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1

Lecture-18Company Law: Introduction

- Objectives, Definition & Concepts- Corporate Personality

- Separate legal personality

- Veil of incorporation

- Lifting/piercing the Veil

- Doctrine of alter ego- Essential features of a Company

- Types of Company

- Other types of Business Orgns

- Difference; Private Vs. Public Company

- Conversion; Private-Public-Private- Principles:

i. Falling below the Membership

ii. An illegal Association

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Objective & PurposesThe main objective & purposes of statutes

relating to companies are as follows~i. Encourage investments in companies by providingcertain facilities, i.e.. Limitation of liability,transferability of shares etc.

ii. Ensure due and proper administration of the fundsand assets of companies in the interest of the investingpublic.

iii. Identify malpractices by directors and managers.

iv. Arrange for investigation into the affairs ofcompanies and provide for effective audit in dealingwith cases of dishonesty and fraud in the corporatesector.

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Definition ; Company

The term Company is used to describe an

association of a number of persons, formed forsome common purpose and registered accordingto the law relating to companies.

Sec 3 (1) (i) of the Company Act, 1994 statesthat a Company means a company formed andregistered under this Act or an existing company

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Concepts ;CompanyA company, formed and registered under the Company Law

is regarded by law as a single person, having specifiedrights and obligations. The law confers on a company adistinct legal personality, with perpetual succession and acommon seal. Therefore ; a company is different from itsmembers and the individuals composing it.

Example: Suppose that, A, B, C and 50 other

persons form a company called XYZ Co. Thecompany XYZ Co. is a legal person quite separatefrom A, B, C and others. Therefore A, B, C can enterinto contracts with XYZ Co.

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Corporate Personality

Separate legal personality~

A company, formed and registered under theCompany Law is regarded by law as a singleperson, having specified rights and obligations.The law confers on a company a distinct legalpersonality, with perpetual succession and acommon seal. Therefore ; a company is different

from its members and the individuals composingit.

Salomon Vs. Salomon [1897]

Contd

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Salomon Vs. Salomon [1897]

Salomon had a business in boot manufacture. He formed acompany called Salomon ..Co. with himself, his wife,

daughter and 4 sons as shareholders; transferred to it hisbusiness. As consideration for the transfer he received themajor portion of the shares of the company and debenturesfor 10,000. Later on the company went into liquidation.Salomon, as a debenture-holder, claimed to be securedcreditor and demanded priority in the payment of 10,000,out of the assets of the company. The unsecured creditors

of the company objected on the ground that the businessreally belonged to Salomon and he should not be allowed toclaim as a secured creditor.

Decision~

It was held that Salomon as an individual, was quite

distinct from Salomon..Co; and he could therefore be asecured creditor of the company, even though he happenedto hold the majority of the shares.

6

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Although a company is treated as a legal personupon incorporation, there are limits to treating acompany in this way and the terms of a contract

may negate such a construction.

[Deutsche Genossenschaft Bank Vs. Burnhope..Others (1995)] ;Here the banks insurance policy coveredburglary, robberyof hold-up, or theft. committed by persons present on the

premises of the assured.? The House of Lords held thatthe policy only covered theft by a natural person who wasphysically present on the banks premises. The bank wastherefore unable to claim under the policy when a companycommitted the theft through its chairman who did notphysically enter the bank. The definition of person in s-61of the Law of Property Act, 1925 includes a corporationunless the context provides otherwise. Their lordship feltthat the context did provide otherwise, as the clausereferring to burglary, robbery or hold-up, can only relate tocrimes committed by natural persons on the bankspremises.

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Criminal & civil responsibilityDoctrine ; alter ego

In certain cases the acts of a companys agentscan render a company criminally liable. Thecrucial question is whether the person behind thecompany is in sufficient control of it as to make it

liable for any criminal act. This principle ofcorporate liability is sometimes referred to as thealter ego doctrine.

This allows the law to attribute the mental state

of those who in fact control the company andmanage the company, to the company as beingitsdirecting mind and will.

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Essential Features ;The essential features of a Company are asfollows~

i. Registration

ii. Voluntary Association

iii. Legal Personality

iv. Contractual capacity

v. Managementvi. Capital

vii. Permanente existence

viii. Registered office

ix. Common sealx. Limited liability

Contd..

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xi. Transferabilityxii. Statutory obligations

xiii. Not a citizen

xiv. Residence

xv. Fundamental rights

xvi. Corporate/Separate legal personality.

.

xx. Others (if any)

Note: [More details, please see at Page ; 540-42, Sen &Mitra, 25th Edition (2006)]

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Types of CompanyThere are basically 2 types of Company-

a. Private Company

b. Public Companyi. Company limited by Shares

ii. Company limited by Guaranteeiii. Unlimited Company

Others;

- Statutory Public Company- Government Company- Foreign Company

Other Types of Business Orgns~- Sole Trader/Proprietorship- Partnership- Unincorporated association

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Difference between~Company Vs. Partnership

i. Registration: A company comes into existence only afterregistration under the Company Act. In the case of partnership,registration is not mandatory.

ii. Min Members; Company-2/7 ;Partnership-2

iii. Max Members; Company-50/unlimited ;Partnership:10-20

iv. Legal status; Company- a single person/legal personality.Partnership- Collection of individual, not a single person.

v. Length of existence; Company- perpetual succession; thedeath or insolvency of a Member does not affect its existence.Partnership-dissolves once a partner dies or become insolvent.


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Private Vs. Public Company

i.Members: Private;2-50, Public;7-unlimited

ii. Transfer of Shares: Private-yes (with restriction),Public-yes (no restriction)

iii. Invitation to public: Private-no, Public-yes

iv. Min Directors: Private-2 & Public-3

v. Commencement of Business: A private companycan commence business immediately on incorporation;whereas a public company has to wait until it obtains acertificate for the Commencement of Business.


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Conversion ;

Private Company into a Public

Company~

- By resolution

- By default

- Creating a Statutory Public Company

Note: [More details; please see at Page ; 551-52, Sen

& Mitra, 25th Edition (2006)]

Public Company into a Private

Company~

- By special resolutionNote:[More details; please see at Page ; 554-55, Sen& Mitra, 25th Edition (2006)]

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PrinciplesFalling below the minimumMembership~

If the number of Members of a public company isreduced to below 7 and that of a private company tobelow 2 and the company carries on business formore than six months while the number is so reduced,every person who remains a member after six monthsand is aware of the fact of shortage of members, shallbe perpetually liable for all the debts of the companycontracted during that time.

Example:1. In a public limited company there were 7 Members. Theshares of 1 Member were sold by the Court auction and were

purchased by another Member of the same Company. Theminimum number of Membership is reduced to 6.

2. A private company was formed with 2 persons, the fatherand his son. The son was the only heir of the father. Thefather died and all his shares devolved to his son. Here theminimum number of Membership is reduced to 1.

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Principles

Company & Illegal Association~An association of more than 10 persons carryingon business or an association of more than 20persons carrying on any other type of businessmust be registered under the Company Act,1994. If it is not so registered it is deemed to bean illegal association.

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18

Lecture-19

Company Law: Constitution & Laws Memorandum of Association

-Definition,

- The Form and Contents of the Memorandum

- Rules regarding the name of the Company

- Alteration of the Memorandum

Article of Association

- Definition

- Alteration of the Article

Others

- Relationship, Difference Memo Vs. Article

- Doctrine of indoor management

- Doctrine of ultravires & intravires

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Def: Memorandum of Association.?

The memorandum of association is a documentwhich contains the fundamental rules regardingthe constitution and activities of a company. It isthe basic document which lays down how thecompany is to be constituted and what work it

shall undertake.

The memorandum contains rules regarding thecapital structure, the liability of the members, theobjects of the company, and all other importantmatters relating to the company. Thememorandum is altered only after certainformalities are observed.

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Def: Articles of Association.?

The Article of Association is a document whichcontains rules, regulations and bye-lawsregarding the internal management of thecompany. Articles must not violate any provisionsof the memorandum or any provision of the

Company Act.

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Relationship:Memo & Article

i. The Articles are subordinate to Memorandum.

ii. The Memorandum must be read in conjunctionwith the Articles.

iii. The terms of the Memorandum can not bemodified or controlled by the Articles.

M & A ti l

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Difference: Memo & Article

The distinction between the Memorandum &the Articles ofAssociations are as follows~

i. The Memorandum is the fundamental charter of thecompany determining its constitution and objectives;the Articles are rules regarding internal management.

ii. Any rule in the Articles contrary to the Memorandumis invalid.

iii. Articles can be altered easily, the Memorandum canbe altered only after the adoption of certain formalities.

iv. Acts beyond the powers of Memorandum (ultravires) are void. Acts done by a company beyond theArticles can be ratified by the shareholders provided

they are with in (intra vires) the powers ofMemorandum.

Note: [More details; please see at Page ; 566-67, Sen &Mitra, 25th Edition (2006)]

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Form and Contents of theMemorandum~

The Memorandum of Association of every company shallcontain the following particulars-

i. Name Clause

ii. Situation Clause

iii. Object Clause

iv. Area of Operation Clause

v. Liability Clause

vi. Capital Clause

vii. The Association .. Subscription Clause

Note: [More details; please see at Page ; 567-68, Sen &Mitra, 25th Edition (2006)]

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Rules regarding the name of theCompany~

A company can not adopt a name by which anothercompany is registered. If by inadvertence, mistake orotherwise, a name is selected which the same as that of anexisting company or closely resembles it, the name must bechanged.

If the name of company closely resembles the name of aprevious company, the public may be misled and may bedefrauded. In such a case the Court will direct the changeof the name of the company.

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Alteration;Memorandum & Articles

Memorandum of Association;

The Memorandum of Association of a company can bealtered by following the procedure laid down in theCompany Act, 1994. The procedure is different for differentclauses of the Memorandum.

Article of Association;

Alteration of Articles is a statutory rights as specified in theCompany Act, 1994. This rights can not be taken away byany provision in the existing Articles or the Memorandum.

Contd..

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Alteration;Article of Association;Although alteration of Articles is permitted, there are certainrestrictions on the nature and extent of the alterations that can be

made-

i. Articles can be altered always by special resolution only.If the Articles of the company prescribed a differentprocedure, e.g.. an ordinary resolution, it will not befollowed.

ii. No change is permitted which violates the provisions ofthe Company Act, 1994.

iii. No change is permitted which violates the provisions ofthe Memorandum of Association.

iv. The alteration must not constitute a fraud on theminority [Foss Vs. Harbottle].

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Doctrine of-Indoor management~

When the Articles of Association of a company prescribes aparticular procedure for doing a thing, the duty of carryingout the provisions lies on the person in charge of themanagement of the company. Outsiders are entitled toassume that the rules have been complied with. This is

known as the Doctrine of Indoor Management.

Example:

The Articles of a company provided that the directors can give abond if authorized by a resolution of the company. The directorsgave a bond to T although no resolution was passed. Held, T was

entitled to assume that the resolution was passed.. because it is amatter of internal procedure.. and the company was bound by thebond.

Contd..

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Doctrine of indoor managementdoes not apply in certain cases~

i. Void acts

ii. Knowledge of irregularity

iii. Lack of authority

Note: [More details; please see at Page ; 584-85, Sen &

Mitra, 25th Edition (2006)]

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Doctrine of-

Ultravires & intravires~

Acts beyond the powers of Memorandum (ultravires) arevoid. Acts done by a company beyond the Articles can beratified by the shareholders provided they are with in(intravires) the powers of Memorandum.

Example:1. When Army takes power that is ultravires the BdeshConstitution;

2. When care taker Govt. doesnt conduct the national

election with in 90 days that is intravires the Bdeshconstitution.

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30

Lecture-20

Company Law: Company Formation- Essential steps of Comp. formation- Registration & Certificate of-

incorporation

- Promoters

- Definition

- Duties & liabilities of Promoters

- Pre-incorporation contract

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Formation of a CompanyBefore a company can be formed; the following steps must befollowed~

1. The Memo and Articles must be prepared. These twodocuments must be filed when application is made for theregistration and incorporation.

2. It must have a proposed paid up capital as approvedby the Government.

3. The company must be registered in accordance withthe provisions of the Company Act, 1994.

4. The Certificate of Incorporation must be obtained.

In case of a Public Company; the following further steps arerequired to be taken before it commences business-

Contd..

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In case of a Public Company; the following furthersteps are required to be taken before it commencesbusiness-

5. The prospectus or the Statement in lieu of

Prospectus must be issued and registered with theRegistrar.

6. The minimum subscription must be raised andthereafter the allotment of shares must be made.

7. The Certificate for the Commencement of Businessmust be obtained from the Registrar.

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Registration &

Certificate of Incorporation

If the Registrar is satisfied that all therequirements of the Act have been complied with,he will Register the company and issue acertificate called the Certificate ofIncorporation.

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Def;Promoter?Promoter is a word which is used to describe the persons

who initially plan the formation of a company and bring itinto existence.

In other words~ A person who originates a scheme for theformation of the company, has the Memo and the Articles

prepared, executed and registered, and finds the firstdirectors, settles the terms of the preliminary contracts andprospectus.. if any.. and makes necessary arrangementsfor advertising and circulating the prospectus and placingthe capital is a Promoter.

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Who are the Promoter?In seeking to find out who are the promoters of a company;

it is helpful to and ask the following questions~

1. Who had the idea to form the company for thepurpose in question?

2. Who drafted the memorandum and articles or gave

instructions to lawyers to prepare them?

3. Who paid for the registration of the company andcost of preparing the documents?

4. Who arranged for persons to become the first

directors?

Note:[This is only a guide and is by no means decisive; a personmay have done none of these things and yet be a Promoter].

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Duties & Liabilitiesof Promoters~

Note: [For details; please see at Page ; 591,

Sen & Mitra, 25th Edition (2006)]

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Pre-incorporation Contract?Before a company is formed and registered; the promoters

of the company have to enter into contracts for drafting thenecessary documents, transfer of goods and property etc.Such contracts may be called Preliminary or Pre-incorporation contracts. They are entered into before acompany comes into existence. The questions ariseswhether contract by the promoters with a non-existingcompany are enforceable or not..?

The rules regarding the subject are summarized below~

Note: [More details; please see at Page ; 592-

93, Sen & Mitra, 25th Edition (2006)]

Lecture 21

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38

Lecture-21Company Law:

(Capital & Share) ;

- Types of Capital- Share ; Definition, Features & Classifications

- Increase of Share Capital

- Transfer & Transmission of Shares

- Rights of Shareholders including Voting Rights

- Others- Share Warrant Vs Share Certificate

- Share Vs Stock

(Debenture) ;

- Definition ; including Charges- Shareholders Vs Debenture holders

(Insider Dealings);

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What is Capital?

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Types of CapitalThe term capital in connection with company formation

may mean any one of the following things~

1. Nominal/or Authorized Capital

Nominal or Authorized capital is the total face value of theshares which the company is authorized to issue by itsmemorandum of association. The total share capital of acompany is also called its Registered Capital.

The full authorized capital may not be needed by acompany at the time it commences business. A companymay issue less than the authorized capital, reserving theright to raise further moneys by the sale of theunauthorized shares at a later time.

Contd..

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2. Issued CapitalIssued capital is that par of the authorized capital which isactually offered to the public for sale.

3. Subscribed Capital

Subscribed capital is that part of issued capital which istaken up and accepted by the public.

4. Paid up CapitalPaid up capital is the amount of money actually paid by thesubscribers or credited as so paid.

5. Uncalled Capital

The unpaid portion of the subscribed capital is calledUncalled Capital.

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What is Share?

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Share ; DefThe shareholders are the proprietors of the company.Therefore, a Share may be defined as an interest in the

company entitling the owner thereof to receiveproportionate part of the profits, if any and a proportionatepart of the assets of the company upon liquidation.

Share ; Features/CharacteristicsThe main features/characteristics of Shares are-

as follows~

i. A share is not a sum of money, but is an interestmeasured in a sum of money and made up of various rights

contained in the contract.

Contd..

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ii. A share is an interest having a money value and measureup of diverse rights specified udder the Articles ofAssociation.

iii. The holder of a share has certain rights, duties andliabilities, as stated in Company Act, 1994 along with itsMemo and Articles of Association.

iv. A share is transferable and heritable subject toregulations framed in the Articles of Association.

v. The share or the interest of a member in a company ismovable property, transferable in the manner provided by

the Articles of the company.

vi. The share must be numbered so as to distinguish themfrom one another.

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Share ; ClassificationShare can be classified broadly 2 ways~

1. Preference Share2. Equity Share

Others~

3. IPO (Initial Public Offer)

4. Bonus Share

5. Right Share

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1. Preference Shares ;

Preference Shares are those shares which are given, by thearticles of the company, two privileges-

i. priority in the payment of dividends over othershares.

ii. priority as regards return of the capital in the event ofliquidation.

2. Equity Shares ;All Shares other than preference shares are called Equity

Shares. The rights and privileges of equity shareholders arelaid down in the articles subject to the provision of the Act.

Contd..

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3. IPO (Initial Public Offer) ;

4. Bonus Shares ;

Instead of cash, profit is given by share value to theexisting shareholder.

5. Right Shares ;

Where at any time after the expiry of 2 years from theformation of a company or at any time after 1 year fromthe firs allotment of shares; whichever is earlier, it isproposed to increase the subscribed capital of the companyby allotment of further shares to the person who at the

date of the offer, are holders of the equity shares of thecompany in proportion as nearly as circumstances admit, tothe capital paid up on those shares at that date. This calledas Right Share.

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Increase of Share Capital ;There are 2 methods of increasing capital~

1. Further issue of capital/Right Shares

2. Conversion of Debenture or Government loan

Further issue of Capital/Right Shares ; Where at anytime after the expiry of 2 years from the formation of acompany or at any time after 1 year from the firs allotment

of shares; whichever is earlier, it is proposed to increasethe subscribed capital of the company by allotment offurther shares to the person who at the date of the offer,are holders of the equity shares of the company inproportion as nearly as circumstances admit, to the capital

paid up on those shares at that date. This called as RightShare.

T f & T i i f Sh

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Transfer & Transmission of Shares ;

A shareholding is personal property (in thetechnical sense) and so it is by its nature

transferable, subject to-i. It must be in writing.

ii. It must follow relevant provisions of the CompanyAct, 1994.

iii. It must follow relevant provisions of Articles ofAssociation.

Note ;[Transfer is the term used when a shareholder

by his own act passes the ownership of shares to anotherperson; whereas, Transmission by operation of law isthe term used when ownership passes as a result of anevent such as the death or bankruptcy of a member, asdescribed above].

Ri ht f Sh h ld

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Rights of ShareholdersThe Company Act gives various rights to theShareholders of a company. The important rights

are mentioned below~

Note: [For details; please see at Page ; 617-18,


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Voting Rights of the Shareholders~

Equity Shareholders; An equity shareholders is entitled to

vote on every resolution placed before the company. Thisright can not be curtailed by the Articles. The number ofvotes a shareholders can cast is proportional to his share ofthe paid up equity capital of the company.

Preference Shareholders; A preference shareholders isentitled to vote only resolution which directly affect therights attached to his preference shares and resolutions forwinding up of the company.

Sh

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Share ;

The shareholders are the proprietors of the company.Therefore, a Share may be defined as an interest in thecompany entitling the owner thereof to receive

proportionate part of the profits, if any and a proportionatepart of the assets of the company upon liquidation.

Stock ;When all shares of a company have been fully paid up, they

may be converted into stock if so authorized by the articles.

Difference:

Share Vs Stock

Note: [For details; please see at Page ; 625, Sen & Mitra,25th Edition (2006)]

Sh C tifi t

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Share Certificate ;

The share certificate is a certificate issued under thecommon seal of the company specifying the number ofshares held by any member. A share certificate must be

issued and delivered within 3 months from date ofallotment.

Share Warrant ;

The share warrant is a document issued by a company,

stating that its bearer is entitled to the shares thereinspecified. It is a substitute for the share certificate.

Difference:

Share Certificate Vs Share Warrant

Note: [For details; please see at Page ; 624, Sen & Mitra,

25th Edition (2006)]

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What is Debenture?

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Debenture ; DefThe issue of debentures is a particular mode of borrowingmoney by companies. A debenture is a document which

shows on the face of it, that the company has borrowed acertain sum of money from the holder thereof upon certainterms and conditions.

Sec 2(12) Of the Company Act states that a debenture

includes debenture stock , bonds and any other securitiesof a company whether constituting a charge on the assetsof the company or not.

b

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Debenture ;CharacteristicsThe main features/characteristics of Debentures are

as follows~i. Each debenture is numbered.

ii. A debenture usually creates a floating charge on theassets of the companies.

iii. A debenture may create a fixed charge instead of afloating charge.

iv. Sometimes debenture holders are given the right toappoint a receiver in case of non-fulfillment of the terms of

the debentures by the company.

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What is Charge..?

Charge ; D f

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Charge ; DefA charge on a property is created when it is made liablefor the payment of money. A charge is 2 types~

1. Fixed charge2. Floating charge

1. Fixed Charge ;

A fixed charge is one which creates a legal interest of a

specific property of the company or all the properties of thecompany. Thus a fixed charge is equivalent to mortgage.

2. Floating Charge ;

A floating charge is also creates a legal interest of a specificproperty of the company or all the properties of thecompany. But a floating charge does not amount tomortgage.

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Crystallization?

A floating charge becomes fixed charge when any of the

following things occur~i. a company is wound up

ii. a Receiver of the properties of the company isappointed.

iii. the company fails to pay the interest and the

installment of the principal.iv. The company ceases carrying on its business.

When the above occurrence or contingencies happen, afloating charge becomes a fixed charge. This is known ascrystallization of the floating charge. This crystallization

occurs on the moment of crystallization.

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Difference:

Shareholder Vs Debentureholder

Note: [For details; please see at Page ; 738-39,


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Insider Dealings ;

Def ; Insider dealing is understood broadly to

cover situation where a person buys or sellssecurities when he, but not the other party to thetransaction, is in possession of confidentialinformation which affects the value to be placedon those securities.

In short it is termed as upsi means-unpublishedprice sensitive information. If anyone in chargeof upsi discloses is liable of criminal offence.

Lecture 22

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62

Lecture-22Company Law:

Directors- Definition ; including max number

- Types

- Directors duties

- Minority Protection [Foss v Harbottle]

Meeting

- Types

- Others Meeting including GM, AGM

- Rules of procedure regarding Meeting

- Resolution

i

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Director; DefThe director of a Company are selected accordingto the Articles of Association of the company andprovisions of the Company Act, 1994. Directorsare in charge of the management of the affairs ofthe Company. The directors are collectively calledthe Board of Director and the Board is the

companys executive authority.

A director is an officer of the company within themeaning of Sec 2(30) of the Company Act,1994. Sec 2(13) States that a director includesany person occupying the position of the directorby whatever name called.

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Director; Types

Paid Director ;

Non paid Director ;

Shadow Director ; is any person in accordance

with whose directions of the company areaccustomed to act.

Director as Employee ; A director who alsoholds a management post; e.g.. as head of the

department in the company is sometimes called aWorking Director or Executive Director

Contd..

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Directors duties ;

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;The duties of Directors of a company have been elaboratelyexplained by Romer L. J. in Re City Equitable Fire InsuranceCo..1925 The important duties are quoted from this case andsummed below~

1. Distribution of work

2. Good faith

3. Reasonable care

4. Degree of skill

5. To attend meeting

6. Duty of disclosure7. Other duties

Comments ; [If a director fails to perform his duties, asexplained above, he is guilty of negligence. If on account of suchnegligence the company suffers any damages, the director must

compensate].

Note: [For details; please see at Page ; 694-95, Sen & Mitra,25th Edition (2006)]

Mi it P t ti

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Minority ProtectionA group of wrongdoers may gain control of the majority ofvotes and operate the company for their own benefits. This

is more likely to happen in a small private company.Generally, the court has been reluctant to interfere with theexercise by the majority of their voting rights, unless thereis clear bad faith.

The rule in [Foss Vs. Harbottle]

The rule states that when a wrong is done to a company,

the proper plaintiff is the company. Thus the board willusually initiate an action. If the action is against thedirectors, the majority of shareholders must initiate it on

behalf of the company, the minority can not. This is knownas rule in [Foss Vs. Harbottle].

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Meeting..?- Types

- Meeting including Statutory/GM, AGM, EGM..

- Rules of procedure regarding Meeting- Resolution

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Meeting; TypesAs per Company Act, 1994 ; Meeting can be classified~

1. Meeting of the Shareholders

- Statutory/General Meeting

- AGM

- EGM

- Class Meeting

2. Meeting of the Directors

3. Other Meeting

- Meeting of the creditors

- Meeting of the Debenture holders


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- Statutory/General Meeting

- AGM

- EGM- Class Meeting

Statutory/General Meeting

Every public company limited by shares and every companylimited by guarantee and having a share capital must within

a period of not less than 1 month and more than 6 monthsfrom he date at which the company is entitled to commencebusiness, hold a general meeting of members which is to becalled, the Statutory Meeting. In this meeting the membersare to discuss a report by directors known as the Statutory

Report which contains particulars relating to the formation

of the Company.

Contd..

AGM ;

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AGM ;

- The first AGM of a company may be held within a periodof not more than 18 months from the date of its

incorporation.- Subject to the above mentioned conditions, a companymust hold AGM each year. Not more than 15 months shallelapse between the date of one AGM and the next..

EGM ;

The Board of Directors can be compelled or hold a GM uponrequest or requisition made for it. The AGM is speciallycalled at any time over the year for urgency.

Class Meeting ;

The meeting for special class, e.g.. preference shareholdersor debenture share holders meeting.

Procedure regarding Meeting

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Procedure regarding MeetingThe general rules of procedure as regards shareholdersmeeting can be summarized as follows~

1. Proper authority2. Notice

3. The Agenda

4. The Quorum

5. Chairman

6. Proxy

7. Method of Voting

Note: [For details; please see at Page ; 656-59, Sen & Mitra,


Resolution ; Types

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Company Act, 1994 classifies resolutions into the followingtypes~

1. Special Resolutions

2. Ordinary Resolution3. Resolution by special notice

1. Special Resolutions

A special resolution is necessary for deciding importantmatters. Company Act, 1994 specifies what these mattersare. e.g- Reduction of capital; Winding up etc.

A special resolution may be passed in a GM of memberscalled in the usual way with the usual notice. But thefollowing 2 conditions must be satisfied-

i. the notice calling the GM must specify that a specialresolution will be moved.

ii. The number of votes cast in favor of the resolutionwhether by show of hands or by poll, must be at least 3times the number cast against it.

2. Ordinary Resolutions

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y

All matters not required to be decided by a specialresolution, may be decided by ordinary resolution. Anordinary resolution is passed when the number of votes

cast in favor exceeds those cast against it.

3. Resolution by special notice

Where by any provision contained in Company Act, 1994 or

in the Articles, special notice is required of any resolution,the intention to move the resolution shall be given to theCompany not less than 14 days before the date of meetingwhere the resolution is to be moved, exclusive of the dayon which the notice is served or deemed to be served and

the day of the meeting.

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75

Lecture-23Company Law ;Liquidation/Winding up

- Definition

- Types of liquidation/winding up

- Grounds for compulsory liquidation

- Liquidator/Receiver

- Mode of distribution assets/Priority of

Charges

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Liquidation/Winding up;DefThe winding up or liquidation of a Company

means the termination of the legal existence of aCompany by stopping its business, collecting itsassets and distributing the assets amongcreditors and shareholders ; in the manner laiddown in Company Act, 1994.

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Modes of Winding up ;There are 3 methods of Winding up/Liquidation of acompany. They are as follows~

i. Voluntary Winding up by the members themselvesor by the creditors.

ii. Compulsory Winding up by the Court.

iii. Voluntary Winding up under the supervision of the

Court.

Voluntary Winding up ;

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Voluntary Winding up ;There are 2 types of voluntary winding up~

1. Members voluntary winding up

2. Creditors voluntary winding up

1. Members voluntary winding up ;

If the company is, at the time of winding up, a solventcompany, i.e.. able pay its debts and the directors make

a declaration to that effect, is called Members voluntarywinding up.

2. Creditors voluntary winding up ;

If the company is not in a position to pay its debts and

the directors make no declaration of solvency, is called aCreditors voluntary winding up.

Compulsory winding up ;

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Compulsory winding up ;Compulsory winding up takes place when a company isdirected to be wound up by an order of Court. The grounds

of compulsory winding up are as follows~i. by special resolution of the company

ii. By default

iii. Not commencing or suspending the company.

iv. Reduction of members

v. Inability to pay debts

vi. The just and equitable clause

Note: [For example; please see at Page ; 561-62, Sen &

Mitra, 25th Edition (2006)]

Liquidator/Receiver ;

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Liquidator/Receiver ;After a winding up petition is filed, notice is issued on theCompany to appear and state its case if any. After hearing

both sides, the Court may directs the petition, adjourn thehearing conditionally or unconditionally, make an interimorder necessary or pass an order for winding up.

In such a situation a order for winding up is passed, the

court appoints a Liquidator/Receiver whose function isto take charge of and complete the winding up proceedings.

Duties of Liquidator/Receiver ;

Note: [For details; please see at Page ; 768, Sen & Mitra,


Mode of distribution of Assets/P i it f Ch

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Priority of Charges~

In case of winding up/liquidation; the mode of distribution ofassets are as follows. This is also known as priority of charges~

1. The cost of the winding up proceedings.2. All revenues, taxes to be paid to the Government.

3. Employees salary up to 4 months.

4. Employees other important benefits like gratuity,provident fund, insuranceetc.

5. Debenture holdersa. Fixed chargeb. Floating charge

6. Shareholdersa. Preference share

b. Equity share7. Deferred Creditors

8. Members

9. Others..if any..

MBA Company Lec 18-23 (1)

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Transcript of MBA Company Lec 18-23 (1)