrlbuLe Lo Lhe asseLs of Lhe companv ln Lhe evenL of lLs
belna wound upŦ
2Ŧ Companles wlLh unllmlLed llablllLv żecŦ 12 (12)Ž
ecŦ 12 speclflcallv provldes LhaL anv 7 or more persons mav
form an lncorporaLed companvţ wlLh or wlLhouL llmlLed
llablllLvŦ
IIIŦ C|ass|f|cat|on on the 8as|s of Number of Members
1Ŧ Þr|vate Company ť żecLlon 3(1)(lll)Ž A prlvaLe companv
means a companv whlch has a mlnlmum pald up caplLal of
one lac rupees or such hlaher paldŴup caplLal as mav be
prescrlbed and bv lLs arLlcles
W Þub||c Company ť żecLlon 3(1)(lv)Ž A publlc companv
means a companv whlchť
W (a) ls noL a prlvaLe companv żln oLher wordsţ lL should noL
have Lhe resLrlcLlons of ecLlon 3(1)(lll) ln lLs arLlcles ŽŤ
W (b) has a mlnlmum paldŴup caplLal of flve lakh rupees or such
hlaher paldŴup caplLalţ as mav be prescrlbedŤ and
W (c) ls a prlvaLe companvţ whlch a subsldlarv of a companvţ
whlch ls noL a prlvaLe companvŦ
D|fference between Þub||c Company
Ǝ Þr|vate Company
Þr|vate Company
W A prlvaLe companv musL have
a mlnlmum paldŴup caplLal of
8sŦ 100000
W @he mlnlmum number of
persons requlred for prlvaLe
companv ls 2
W @here ls resLrlcLlon on
maxlmum number of
members lL should noL exceed
Lhe llmlL of 30
W A prlvaLe companv musL have
aL leasL 2 dlrecLors
Þub||c Company
W A Þubllc llmlLed companv musL
have a mlnlmum pald up
caplLal of 8sŦ 3ţ00ţ000
W @he mlnlmum number of
persons requlred for publlc
companv ls 7
W @here ls no resLrlcLlon on
maxlmum number of
members ln a publlc companv
W A publlc companv musL have
aL leasL 3 dlrecLors
IVŦ C|ass|f|cat|on on the 8as|s of Contro|
1Ŧ no|d|ng Compan|es ť żecŦ 4 (4)Ž A companv ls known as Lhe holdlna
companv of anoLher companv lf lL has conLrol over LhaL oLher companvŦ
2Ŧ 5ubs|d|ary Compan|es ť żecŦ 4 (1)Ž A companv ls known as a
subsldlarv of anoLher companv lf lL has conLrol ls exerclsed bv Lhe laLLer
(called holdlna companv) over Lhe former called a subsldlarv companvŦ
3Ŧ Government Company ť A aovernmenL companv means anv
companv ln whlch noL less Lhan 31Ʒ of Lhe paldŴup share caplLal held bv
Ť
a) Lhe CenLral CovernmenL
b) anv LaLe CovernmenL
c) parLlv bv Lhe cenLral aovLŦ Ǝ parLlv bv Lhe sLaLe aovLŦ
4Ŧ Iore|gn Company ť żecŦ 391 (1)Ž lL means anv companv
lncorporaLed ouLslde lndla whlch has an esLabllshed place of buslness ln
lndla
nCW 1C ICkM A CCMÞAN¥ŧ
@he whole process of formaLlon of a companv mav
be dlvlded lnLo four sLaaesţ namelvť
W Þromot|on
W keg|strat|on
W I|oatat|on/ka|s|ng of Cap|ta|
W Commencement of 8us|nessŦ
W Þromot|on
Who ls a ÞromoLer?
8owenţ LŦ!Ŧ
@he Lerm promoLer ls ºa Lerm noL of law buL of buslness"ţ
usefullv summlna upţ ln a slnale wordŸ promoLlonţ ºa
number of buslness operaLlons famlllar Lo Lhe commerclal
world bv whlch a companv ls brouahL lnLo exlsLence"Ŧ
oweverţ Lhe persons asslsLlna Lhe promoLers bv acLlna ln
a professlonal capaclLv do noL Lherebv become promoLers
Lhemselves Ŧ
W Lega| Þos|t|on of a Þromoter
ÞromoLer sLands ln a flduclarv poslLlon Lowards Lhe
companvŦ
ln oLher wordsţ he ls noL allowed Lo make secreL proflLs Ŧ
Caseť ClucksLeln vŦ 8arnes
W Þos|t|on of Þromoters as regards
ÞreŴ|ncorporat|on contracts
IoldŴabŴlnlLlo Ŧ
oweverţ preŴlncorporaLlon conLracLs shall be
valld lfť
W @he conLracL ls made for Lhe purpose of Lhe companv
and Lhe conLracL ls warranLed bv Lhe Lerms of
lncorporaLlonŦ
W @he companv adopLs Lhe LransacLlons afLer
lncorporaLlonŦ
keg|strat|on or Incorporat|on
Þr|vate Company
W ,lnlmum number of ,embers requlred Ŷ 2Ŧ
Þub||c Company
W ,lnlmum number of ,embers requlred Ŷ 7Ŧ
W 5teps
AppllcaLlon for avallablllLv of nameť
W @hree names ln order of prlorlLv conformlna Lo Lhe provlslons of Lhe AcL
and Lhe Culdellnes lssued bv ueparLmenL of Companv Affalrs ln Lhls
reaardť
name Lo end wlLh Lhe word(s) 'LlmlLed' or 'ÞrlvaLe LlmlLed'ţ as Lhe
case mav beţ excepLť
ecLlon 23 Companles
CovLŦ Companles (need noL use ÞvLŦ LLdŦ)
Þroducer CompanlesŦ
W name should noL be ldenLlcal or Loo slmllar Lo Lhe name of an alreadv
exlsLlna companvŦ
W hould noL lnclude Lhe name of a realsLered Lrade markŦ
2Ŧ Þreparat|on of Memorandum and Art|c|es of Assoc|at|on
W ,emorandum deflnes and llmlLs Lhe scope of acLlvlLles of a companvŦ
ConLenLs of ,emorandum
W name clause
W 8ealsLered offlce clause
W Cb[ecL clause
uocLrlne of ulLraŴvlres
W LlablllLv clause
W CaplLal clauseŦ
3Ŧ Þreparat|on of other documents
W Þower of ALLornev ln favour of a professlonal Lo effecL realsLraLlonŦ
W ConsenL of ulrecLors (ln case of a Þubllc Companv)
W ÞarLlculars of ulrecLorsţ ,anaaerţ ecreLarvţ eLcŦ ln Lhe prescrlbed formŦ
W noLlce of realsLered address
@o be supplled wlLhln 30 davs of lncorporaLlonŦ
W 5tatutory Dec|arat|on
W @o Lhe effecL LhaL all requlremenLs of law wlLh respecL Lo
lncorporaLlon have been dulv complled wlLhŦ
W @he declaraLlon Lo be slaned bvť
AdvocaLe of upreme CourL or lah CourLŤ C8
CŦAŦŦ/CŦŦ pracLlslna ln lndla and assoclaLed wlLh Lhe
formaLlon of Lhe companvŤ C8
ulrecLorţ ,anaaerţ ecreLarv of Lhe companv (as named
ln Lhe ArLlcles)
4Ŧ I|||ng of documents w|th kCC
W CerLlflcaLe of lncorporaLlon
LffecL of CerLlflcaLe of lncorporaLlon (ecLlon 34)
Cn lncorporaLlonţ Lhe assoclaLlon of persons becomes a bodv
corporaLe bv Lhe name conLalned ln Lhe memorandumţ capable
forLhwlLh of exerclslna all Lhe funcLlons of an lncorporaLed
companv and havlna perpeLual successlon and a common seal
buL wlLh such llablllLv on Lhe parL of Lhe members Lo conLrlbuLe
Lo Lhe asseLs of Lhe companv ln Lhe evenL of lLs belna woundŴup
as ls menLloned ln Lhe AcLŦ
W ka|s|ng of Cap|ta| or I|otat|on
A companv mav ralse caplLal Lhrouah
W Þr|vate p|acement
W Issue of Þrospectus
ÞrlvaLe placemenL means ralslna of caplLal from
frlendsţ relaLlves and Lhrouah brokersŦ
Commencement of 8us|ness
W Commencement of 8us|ness (5ect|on 149)
Where Companv has lssued a ÞrospecLusť
A companv cannoL commence buslness or exerclse borrowlna powers unlessť
W (a) shares up Lo Lhe amounL of Lhe mlnlmum subscrlpLlon have been alloLLed bv Lhe
companvŤ
W (b) everv dlrecLor of Lhe companv has pald Lo Lhe companvţ on each of Lhe shares
Laken or conLracLed Lo be Laken bv hlm and for whlch he ls llable Lo pav ln cashţ Lhe
same proporLlon as ls pavable on appllcaLlon and alloLmenL on Lhe sharesţ offered
for publlc subscrlpLlonŤ
( c ) no monev lsţ or mav becomeţ llable Lo be repald Lo Lhe appllcanLs for
shares or debenLures offered for publlc subscrlpLlonţ for fallure Lo obLaln
permlsslon for Lhe shares Lo be dealL ln on anv recoanlsed sLock exchanaeŤ
( d ) Lhere has been flled wlLh Lhe 8ealsLrar a dulv verlfled declaraLlon bv one
of Lhe dlrecLors or Lhe secreLarv orţ where Lhe companv has noL appolnLed a
secreLarvţ a secreLarv ln whole Llme pracLlce ln Lhe prescrlbed form LhaL
clauses ( a )ţ ( b ) and ( c ) (menLloned above) have been complled wlLhŦ
Þena|tyť
Lverv person aL faulL mav be flned upLo 8sŦ3ţ000/Ŵ for everv dav of defaulLŦ
Memorandum of Assoc|at|on
A fundamenLal documenLŦ lL conLalns @he
fundamenLal condlLlons upon whlch alone Lhe
companv ls allowed Lo be lncorporaLedŦ
Lverv companv has Lo have a ,emorandum of AssoclaLlonŦ
lL conLalnsţ besldes oLher slanlflcanL lnformaLlonţ Lhe
ob[ecLs for whlch Lhe companv ls formedŦ
' Cb[ecL clause' deflnes as well as conflnes Lhe powers of
Lhe companvŦ
Ŵ AnvLhlna done bevond Lhese ob[ecLs ls ulLraŴvlres Lhe
companv and vold
W Contents of Memorandum
1Ŧ name Clauseť lL conLalns Lhe name wlLh whlch companv
ls proposed Lo be realsLeredŦ Companles AcL requlres LhaLť
W @he name chosen should end wlLh Lhe word 'LlmlLed' or Lhe words
'ÞrlvaLe LlmlLed'ţ as Lhe case mav beŦ
W @he name should noL be undeslrable lŦeŦţ lL should noL be ldenLlcal
or Loo slmllar Lo Lhe name of an alreadv exlsLlna companv C8
lnclude Lhe name of a realsLered Lrade mark unless consenL of Lhe
owner of Lhe Lrade mark ls obLalnedŦ
2Ŧ 8ealsLered Cfflce Clauseť
@hls clause sLaLes Lhe name of Lhe LaLe ln whlch
realsLered offlce of Lhe companv ls Lo be slLuaLedŦ
3Ŧ Cb[ecLs Clause
W @hls clause ls Lo be dlvlded lnLoť
,aln ob[ecLs and ob[ecLs lncldenLal or anclllarv Lo maln ob[ecLs
CLher ob[ecLs
A companv cannoL commence anv buslness sLaLed under
oLher ob[ecLs unless 'speclal resoluLlon' bv Lhe
shareholders ls passedŦ
Doctr|ne of U|traŴV|res
W 'ulLra' means '8evond' Ǝ 'Ilres' means
W 'Þowers'Ŧ @he Lerm ulttoŴvltes a companv
means LhaL Lhe dolna of Lhe acL ls bevond Lhe
leaal power Ǝ auLhorlLv of Lhe companvŦ @he
purpose of Lhese resLrlcLlons ls Lo proLecL Ť
W lnvesLors ln Lhe companv so LhaL Lhev mav know
Lhe ob[ecLs ln whlch Lhelr monev ls Lo be
emploved
W CredlLors bv lnsurlna LhaL Lhe companv's funds
are noL wasLed ln unauLhorlsed acLlvlLles
Art|c|es of Assoc|at|on
@he ArLlcles of AssoclaLlon or [usL arLlcles are Lhe rulesţ
reaulaLlons or bveŴlaws for Lhe lotetool mooooemeot
of Lhe affalrs of Lhe companvŦ @hev are framed wlLh
Lhe ob[ecL of carrvlna ouL Lhe alms Ǝ ob[ecLs as seL
ouL ln Lhe memorandum of assoclaLlonŦ
W Compan|es wh|ch must have Art|c|es
Un||m|ted Compan|esť
W @he ArLlcles of such a companv musL sLaLeť
@oLal number of membersŤ and
hare caplLalŦ
Compan|es ||m|ted by Guaranteeť
W ArLlcles of such companv musL sLaLe LoLal number of
membersŦ
Þr|vate Compan|es ||m|ted by sharesť
W musL lnclude requlremenLs of ecLlon 3(1)(lll)Ŧ
No Art|c|e Company
A pub||c ||m|ted company havlna share caplLal
mav be realsLered wlLhouL ArLlclesŦ
W A|terat|on of Art|c|es
ArLlcles mav be alLered bv a companv bv passlna speclal
resoluLlon aL a aeneral bodv meeLlna of shareholdersŦ
oweverţ where alLeraLlon has Lhe effecL of converLlna a
publlc companv lnLo a prlvaLe companv (lŦeŦţ lnLroducLlon of
resLrlcLlve clauses of ecLlon 3(1)(lll)ţ approval of CenLral
CovernmenL musL be obLalnedŦ
W Doctr|ne of Construct|ve Not|ce
Accordlna Lo ecLlon 610ţ everv person deallna wlLh Lhe
companv ls deemed Lo have read ,/A and A/A and
undersLood Lhe conLenLs Lhereof ln Lhe correcL perspecLlveŦ
uocLrlne of lndoor ,anaaemenL
@he rule was flrsL lald down ln 8oval 8rlLlsh 8ank vŦ @urquandŦ
8ule of lndoor ,anaaemenL ls an excepLlon Lo Lhe uocLrlne of
ConsLrucLlve noLlceŦ
W Lxcept|ons of Indoor Management
nowledae of lrreaularlLv ť Caseť oward vŦ ÞaLenL lvorv CoŦ
neallaence ť Caseť Anand 8eharl Lal vŦ ulnshaw Ǝ CoŦ (8ankers)
LLdŦ
loraerv ť Caseť 8uben vŦ CreaL llnaal ConsolldaLed żecvŦ
loraed slanaLures of Lwo dlrecLorsŽ
no knowledae of arLlcles ť Caseť 8ama CorporaLlon vŦ Þroved
@ln Ǝ Ceneral lnvesLmenL CoŦ
Þrospectus
A prospecLusţ as per ecLlon 2(36)ţ means anv documenL
descrlbed or lssued as prospecLus and lncludes anv noLlceţ
clrcularţ adverLlsemenL or oLher documenL lnvlLlna deposlLs
from Lhe publlc or lnvlLlna offers from Lhe publlc for Lhe
subscrlpLlon or purchase of anv shares or debenLures of a bodv
corporaLeŦ
@husţ a prospecLus ls noL merelv an adverLlsemenLŤ lL mav be a
clrcular or even a noLlceŦ A documenL shall be called a
prospecLus lf lL saLlsfles Lwo Lhlnasť
W (a) lL lnvlLes subscrlpLlon Lo shares or debenLures or lnvlLes
deposlLsŦ
W (b) @he aforesald lnvlLaLlon ls made Lo Lhe publlcŦ
W What const|tutes Inv|tat|on to Þub||c
As per ecLlon 67ţ lnvlLaLlon Lo publlc lncludesť
W lnvlLaLlon Lo anv secLlon of Lhe publlc howsoever selecLed provlded Lhe
lnvlLaLlon ls made Lo all Lhe members of LhaL secLlon of publlc
lndlscrlmlnaLelvŦ
W lnvlLaLlon calculaLed Lo be made avallable even Lo Lhose who do noL
recelve Lhe sameŦ
W lnvlLaLlon Lo 30 or more personsŦ
W M|sŴstatement |n a Þrospectus and |ts consequences
WhaL ls ,lsŴsLaLemenL?
Accordlna Lo ecLlon 63(1) of Lhe AcLť
W ( a ) a sLaLemenL lncluded ln a prospecLus shall be deemed Lo be
unLrueţ lf Lhe sLaLemenL ls mlsleadlna ln Lhe form and conLexL ln whlch
lL ls lncludedŤ and
W ( b ) where Lhe omlsslon from a prospecLus of anv maLLer ls calculaLed
Lo mlsleadţ Lhe prospecLus shall be deemed ln respecL of such
omlsslonţ Lo be a prospecLus ln whlch an unLrue sLaLemenL ls lncludedŦ
Caseť 8ex vŦ vlsanL
kemed|es L|ab|||ty for M|sŴstatements
ln a ÞrospecLus Clvll LlablllLv (ecŦ62 Ǝ 36) Crlmlnal
LlablllLv (ecŦ 63) AaalnsL Lhe Companv AaalnsL Lhe
ÞromoLersţ ulrecLorsţ oLher Cfflcers and LxperLs AaalnsL
Lhe Companv AaalnsL Lhe ÞromoLersţ ulrecLors and
CLher offlcers (noL avallable aaalnsL experLs) 8esclsslon
of ConLracL Clalm for uamaaes uamaaes CompensaLlon
under ecLlons 62 and 36 llne upLo 8sŦ 30ţ000
lmprlsonmenL upLo 2 vears llne upLo 8sŦ30ţ000 8oLh
5hares Ǝ 5hare Cap|ta|
Accordlna Lo ecLlon 2(46)ţ A 'hare' represenLs a unlL
lnLo whlch caplLal of a companv ls dlvldedŦ oweverţ
courLs have held LhaL a share ls noL merelv a unlL of
caplLalţ lL represenLs a bundle of rlahLs and
obllaaLlonsŦ older of a share ls enLlLled Lo cerLaln
rlahLs (savţ rlahL Lo recelve dlvldendsţ Lo recelve
noLlce of meeLlnasţ Lo parLlclpaLe ln Lhe proceedlnas
of a meeLlnaţ Lo elecL dlrecLors) and ls also sub[ecLed
Lo a number of obllaaLlons (savţ Lo ablde bv ArLlcles
of AssoclaLlonţ Lo malnLaln decorum of Lhe
meeLlnas)Ŧ
W k|nds of 5hares
@he followlna klnds of shares mav be lssued bv a
companvť
W LqulLv shares carrvlna voLlna rlahLsŦ
W LqulLv shares carrvlna dlfferenLlal rlahLs as Lo voLlna or dlvldend
(commonlv called nonŴIoLlna LqulLv hares)
W Þreference hares
W CumulaLlve converLlble Þreferable hares
Þreference hares carrv preference wlLh respecL Lo Lwo
Lhlnasť
W Þreference wlLh respecL Lo dlvldend aL a flxed raLe or of a flxed
amounLŦ
W Þreference wlLh respecL Lo reLurn of caplLal ln case of wlndlna
upŦ
LqulLv hares means a share whlch ls noL a preference
shareŦ
W A||otment of 5hares
' AlloLmenL' ls an accepLance Lo an offer for purchase of sharesŦ
Where alloLmenL does noL conform Lo Lhe sLaLuLorv requlremenLsţ lL ls called
lrreaular alloLmenLŦ lor alloLmenL Lo be valldţ followlna requlremenLs musL be
saLlsfledť
W A copv of prospecLus or sLaLemenL ln lleu of prospecLus musL have been
dellvered Lo 8ealsLrar of CompanlesŦ
AppllcaLlon monev musL noL be less Lhan 3Ʒ of Lhe nomlnal valueŦ
,lnlmum subscrlpLlon (lŦeŦţ aL leasL 90Ʒ of Lhe lssue) musL have been recelvedŦ
AppllcaLlon monev musL be kepL deposlLed ln a cheduled 8ank Llll Lhe mlnlmum
subscrlpLlon has been recelvedŦ
hares musL have been llsLed on Lhe sLock exchanae(s) menLloned ln Lhe
ÞrospecLusŦ
D|rectors
żecŦ 2 (13)Ž ulrecLor lncludes anv person occupvlna Lhe
poslLlon of dlrecLorţ bv whaLever name calledŦ @e
Jltectots ote te btolo of te compoovŦ @hev occupv
a plvoLal poslLlon ln Lhe sLrucLure of Lhe companvŦ
@hev are lnfacL Lhe malnsprlna of Lhe companvŦ
Þos|t|ons
żecŦ232 (1)Ž Lverv Þubllc companv shall have aL leasL 3
ulrecLors Ǝ everv oLher companv aL leasL 2 dlrecLorsŦ
oweverţ a publlc companv havlna Ť
W A paldŴup caplLal of 8sŦ 3 crore or more
W Cne Lhousand or more small shareholders
W Number of D|rectorsh|ps
WholeŴLlme ulrecLorshlp
A person cannoL be appolnLed as a wholeŴLlme dlrecLor ln
more Lhan one companvŦ
ÞarLŴLlme ulrecLorshlp
noL more Lhan 13 companles excludlna Lhe dlrecLorshlps
ofţprlvaLe companles żoLher Lhan subsldlarles or holdlna
companles of publlc companv(les)ŽŦ
unllmlLed companlesţ assoclaLlons noL carrvlna on
buslness for proflL or whlch prohlblL pavmenL of a
dlvldendţ and
alLernaLe dlrecLorshlps ( lŦeŦţ he ls appolnLed Lo acL as a
dlrecLor onlv durlna Lhe absence or lncapaclLv of some
oLher dlrecLor)Ŧ
;ua||f|cat|ons Ǝ D|squa||f|cat|ons of
D|rectors
;ua||f|cat|ons
A publlc companv cannoL prescrlbe anv quallflcaLlons for dlrecLorshlp
excepL share quallflcaLlonŦ Aaalnţ share quallflcaLlon requlremenL
cannoL exceed holdlna of shares exceedlna 8sŦ 3000/Ŵ ln nomlnal value
or value of one share where nomlnal value of one share exceeds
8sŦ3000/ŴŦ A dlrecLor mav obLaln hls share quallflcaLlon wlLhln 2
monLhs afLer hls appolnLmenLŦ
W D|squa||f|cat|ons
ecLlon 274 of Lhe Companles AcLţ 1936 provldes LhaL Lhe followlna
persons shall noL be capable of belna appolnLed as dlrecLors of anv
companv ť
(a) a person found bv a compeLenL courL Lo be of unsound mlnd and
such flndlna remalnlna ln forceŤ
(b) an undlscharaed lnsolvenLŤ
(c) a person who has applled Lo be ad[udaed an lnsolvenLŤ
( d ) a person who has been convlcLed bv a CourL of an
offence lnvolvlna moral LurplLude and senLenced ln
respecL Lhereof Lo lmprlsonmenL for noL less Lhan slx
monLhsţ and a perlod of flve vears has noL elapsed
from Lhe daLe of Lhe explrv of Lhe senLenceŤ
( e ) a person who has noL pald anv call ln respecL of
shares of Lhe companv held bv hlmţ wheLher alone or
[olnLlv wlLh oLhers and slx monLhs have elapsed from
Lhe lasL daLe flxed for Lhe pavmenL of Lhe callŤ and
( a ) a person who ls alreadv a dlrecLor of a publlc
companv whlchţŸ
W ( l ) has noL flled Lhe annual accounLs and annual reLurns for
anv conLlnuous Lhree flnanclal vears commenclna on and
afLer Lhe flrsL dav of Aprllţ 1999Ť or
W ( ll ) has falled Lo repav lLs deposlL or lnLeresL Lhereon on due
daLe or redeem lLs debenLures on due daLe or pav dlvldend
and such fallure conLlnues for one vear or moreŦ
Appo|ntment
W I|rst D|rectors ť (ecŦ 234 Ǝ clause 34 of @able A)Ŧ
W @he arLlcles of a companv usuallv name Lhe flrsL dlrecLors bv
Lhelr respecLlve names or prescrlbe Lhe meLhod of appolnLlna
Lhem
W lf Lhe flrsL dlrecLors are noL named ln Lhe arLlclesţ Lhe number
of dlrecLors Ǝ Lhe names of Lhe dlrecLors shall be deLermlned
ln wrlLlna
W Appo|ntment of D|rectors by the company ť (ecŦ 233
Lo 237ţ 263 Ǝ 264) dlrecLors musL be appolnLed bv
shareholders ln aeneral meeLlnaŦ
W Appo|ntment of D|rectors by D|rectors
@he dlrecLors of Lhe companv mav appolnL dlrecLors as addlLlonal dlrecLors
(ecŦ 260)Ŧ Anv addlLlonal dlrecLors appolnLed bv Lhe dlrecLors shall hold
offlce onlv up Lo Lhe daLe of Lhe nexL annual aeneral meeLlna of Lhe
companvŦ
W Appo|ntment of D|rectors by 1h|rd Þart|es
@he arLlcles under cerLaln clrcumsLances alve power Lo Lhe debenLureŴ
holders or oLher credlLors Ŧ
W Appo|ntment by Þroport|ona| kepresentat|on
(ecŦ 263) @he arLlcles of a companv mav provlde for Lhe appolnLmenL of
noL less Lhan 2/3rds of Lhe LoLal number of dlrecLors of a publlc
companv accordlna Lo Lhe prlnclple of proporLlonal represenLaLlonŦ
W Appo|ntment of D|rectors by the Centra| Government
(ec 408) empowers Lhe cenLral aovernmenL Lo appolnL such number
of dlrecLors on board of Lhe companv bv order ln wrlLlnaŦ
kemova|
ulrecLors mav be removed bv ť
W hareholders (5ecŦ 284)
W CenLral CovernmenL (5ecŦ 388Ŵ8 to 388ŴL )
W 8emoval bv @rlbunal (5ecŴ402)
Þowers Ǝ Dut|es
1Ŧ ellţ lease or oLherwlse dlspose of Lhe wholeţ subsLanLlallv Lhe wholeţ
of Lhe underLaklna of Lhe companvţ or where Lhe companv owns more
Lhan one underLaklnaţ of Lhe whole or subsLanLlallv Lhe wholeţ of anv
such underLaklnaŦ
2Ŧ 8emlL or alve Llme for Lhe repavmenL of anv debL due bv a dlrecLor
excepL ln Lhe case of renewal or of conLlnuance of an advance made
bv a banklna companv Lo lLs dlrecLors ln Lhe ordlnarv course of
buslnessŦ
3Ŧ lnvesLţ oLherwlse Lhan ln LrusL securlLlesţ Lhe amounL of compensaLlon
recelved bv Lhe companv ln respecL of compulsorv acqulslLlon of anv
properLv or flxed asseLs of Lhe companvŦ
4Ŧ 8orrow monles exceedlna Lhe aaareaaLe of Lhe paldŴup caplLal of Lhe
companv and lLs free reservesŦ '8orrowlna' does noL lnclude
Lemporarv loans ( lŦeŦ ţ loans pavable on demand or wlLhln slx monLhs
buL excludlna loans for caplLal expendlLure) obLalned from Lhe
companv's bankers ln Lhe ordlnarv course of buslnessŦ
@he resoluLlon passed aL Lhe aeneral meeLlna musL speclfv
Lhe LoLal amounL up Lo whlch monevs mav be borrowed
bv Lhe 8oard of dlrecLors ln anv flnanclal vearŦ
3Ŧ ConLrlbuLe ln anv vearţ Lo charlLable and oLher funds
noL dlrecLlv relaLlna Lo Lhe buslness of Lhe companv or
Lhe welfare of lLs emplovees anv amounL exceedlna 8sŦ
30ţ000 or flve per cenL of lLs averaae neL proflLs of Lhe
lasL Lhree flnanclal vearsţ whlchever ls hlaherŦ
oweverţ Lhe resoluLlon musL speclfv Lhe LoLal amounL
LhaL mav be conLrlbuLed bv Lhe 8oard of dlrecLors ln anv
flnanclal vearŦ
oweverţ conLrlbuLlons Lo naLlonal uefence lundţ Lhe
Þrlme ,lnlsLer's naLlonal 8ellef lund or anv oLher fund
approved bv Lhe CenLral CovernmenL* for Lhe purpose
are exempLed from Lhe above provlslonsŦ
Meet|ngs
ulrecLors of a companv exerclse
mosL of Lhelr powers aL Lhe meeLlnas of Lhe 8oardŦ @he
companles AcL conLalns Lhe followlna provlslons relaLlna Lo
8oard meeLlnas ť
W number of meeLlnas ť (ecŦ 283) Cnce ln everv Lhree monLhs
W noLlce of ,eeLlnas ť (ecŦ 286) noLlce shall be alven ln wrlLlna
Lo everv dlrecLor
W Cuoram for ,eeLlnas ť (ecŦ 287) @he Cuoram for a meeLlna
of Lhe board shall be 1/3
rd
of lLs sLrenah or 2 dlrecLorsţ
whlchever ls hlaher
Þrevent|on of Cppress|on Ǝ M|sŴ
Management
@he oppresslon of mlnorlLv or mlsmanaaemenL of a
companv bv ma[orlLv Lherefore calls for some
remedlal acLlonŦ ln such a caseţ Lhe mlnorlLv
shareholders mav applv Lo ť
W @he Lrlbunal for wlndlna up Lhe companv
W @he @rlbunal for approprlaLe rellef
W @he CenLral aovernmenL for approprlaLe rellef
W Mean|ng of Cppress|on
@he essence of Lhe maLLer seems Lo be LhaL Lhe conducL complalned
of should aL Lhe lowesL lnvolves a vlslble deparLure from Lhe
sLandards of falr deallnaţ Ǝ a vlolaLlon of condlLlons of falr plav
on whlch everv shareholder who enLrusLs hls monev Lo Lhe
companv ls enLlLled Lo relvŦ
ÞkLVLN1ICN CI MI5ŴMANAGLMLN1
ecŦţ 398 provldes for rellef aaalnsL mlsmanaaemenL ť
W AppllcaLlon Lo Lhe Lrlbunal
W 8ellef bv Lhe @rlbunal
W Crder bv Lhe @rlbunal
W|nd|ng Up
Mean|ngŧ
ºWlndlnaŴup" ln llLeral senseţ means Lo brlna Lo a concluslon or
an end bv puLLlna ln orderŦż1Ž lL ls deflned as Lhe process bv
whlch Lhe llfe of a companv ls ended and lLs properLv ls
admlnlsLered for Lhe beneflL of lLs members and credlLorsż2ŽŦ
WlndlnaŴup ls dlfferenL from lnsolvencv and dlssoluLlonż3ŽŦ
W 1he fo||ow|ng po|nts have to be cons|dered wh||e dea||ng
w|th w|nd|ngŴupť
W 1) A peLlLlon presenLed osLenslblv for a wlndlnaŴup orderŤ buL
reallv Lo exerclse pressure wlll be dlsmlssedţ and under Lhe
clrcumsLancesţ mav be sLlamaLlzed as a scandalous abuse of Lhe
process of Lhe CourL @he modern pracLlce has been Lo dlsmlss
such peLlLlonsŦ lf Lhe debL ls noL dlspuLed on some subsLanLlal
aroundţ Lhe CourL mav declde lL on Lhe peLlLlon and make Lhe
orderŦż11Ž
W 2) @he companv mav be wound up even lf lL has larae asseLsŦ
@he crux ls Lo see lf lL ls unable Lo meeL lLs currenL demands lŦeŦţ
lf Lhe currenL llablllLles are more Lhan Lhe currenL asseLsŦ lf Lhe
companv ls flnanclallv sound and ln a poslLlon Lo pav lLs llablllLvţ
lL cannoL be ordered Lo be wound up under ecLlon 433(e) of
Lhe Companles AcLŦ 8uL Lhe companv should esLabllsh LhaL lL ls
capable of dlscharalna lLs exlsLlna llablllLlesŦ @here ls
presumpLlon of lnablllLvż12ŽŦ
W 3) AlLhouah a wlndlna up peLlLlon ls an approprlaLe remedv and
a mode of execuLlon aaalnsL a companv unable Lo pav lLs debLţ lL
ls noL an alLernaLlve Lo Lhe ordlnarv procedure for reallzaLlon of
Lhe debLs due from Lhe companvŦ lnceţ Lhe credlLor had alreadv
resorLed Lo Lhe clvll sulLţ Lhe courL ln lLs dlscreLlon can dlsmlss
Lhe peLlLlonż13ŽŦ
W 4) lL has been observed LhaL Lhe pendencv of a clvll sulL as such
ls noL merelv a around Lo oppose a wlndlna up peLlLlonż14ŽŦ

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