corprtae governace

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ICPAP

The Institute of Certified Public Accountants

Pakistan

Corporate Law &

Governance

PROFESSIONAL

MODULE-V


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Corporate Law & Governance ICPAP

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Question:-

State, with reasons in brief, whether the following statements are correct or incorrect.

i.

An individual who has subscribed his name in the memorandum of association of a

company is necessarily a promoter of that company.ii.

Underwriting an issue of share/debenture is in fact an insurance for the issue

iii.

Annual general meeting of a company cannot be held on a public holiday. Therefore,

it cannot be held on Sunday.

iv.

Minutes of a Board meeting must be duly written and signed by the chairman of that

meeting within 14 days of conclusion of that meeting.

v.

Minority shareholder(s) can also be oppressive on majority.

Answer

i. The statement is false. A person who takes initiative in floating a company and takes

active part in bringing the company to legal existence is as promoter. A subscriber tomemorandum may or may not be a promoter of the company concerned. As per

Companies ordinance 1984, the subscribers of the memorandum of company shall be

deemed to have agreed to become members of the company.

ii. The statement is true. An underwriter of an issue of share/debenture enters into a

contract with the company making the issue to get the issue subscribed by public or

intended section of public either fully or partly. If an unsubscribed part remains out of

his contractual quota, he is bound to make good the same in proportion to but limited to

the obligation undertaken by him. Therefore, underwriting is a sort of insurance against

the possibility of inadequate subscription for which the issuing company gives a

commission to the underwriter.

iii. The statement is true. Under Section 166 of the Act, AGM cannot be called to be held on

a ‘public holiday’. Sunday is a public holiday. Therefore, the given statement is true that

annual general meeting of a company cannot be held on Sunday.

iv. The statement is false. Section 173 (1) of the ordinance, inter alia, requires minutes of the

Board meeting to be written in the consecutively numbered pages of the Minutes Book

kept for that purpose within 14 days of conclusion of the meeting concerned.

v. The statement is true. Section 290 of the Companies Ordinance, 1984 has not specified

that oppression as such can only be inflicted by majority shareholders. It has dealt with

oppression as a phenomenon without telling who would be oppressing and who would

be oppressed. While oppression by majority on the minority is a natural probability, but

the reverse is also possible and it has happened in a number of cases. While dealing with

such cases, the Courts took into account the act of oppression without regard to who has

oppressed whom.


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Question:-

Comment on the following:

i.

In matters of investigation into the affairs of a company, the SECP has only a

discretionary power to order the investigation restricted only to the concernedcompany.

ii.

Rana Javed, a member of your company holding 3,000 equity shares, suspects

management fraud and serves a notice on your company demanding inspection of the

books of account of the company.

Answer:

i. It is true that the powers of the SECP in matters of investigation into the affairs of a

company are only discretionary. While it is true that the powers to order an

investigation is discretionary so far as provisions of Section 263(1) and Section 265 (b)

are concerned, under Section 265 and ordinance, if a company by special resolution orthe Court by the order declares that the affairs of the company ought to be investigated

by an Inspector, then it is obligatory for the SECP to appoint one or more competent

persons as investigators to investigate the affairs of the company and to report thereon.

Furthermore, where an inspector or inspectors are appointed by the SECP, these

inspectors have wide powers under the Companies Ordinance. Thus, under Section 267

of the Act, an inspector may with prior approval of SECP in cases referred to in (b), (c),

(d) below, where approval will be given after giving such body corporate or persons a

reasonable opportunity to show cause why such approval should not be accorded, may

also investigate the affairs of the following body corporates or persons, if the inspector

thinks that such investigation is necessary for the purpose of his investigation:

a) Any other body corporate which is, or has at any relevant time, been the

company’s subsidiary or holding company or a subsidiary of its holding

company or a holding company of its subsidiary;

b) Any other body corporate which is, or has at any relevant time been managed by

any person as the managing director or as manager, who is or was at the relevant

time, the managing director or manager of the company; or

c) Any other body corporate which is or has at any relevant time been managed by

the company or whose Board of Directors comprises of nominees of the company

or is accustomed to act in accordance with the directions or instructions of the

company or any of the directors of the company or any company, any of whose

directorship is held by the employees or nominees of those having control and

management of the first mentioned company; or

d) Any person who is as has at any relevant time been the company’s managing

director or manager.


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ii. The Companies Ordinance 1984 does not provide for any right of inspection of books of

account to a shareholder. However, articles of a company may give such a right to the

shareholders. In terms of Regulation, the SECP shall from time to time determine

whether and to what extent and at what times and places and under what conditions or

regulations, the accounts and books of the company or any of them shall be open to

inspection of members not being directors. Further, no member (not being a director)

shall have any right of inspecting any accounts or books or documents of the company

except as conferred by law or authorized by the SECP or by the company in general

meeting. Thus, in the absence of any such specifically enabling provision, a shareholder

has no right to inspect the books of accounts of the company.

In order to prove allegations made in a petition under Section 290/291, the shareholders

are entitled to be allowed inspection of the books of accounts and other relevant papers

of the company if so ordered by SECP.

Question:-

a)

“Successive corporate failures are responsible for emergence of the concept of

‘corporate governance’.” Discus.

b)

Who is a ‘dissenting shareholder’ in a scheme or contract of amalgamation under

Section 289? Discuss the position of a dissenting shareholder in such scheme or

contract.

Answer:

a) The Corporate World, be it in the Western Countries or in our country, has historically

operated without much commitment to its social responsibilities and concern for

investors. Except few honorable exceptions, most of the corporates indulged in practices

which, we today consider as exploitive and harmful to the society at large. Apart from

monopolistic/oligopolistic pricing of their products, the quality of products and market

manipulation to create artificial scarcity condition being matters of concern, minority

investors in the corporates were at mercy of controlling management and corporate

collapse rendered thousands of such investors helpless spectators of their invested

money disappear in thin air. While lots of corporate failures have taken place from the

days of Solomon v. Solomon & Co. Ltd. in late nineteenth century, awareness about

corporate ethics and social responsibility started to emerge only from latter part of

twentieth century and received the much needed focus form Cadbury Committee.Thereafter, in our country as also elsewhere, a number of Committees were set up on

formulation of corporate governance parameters. Apart from concepts of social

accounting and auditing, which made a feeble appearance in communicating to the

corporate would as to what should be its commitment to the society, audit committee

concept emerged as an independent concept centering round finance of the corporates

which in their virtual lifeline. In spite of all these, Euron, Worldcorn, Qest scams

happened to rob the investors totally and thoroughly. In our county, through on lesser


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scale, this situation emerged. Now, the question arises whether the concept of corporate

governance is the result of successive corporate failures. It is partly true but the real

thrust came from the society at large and various stakeholders to curb corporate

exploitation of the society in various ways. Now the alert society has to ensure that the

parameters or corporate governance are abided by in letters and spirit. Mechanical

compliance with rules is not the avowed goal of corporate governance.

b) Under Companies Ordinance 1984 Section 289, a dissenting shareholder includes a

shareholder who has not assented to the scheme/contract and any shareholder who has

failed or refused to transfer his shares to the transferee company in accordance with the

scheme/contract.

The position of dissenting shareholder is as follows:

i. Transferee Company has to give notice to dissenting shareholders that it desires

to acquire their shares, when shareholders holding at least 9/10th

in value of theconcerned shares agreed to make the transfer. The transferee company has to

offer same consideration for shares of the dissenting shareholders as it has done

for consenting shareholders. However, if any dissenting shareholder approaches

the court on receipt of the notice, the court determined price will be the

consideration for share of dissenting shareholders.

ii. If the transferee company holds more then 1/10th in value of the shares of the

transferee company, the transferee company can only acquire the shares of the

dissenting shareholders if (a) the transferee company offers the same terms to all

shareholders of the same class and (b) the shareholders who had agreed to

transfer their shares should not only hold 9/10th in value of the shares other thanthose already held by the transferee but their number should not be less than

3/4th of the total number of shareholders of the shares under consideration.

iii. In the situation where the transferee already holds 9/10th in value of shares

concerned, it has to give a notice to the remaining dissenting shareholders of

transferor company within one months, require the transferee to acquire the

shares on the same terms as that of the consenting shareholders or on such other

terms as may be agreed or as may be ordered by court if either party approaches

the court. In nutshell, it may be held that dissenting shareholders position is

secured and it can have the same terms and conditions as were given to the

consenting shareholders, if not a better one, if so ordered by the court.


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Question:-

What are the circumstances in which a company shall be deemed to be unable to pay its

debts? Will a simple dishonor of an accepted bill of exchange, without a demand or levy of

execution, tantamount to proof of inability to pay its debts?

Answer:

Section 306 of the Companies Ordinance, 1984 lays down the following circumstances in which

company shall be deemed to be unable to pay its debts:

i. If a creditor, to whom company owes more than Rs.500, he served on the company, a

demand in writing for payment of debts and the company has for three weeks thereafter

neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of

the creditor;

ii. If execution or other process in favor of creditor of the company is returned unsatisfied

in whole or in part; oriii. If it is proved to the satisfaction of Court that the company is unable to pay its debts and

in determining whether a company is unable to pay its debts, the Court shall take into

account the contingent and prospective liabilities of company.

In Asea Brown Boveri Ltd. v. Boving Gouress Ltd. [2003] CLC 1016 it has been held that

dishonor of a cheque for insufficiency of funds issued by a company to its supplier

circumstances must corroborate commercial insolvency. Thus a simple dishonor of an accepted

bill of exchange, without demand or levy of execution, would not tantamount to proof of

inability to pay its debts.

Question:-

a)

State briefly the fundamental principles which should govern the conduct

(professional ethical standards) of a company secretary in practice.

b)

Examine whether the request for transfer of shares can be entertained in the

following cases:

i.

Signature in a different language on the transfer deed vis-à-vis specimen

signature recorded with the company.

ii. The transferee has lodged more than one share certificate accompanied with a

jumbo transfer deed and if one or more of such certificates not found in order.

Answer:

a) Code of conduct is a set of simple rules outlining the expected conduct for observance

by members of any professional body. And embodies the penal consequences for non-

observance by the member of the profession. The basic reason why the code of conduct

is strictly to be enforced in the case of professional is, that a professional is conditioned

by an elaborate preparatory education rigorous instruction and valuable practical


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training, and to distinguish, above all, righteous act/conduct from others. Code of

conduct also goes by the synonym ‘Professional ethics’.

The fundamental principles which should govern the conduct of a company secretary in

practice have been broadly identified as under:

(a) Integrity; (b) professional independence; (c) professional competence: (d) objectivity:

(e) Quality of service; (f) ethical behavior; (g) personal, corporate and social values; (h)

conforming to technical standards if any prescribed; and (i) confidentiality of

information acquired in the course of professional work.

b)

Answer:

i. The norms for objection under uniform guidelines by SECP prescribe that in such

a case, the company/STA can send to the transferee an objection memo along

with documents as per general guideline (original transfer deed, original

certificate, original objection memo with reasons) with the qualification that

“signature for transferor as per the records; of the company/STA is in a languagedifferent from that on the transfer deed”. Alternatively, the language in which

the transferor signed as per their records may be specified. Transferee has to

contact the concerned broker for lodging objection through the relevant stock

exchange. Transferor has to rectify with a fresh transfer deed duly attested.

ii. The norms for processing of transfers stipulate that in such a case, the

company/STA can return as company objection. However, only such

certificate/transfer deed as are not found to be in order should be returned and

the company shall proceed to transfer the other certificates with good title.

Question:-

a)

Draft a special resolution for amendment of main objects as enunciated in the

memorandum of association of Power Enterprises Ltd. by deleting existing clause 1

and clause 4(a) and substituting with new clauses to give effect to the following

activities:

i.

To empower the company inter alia to plan, promote and organize an

integrated and efficient development of thermal/hydel power and power

through non-conventional renewal energy sources in Pakistan and abroad.

ii.

To make a foray into the business of nuclear power generation and to

undertake different activities in connection with nuclear power generation.

b)

Draft a suitable explanatory statement pursuant to section 160 in respect of the

change in the main objects of the memorandum of association as detailed in

question (a) above.

Answer:

a)

Draft Special Resolution for Amendment of objects:

To consider and if thought fit to pass the following Resolution as a Special Resolution:


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“Resolved that pursuant to the provision of Section 36 and other applicable provisions,

if any, of the Companies Ordinance 1984 existing clause 1 and clause 4(a) of the

Memorandum of Association of the company be and is hereby substituted with the

following clause 1 and clause 4(a) respectively:

Clause 1 – To plan, promote and organize facilities for an integrated and efficient

development of thermal, hydel, nuclear power and power through non-

conventional/renewable energy sources in Pakistan and abroad including planning,

investigation, research, design and preparation of preliminary, feasibility and definite

project reports. To construct, generate, operate and maintain, renovate and modernize

the power stations and projects for transmission, distribution and sale of power

generated at stations in Pakistan and abroad in accordance with the national economic

policies and objectives laid by the Central Government from time to time.

Clause 4(a)- To carry on the business of generating, trading, or otherwise dealing in all

aspects of planning investigation, construction, generation, operation and maintenanceand renovation and modernization of power stations for generation of nuclear power.

b)

Explanatory statement pursuant to Section 160() of the Companies Ordinance 1984

Section 17 of the Companies Act provides that a company can alter the objects of its

memorandum by a special resolution only to the extent required to enable it to do any

of the things specified in sub-clauses (a) to (g). According to Clause (a), (c) & (d) of Sub-

section (1), a company may alter the memorandum with respect to its object so far as

may be required to enable it to carry on its business more economically or more

efficiently, to enlarge or change the local area of its operations and to carry on some

business which under existing circumstances may conveniently or advantageously becombined with the business of the company. Your company proposes this resolution

since; there is large gap between the demand and supply of power in the country.

Generation of electricity has been opened up to the private sector. Holding forward

looking approach and in view of the expecting a large scope in this area, it is proposed

to engage in the business of generation of electricity through conventional and non-

conventional sources as detailed in the resolution. This activity will bring more

profitability which will in result benefits shareholders. The detailed plan for execution

of this object has been prepared. Complete budgeting of funds has already been done.

The said plan and budget statement will be table at the meeting. The company can

undertake these activities only if the objects clause is suitably amended. Hence the

resolution is proposed.

None of the directors of the company is interested or concerned in the said resolution

except as members of the company.


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Question:-

a)

Distinguish between-------

i.

‘Compromise’ and ‘arrangement’ ; and

ii.

‘Reconstruction’ and ‘amalgamation’.

b)

Describe how risk management has assumed great importance in corporate

governance.

c)

Draft a resolution for appointment of shareholder’/investors’ grievance committee.

a) Answer:-

i.

‘Compromise’ and ‘arrangement’

Compromise means an amicable settlement of differences by mutual concessions

by the parties to dispute or difference. Arrangement has a far wider reach and

includes agreements which modify rights about which there is no dispute.

Sections 391 to 393 deal with the provisions governing compromise orarrangement. The term arrangement in accordance with Section 390 includes a

re-organization of the share capital of the company by the consolidation of shares

of different classes or by the division of shares into shares of different classes or,

by both these methods.

ii. ‘Reconstruction’ and ‘amalgamation’

Reconstruction among other things indicates the process which involves the

transfer of undertaking of an existing company to another company, the carrying

on of substantially the same business by the same persons and the rights of

shareholders in the old company get allotment of shares in the new company as aconsideration. Arrangements and compromise may take place for the purpose of

reconstruction and amalgamation of companies. Reconstruction can also be an

internal reconstruction when there is no change in the corporate status. But

rights of shareholders, creditors etc. are varied.

Amalgamation is coming together of two or more undertaking/companies

merged into one undertaking/company with shareholders of each becoming

substantially the shareholders of the other company which remain after the

amalgamation.

b)

The growth in economy brings dynamic events in its make with the regulatory

authorities on ever alert to monitor and tie in the loose to protect the people from

various risks including risk of inflation, business risk viz. appreciating Rupee and

international crude oil prices impacting difference sectors of economy.

In such a scenario the board’s role in managing risks of the company acquires greater

importance in discharging corporate governance. Kumarmangalam Birla Committee and

Narayana Murthy Committee Reports have dealt with the issue of risk management.


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It is important for the corporate Boards to be fully aware of the risk facing the business

and the shareholders must know how the companies manage the business risks.

The procedure should be in place to inform Board about the risk assessment and

minimization to be periodically reviewed to ensure that the executive properly adhere to

guidelines issued for risk management. Quarterly reports should be placed before the

Board for approval. Audit Committee should also be aware of the risk

management/minimization procedures being followed by the company.

To sum up, the business is exposed to a wide variety of risks and it is the duty of an

effective Board to ensure that appropriate policies are formulated to be not only aware

of these risks but also minimize them. Obviously besides those inherent in the

environment some calculated risks have to be taken by the management, the objective of

risk management is to ensure that no unwarranted risks are taken and the executives do

not get carried away in pursuit of their goals to override the ultimate objective of the

organization to enhance shareholders wealth.

c) “RESOLVED THAT pursuant to Article No______ of the Articles of Association of the

Company, a shareholders/Investors Grievance Committee be and is hereby constituted

with Mr Akram……….Mr Akram…………. Mr Akram………….. and Mr

Akram……………, Directors as the members and the following powers of the Board be

and are delegated to the Committee:

- To formulate guidelines for redressing the Investor/Shareholders’ grievances

pertaining to any or all of the share maintenance activities of the Company:

- To ensure that all the grievances/complaints of Investors’/Shareholders’ are

promptly and duly redressed by the Company and/or Share Transfer and

Registration Agents;- To receive, peruse and respond suitably to periodic reports form Mr Akram……

Company Secretary and Compliance Officer showing the status of

communication/complaints received from the investors/shareholders and steps

taken to redress the same;

- To forward to the Board of Directors a periodic report/feedback on all matters

dealt with by the committee;

- To take all other consequential and incidental actions and measures.

THAT the Committee members do elect a Chairman from among themselves to

preside over the meetings of the Committee

That the quorum of for committee meetings shall be the presence of one third of the

members subject to at least two members

That decisions of the Committee shall be by a majority of the votes of the members and

in case of equality of votes, the Chairman shall have a second or casting voting.


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That Mr Akram…… Company Secretary & Compliance Officer shall act as Secretary t o

the Committee and record minutes of the proceedings of the meetings and carry out all

such activities as the Committee may direct.”

Question:-

a)

An Auditor has to be cautious before accepting the relative information made

available under inter-firm comparison. Before initiating measures to fall in line or

better itself, the company cannot blindly accept the information but study in depth

how the computations were made and assumptions on which they are made. Discuss

the limitations of inter-firm comparison.

b)

If a company’s account show the sufficient profit to pay dividend which the Board of

directors have duly declared but the cash balance is insufficient to pay the dividend,

what would be your attitude as an Auditor? Suggest a method to overcome the

shortage of liquid resources to pay the dividend.

c)

Draw an audit program for conducting operational audit of packaging process oftoilet soap manufacturing company.

Answer:

a) No doubt that inter-firm comparison has various advantages; it is not free from drew

backs. The following are the limitations of inter-firm comparison:

i. If information or rations are not properly collected before they are used,

comparison will be rendered difficult and absurd results will emerge.

ii. Most of the member firms do not disclose the relevant data as they consider it

confidential. Thus, the information supplied may not always be reliable for

comparison or decision making purposes.iii. The middle management may not be convinced with the utility of inter-firm

comparison and hence may not take interest.

iv. Unless there is a uniform costing system among the members, the information

may not be reliable for the purposes of comparison as different members may

imply different things by the usage of same terms.

v. In the normal course, a suitable base for comparison may not be available.

vi. In any comparison, time factor is an important element, any inter-firm

comparison, which ignores this, will lead to misleading results which are not

comparable and as such the very purpose of this exercise will be frustrated.

vii.

The inconsistencies in financial reporting are totally ignored. No adjustments are

made for changes in the prices. No attention is given to the level of technology

and technological developments. Generally, there is a lack of common valuation

method in different units to be compared. All these aspects adversely affect the

reliability of the results obtained by inter-firm comparison.


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b) The auditor should enquire as to the cause of insufficient cash which prevented the

directors from paying dividend, which was declared, in spite of there being sufficient

profit. Insufficiency of cash under the circumstances may be due to the following causes:

1. Insufficiency of cash due to:

Inflation of stock in trade by over-valuation or including fixed assets in

stock.

Fictitious sales

Under-valuation or omission of liabilities

No provision or inadequate provision of depreciation

No provision or inadequate provision for bad and doubtful debts

Omission of purchases etc.

2. Expenditure might have been incurred on purchase of fixed assets for expanding

business.

The following methods may be adopted to overcome shortages:

To borrow money from bankers of the company. To issue debenture

To issue more shares provided there is sufficient unissued capital

The method to be adopted will depend upon the circumstances of each case. The

question done not make it clear whether the shortage of the cash is a temporary phase or

money has been sunk in permanent expansion of business.

c) The operational auditor should incorporate the following strategy in general:

1.

Make a preliminary survey of the activity to be examined for obtaining necessarybackground.

2. Basic structure or charter of responsibility for that activity should be examined to

ascertain the authorized purposes and relevant restrictions/limitations.

3. Examine the pertinent parts of the management system; by studying the policies

established governing that activity to analyze the effectiveness of specific

operating and administrative procedures and exploring the areas of weaknesses.

4. Prepare reports on results of audit and submit to the persons responsible for

receiving or acting on the auditor’s findings and suggestions.

The scope of operational audit covers all operations of a business, whether financial orotherwise i.e. whether it is main activity or a support or incidental activity. This could

include inter alia the following:

(i) Design (ii) Production (iii) Purchase (iv) Storage (v) Transportation (vi) Quality

Control (vii) Repairs and Maintenance (viii) Selling and Distribution (ix) Personnel (x)

Research and Development (xi) Financial Management (xiii) Computer Division (xiii)

Training and Development.


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All the operations of the business are carried on throughout the year. Hence the

operational audit should be a continuous process. At any given time

Question:

Comments on the following:

a)

It is mandatory for all companies to make management discussion and analysis report

as a part of the Board’s report to the shareholders.

b)

A receiver is an agent of the company.

c)

Liquidation, winding up and dissolution are equivalent terms.

Answer:

a) It is a mandatory for all listed companies to make Management Discussion and Analysis

report as a part of Board’s report to the shareholders. As per Listing Agreement, as part

of directors report or as an addition there to a Management Discussion and Analysis

report should form part of the annual report to the shareholders. This Management

Discussion and Analysis should include discussion on certain matters within the limits

set by the company’s competitive position. The matters to be discussed in the Report

include inter alia Industry Structure and developments, Opportunities and threats,

Segment wise of product-wise performance, Outlook, Internal Control systems and their

adequacy etc.

b)

A receiver appointed by the Court is not the agent of the company, but is an officer of heCourt with the following legal implications:

i. Property in the hands of Receiver cannot be attached without the leave of Court;

ii. The Receiver cannot sue or be sued except with the leave of Court by which he

was appointed Receiver;

iii. Any interference with the powers or Receiver will be contempt of Court.

iv. The Court determines the receiver’s fees or remuneration.

Where a Receiver has been appointed by an order of the Court, the loss to the company

caused by an omission or act attributable to him can be recovered with leave of the

Court.

A Receiver who is appointed out of Court is usually, by the terms of trust deed or

debenture deed an agent of the company and the company is responsible for his acts and

defaults unless the trust deed or debentures otherwise provide.

In view of above, it is seen that a Receiver may or may not be an agent of the Company.


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c) Liquidation or winding up of a company is a process by which all its affairs are wound

up, its rights and liability ascertained and the claims of its creditors paid-off out of the

assets of the company including the contribution by its members to the extent to which

they may be necessary. Winging-up and Dissolution are sometimes erroneously used to

mean the same thing. But according to the Companies Ordinance, 1984, there are

fundamental differences between them. Winding up always precedes dissolution. In

winding up, the assets are realized and liabilities are paid but corporate status of

company continues. Dissolution brings an end to the company’s existence as legal entity.

The liquidator appointed by the company or the Court carries out the winding up

proceedings but the order for dissolution can be passed by the Court only. Winding up

in all cases does not culminate in dissolution. Even after paying all the creditors there

may still be a surplus, company may earn profits during the course of beneficial

winding up; there may be a scheme of compromise with creditors while company is in

winding up and in all such event the company will in all probability come out of

winding and hand over back to shareholders. Dissolution is an act, which puts an end tothe life of the company.

Question:-

State, with reasons, whether the following statements are correct or incorrect:

a)

Inspection under Section 231 and investigation under section 263/265 are the same.

b)

‘Insider’ cannot deal in the shares of the company concerned.

c)

Public limited company is the most appropriate form of organisation for business.

d)

The trend of concentration of equity ownership in the hands of institutional investors

is harmful for corporate entities.

Answer:

a) The statement is not correct. Section 231 of the Act contains provision in respect of

inspection of books of account and other books and papers of every company by the

Registrar or officers of SECP. Such inspection is essentially carried out in order to

ascertain that all transactions have been validly entered into and recorded in

appropriate books. Inspection is not an investigation though it may lead to investigation

in case anything wrong or objectionable is found during inspection. The main object of

investigation under Section 263/265 of the Act is to collect evidence and to see if any

illegal acts or offences are disclosed. Investigation is wider in scope. It includes

investigation of all the business affairs, profit and loss, assets etc. Further no company or

member can ask for a copy of inspection report made under Section 231, while it is

obligatory for SECP to forward a copy of investigation report to the company concerned

and on request and on payment of prescribed bee to any member or creditor of such

company.


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b) The statement is correct. As per Regulation of the SECP, no insider shall either on his

own behalf or on behalf of any other person deal in securities of a company listed on any

stock exchange, when in possession of any unpublished price sensitive information or

communicate, counsel or procure, directly or indirectly, any unpublished price sensitive

information shall not deal in securities. However, these restrictions are not applicable to

any communication required in the ordinary course of business or profession or

employment or under any law. SECP regulation prohibits any company from dealing in

securities of another company or associate of that other company while in possession of

any unpublished price sensitive information.

c) The statement is not correct. None of the know forms of organization (Sole

Proprietorship, Partnership, Private Limited Company, Public Limited Company and

Co-operative society) have ideal features. Every form of organization is best in some

respects. Thus, also proprietorship is suitable for small business particularly because of

ease of formation and quickness of decision-making. If business is relatively larger,partnership is the preferred form of organization as it allows larger capital inflow into

business. Where interest of a particular segment of society is to be looked after,

Cooperative Societies are suitable. Private Limited Company is ideal for medium sized

business and public company for large-scale business. Thus, it is unreasonable to say

that public company is the most appropriate form of organization for business.

Question:-

a)

State the circumstances under which the Register of Companies can seize the books

and papers of a company.

b)

Draft a resolution to be passed at a general meeting authorizing the Board of directorsto buy-back shares of your company. (You may assume circumstances, sources andquantum.)

Answer:-

a) By virtue of the provisions of Section 262 of the Act, when based on information in his

possession or otherwise, the Registrar has reasonable grounds to believe that the books

and papers relating to or of any company or other body corporate or managing director

or manager of such company or other body corporate, may be mutilated, destroyed,

altered, falsified or secreted, the Registrar may make an application to the Magistrate of

First Class, or the Presidency Magistrate having jurisdiction for an order for the seizure

of such books and papers. After considering the application and hearing the Registrar, if

necessary, the Magistrate may, by order, authorize the Registrar.

i. To enter with such assistance as may be required, the place or places where

such books and papers kept;

ii. To search that place or those places in manner specified in order; and


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iii. To seize such books and papers as he considers necessary.

b) Resolved that pursuant to Article _____of the Articles of Association of the company and

subject to the provisions of Section 95 A of the Companies Ordinance 1984 and such

other approvals, consents, permissions as may be necessary and subject to the conditions

and modifications as may be prescribed by statutory authorities, consent of the company

be and is hereby accorded to the Board to buy back up to _____ fully paid-up equity

shares of Rs. ____ each of the company constituting 20% of the paid-up equity share

capital and free reserves of the company out of company’s free reserves.

RESOLVED FURTHER that the Board of Directors be and is hereby authorized to do all

such acts, deeds and tings as may be necessary to give effect to above resolution.”

Explanatory Statement pursuant to Section 173(2) of the Companies Ordinance, 1984

Due to the company’s outstanding performance, the market value of shares of the

company has gone-up steeply and trading volume is on the increase. In order to rewardthe existing shareholders, the company proposes to buy-back its shares. The total

amount of buy-back shall not exceed 20% of the total existing paid-up equity share

capital of the company. The shares so bought back will be extinguished within seven

days from the date of completion of buy-back. The scheme of buy-back of securities has

been framed in accordance with Section 77A and will be completed within a period of

one year.

The proposed resolution, being in the interest of the Company and shareholders, is

recommended for the approval of members.

None of the directors of the company is in any way concerned or interested in the

resolution, except to the extent of their shareholding in the company.

NOTE: in case of listed company, the aforesaid resolution shall be passed through

postal ballot.

Question: - “Maintaining good investor relations is the need of the day.” Comment

Answer:-

The comity of investors is generally made up of individuals made up of individuals and

institutions whose interests, goals, investment horizons and capabilities very largely.

Comprised as the general body of shareholders, they have the right and capacity to influencecompany’s fundamental issues including election of directors, amendments to company’s

organic documents, approval of extra-ordinary transactions and internal company statutes. It

signifies the importance of the role of shareholders in the scheme of corporate governance.

Consequently the overriding objective of a corporation should be to optimize the returns to its

shareholders. To achieve this objective, the corporation should endeavor to ensure the long-

term viability, and to manage effectively its relationship with shareholders and other


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stakeholders. It will require the framing of appropriate governance rules and make the board

accountable to the shareholders for its activities and performance.

Question:-

a) What are the importance clauses of a ‘debenture trust deed’?

b)

Draft a memorandum constituting mortgage of immovable property by deposit of

title deeds.

c)

Distinguish between ‘deed of exchange’ and ‘sale’.

d)

Write a brief note on ‘sub-lease’.

Answer:

a) Companies in the course of their normal business borrow funds by issuing of

debentures. An issue of debentures is usually secured by a trust deed, where undermovable and immovable properties of the company are mortgaged in favor of the

trustees for the benefits of the debenture holders. The important clauses of a debenture

trust deed may be enumerated as follows:

1. The trust deed usually gives a legal mortgage on block capital and a floating

security on the other assets of the company in favor of the trustee on behalf of the

debenture holders.

2. The trust deed gives in detail the conditions under which the loan is advanced.

3. The trust deed should specify in some detail the remuneration payable to the

trustee, their duties and responsibilities in relation to the trust property. Section

119 or the Companies Ordinance, 1984 specifically provides that any provisioncontained in a trust deed for securing an issue of debentures, which has the effect

of exempting a trustee or indemnifying him against and liability for breach of

trust shall be void.

4. It also gives in detail rights of debenture holders to be exercised through the

trustees in case of default by the company in payment of interest and principal as

agreed upon.

b) Memorandum of Mortgage by Deposit of Title Deeds

I………………….(mortgagor) do hereby declare that I have this day of ……. deposit

with…… (mortgagee) the title-deeds as detailed in the schedule A hereunder written byway of mortgage of the properties comprised in the said title deeds detailed in Schedule

B and owned and possessed by me for securing the repayment to the

said…………..(mortgagee) of sum of Rs……………. advanced by him to me with interest

for the same at the rate of Rs…………. percent per annum payable to him the

said…………..(mortgage), on the basis of a Promissory Note executed by me in his favor

on ……………(date)


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The Schedule A above referred to Description of the Title Deeds deposited.

The Schedule B above referred to Description of the Property.

Signature of the Mortgagor

c) Section 4 of the Transfer of Property Act, 1882 defines sale as a transfer of ownership in

exchange for a price paid or promised or part-paid and part-promised. Therefore, the

essential elements of a contract for sale are (1) Transfer of Property (2) By the seller to

the buyer (3) For a price. In the absence of any of the essential elements a contract cannot

be termed as contract of sale.

Exchange is another mode of Transfer of Property different to sale. Section 118 of

Transfer of Property Act 1882 defines ‘Exchange; as – “When two persons mutually

transfer the ownership of one thing for the ownership of another, neither thing or both

things being money only, the transaction is called an “exchange”. A transfer of propertyin completion of an exchange can be made only in manner provided for the transfer of

such property by sale”.

The basic difference in exchange and sale is that in the ‘sale’ the price is paid in money

whereas in exchange the price paid in another property by way of barter (Kama v.

Krishna, A.I.R. 1954 on 105). In a transaction of exchange, money may be added to the

property or goods to equalize the consideration. Thus, where an owner of property

transfers it partly in exchange for another property and partly for cash, the transaction is

an exchange (Nathu Mal v. Har Dial, 97 PR 1900).

A deed of exchange is completed in the same manner as sale. The exchange can be

effected either by one document of by different documents. A deed of exchange is in fact

a deed of double transfer in which one transfer is stated to be the consideration of the

other; it should be executed in duplicate, one of the parties taking the original and the

other duplicate.

d) A sub-lease is demise by a lessee for lessor term than he himself has. Every le3ssee,

however short his term may be, make a sub-lease unless he is refrained by the contract

of the tenancy from subletting. If the demise is for the whole term or for a period beyond

the term, it amounts to assignment. If he lessee divests himself he becomes a stranger to

the demised property and he has no right to have possession delivered up to him. As

long as the lessee remains in possession he may permit another person to use the

demised premises without committing a breach of covenant, namely not to assign,

underlet or part with the possession of the demised premises.

A sub-lessee is entitled to relief against forfeiture under Section 114 of the Transfer of

Property Act, 1882, which is applicable only in the case of non-payment of rent. No relief

is open to the sub-lease in case of transfer of breach of covenant in restraint of transfer.


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Question:-

a)

Comment on the following:

i.

Though having successfully qualified in a rigorous examination and gaining

experience on hand in the profession while dealing with relevant matters,

there is a need for the ‘continuing education’ for a Company Secretary. ii.

Multi-disciplinary partnership firms consisting of Company Secretaries,

Chartered Accountants and Cost Accountants are imperative to meet global.

b)

The role of a Company Secretary goes much beyond the Companies Ordinance 1984.

c)

A professional should command and not demand respect.

d)

Code of conduct is an effective tool for sustainable professional growth and

credibility.

a)

Answer

i. There is never any end to the learning process; one cannot become stagnant and

quest for knowledge must never cease. Continuing education is a vital necessityas a professional cannot survive and prosper in the competitive environment

without updated knowledge is not a one-time affair but has to be regularly

updated.

For this purpose a company secretary should inculcate the habit of reading the

Professional Journals of the ICSP and other sister professions; read various

journals of professional interest; read court judgments relevant to areas of his

profession; attend professional meetings, seminars and programmers related to

his profession; attend refresher courses and keep himself abreast of the latest

Government notifications, clarifications, orders etc.

ii.

The roles of all the three professionals’ viz. Chartered Accountants; Cost

Accountants and the Company Secretaries are well defined. All these

professionals are rendering services relevant to their specialization and there is

no question of one’s services being superior to that of the other two and hence no

scope for conflict of any interests. In fact, all the three professions must work in

harmony realizing that their roles are complementary and supplementary to

each other. Multi-disciplinary partnerships amongst these professions can

stimulate synchronization of expertise of the respective professions to meet the

challenges of global competition. Their common goal should be to serve the

corporate sector in achieving faster economic growth and thereby benefit the

society.

b) In view of the complexities of modern business and the plethora of laws which the

business enterprises are required to comply with, it has become necessary for the

managements to rely on qualified company secretaries for ensuring compliance thereof.

By virtue of his professional knowledge and expertise a company secretary is well

equipped to render services in respect of economic and social legislation in addition to


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his core area of company law. Practicing Company Secretaries are already rendering

services in several matters like:

- Obtaining PAN/Challan; return forms; Issuing tax deduction and collection

certificate; Representing the case of assesse before the Income Tax Authorities

etc.; Acting as authorized representative before Central Excise Authorities;

Valuation and Classification of good; Assessment of duty and obtaining refunds

etc.; Advising on search, seizure.; Documentation etc. for CENVAT Procedures;

Acting as authorized representative before the Customs Authorities and the

Appellate Tribunals; Assisting in clearance of import/export classification of

goods; Valuation of goods and assessment of customs duty and obtaining

refunds etc.; Registration with service tax authorities; Advising on applicability,

rate and payments of tax; Filing of returns with authorities etc.; Valuation on

Stock, shares, debentures etc., under Wealth Tax Act; Financial Services-under

SCRA/SEBI (DIP) Guidelines, 2000; Certifying promoter’ contribution, acting as

Securities/Transfer Agents, Registrar to Issue, Share and Stock broker,Preparation of project reports form banks and financial institutions etc.

c) The statement is absolutely correct. If the client is satisfied with the services rendered by

a company secretary in practice he will not only continue to retain his services but will

also recommend to others. Therefore, by his efficient services the professional can

command respect and need not demand it.

To be successful practicing professional some of the important attributes which should

be possessed, acquired and developed are:

a. Through knowledge and reliability based thereon;

b. Competence and expertise;

c.

Honesty, integrity and ethics; d.

Good health and memory;

e. Efficient temperament and behavior;

f. Constructive attitude and approach;

g. Analytical skills;

h. Willingness and ability to cross impediments and bottlenecks;

i. Alert mind and persuasive character;

j. Inherent competence to handle and type of complicated work within a fixed

times schedule;

k. Good communication skills-verbal and written;

l.

Willingness to update knowledge base, acquire new skills and expertise.

The above traits need to be acquired and developed to be a successful professional.

d) Code of conduct is essentially a set of simple rules outlining the expected conduct for

observance by the members of any professional body and embodies the penal

consequences for non-observance of members of the profession.


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The basic reason why code of conduct is strictly to be enforced in the case of professional

is that a professional is endowed with higher faculties conditioned by an elaborate

preparatory education, rigorous instruction and valuable practical training, as to

distinguish, above all, righteous act/conduct from those deviant and unedifying.

The services of a professional are personal to a client and the latter’s affairs come into

full knowledge of the professional when his services are engaged by a client. A client

would, therefore, expect the professional to be a person of character and integrity and is

given a firm assurance through the code of conduct evolved and effectively

administrated by the professional body concerned, of which the professional is a

member. Thus, code of conduct encompasses a professional’s conduct towards his peers,

the clients, the employer and the public at large.

Question:-

Sate, with reason in belief, whether the following statements are true or false:

i.

The expression ‘body corporate’ appearing the Companies Ordinance 1984, doesnot include a company registered under the Ordinance.

ii. A Company is obliged to send to every member of the company upon his

becoming a member a copy each of its memorandum of association and articles

of assertion.

iii. The rights attached to the shares of any class may be varied with the consent in

writing of the holders of the issued shares of that class having not less then:

a) 1/3 of the shareholding

b) ½ of the shareholding

c) ¾ of the shareholding

d)

2/3 of the shareholding

iv. In winding up by the court, the statement affairs has to be submitted within:

a) 15 days from the date of winding up order

b) 21 days from the date of winding up order

c) 30 days from the date of winding up order

d) 90 days from the date of winding up order

v. The audit committee of a listed company shall meet at least:

a) 3 times in a year

b) 4 times in a year

c) 5times in a year

d) 4 times in a year

Answer:-

i. The Statement is false. As per Section 2(4) of the Companies Ordinance, the terms

‘body corporate’ has been defined inclusively and making specific exclusions

which do not include a company registered under the Ordinance. It means that


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the expression ‘body corporate’ includes a company registered under the

Ordinance.

ii. The statement is false. Under Section 35 of the Companies Ordinance 1984, a

company has to provide the memorandum of association and articles of

association only when so required by the member within seven days of the

receipt of demand on payment of rupee one.

iii. ¾ of the shareholding

iv. 21 days from its submission to the SECP in draft from

v.

4 times in a year.

Question:-

List out the principal points to be kept in mind while drafting petitions, applications, etc., to

be submitted to the court

Answer:

The following basic requirements of the Companies (Court) Rules, 1997 must be kept in mind

while drafting petitions, application etc.,

1. Every petition, application, affidavit and other proceedings presented to thecourt shall be written, typewritten, cyclostyled or printed neatly and legibly on

substantial proper of foolscap size and separate sheets shall be

stitched/fastened/tied together. The numbers and dates shall be expressed in

figures and where dates given are not according to the English Calendar the

corresponding English dates shall also be given (Rule 5).

2. Every proceeding shall be dated and shall be instituted in the matter of the

Companies Ordinance, 1984 and in the matter of the company to which it relates.

The contents shall be divided into separate paragraphs which shall be numbered

serially. The general heading in al proceedings before the Court and in alladvertisements and notices shall be in form No.1 (Rule 5).

3. Every petition, application, affidavit or other proceedings shall be in the

language of the High Court and except in so for as the court may otherwise

order, no document in a language other than the language of High Court shall be

accepted for use in any proceeding unless translated into the language of the

High Court in accordance with the rules and practice of the court (Rule 6).


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Unless otherwise provided by the rules or permitted by the Judge all

applications made under the Ordinance shall be made by a petition or judges’

summons as hereinafter provided (Rule 7).

4. Every petition or application shall bear its distinctive serial number and an

interlocutory application shall bear, besides its own serial number, the serialnumber of the main proceedings to which it relates. Every order made, process

issued or document filed, shall bear the serial number of the proceedings to

which it relates (Rule 11)

5. The forms set forth in Appendix I to the Rules, where application shall be used

with such variations as circumstances, may require (Rule 14).

6. Every affidavit shall be drawn up in the first person and shall state the full name,

age, occupation and the place of the abode of the deponent. It shall be signed by

the deponent and sworn to in the manner prescribed by the Code or by the rulesand practice of the Court. Every exhibit annexed to an affidavit shall be marked

with the number of the proceedings to which it relates and shall be initialed and

dated by the authority before which it is sworn. Except with the leave of Judge,

no affidavit having interlineations, alteration or erasure shall be filed in Court

unless such interlineations or alteration is initialed by the authority before whom

it is sworn, or in the case of an erasure the words and figures written on the

erasure the rewritten in the margin and initialed by such authority (Rule 15).

7. Every petition shall be verified by an affidavit made by the petitioner or by one

of the petitioner, where there are more than one and in case petition is presented

by body corporate, by a director secretary or other principal officer thereof, such

affidavit shall be filed along with the petition and it shall be in form No.3.

However, the Judge or Registrar may, for sufficient reasons, grant leave to any

other person duly authorized by the petitioner to make and file the affidavit

(Rule 16)

8. Where any petition is required to be advertised, it shall unless the Judgeotherwise orders or these rules otherwise provide, be advertised not less thanfourteen days before the date fixed for haring, in one issue of the Official Gazetteof the State or Union Territory concerned and in one issue each of a daily

newspaper in English language and a daily newspaper in the regional languagecirculating in the State or Union Territory concerned as may be fixed by the

Judge. The Judge, if he thinks fit, may dispense with any advertisement requiredby the Rules, except in case of petition to wind up a company (Rule 19)


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Question:

The relationship of holding and subsidiary companies under the Companies Ordinance, 1984is determined by either the test of ……………. Or the test of …………………….

Answer:-

Control, Shareholding

Question:-

‘Just and equitable’ is one of the grounds under section 305 for compulsory winding-up of a

company in the Companies Ordinance 1984. The ground is resorted to when no specific

ground for winding up. Elucidate this statement and cite (i) circumstances that may be

acceptable to the court; and (ii) circumstances that may not be acceptable to the court, in

passing an order for winding up on ‘just and equitable’ ground. Support you answer with

relevant case law.

Answer:

A company under section 305 of the Companies Ordinance, 1984 my be wound up by the Court

if (a) the company has passed a special resolution of its being wound up b the court; or (b)

default is made in delivering the statutory report to the Registrar or in holding the statutory

meeting; or (c) it does not commence business within a year from its incorporation or suspends

business for a whole year; or (d) the number of its members in the case of a public company is

reduced below seven and in the case of a private company, below two; or (e) it is unable to pay

its debts; or (f) the court is of the opinion that it is just an equitable that it should be wound up.

Just and Equitable as ground for compulsory winding up

If the court is of opinion that it is just and equitable that the company should be wound up, it

may be ordered to be wound up. In this case, the Court has wide powers and has a complete

discretion to decide when it is just and equitable that the company should be wound up. In a

petition for winding up under his clause the petitioner must convince the court not only that

there are just and equitable grounds for winding up of the company but also that there is no

alternative remedy open to him. Atul Drug House Ltd., In Re, (1971) 41 Com Cases (Guj).

The word “just and equitable” is not confined to matters ejusdem generis as the pr eceding

clauses of the section, nor to provide case of mala fides. They are general words which must not

be reduced to the sum of particular instances, nor confined to circumstances affecting the

petitioner in his capacity as shareholder. They enable the Court to subject the exercise of legal

rights to equitable considerations though the words themselves, and not because the company’s

structure is in any way analogous to a partnership.

Lord Wilberforce observed in Ebrahimi v. B. Westbourne Galleries Ltd.: “the tendency to create

categories or headings is wrong: the general words of the sub-section should remain general


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and not be reduced to the sum of particular instances.” The discretion of the Court under this

clause is very wide and the courts have exercised this discretion on a variety of grounds. Some

of the cases by way of illustration are given herein which, the court ordered winding up of the

company under “just and equitable” clause to indicate the general categories:

i.

Where the whole object of the company was fraudulent.

ii. Where the substratum of the company is gone. The substratum of a company isdeemed to have gone where (a) the subject matter of the company is gone, or (b)the object for which it was formed has substantially failed, or (c) it is impossibleto carry on the business of the company except at a loss, or (d) the existing andpossible assets are insufficient to meet the existing liabilities of the company

iii. Where the main object of the company for which it was incorporated has been

completely achieved.

iv. Where there is a complete deadlock in the management of the company e.g.,where two shareholders, who were also directors of the private company, werenot on speaking term fractions among shareholders is, however, not a sufficientground.

v. Where the company is a “bubble” and has no business to carry on e.g. where themain business of the company has been taken over by the Government and thereis no prospect of the company doing any other business mentioned in the objects

clause of the Memorandum of Association.

vi. Where the company is insolvent and its business is being carried on for thebenefit of the debenture holders.

vii. Where there has been mismanagement and misapplication of the funds by thedirector of private company.

viii.

Where the petitioner was excluded from all participation in the business of aprivate company.

ix. If the company has committed default in making payment to various investors,allegations that directors have cheated several thousand investors, banks and Fls,company has not filed balance sheet for two years and no reply from company toadvertisement under Rule 24, the company is liable to be wound up.


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The following are some of the cases in which wounding up was not ordered under just andequitable clauses:

i. Where the company was under a loss but there was a chance of its makingprofit and the majority of shareholders were against winding up.

ii. Where the directors in the exercise of their powers to do so, refused toregister the executors of the deceased shareholder even when this causedhardship to the shareholders.

iii. Where there is honest difference between the petitioner, a director and theother directors and he has been outvoted.

iv. Where the business of the company was temporarily suspended owing to

trade depression and was intended to be continued when conditionsimproved.

v. Where there was a deadlock in management of a public company.

vi. If the ‘just and equitable’ ground does not exist at the time of hearing thepetition though it might have existed at the time of presenting the petition.

Question:-

What are the various documents prescribed under the SECP that are required to be

accompanied with petition for alteration of memorandum of association so as to change the

place of the registered office from one sate to another?

Answer:-

By virtue of Section 21 of the Ordinance, a company may be special resolution after the

provisions of its memorandum so as to change the place of its registered office from one state to

another state. However, the alteration shall not take effect unless it is confirmed by the

Company Law Board on petition.

The petition shall be prepared in Form No.1 of the Company Law Board Regulations, 1991 and

presented to the Bench in whose jurisdiction the registered office of the company is situated.

The petition should be accompanied by the following documents prescribed in Annexure III to

the Company Law Board Regulations, 1991:

i. Copy of the Memorandum and Articles of Association.


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ii. Copy of the notice calling for the meeting with Explanatory Statement.

iii.

Copy of the special resolution sanctioning the alteration by the members ofthe company.

iv. Copy of the minutes of the meeting at which the special resolution waspassed.

v. Affidavit verifying the petition.

vi. Bank draft evidencing payment of the application fee.

vii. Memorandum of appearance with copy of the Board Resolution or theexecuted Vakalatnama, as the case may be.

viii. Copy of the latest audited balcony sheet with the profit and loss account ofthe company with auditor’s report and director’ report.

ix. Affidavit proving dispatch and service of notice together with newspapercuttings.

x. A list of creditors and debenture holders and affidavit verifying list ofcreditors as per rules.

xi. Acknowledgement receipts from the Registrar of Companies.

One copy of the petition shall be served on the concerned Registrar of Companies.

Question:-

What are the important factors that you will bear in mind wile drafting an appeal?

Answer:-

An appeal may be divided into three part (1) formal part, known as the memorandum of

appeal, (2) material part, grounds of appeal, and (3) relief sought for.


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The memorandum of appeal should being with the name of the Court in which it is filed. After

the name of the court, number of the appeal and the year in which it is filed are given. The

follow the names and addresses of the parties to the appeal. The name of the appellant is given

first and then that of the respondent. It should be indicted against the names of the parties as tot

what character each party had in the lower court, i.e. whether he was a plaintiff or a defendant,

or an applicant or an opposite party as:

A.B., Son of etc. (Plaintiff) Appellant

Versus

C.D., Son of etc. (Defendant) Respondent

Or

A.B., Son of etc. (Decree Holder) Appellant

Versus

C.D., Son of etc. (Judgment-debtor) Respondent

After the name of the parties, an introductory statement giving the particulars of the decree or

order appealed from (viz., the number and date, the court which passed it, and the name of the

presiding officer), should be written.

“The above-named appellant appeals to the Court of ………. From the decree of ……… Civil

Judge at……….. in Suit No……… passed on the ……….and sets forth the following grounds of

objections to the decree appealed from, namely;.

This may also be written in the form of a heading as:

“Appeal from the decree of ……… Civil Judge of ………. at in Suit No……….. Passed on the

……………..

Thereafter, the grounds of appeal be given under the heading “Grounds of Appeal”.

The grounds of appeal are the grounds on which the decree or the order appeals, the following

points may be raised:

a) any mistake committed by the lower court in weighing the evidence;

b) any mistake in the view of law entertained by the lower court;

c) any misapplication of law to the facts of the case;


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d) any material irregularity committed in the trial of the case;

e)

any substantial error or defect or procedure; and

f) The defect, error or irregularity of any inter-locator order passed in the case, whether thesame was appealable or not.

A ground taken but not passed in the first Appeal Court cannot be revived in second appeal.

Grounds of objection should be clear, specific and concise. They should not be narrative or in

argumentative form. Each ground should be numbered.

Relief sought in the appeal should be shown clearly. An appeal need not be signed by theappellant himself. It may be signed by him or by his counsel.

Question:-

What are the principal tests to determine whether a charge is a fixed charge or a floating

charge?

Answer:-

The principal tests as to whether a charge is a floating charge or not is:

i.

Is it a charge upon all or certain classes of assets, present or future?ii. Would the assets charged in the ordinary course of business be change from time to

time?iii. Has the company got power until such step is taken by the charge to carry on the

business of the company in the ordinary way?

Question:-

Discuss the nature of contributory’s liability in the winding up of a company.

Answer:

Section 300 of the Companies Ordinance, 1984 defines the terms ‘contributory’ as every person

liable to contribute to the assets if the company in the event of its being wound up and includes

holder of any shares which are fully paid up and for the purposes of all proceedings for

determining and all proceedings prior to the final determination of all person who are deemed

to be contributories, includes any person alleged to be contributory. The liability of a

contributory is liability created by law. Section 301 specifies the nature of the liability of


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contributory and state that the liability of contributory shall create a debt accruing due from

him t the time when his liability commenced, but payable at the time specified in the calls made

on him for enforcing the liability (by the liquidator). This means that the liability of a member

arises as soon as he makes a contract with the company under which he becomes a member and

during winding up it is only contingent until a call is made by the liquidator.

With regard to liability, before winding up, the liability of a member is contractual obligation

arising out of membership. However, winding up creates a new liability and the liquidator can

call upon him to pay unpaid calls even if they had become time barred before liquidation. It has

been held in numerous cases that after winding up, the liability of a contributory is ex lege

(legal) and not ex contract (contractual) and is the direct result of his being a member of the

company with his name appearing on the register of members.

Question:-

Appointment of receiver for a company automatically terminates employment contractsentered into by it.

Answer:

Appointment for receiver for a company does not necessarily terminate employment contracts

except that such contracts will be terminated when.

i. Appointment of receiver is accompanied by sale of business.ii. Immediately after his appointment, the receiver negotiates a new contract with the

employee which is inconsistent with the terms of the previous contract; andiii. The duty of the receiver is inconsistent with the continued employment of an individual.

Question:-

The winding up of a company is the same things the insolvency of the company.

Answer:

Although winding up of a company has in some cases characteristics similar to insolvency, the

two are not always representative of the same thing. The general rule in winding up is that if

the members of a company desire that the company should be dissolved or if it becomes

insolvent or if it is unable to pay its debts or if for any reason it seems desirable that it shouldcease to exist, it is wound up. Thus, a company can be wound up even when it is perfectly

solved. Thus, one may put the proposition that in so for as inability to pay its debts is

concerned, a bankruptcy of an individual under the insolvency law is the same thing as a

winding up of a company under the company law but a company can also be wound up for

reasons other than mere inability to pay debts.


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Question:-

Your company wants to declare dividend for the year 2003-04 ending on 30th June, 2004. As on

date, the company’s balance sheet showed____

i.

Carried forward loss (after charging depreciation) – Rs 3, 50,000.ii.

Depreciation charged and included in arriving at the carried forward loss--- Rs. 3,

75,000.

The company was incorporated in January, 1980 and it has earned a net profit of Rs. 4, 50, 000

for the year 2003-04 before charging depreciation which amounted to Rs. 1, 10, 000. The

company did not declare and dividend during the past several years because of incurring

losses. It declare dividend of Rs.2, 50,000 for the year 2003-04. The company does not have

any distributable free reserves. Advice.

Answer:-

In the given case, the company cannot declare any dividend for the year 2003-04 for the

following reasons:

1. Under Section 205 (1), a company can declare dividend out of the profits of the company

for that year arrived after providing for depreciation for the year. As per proviso to

Section 205 (1), it has to provide for depreciation not charged in the accounts earlier. In

given case, the company had charged depreciation in the previous years and, inter alia

as a result thereof the accumulated loss of the company has become to Rs. 3, 50,000.

2. The proviso to Section 205 (1) further requires that he loss or depreciation content of the

loss whichever is lower carried forward has to be set-off before declaring any dividend

for any year. In the given case the post depreciation carried loss of Rs. 3, 50,000 being

less, it is to be first set off against current profit of Rs. 4, 50,000 leaving a balance of Rs. 1

lakh. When depreciation for the year 2003-04 of Rs. 1, 10,000 is further charged, the net

result is a loss of Rs. 10,000. As the company does not have any reserves for distribution

as dividend, the company cannot declare any dividend for the year 2003-04.

Question:-

a) Distinguish between ‘contract’ and ‘conveyance’ b)

Draft a reconstitution deed of Partnership while introducing a new partner in the

firm.Answer:-

a) The distinction between conveyance and contract is quite clear. Following are

differences between contract and conveyance:1. Contract remains to be performed and its specific performance may be sought but

conveyance passes on the title of property to another person.


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2. Conveyance does not create any right of any action but at the same time it alters theownership of existing right.

3. Contracts are governed by provisions of the Indian Contract Act, 1872 whereas the cases

of transfer of immovable property are governed by the Transfer of Property Act, 1882.

4. A contract to mortgage or sale would not amount to actual transfer of interest in theproperty but the deed of mortgage or sale would operate as conveyance of such interest.In other words, once the document transferring immovable property has beencompleted and registered as required by law, the transaction becomes conveyance. Anysuch transaction would be governed under the provisions of the Transfer of PropertyAct, 1882.

b)

AGREEMENT INTRODUCING A NEW PARTNER IN THE EXISTING

PARTNERSHIP

Patties

THIS AGREEMENT made at ………. This…. Day……. of…….. between A. Son

of…………resident of ………… and B. S/o……….. Resident of ………. (hereinafter

collectively called the existing partners in the firm M/s………….. of the one part and C.

Son of ………….. Resident of …………. (herein after called the new partner) of the other

part.

Recitals

Whereas the partners are carrying on the business of ……. Under name and style of

M/s……. at in terms of deed of partnership date………………

And whereas on the request of the new partner, the partner have agreed to admit him as

new partner in the partnership and in consideration of new partner contributing the

sum of Rs……….. towards the capital of the partnership of the partners. It is mutually

agreed as follows.

Agreement supplemental to deed of partnership

1. This agreement is supplement to the deed of partnership dated …. Made

between the said existing partners

Introduction of new partner

2. as from the date hereof, the said new partner shall be a partner with the existing

partners of the unexpired residue of the term create by and subject to the terms


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and conditions of the said partnership deed except in so for as the same are

varied by this agreement.

Capital

3. The capital of the partnership shall hereafter be changed to the sum of Rs………..Contributed by the parties hereto in equal shares and the partners shall be

entitled to share the profits and bear the losses of the reconstituted partnership

firm in proportion to their respective shares in the partnership.

Liability of partners for debts, etc. of old partners

4. T old patters shall be liable for the debts, liabilities and obligations of the old

partnership and they shall indemnify and keep indemnified the new partner and

also all the assets and rights of the reconstituted partnership firm against such

debts, liabilities and obligations and against all proceeds, costs, claims and

expenses in respect thereof.

Deed of partnership to remain in force

5. Except as modified by this agreement, the said partnership deed of date….. Shall

hereafter be read and construed as if the same had been executed by and

between the partners and new partners hereto.

Testimonium

In witness whereof, the parties hereto have set and subscribed their hands, the

day and year first hereinabove written

WITNESS

A_______________ B_______________

Question:-

“Drafting of document is a skilled man’s job”. Explain this statement with some importantdo’s and don’ts in drafting.

Answer:

The essence of the process of drafting is synthesis of law and fact in a language. A proper

understanding of drafting cannot be realized unless the nexus between the law, the facts, and

the language is fully understood and accepted. Drafting of legal documents requires, as a pre-


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requisite, the skills of a draftsman, the knowledge of facts and law so as to put facts in a

systematized sequence to give a correct presentation of legal status, privileges, right and duties

of the parties, their obligation, terms and conditions, breaches and remedies etc. in a self-

contained and self-explanatory from without any patent or latent ambiguity or doubtful

connotation. This requires serious thanking followed by prompt action to reduce the available

information into writing with a legal meaning.

Some Do’s

1. Reduce the group of words to single word;

2. Use simple verb for a group of words;

3. Avoid round-about construction;

4. Avoid unnecessary repetition;

5. Write shorter sentences;

6. Express the ideas in fewer words;

7. Prefer the active to the passive voice sentences;

8. Choose the right word;

9. Know exactly the meaning of the words and sentences you are writing; and

10. Put yourself in the place of reader, read the document and satisfy yourself about

the content, interpretation and the sense it carries.

Some Don’ts

The following things should be avoided while drafting the documents:

a). Avoid the use of words of same sound. For example, the words “employer” and

“employee”

b). When the clause in the document is numbered it is convenient to refer to any one

clause by suing single number for it. For example, “in clause 2 above” and so on.

c). negative in successive phrases would very carefully employed.

d) Draftsman should avoid the use of words “less than” or “more than”, instead, he

must use “not exceeding”.

e) If the draftsman has provided for each of the two positions to happen without

each other and also happen without, “either” will not be sufficient; he should

write “either or both” or express the meaning of the two in other clauses.


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In writing and typing the following mistakes always occur which should be avoided:

1. “And” and “or”

2. “Any” and “my”

3. “Know” and “now”

4. “Appointed” and “applied”

5. “Present” and “Past” tense.

Question:-

Draw a deed of gift for love and affection. Assume facts.

Answer:

Gift as defined under Section 122 of the transfer of Property Act, 1882 is the transfer of certain

existing movable or immovable property made voluntarily and with

corprtae governace

Documents

Transcript of corprtae governace