Company Law Solved Paper' 2010 (Old Course), Dibrugarh University B.Com 4th Semester

 Ans: Memorandum of Association: Memorandum of association is the document which contains the rules regarding constitution and activities and objects of the company. It is fundamental charter of the company. Its relation towards the members and the outsiders are determined by this important document.

Section 2 (56) of the Companies Act, 2013 defines Memorandum as “Memorandum means the Memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act”.

One of the essentials for the registration of a company is memorandum of association. It is the first step in the formation of a company. Its importance lies in the fact that it contains the fundamental clauses which have often been described as the conditions of the company’s incorporation.

Memorandum of association is divided into 5 clauses/contents [Sec. 4 of the Companies Act, 2013]:

1. Name clause: This clause state the name of the company. Name of every company limited by shares or by guarantee must end by the word 'Ltd.' or 'Pvt. Ltd.' except companies exempted u/s 8.  The name must not be undesirable or most not resemble the name of any other registered company.

2. Situation or Registered office clause: Must contain the name of state is which registered office is situated.  Actual address of registered office is notified to ROC with in 30 days of in corporation.

3. Object clause: It sets out object or vires of the company. The objects must be legal and not be against the provision of the companies Act, 2013. It is divided into two parts:

(a) The main objects and Objects incidental or ancillary to the main objects.

(b) Other objects.

4. Liability clause: States that liability of members is limited to the amount unpaid on their shares and in case of company limited by guarantee the amount which every member undertakes to contribute to the assets of the company in the even of its winding up.

5. Capital clause: Every company having a share capital, the amount of share capital with which the company is proposed to be registered and the division of its shares into a fixed denomination.

6. Subscription clause: This clause shall state the number of shares that each subscriber to member has agreed to subscribe. Every subscriber shall agree to subscribe for at least one share.

The difference between Memorandum of Association & Article of Association is given here:

A. Classification on the basis of liability

1. Companies with limited liability

(a)   Companies limited by guarantee [Sec.2(21)]- where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in the event of its being wound up, the company is called a company limited b guarantee.

(b)    Companies limited by shares [Sec.2(22)]- where the liability of the members of a company is limited to the amount unpaid on the shares, such a company is known as a company limited by shares

2. Unlimited companies [Sec.2(92)] - A company without limited liability is known as an unlimited company. In case of such a company, every member is liable for the debts of the company.

B. Classification on the basis of number of members

1. Private company [Sec.2(68)] - A private company is normally what the Americans call a ‘close corporation’. According to Sec.2(68), a private company means a company which has a minimum paid-up capital of Rs. 1,00,000 or such higher paid-up capital as may be prescribed by CG, and by its Articles:

a.       Restricts the right to transfer its shares, if any. The restriction is meant to preserve the private character of the company.

b.      Except in case of one person company, limits the number of its members to 200 not including its employee-members. Joint shareholders shall be counted as one member only.

c.       Prohibits any invitation to the public to subscribe for any securities. In other words, a private company shall not make a public issue of its securities.

A Private company may be:

a.       One Person company [Sec. 2(62)]: It means a company which has only one person as a member. All the provisions of a private company is also applicable to this company.

b.      Small Company [Sec. 2(85)]: A company shall be a small company only if it’s paid-up capital does not exceed Rs.50 lakhs or such higher amount as may be prescribed (not being more than Rs. 5 crores) and its turnover does not exceeds Rs. 2 crores or such higher amount as may be prescribed (not being more than Rs. 20 crores)

c.       Other that “One Person Company” and “Small Company”.

2. Public company [Sec. 2(71)] - A public company means a company which –

a. is not a private company

b. is a private company which is a subsidiary of a company which is not a private company.

c. has a minimum paid-up capital of Rs. 5 lakh or such higher paid-up capital, as may be prescribed by CG.

C. Classification on the basis of control

1. Holding company-Section 2(46) - A company is known as the holding company of another company if is has control over that other company.

2. Subsidiary company-Section 2(87) - A company is known as a subsidiary of another company when control is exercised by the latter(called holding company) over the former called a subsidiary company.

A company is deemed to be a subsidiary of another company when:

a.       where the company controls the composition of Board of Directors of the subsidiary company

b.      where the company holds more than one- half the nominal value of equity share capital of another company

c.       where a company is subsidiary of another company, which is itself is subsidiary of the controlling company.

D. Classification on the basis of ownership

1. Foreign company [Sec 2(42)]- it means any company incorporated outside India which has an established place of business in India.

2. Government company [Sec 2(45)] - A Government company means any company in which not less than 51 % of the paid-up share capital is held by-

a.       the Central government

b.      any State government or governments

c.       partly by the Central government and partly by one or more State governments.

3. Non-government company: It means a company other than Government company.

E. Classification on the basis of listing of shares on the stock exchange

1. Listed Company [Sec. 2(52)]: It means a company which has any of its securities listed on any recognized stock exchange.

2. Unlisted Company: It means a company other than listed company.

 Ans: Meaning: Charge means a security created on the property of the company in favour of its creditor to secure payment of a loan or debt or any other obligation. In order to create a charge it is not necessary to employ any technical or particular form of expression. All that is required is that there should be clear intention to make a particular property a security for the payment of money. Creation of enforceable security is of the essence of a charge either in respect of immovable property or in respect of moveable’s.

Under Section 124 of the Companies Act, 1956, a charge includes a mortgage and every mortgage or a charge created by a company is required to be lodged with a copy of the instrument creating the encumbrance and got registered with the Registrar of Companies of the State concerned under Section 125 of the said Act, failing which the charge would be void against the liquidator and any creditor of the company.

A charge which is not created by a company does not require registration. Under Section 127(1) of the Companies Act, 1956, where a company acquires any property which is subject to a charge of any such kind as would, if it had been created by the company after the acquisition of the property, have been required to be registered under Part V of the said Act. The steps to be followed in registration of charge are mentioned below:

Ø  The prescribed particulars together with copy of the instrument creating the charge or modification thereof or satisfaction of charge shall be filed with the Registrar in Form 8, or form 10, or Form 17 as the case may be, in triplicate

Ø  A copy of every instrument evidencing any charge or modification of charge and required to be filed with the Registrar in pursuance of sections 125, 127, 128 and 135 shall be verified as follows:

Ø  Form 13 shall be filed in triplicate, along with the relevant Form 8, or Form 10, or Form 17, as the case may be, with a fee of rupees ten.

Ø  Form 8, or Form 10, or Form 17, as the case may be, shall be signed on behalf of the company and the charge-holder.

Ø  For the purposes of Section 132, the Registrar shall affix stamp on the relative Forms and accompanying instruments with the word “Registered” under his signature with date and a copy thereof be delivered to the company and the charge-holder.

Ø  The register kept in pursuance to sub-section (3) of Section 130 shall be open for inspection by any person on payment of a fee of rupees ten for each inspection

 The particulars of charges in connection with issue of debentures of a series shall be filed with Registrar of Companies in Form 10, along with copy of instrument creating the charge and with the required filing fees as per Schedule X to the Companies Act, 1956, within a period of 30 days after the execution of deed containing the charge or if there is no such deed, after the execution of any debentures of the series, failing which the company and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees. However, the Registrar may extend the time up to the next thirty days, if he is convinced of the sufficiency of the cause for the default.

 Ans: Effects of registration of charge: Once the particulars of charge have been registered by the Registrar of Companies, it has the following effects:

·         that while dealing with the company in respect of any property subject to a registered charge, the dealer is deemed to have notice of such charge as from the date of such registration.

·         Where any person acquires a property or any part thereof, or any share or interest therein, which is subject to charge under section 125(4) and charge has been registered with Registrar, the acquirer shall be deemed to have notice of the charge as from the date of such registration. [Section 126]

1.       The money secured becomes immediately payable: According to company 125 if the charge becomes valid then the money secured thereby shall become immediately payable. [section 125(3)]

Further nothing in section 125(1) shall prejudice any contract or obligation for payment of the money secured by the charge. [section 125(2)]

2.       The charge is void: - the charge becomes void, if they are not registered with the Registrar of Companies. It shall be void as against the subsequent encumbrances as well as against the liquidator and the creditors [section 125(1)]

3.       No right of lien on the document of title: If a charge becomes void for non-registration then no right of lien can be claimed on the documents of title as they are only ancillary to and were delivered pursuant to charge.

4.       Penalties:- if any default is committed in filing the Registrar of Companies for the registration the particulars:-

(i)       Of any charge created by the company.

(ii)    Or of the payment of satisfaction of a debt in respect of which a charge has been registered.

(iii)   Or of the issue of debenture of a series, requiring registration with the registrar.

Then till the registration has been effected on the application of some other person. Then the company and every officer who is in default shall be punishable with fine which may extend to Rs. 5,000 for every year.

If a company conducts a default in complying with any other requirement to registration with the Registrar of Companies of any charge created by the company, then the company and every officer who is in default will be punishable with a fine of Rs. 10,000.

 Ans: Annual Returns of Companies

Every company is required to file an annual return with the Registrar of Companies. The object is that any alteration is the company’s constitutions that have been affected during the year are noted by the Registrar. Annual return statements are of two types: Annual return of a company with share capital and annual return of a company without share capital.

Annual Return of a company with share capital: It is mandatory for a company having share capital that it files annual return with the Registrar of Companies within 30 days from the date of its annual general meeting. According to Part I of schedule V of the Companies Act, the annual return of a company shall have an account of the following:

And signed both by a director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in whole-time practice:

Annual return by company not having a share capital: Every Company not having share capital must, within 30 days of its general meeting, file its annual return with the Registrar of Companies stating the following:

(a) the address of the registered office of the company;

(b) in a case in which the register of members is, under this Act, kept elsewhere than at that office, the address of the place where it is kept;

(c) particulars of the total amount of the indebtedness of the company in respect of all charges, whether required be registered with the Registrar or not;

(d) all such particulars with respect to the persons who, on the day to which the return is made up, are the directors, managers or secretaries of the company as are required to be contained in the register of directors, managers and secretaries;

(e) the name and address of the auditor of the company; and

(f) such other matters relating to the accounts of the company and to the unclaimed moneys held by the company as are prescribed.

Ans: Legal Provisions Relating to Annual General Meeting: Every company is required to hold this meeting. But, there are certain legal provisions which have to be followed, relating to the annual general meeting as contained in sections 96 and 97. There are:

Ordinary business is transacted by passing ordinary resolution.

Special Business: All matters other than ordinary business are treated as special business at an annual general meeting. For transacting special business at a meeting, there shall be annexed to the notice of meeting an explanatory statement setting out:

A. As mentioned above, the annual general meeting provides the opportunity to the members to express views on the management of the company. Any member can apply to the Central Government for the failure of the company to call the meeting. The Central Government may give direction to the company for calling the meeting.

B. The company as well as every officer will become liable if  they fail to held the meeting and shall be punishable with fine upto Rs. 50,000, and if the default continues , with a further fine of Rs. 2,500 for every day after the first day of default during which the default continues. 

Section 149 of the Companies Act, 2013, makes it obligatory on every public company to have at least three directors and on every other company to have at least two directors. The directors may be appointed in the following ways:

1. Appointment of First Directors (Sec. 152): First directors mean the director of the company who assumes office from the date of incorporation of the company. The first directors of a company may be named in its articles of association and if it is not mentioned, then the subscribers of the memorandum of association who are individual, shall be deemed to be the first directors of the company, until the directors are not appointed in accordance with Section 152.

In case of public company, if the article provides any share qualification, only such subscribers as possess the necessary share qualification shall be deemed to be directors. The articles at the time of registration may contain the names of the first directors until directors are appointed in the first general meeting.

2. Appointment of Directors by Members in the General Meeting (Sec. 152(2): Except for the first director, the subsequent directors are appointed by the company in the general meeting. Sec. 152(2) provides that not less than 2/3 of the total number of directors of a public company, or of a private company which is subsidiary of a public company must be appointed by the company in general meeting. These directors must be subject to retirement by rotation. The remaining directors of such a company and a purely private company are appointed by the company in general meeting

3. Appointment by Board of Directors: The directors are appointed in the general meeting by the members. But, the Board of Directors may also appoint the directors, in the following way:

a. Additional Directors: Section 161, of the Act, lays down that the Board may appoint additional directors if the article of association of a company empower the Board of Directors to do so. Such additional directors shall hold office only up to the date of the next annual general meeting. If the annual general meeting is not held, then such additional director vacates his office on the last day on which the annual general meeting should have been held in terms of Section 166. The additional directors are exempted from the requirement of filing consent to act as directors.

b. Casual Vacancies: Section 161 empowers the Board of Directors to appoint the directors in the casual vacancy which may occur due to any reasons like, death, resignation, insanity, insolvency etc of the directors. Such casual vacancy may be filled according to the regulations and procedure prescribed by the articles of association. A person appointed to fill a casual vacancy will hold office only till the date up to which the directors in whose place, he is appointed would have held office. 

c. Alternate Directors: The Board Meeting may be held at a time when a director is, absent for a period of more than three months from the state and in such a situation, an ‘alternate director’ is appointed. The Board of Directors can appoint the additional director in the absence of a director if so authorized by articles or by a resolution passed by the company in general meeting. The alternate director shall work until the original director return or up to the period permitted to the original director. The provision of the Act not applicable to the alternate director is as:

A. The appointment of an alternate director is not considered as an increase in the strength of the Board of Directors.

B. Alternate Directorship held by a person cannot be counted for the maximum number of directorship, which a person can hold.

C. An alternate director is not required to hold any qualification shares.

4. Appointment of Directors by Central Government: At least 100 members of the company or the members of the company who hold at least one-tenth of the total voting power, approach the Central Government for appointing a director to safeguard the interest of the company or its members or the public or to curb the oppressive and mismanagement of company’s affairs.

The term of appointment of the directors by the Central Government should not exceed 3 years and he may be removed by the Central Government for appointing another person to hold the office.

5. Appointment of Directors by Third-Parties if the Article provides (Sec. 152): A company may have ‘nominee directors’ which is permissible in a company if the articles of association gives power to such third parties to appoint their nominee on company’s board. Here the third party may be debenture holders, financial corporation, banking companies who have advanced loan to the company to safeguard their interests that the money is only used for the purpose for which it was borrowed.

6. Appointment of Directors By small shareholders if the article provides: The Small Shareholders, in case of a public company having:

i) A paid-up capital of five cores rupees or more, and

ii) one thousand or more small shareholders.

may have a director elected by such small shareholders in the manner as may be prescribed.
The directors are appointed by ordinary resolution i.e. through the majority of the shareholders. The minority of the shareholders does not get the opportunity to send representative in the Board of Directors. But, through proportional representative voting, the shareholders can get that opportunity.

7. Appointment of directors by professional representation (Sec. 163): The Directors of a company are generally appointed by simple majority. As a result majority shareholders controlling 51% or more votes may elect all directors and a substantial minority of 49% may not find any representation on the board. This section give power to the minority shareholders to elect directors through single transferable vote and cumulative voting.

b. Casual Vacancies: Section 161 empowers the Board of Directors to appoint the directors in the casual vacancy which may occur due to any reasons like, death, resignation, insanity, insolvency etc of the directors. Such casual vacancy may be filled according to the regulations and procedure prescribed by the articles of association. A person appointed to fill a casual vacancy will hold office only till the date up to which the directors in whose place, he is appointed would have held office. 

Ans: Managing Director: According to Sec.2 (54) of the Indian Companies Act “managing director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

Section 164 of Companies Act, 2013, has mentioned the disqualification as mentioned below:

1) A person shall not be capable of being appointed director of a company, if the director is

(a) Of unsound mind by a court of competent jurisdiction and the finding is in force;

(b) An undischarged insolvent;

(c) Has applied to be adjudicated as an insolvent and his application is pending;

(d) Has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence;

(e) Has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; or

(f) An order disqualifying him for appointment as director has been passed by a court in pursuance of section 203 and is in force, unless the leave of the court has been obtained for his appointment in pursuance of that section;

2) Such person is already a director of a public company which:

(a) Has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or

(b) Has failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more:

Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposit or interest or redeem its debentures on due date or paid dividend referred to in clause (B).