Q1)A company is different from its members. Discuss in brief.

A Company is considered a separate legal entity, which means it is

different from its members (owners or shareholders). This principle is one
of the most important features of a company. Let’s discuss this in detail:

1. Separate Legal Entity

When a company is registered under the Companies Act, 2013, it becomes

a separate legal entity. This means it has its own identity, independent of
the people who own or manage it. It can own property, enter into
contracts, sue, and be sued in its own name.

Salomon v. Salomon & Co. Ltd. (1897)

Facts:

Mr. Aron Salomon was a shoe manufacturer in England.

He formed a limited company (Salomon & Co. Ltd.) and sold his business
to this company.

The company had 7 shareholders (as required by law at the time) –

Salomon himself, his wife, and his five children, but he held the majority of
shares.

He took a secured debenture (loan) from the company. Later, the

company faced financial difficulties and went into liquidation.

Creditors wanted to recover their money from Mr. Salomon’s personal

assets, claiming that the company was just his “agent” or an extension of
himself.

Issue:

Was the company a separate legal entity from Mr. Salomon, or was it just
his alter ego?

Judgment:

The House of Lords ruled that the company was a separate legal entity,
even though Salomon controlled it.

Mr. Salomon was not personally liable for the company’s debts beyond his
shareholding.

The company’s debts had to be paid from the company’s assets, not
Salomon’s personal wealth.
Principle Established:

A company has a distinct legal identity from its members.

Shareholders are not personally liable for company debts beyond their
investment.

This case established the “Corporate Veil” doctrine, meaning the company
and its owners are separate in the eyes of the law.

Lee v. Lee’s Air Farming Ltd. (1961)

Facts:

Mr. Lee formed a company, Lee’s Air Farming Ltd., where he was the major
shareholder (controlling 100% of shares) and the sole director.

The company was engaged in aerial crop spraying.

Mr. Lee also appointed himself as a pilot (employee) of the company.

Unfortunately, he died in a plane crash while working for the company.

His wife claimed compensation as a widow of a company employee under

New Zealand’s workers’ compensation law.

The insurance company denied her claim, arguing that Mr. Lee could not
be both employer and employee at the same time.

Issue:

Could Mr. Lee be considered an employee of his own company, even

though he was its owner and director?

Judgment:

The Privy Council ruled in favor of Mrs. Lee, stating that the company was
a separate legal entity from Mr. Lee.

Mr. Lee, as a director, was different from Mr. Lee, the employee (pilot).

Since the company was a distinct legal entity, it could enter into an
employment contract with Mr. Lee.

Therefore, his widow was entitled to compensation.

Principle Established:

A company can enter into contracts with its own members.

A person can have multiple legal relationships with their own company
(e.g., being both a shareholder and an employee).
The separate legal entity doctrine allows individuals to benefit from
corporate structures.

2. Limited Liability of Members

The members (shareholders) of a company are not personally responsible

for the debts or losses of the company. Their liability is limited to the
amount they have invested in the company. Even if the company goes
bankrupt, the personal assets of members are safe.

3. Perpetual Succession

A company continues to exist even if its members change. The death,

resignation, or insolvency of any shareholder does not affect the
company’s existence. It can only be closed through a legal process called
winding up.

4. Ownership and Management are Separate

In a company, shareholders (owners) and directors (management) are

different. Shareholders invest money and own shares, while directors
manage the company’s daily operations. This separation ensures better
governance and decision-making.

Q) the property of a company is the property of its members comment on

the statement with the help of suitable case laws

Or

A Shareholder cannot have any insurable interest in the property of a

company discuss

5. Ability to Own Property

A company can buy, sell, and own property in its own name. The property
of the company is not the personal property of its members. Even if a
shareholder leaves the company, they cannot take any part of the
company’s assets.

Macaura v. Northern Assurance Co. Ltd. (1925)

Facts:

Mr. Macaura was the sole owner of a timber estate.

He transferred all the timber to a company, which he fully owned.

However, he insured the timber in his own name, not in the company’s
name.

A fire destroyed the timber, and he claimed insurance compensation.

The insurance company refused to pay, arguing that Macaura had no

insurable interest, as the timber was owned by the company, not by him
personally.

Issue:

Did Mr. Macaura have the right to claim insurance for timber that
belonged to his company?

Judgment:

The House of Lords ruled against Macaura, stating that since the company
was a separate legal entity, it owned the timber, not Macaura.

Even though Macaura owned all the shares, he did not own the company’s
assets.

Only the company could have insured the timber, not Macaura personally.

Principle Established:

Shareholders do not own company assets directly; the company itself

owns them.

A company’s property is legally distinct from its shareholders’ property.

Even if a person owns 100% of a company, they cannot claim ownership

over company property.

6. Artificial Legal Person

A company is called an artificial legal person because, unlike a human

being, it is created by law. However, it has many rights similar to a natural
person. It can:

Own property

Enter into contracts

Appoint employees

Sue and be sued

But since it is not a living person, it must act through its directors or
authorized representatives.

7. Common Seal (Earlier Mandatory, Now Optional)

Earlier, companies used a common seal (a stamp with the company’s

name) for official documents like contracts and agreements. However,
after the Companies (Amendment) Act, 2015, the use of a common seal is
optional. Now, an authorized director’s signature is enough for legal
documents.

8. Transferability of Shares

One of the key advantages of a company is that its shares can be easily
transferred from one person to another (except in a private company,
where restrictions may apply). This allows investors to buy and sell shares
without affecting the company’s existence.

Q2) Explain the kinds of companies like private and public company,
*government company, foreign company, one person company, small
company, associate company, dormant company and producer company;
Association not for profit?

According to the Companies Act, 2013, companies in India are classified

into Private Companies and Public Companies based on their
ownership, share transferability, and other regulatory requirements.

1. Private Company (Section 2(68))

A private company is a company that:

 Restricts the right to transfer its shares.

 Has a minimum of 2 members and a maximum of 200 members

(excluding past and present employees).

 Cannot invite the public to subscribe to its securities.

  Must have at least one director in case of a One Person Company
(OPC) and a minimum of two directors in other cases.

 Requires a minimum paid-up capital, as prescribed by the

government (currently, no minimum capital requirement).

Example: Infosys Limited (before it became a public company), startups,

and family-run businesses.

2. Public Company (Section 2(71))

A public company is a company that:

 Has a minimum of 7 members, with no maximum limit.

 Can offer its shares to the public and list them on stock exchanges.

 Has no restrictions on the transfer of shares.

 Must have at least three directors.

 Requires a minimum paid-up capital, as prescribed by the

government (currently, no minimum capital requirement).

Example: Reliance Industries, Tata Motors, and HDFC Bank.

Government Company (Section 2(45) of the Companies Act, 2013)

A Government Company is a company in which not less than 51% of

the paid-up share capital is held by:

 The Central Government, or

 The State Government(s), or

 Partly by the Central Government and partly by one or more

State Governments.

It also includes a company that is a subsidiary of a government

company.

Key Features of a Government Company

1. Majority Government Ownership: At least 51% of shares must

be owned by the government.

2. Separate Legal Entity: Operates as a separate legal entity under

the Companies Act.

3. Governance & Auditing:

 o The Comptroller and Auditor General (CAG) of India
appoints auditors and can conduct audits.

o The audit report is submitted to Parliament or State

Legislature.

4. Can Do Business Like a Private Company: It can enter into

contracts, acquire assets, and operate independently like private
companies.

5. Exemptions & Privileges: Some provisions of the Companies Act

do not apply to government companies (as notified by the
government).

Examples of Government Companies

 Central Government Companies:

o Bharat Heavy Electricals Limited (BHEL)

o Oil and Natural Gas Corporation (ONGC)

o Indian Oil Corporation (IOC)

 State Government Companies:

o Maharashtra State Electricity Board (MSEB)

o Delhi Metro Rail Corporation (DMRC) (Jointly owned by

Central & Delhi Government)

Foreign Company (Section 2(42) of the Companies Act,

2013)

A Foreign Company is defined as:

"A company or body corporate incorporated outside India,
but has a place of business in India, whether:

 Physically (office, branch, or agency), or

 Electronically (through digital presence, websites, or e-commerce),

and

 Conducts business activities in India, either directly or through

agents."

Key Features of a Foreign Company

1. Incorporated Outside India: It is registered in a foreign country
under its respective laws.

2. Has Business Operations in India: Through offices, branches,

agencies, or online services.

3. Complies with Indian Laws: Must follow certain provisions of the

Companies Act, 2013, if it meets specified criteria.

4. Must Register with the Registrar of Companies (ROC):

o Within 30 days of establishing a business presence in India.

o Submit details like incorporation documents, directors’ details,

and financial statements.

Examples of Foreign Companies in India

 Google India Private Limited (subsidiary of Alphabet Inc., USA)

 Microsoft India Private Limited (subsidiary of Microsoft

Corporation, USA)

 Nestlé India Limited (subsidiary of Nestlé S.A., Switzerland)

A One Person Company (OPC) is a type of company introduced

under the Companies Act, 2013, allowing a single individual to
establish and run a company with limited liability. This structure
combines the benefits of a sole proprietorship with those of a corporate
entity.

Key Features:

 Single Member: An OPC is formed by one person who acts as both

the shareholder and director.

 Limited Liability: The owner's personal assets are protected; they

are only liable for the company's debts up to the amount they
invested.

 Separate Legal Entity: The OPC has its own legal identity,
separate from the owner, allowing it to own property, enter
contracts, and sue or be sued in its name.

 Nominee Requirement: The sole member must appoint a

nominee who will take over the company's affairs in case of their
death or incapacity.

Who Can Form an OPC?

  Only Indian citizens and residents (who have stayed in India for
at least 120 days in the previous financial year) can incorporate an
OPC.

 A person cannot incorporate more than one OPC or be a

nominee in more than one OPC.

Examples of OPC

 Startups and solo entrepreneurs preferring limited liability and

corporate structure.

 Freelancers and consultants operating their business legally.

Small Company – Section 2(85) of the Companies Act, 2013

A Small Company is a type of private company that meets certain

financial criteria, making it eligible for relaxed compliance
requirements under the Companies Act, 2013.

Eligibility Criteria for a Small Company

A company is considered small if it satisfies both of the following

conditions:

1. Paid-up Share Capital: Does not exceed ₹4 crore (as per the
latest amendment in 2023).

2. Turnover: Does not exceed ₹40 crore (in the previous financial
year).

Exceptions:
A company cannot be classified as a Small Company if it is:

 A public company.

 A subsidiary or holding company of another company.

 A Section 8 company (Non-Profit Organization).

 A company governed by a special Act (like RBI-regulated

companies).

Benefits of Being a Small Company

1. Lesser Compliance Burden:

o No need to prepare a Cash Flow Statement.

 o Can hold only two board meetings per year (instead of
four).

o Exemptions from cost audits and reduced filing fees.

2. Lower Penalties: Fines for non-compliance are lower compared to

other companies.

3. Easier Financial Reporting:

o Only the Board’s Report and Profit & Loss Account need
to be filed.

4. Lower ROC Fees: Registration and compliance costs are reduced.

Example of a Small Company

A private company with:

 ₹3 crore paid-up capital and ₹20 crore annual turnover qualifies

as a small company.

Associate Company – Section 2(6) of the Companies Act, 2013

An Associate Company is a company in which another company

(called the investor company) has significant influence, but
does not control it like a subsidiary.

Definition & Key Features

1. Significant Influence:

o A company is considered an associate if another company

holds at least 20% but less than 50% of its total share
capital (equity shares).

o It can also be classified as an associate if there is significant

control over decision-making (without being a subsidiary).

2. No Full Control: Unlike a subsidiary, the investor company does

not have complete control over the associate company’s
management.

3. Joint Ventures Can Be Associates: If two or more companies

enter a joint venture with a stake between 20% and 50%, it may be
classified as an associate company.
 Example of an Associate Company

 Tata Sons Ltd. holds around 26% stake in Tata Consultancy

Services (TCS). Thus, TCS is an associate company of Tata Sons
Ltd.

 State Bank of India (SBI) holds a 30% stake in SBI Life

Insurance, making SBI Life an associate of SBI.

Dormant Company – Section 455 of the Companies Act, 2013

A Dormant Company is a company that is registered but

not actively conducting business. It is mainly for
companies that want to hold assets or intellectual
property without engaging in commercial activities.

Eligibility for Dormant Status

A company can apply for Dormant Status if it:

1. Is not carrying out any business operations or commercial

activities.

2. Has no significant transactions (except a few like payment of

fees, compliance costs, etc.).

3. Has not filed financial statements and annual returns for two
consecutive financial years.

4. Is formed for a future project or to hold assets or intellectual

property.

Benefits of Dormant Company Status

 Lesser Compliance Burden: No need for extensive financial

reporting.

 Maintains Legal Status: Allows the company to be reactivated

anytime.

 Cost Savings: Avoids high operational costs when the company is

inactive.

Process to Obtain Dormant Status

1. The company must file Form MSC-1 with the Registrar of

Companies (ROC).
2. If approved, the company gets a Dormant Status Certificate.

3. A dormant company must file "Return of Dormant Companies"

(MSC-3) annually to maintain its status.

Reactivating a Dormant Company

 A dormant company can resume operations by filing Form MSC-4

with the ROC.

Producer Company – Section 378A to 378ZU of the

Companies Act, 2013

A Producer Company is a special type of company formed

by farmers, producers, or primary manufacturers to
improve their business activities, mainly in agriculture,
farming, and related fields.

Key Features of a Producer Company

1. Objective: The company must focus on activities such as:

o Production, harvesting, processing, and selling of primary

produce.

o Export of goods, services, and technical assistance.

o Promoting mutual assistance among producers.

2. Membership:

o Minimum 10 individual producers or 2 or more producer

institutions.

o No maximum limit on members.

3. Limited Liability: Members have limited liability, like in private

companies.

4. Separate Legal Entity: It is independent of its members and

continues to exist even if members change.

5. Share Capital: Ownership is held by producers, and shares cannot

be traded publicly.

6. Board of Directors:

o Must have a minimum of 5 directors and a maximum of

15 directors.
 o Directors are elected by members.

7. Voting Rights:

o Every member has equal voting rights, irrespective of their

shareholding (based on the principle of mutual assistance).

Benefits of a Producer Company

 Better Market Access: Helps small producers reach larger

markets.

 Financial Support: Can receive government grants, subsidies, and

loans.

 Legal Recognition: Provides a structured approach to business

and ownership.

 Tax Benefits: Some agricultural income is exempt from tax.

Examples of Producer Companies in India

 Amul (Gujarat Cooperative Milk Marketing Federation Ltd.)

 Mahagrapes (Grape producer company in Maharashtra)

 Indian Organic Farmers Producer Company Ltd. (Kerala

Association Not for Profit (Section 8 Company or

Licenced company) – Companies Act, 2013

An Association Not for Profit is legally recognized as a

Section 8 Company under the Companies Act, 2013. It is
formed to promote charitable objectives such as
education, arts, sports, science, social welfare,
religion, or environmental protection, without the intent
of making profits.

Key Features of a Section 8 Company

1. Non-Profit Objective: Profits must be used to promote the

company’s objectives and cannot be distributed as dividends.

2. Legal Status: Operates as a private limited or public limited

company, but with special exemptions.
 3. No Minimum Share Capital Requirement: Unlike other
companies, Section 8 companies do not need a minimum capital
to register.

4. Tax Benefits: Eligible for tax exemptions under Section 12A and
80G of the Income Tax Act.

5. Government License:

o Requires a special license from the Ministry of Corporate

Affairs (MCA).

o The government can revoke the license if the company

violates its objectives.

6. Limited Liability: Members’ liability is limited to their contribution.

7. Cannot Be Converted into a Profit-Making Company: If

dissolved, its assets must be transferred to another Section 8
company or a government authority.

Examples of Section 8 Companies in India

 Tata Trusts

 Infosys Foundation

 Azim Premji Foundation

Illegal Association – Section 464 of the Companies Act, 2013

An Illegal Association refers to a group of individuals or entities

conducting business without proper registration under the law,
violating company formation rules.

Key Conditions for an Illegal Association

1. Exceeds the Permitted Member Limit:

o A business with more than 50 persons acting as a

partnership or association without registering as a
company is considered illegal.

2. Not Registered Under the Companies Act:

o If a group of individuals engages in business without proper

registration but falls under the definition of a company, it is
illegal.
 3. Engages in Prohibited Activities:

o Associations involved in unlawful or fraudulent business

can also be declared illegal.

Consequences of an Illegal Association

 Contracts Are Void: Any agreements made by an illegal

association are not legally enforceable.

 Liability of Members: Members are personally liable for all

debts and losses.

 Penalties & Fines: Members may face fines up to ₹1 lakh per

person.

 Dissolution: The government can order the association to cease

operations immediately.

Example of an Illegal Association

 A group of 60 people running a business without registering

as a company or LLP.

 A fraudulent investment scheme operating without proper

registration under SEBI regulations.

Q3) distinguish between holding and subsidiary company?

Difference Between Holding and Subsidiary Company

A Holding Company and a Subsidiary Company are related, but they

have different roles in business ownership and control.

Basis of
Holding Company Subsidiary Company
Difference

A company that controls one or A company that is

more companies by owning more controlled by another
Definition
than 50% of shares or having company (holding
decision-making power. company).

More than 50% of its

Owns more than 50% of the
Ownership shares are owned by the
shares of the subsidiary.
holding company.

Control Has the power to make Works under the control

Basis of
Holding Company Subsidiary Company
Difference

decisions for the subsidiary. of the holding company.

Independent legal entity,

Legal Independent legal entity, but it
but it follows holding
Status controls subsidiaries.
company decisions.

Reports its own financials,

Financial Prepares consolidated financial
but they are merged with
Statement statements, including those of
the holding company's
s subsidiaries.
reports.

Tata Sons (holding company of Tata Motors (subsidiary

Example
Tata Motors, Tata Steel, etc.) of Tata Sons).

Q4)What do you mean by lifting a corporate veil. Explain the

circumstances when the corporate veil of company may be lifted under
the order of the court.

Corporate Veil and Its Exceptions (In Simple Terms)

A corporate veil means that a company is treated as a separate legal

entity from its owners. This means that the company, not its owners, is
responsible for its debts and actions. This idea was established in the
famous case Salomon vs. Salomon & Co. Ltd.

However, if people use a company to commit fraud or illegal activities,

courts can "lift" or "pierce" the corporate veil to hold the real owners
responsible.

Situations Where the Corporate Veil Can Be Lifted:

1. As per Law (Statutory Provisions)

The law allows the corporate veil to be lifted in certain cases:

1. Holding and Subsidiary Companies – If one company controls

another (holding and subsidiary relationship), the holding company
must include the financial statements of its subsidiary in its reports.

2. Investigation of a Company – If a company is under investigation

for wrongdoing, authorities can also check the records of related
companies.

3. Finding Out Who Owns a Company – The government can

investigate who actually controls a company.
 4. False Information in Prospectus – If a company lies in its
prospectus to attract investors, its promoters and directors can be
punished under fraud laws.

5. Failure to Return Application Money – If a company does not

get enough investors within 30 days of issuing shares, it must return
the money. If it doesn’t, penalties apply.

6. Fraudulent Business Conduct – If a company does business to

cheat creditors, courts can make those responsible pay company
debts from their personal money.

7. Unlimited Liability of Directors – If directors agree to unlimited

liability, they must personally pay the company’s debts.

8. Liability for Pre-Incorporation Contracts – Promoters are

personally responsible for agreements made before a company is
officially registered unless the company adopts them later.

2. As per Court Decisions (Judicial Interpretations)

Courts can also lift the corporate veil in special situations:

1. To Prevent Tax Evasion – If someone creates a fake company just

to avoid taxes, courts will treat them and the company as the same
person.

o Example: Dinshaw Maneckjee Petit Case – A person

created four companies just to avoid paying taxes on his
income. The court ruled that these companies were fake and
did not exist separately from him.

2. To Stop Fraud or Wrongdoing – If a company is created to cheat

creditors or break agreements, courts can lift the veil.

o Example: Gilford Motor Co. Ltd. vs. Horne – An ex-

employee created a fake company just to break his contract
with his former employer. The court ruled the company was a
"sham" and ignored its separate identity.

3. To Identify Enemy Companies – During wartime, courts can

check if a company is controlled by enemy nations and stop their
business.

o Example: Daimler Co. Ltd. vs. Continental Tyre & Rubber

Co. Ltd. – A British company was actually owned and
controlled by Germans. During war, the court ruled that the
company was an "enemy company" and stopped it from doing
business.
Q5)Discuss provisions of conversion of a private co. into public
co. in India and vice versa and the process of conversion of OPC
into private company

How to Convert a Private Company into a Public Company (Simple

Explanation)

A private company is a business that cannot sell shares to the

public, while a public company can sell shares to raise money. If a
private company wants to become public, it must follow these
steps:

Step-by-Step Process

1. Board Meeting

o The company’s directors hold a meeting.

o They decide to convert the private company into a

public company.

o They set a date for a meeting with all shareholders.

2. Shareholders' Approval (EGM - Extraordinary General

Meeting)

o All shareholders vote on the decision.

o At least 75% of shareholders must agree.

o They also approve changes in company rules (MOA &

AOA).

3. Filing with Government (ROC - Registrar of Companies)

o The company submits an application to the Registrar of

Companies (ROC).

o They file two forms:

 MGT-14 (to submit shareholder approval).

 INC-27 (to apply for conversion).

o Some important documents are submitted, like the list

of directors & shareholders, updated rules (MOA &
AOA), and financial statements.

4. Government Approval

o The ROC checks the documents.

 o If everything is correct, the company gets a new
Certificate of Incorporation as a Public Limited
Company.

What Changes After Conversion?

✅ The company can sell shares to the public.

✅ It must follow more rules and regulations.
✅ It can raise more money from investors.
❌ It has to disclose financial reports to the public.

How to Convert a Public Company into a Private Company (Simple

Explanation)

A public company can sell shares to the public, but if it wants to

become private, it must follow legal steps. This conversion means
the company will have fewer regulations and will no longer be
listed on the stock exchange (if applicable).

Step-by-Step Process

1. Board Meeting

 The directors hold a meeting.

 They decide to convert the company into a private limited

company.

 They fix a date for a meeting with shareholders.

2. Shareholders' Approval (EGM - Extraordinary General Meeting)

 An EGM is held, and shareholders vote on the decision.

 At least 75% of shareholders must approve the change.

 The company also changes its rules and regulations (MOA &
AOA).

3. Approval from the Government (NCLT - National Company Law

Tribunal)

 Unlike private-to-public conversion, this process needs NCLT

approval.

 The company submits an application to NCLT.

 A public notice is given in newspapers to inform people.

  If no objections are raised, NCLT approves the conversion.

4. Filing with Registrar of Companies (ROC)

 After NCLT approval, the company files forms with ROC

(Ministry of Corporate Affairs - MCA):

o MGT-14 (for shareholder approval).

o INC-27 (for final conversion).

 Important documents like list of directors, updated MOA &

AOA, financial details, and NCLT order are submitted.

5. New Certificate of Incorporation

 The ROC reviews the application.

 If everything is correct, the company gets a new Certificate

of Incorporation as a Private Limited Company.

What Changes After Conversion?

✅ Shares cannot be sold to the public anymore.

✅ Fewer rules and regulations to follow.
✅ More control stays with the owners.
❌ Cannot list on the stock exchange.

Process of Converting a One Person Company (OPC) into a Private

Company

A One Person Company (OPC) is a company with only one owner,

but if it grows and meets certain conditions, it must convert into
a Private Limited Company (PLC), which requires at least two
shareholders and two directors.

When Should an OPC Convert into a Private Company?

An OPC must be converted into a Private Limited Company if:

1. Its paid-up capital exceeds ₹50 lakh OR

2. Its annual turnover exceeds ₹2 crore for three consecutive

years.

Steps for Conversion of OPC into Private Company

1. Hold a Board Meeting

  The sole director of the OPC decides to convert the
company.

 Approves a shareholder meeting (EGM) to pass a resolution.

2. Conduct an Extraordinary General Meeting (EGM)

 The sole member passes a special resolution to convert OPC

into a Private Limited Company.

 The Memorandum of Association (MOA) and Articles of

Association (AOA) must be changed.

3. File Application with the Registrar of Companies (ROC)

 Submit MGT-14 (within 30 days of passing the resolution).

 File INC-6 with required documents:

o Special resolution copy

o Updated MOA and AOA

o List of proposed directors and shareholders

o Latest financial statements

o No Objection Certificate (NOC) from creditors (if any).

4. Approval from ROC

 The ROC reviews the application.

 If everything is correct, the ROC issues a new Certificate of

Incorporation as a Private Limited Company.

What Changes After Conversion?

✅ Minimum 2 shareholders required (instead of 1).

✅ Minimum 2 directors needed.
✅ More compliance rules (e.g., board meetings, audits).
✅ Can raise more funds from investors.

Q6)What is illegal Association? Explain its effects in India.

What is an Illegal Association? (As per Companies Act, 2013)

An Illegal Association is a group of people who come together to

do business without registering their company properly under the
law.
According to Section 464 of the Companies Act, 2013, if a
business has:

 More than 50 people working together without registering

as a company, it is considered illegal.

 It cannot be treated as a legal company, partnership, or any

other lawful business entity.

Effects of an Illegal Association in India

1. No Legal Protection

o The business has no separate legal identity, so it

cannot sue or be sued in court.

o Example: If an illegal association has a dispute with

someone, they cannot go to court to claim their rights.

2. Unlimited Liability of Members

o The owners (members) are personally responsible for

all debts and losses.

o If the business fails, creditors can take the personal

assets of the members.

3. Contracts Are Invalid

o Any agreement made by an illegal association is not

legally valid.

o Example: If an illegal group makes a contract with a

supplier, the supplier cannot enforce it in court.

4. Penalty and Punishment

o Members of an illegal association may have to pay a

fine of up to ₹1 lakh.

o If fraud is involved, they may face criminal charges.

Conclusion

In India, businesses must register under the Companies Act or the

Partnership Act to operate legally. If a group of people tries to do
business without registration, they may face legal, financial, and
criminal consequences
Q7) Explain the On-line Registration of a company

he MCA 21 project by the Ministry of Corporate Affairs (MCA) allows

companies to be registered online through the MCA portal. The process
involves the following steps:

Step 1: Get Director Identification Number (DIN)

Every director of the new company must apply for a DIN by submitting e-
Form DIN-1 online.

Step 2: Get a Digital Signature Certificate (DSC)

Acquire DSC – A Digital Signature Certificate (DSC) is needed for signing

electronic documents. It can be obtained from a licensed Certifying
Authority (CA).

Register DSC – After obtaining the DSC, it must be linked with the MCA
portal and verified.

Step 3: Register as a New User on the MCA Portal

To file e-Forms or use paid services, you must create an account on the
MCA portal as a registered or business user.

Step 4: Incorporate the Company

1. Choose up to 6 company names and check their availability on the MCA

portal. Ensure the name follows legal guidelines.
2. Apply for name approval by submitting Form INC-1 and paying a fee of
₹500.

3. Once approved, submit incorporation documents (Form INC-7 for

companies or Form INC-2 for One-Person Companies), along with the
Memorandum and Articles of Association.

4. Pay the required stamp duty electronically.

5. Sign the Memorandum and Articles of Association with two or more

subscribers (7 for public companies) and a witness.

6. Submit Form INC-22 (registered office details) and Form DIR-12 (details
of directors and key managerial personnel).

7. Once the forms are processed, the Corporate Identity Number (CIN) is
generated, and the Certificate of Incorporation is issued by the Registrar
of Companies (RoC).

Q8)what are preliminary contracts discuss the legal effects of preliminary

contract

A Preliminary Contract is a contract that is made before a company is

officially registered. These contracts are usually signed by the promoters
of the company to arrange important things like office space, suppliers, or
employees before the company starts operations.

For example:
A promoter signs a contract with a builder to rent office space for the
upcoming company.

A promoter agrees with a supplier to provide raw materials once the

company is operational.

Since the company does not legally exist at the time of signing, these
contracts have special legal effects.

Legal Effects of Preliminary Contracts

⿡ Company is Not Bound by the Contract

According to Company Law, a company cannot be held responsible for any

contract made before its registration.

Even after incorporation, the company cannot be forced to follow the

contract unless a fresh contract is signed.

⿢ Promoters Are Personally Liable

Since the company does not exist at the time of signing, the promoters
(who signed the contract) are personally responsible.

If the contract is not fulfilled, the promoters will have to pay for any
losses.

⿣ Company Cannot Ratify (Approve) the Contract

A company cannot later approve a preliminary contract and make it
legally binding.

If the company wants to continue with the contract, it must enter into a
fresh agreement after registration.

⿤ Promoters Can Make a New Contract After Registration

If the company wants to accept the contract terms, it can sign a new
contract with the same terms after incorporation.

This helps to protect the company from legal issues.

⿥ Exceptions (Some Contracts May be Enforceable)

In rare cases, courts may allow enforcement of a preliminary contract if:

✅ The contract was necessary for the company's formation.

✅ The company directly benefits from the contract

Difference Between Preliminary Contracts & Provisional Contracts

Basis Preliminary Contracts Provisional Contracts

Contracts made after

Contracts made before the registration but before
Meaning company is registered, the company gets the
usually by promoters. Certificate to Commence
Business.

Not binding on the company. Binding on the company

Legally
Only promoters are personally once it gets approval to
Binding?
liable. commence business.

Who Signs Promoters of the company. Company itself, through

It? directors or authorized
Basis Preliminary Contracts Provisional Contracts

persons.

No, the company cannot

Can the Yes, the company can
ratify (approve) a preliminary
Company enforce the contract once it
contract after incorporation. It
Ratify It? starts business.
must make a fresh contract.

A promoter signs a lease A company signs a contract

agreement for office space with a supplier before
Example
before the company is getting the "Certificate to
registered. Commence Business."

Key Takeaways

🔹 Preliminary contracts are made before a company is legally formed,

and the company is not responsible for them.
🔹 Provisional contracts are made after registration but before business
starts, and they become binding once the company is allowed to operate.

Q9)who is a promoter and explain a promoter stands in a feeducary

relationship to what the company that he promotes?
A promoter is a person who takes the initiative to start a company. They
handle all the pre-incorporation activities, such as:

✅ Identifying a business idea

✅ Arranging capital & resources
✅ Registering the company with authorities
✅ Signing preliminary contracts (before the company is formed)
✅ Appointing directors & other key personnel
Promoter’s Fiduciary Relationship with the Company

A fiduciary relationship means a relationship based on trust and honesty.

Since promoters control the company’s formation, they must always act in
the company’s best interest.

📌 Key Duties of a Promoter as a Fiduciary

⿡ Act in Good Faith

The promoter must be honest and work for the company’s benefit, not
personal gain.
Example: They should not sell their own property to the company at an
unfair price.

⿢ Avoid Conflict of Interest

A promoter cannot make secret profits from the company.

If a promoter earns any hidden profits, they must disclose it to the

company and return the money.

⿣ Disclose Material Information

The promoter must provide all necessary details about contracts,

investments, and liabilities.

Example: If they buy land for the company at ₹10 lakh and sell it to the
company for ₹20 lakh, they must inform the company.

⿤ Cannot Misuse Position

Since promoters handle company affairs before registration, they must not
misuse their control for personal benefits.

⿥ Personally Liable for Pre-Incorporation Contracts

If a promoter signs any contracts before the company is formed, they are
personally responsible for them unless the company later signs a new
contract.

---

Legal Consequences of Breach of Fiduciary Duty

If a promoter violates their fiduciary duties, the company can:

✔ Cancel contracts that involve dishonesty.
✔ Recover secret profits made by the promoter.
✔ Take legal action against the promoter for fraud.

Q10)Conclusiveness of a certificate of incorporation cannot be disputed on

any ground whatsoever. Comment
A Certificate of Incorporation (COI) is a legal document issued by the
Registrar of Companies (ROC) when a company is successfully registered
under the Companies Act, 201It serves as proof that the company legally
exists from the date mentioned on the certificate.
Why Can't the Certificate of Incorporation Be Disputed?

According to Section 7(7) and Section 35 of the Companies Act, 2013, the
certificate is conclusive proof that:
✅ The company is legally registered under the Act.
✅ All registration requirements have been fulfilled, even if there was an
error.
✅ The company exists as a separate legal entity, even if there were minor
mistakes in the registration process.

Once issued, the validity of the COI cannot be challenged in any court or
questioned on any grounds, including:

Irregularities in the registration process

Fraudulent information provided at the time of incorporation

Errors made by the ROC in granting the certificate

Even if there is fraud in the registration, the company's incorporation

remains valid, and the only remedy is to take legal action against those
responsible for the fraud.
Case Law Supporting This Rule
1. Moosa Goolam Ariff v. Ebrahim Goolam Ariff (1913)

Facts of the Case

A company was incorporated, and a Certificate of Incorporation (COI) was

issued by the Registrar of Companies.

Later, some people challenged the validity of the company, claiming that
there were irregularities in the registration process.

They argued that due to these mistakes, the company should not be
considered legally incorporated.

Judgment

The Privy Council ruled that once the COI is issued, the company’s
existence cannot be questioned on any ground whatsoever.

Even if there were procedural errors or mistakes during incorporation, the

COI is final and conclusive proof that the company is legally registered.

Significance

✔ The case established the principle that a Certificate of Incorporation is

conclusive evidence of a company’s existence.
✔ Even if there were irregularities in the registration process, they do not
affect the company's legal status once the COI is granted.

---

1. Jubilee Cotton Mills Ltd. v. Lewis (1924)

Facts of the Case

Jubilee Cotton Mills Ltd. was registered on 6th January, and a Certificate of
Incorporation was issued on 8th January.

However, due to a clerical mistake, the certificate wrongly mentioned 6th

January as the date of incorporation instead of 8th January.

The company later allotted shares on 6th January, but since it was not
legally incorporated until 8th January, the question arose:
❓ Are the share allotments valid?

The issue was whether the certificate’s incorrect date could be used to
challenge the company’s legality.

Judgment

The House of Lords held that the Certificate of Incorporation is conclusive

proof of incorporation, and its date cannot be disputed.

Even if there was an error in the date, the certificate remained valid, and
the company was considered legally incorporated on the date mentioned
in the COI.

Significance

✔ Once a COI is issued, it cannot be challenged, even if there are clerical

mistakes.
✔ It reinforced the principle that registration is final, and no one can
question the company's legal existence after incorporation
Exceptions – When Can a Company Be Challenged?

While the COI itself cannot be disputed, a company can still be dissolved
or wound up under certain conditions:

⿡ Fraudulent Incorporation

If fraud is discovered, the company is still valid, but legal action can be
taken against those responsible, and the company may be wound up.

⿢ Wrongful Use of Company Name

If a company wrongfully uses a government or another company’s name,

it can be sued, but the COI remains valid.

⿣ Government's Power to Strike Off

The ROC can remove a company from the register if it is found to be

inactive or fraudulent, but the COI itself remains valid until such removal.

Q11)What is the legal position of a promoter of a company? Discuss its

duties and obligations
Legal Position of a Promoter

A promoter is a person who takes the initiative to form a company and

ensures it gets legally incorporated. Legally, a promoter is neither an
agent nor a trustee of the company, because the company does not exist
before incorporation. However, courts have established that a promoter
has a fiduciary relationship (a relationship of trust) with the company.

Legal Status of a Promoter

⿡ Not an Agent → Since a company does not exist before incorporation, a

promoter cannot be an agent of the company. An agent requires a
principal, and before incorporation, there is no legal entity (company) to
act as a principal.

⿢ Not a Trustee → A promoter is not a trustee of the company because a

trust requires an established entity. However, once the company is
incorporated, the promoter must act in its best interest.

⿣ A Fiduciary Relationship Exists → A promoter must act honestly and in

good faith, ensuring that they do not misuse their position for personal
gain.

---

Duties & Obligations of a Promoter

📌 Duty to Disclose All Material Facts

A promoter must provide complete and honest information about the

company's formation, contracts, and liabilities.

Example: If a promoter buys land for ₹5 lakh and sells it to the company
for ₹10 lakh, they must disclose this to the company.

📌 Duty Not to Make Secret Profits

A promoter cannot make hidden profits from company transactions.

If any profit is made, it must be disclosed and approved by the company

or returned.

📌 3. Duty to Avoid Conflict of Interest

A promoter should not place their personal interests above the company’s
interests.

Example: A promoter should not enter into a personal contract that

competes with the company’s business.

📌 Duty to Act in Good Faith

A promoter must always act honestly and in the company’s best interest,
even if it causes them financial loss.

📌 Duty to Provide Proper Accounts

A promoter must maintain proper records of all transactions and expenses

related to incorporation.

📌 Duty Regarding Pre-Incorporation Contracts

Since a company cannot enter into contracts before incorporation, the

promoter signs agreements on behalf of the future company. However,
these contracts are not legally binding on the company unless re-
approved after incorporation.

The promoter is personally liable for such contracts unless the company
makes a new contract replacing the old one.

---

Liabilities of a Promoter

If a promoter breaches their duties, the company can:

✔ Cancel the contract if the promoter acted dishonestly.
✔ Recover secret profits made by the promoter.
✔ Sue the promoter for damages if the company suffers financial loss due
to their actions.

---

Case Law on Promoters

⿡ Erlanger v. New Sombrero Phosphate Co. (1878)

A promoter bought an island for himself and later sold it to the company
at a higher price without disclosure.

The court ruled that since the promoter failed to disclose this transaction,
the company could cancel the contract.

⿢ Gluckstein v. Barnes (1900)

Promoters secretly made profits from a property transaction and did not
inform the company.

The court ruled that promoters must disclose all profits and return any
secret earnings

Q12) What is the legal position of a director of a company? Discuss its

duties and obligations in brief point
Legal Position of a Director of a Company

A director is a person appointed to manage and control the affairs of a

company. Under the Companies Act, 2013, a company is considered a
separate legal entity, but since it is an artificial person, it requires
directors to act on its behalf.

Legal Status of a Director

⿡ Agent of the Company → A director acts on behalf of the company, just

like an agent represents a principal. However, a director is not a general
agent; they can only act within the powers given by the Articles of
Association (AOA) and the Companies Act.
Ferguson v. Wilson (1866) – Case Summary

Facts of the Case

In this case, the directors of a company allotted shares to certain

individuals without proper authorization.

The shareholders later challenged the allotment, claiming that the

company, as a separate legal entity, should be responsible for the actions
of its directors.

Issue

Can a company be directly liable for the unauthorized actions of its

directors?

Are directors agents of the company?

Judgment

The court held that a company, being an artificial legal entity, cannot act
on its own—it must act through its directors.

Directors are considered agents of the company and their actions, within
their authority, bind the company.

However, if directors act beyond their authority, the company is not

automatically liable unless it later ratifies (approves) their actions.

Legal Principle Established

⿡ A company acts through its directors – Since a company is a separate

legal entity, it can only operate through human agents (i.e., directors).
⿢ Directors are agents of the company – Their actions are binding on the
company only if they act within their powers.
⿣ Ultra vires acts are not binding – If directors act beyond their authority,
their actions do not automatically bind the company unless approved
later.

Impact of the Case

This case reinforced the principle of separate legal personality established

in Salomon v. Salomon (1897).

It clarified that directors have agency powers, but they must act within
their authority.

⿢ Trustee of the Company → Directors are entrusted with the company's

assets and funds, meaning they must not misuse them. However, they are
not legal trustees under the Indian Trusts Act.

⿣ Officers of the Company → Directors are considered officers and can be

held liable for violations of company law, fraud, or mismanagement.

⿤ Employees? No! → Directors receive remuneration, but they are not

considered employees of the company unless they are appointed as
whole-time directors or managing directors.

---

Duties & Obligations of a Director

Under Section 166 of the Companies Act, 2013, directors have the
following duties:

📌 1. Duty to Act in Good Faith (Fiduciary Duty)

Directors must act honestly in the best interests of:

✔ The company
✔ Its shareholders
✔ Employees and creditors

📌 2. Duty to Exercise Due Care and Skill

Directors must make informed decisions and avoid negligence.

Example: If a director approves a risky investment without research, they
can be held liable.

📌 3. Duty to Avoid Conflict of Interest

Directors must not engage in any business that competes with the
company.

They must disclose any personal interest in company transactions.

📌 4. Duty to Avoid Undue Gain or Loss

Directors must not make secret profits.

If a director gains personal benefits from company transactions, they must

return the profit to the company.

📌 5. Duty to Attend Board Meetings

Directors must actively participate in board meetings to make decisions.

If a director misses board meetings for 12 months, they automatically lose

their position.

📌 6. Duty Not to Act Against Company’s Constitution

Directors must follow the Articles of Association (AOA) and Memorandum

of Association (MOA).

Any action beyond their authority is invalid.

📌 7. Duty to Maintain Confidentiality

Directors must not disclose sensitive company information to outsiders.

📌 8. Duty to Ensure Legal Compliance

Directors must ensure the company follows all laws, including tax, labor,
and environmental regulations.

---

Liabilities of a Director
If a director fails to fulfill their duties, they can face:
✔ Civil liability – If they cause financial loss to the company, they can be
sued.
✔ Criminal liability – If a director is involved in fraud, they can be fined or
imprisoned.
✔ Personal liability – If a director signs contracts without proper authority,
they may have to pay out of their own pocket.

---

Case Laws on Directors' Duties

⿡ Foss v. Harbottle (1843)

Shareholders sued directors for mismanagement.

The court ruled that only the company can sue directors, not individual
shareholders.

⿢ Regal (Hastings) Ltd. v. Gulliver (1942)

Directors used their position to personally profit from a company

transaction.

The court ruled that directors must return any secret profits to the
company.
Q13)discuss the provisions regarding appointment or removal of directors
by board of directors
Simple Explanation of Appointment of Directors (As per Companies Act,
2013)

A director is a person who manages and makes important decisions for a

company. Only an individual can be a director, not a firm or another
company. The person must have a Director Identification Number (DIN)
and should not be disqualified under Section 164.

---

⿡ Appointment of First Directors

The first directors are usually mentioned in the Articles of Association

(AOA).
If not mentioned, the company’s founders (subscribers) appoint them.

If no one is appointed, the subscribers automatically become the first

directors.

They stay in office until the first Annual General Meeting (AGM).

In a One Person Company (OPC), the owner becomes the first director by
default.

---

⿢ Appointment by Shareholders in a General Meeting

After the first directors, shareholders appoint directors in General

Meetings.

Rotational Directors (Public Companies Only):

At least two-thirds of directors must retire by rotation.

One-third of them retire every year but can be reappointed.

Private companies can have all permanent directors if allowed in their

AOA.

---

⿣ Appointment by the Board of Directors

The Board can appoint directors in special cases:

📌 (i) Additional Directors – If the AOA allows, the Board can appoint extra
directors until the next AGM.

📌 (ii) Alternate Directors – If a director is absent for 3+ months, the Board

can appoint a substitute. They leave when the original director returns or
their term ends.

📌 (iii) Nominee Directors – Appointed when banks, investors, or the

government have a stake in the company.

📌 (iv) Casual Vacancy Directors – If a director dies, resigns, or leaves, the

Board appoints a replacement until the next General Meeting.

---

⿤ Appointment by the Tribunal (NCLT)

If a company is involved in fraud or mismanagement, the National

Company Law Tribunal (NCLT) can appoint directors to fix the issues.

---

⿥ Appointment by the Central Government

If all directors leave or are removed, the Central Government can appoint
temporary directors until the company appoints new ones.

---

⿦ Appointment by Third Parties

If the AOA allows, investors, creditors, or debenture holders can appoint

directors.

In public companies, up to one-third of directors can be appointed this

way.

In private companies, all directors can be appointed by third parties if the

AOA allows.

---

Key Points to Remember

✔ Only individuals can be directors.

✔ Every director must have a DIN.
✔ Independent directors must not have any financial ties with the
company.
✔ A director must not be disqualified under Section 164 (e.g., fraud,
bankruptcy, or criminal offenses).
Conclusion

Directors play a key role in managing a company. The Companies Act,

2013 allows their appointment in various ways—by shareholders, the
Board, the Tribunal, the Government, or third parties—to ensure smooth
management and accountability.
Provisions for Removal of Directors (Companies Act, 2013) – Simple
Explanation

A company can remove a director before their term ends, but there are
some rules and conditions to follow.

---

⿡ Removal by Shareholders [Section 169]

Shareholders can remove a director before their term ends by passing an

ordinary resolution in a General Meeting.

Process:

1. 1. A shareholder gives a special notice to the company (at least 14 days

before the meeting).

1. 2. The company sends a copy of the notice to the director.

1. 3. The director has the right to defend themselves.

1. 4. Shareholders vote on the resolution in the meeting.

1. 5. If more than 50% votes are in favor, the director is removed.

1. 6. A new director may be appointed in the same meeting.

📌 Exceptions:

Directors appointed by the Tribunal (NCLT) for mismanagement (Section

242) cannot be removed this way.

Nominee Directors (appointed by banks, financial institutions, or the

government) cannot be removed without their approval.
---

⿢ Removal by the Board of Directors

The Board cannot remove a director directly.

However, if a director misses all board meetings for 12 months without

informing, their position is automatically vacated as per Section 167(1)(b).

---

⿣ Removal by the Tribunal (NCLT) [Section 242]

If a director is involved in fraud, mismanagement, or oppression, any

member can apply to the National Company Law Tribunal (NCLT) for their
removal.

If the Tribunal finds them guilty, it can order removal and ban them from
holding office again.

---

⿤ Removal by the Central Government [Section 167(3)]

If all directors are removed or disqualified, the Central Government can

appoint new directors until the company elects its own.

---

Key Points to Remember

✔ A company must follow the legal process for removal.

✔ A director has the right to defend themselves before removal.
✔ Some directors (Tribunal-appointed or Nominee Directors) cannot be
removed by shareholders.

---

Conclusion

A director can be removed by shareholders, the Tribunal, or the

Government under specific conditions. However, the right to remove
directors is limited in some cases to ensure fairness and prevent misuse

Q14)Power and duties of wholetime director and managing director and

the Difference between them
Powers and Duties of Whole-time Director & Managing Director

Both Whole-time Directors (WTDs) and Managing Directors (MDs) are

senior executives responsible for managing a company’s operations. Their
roles and responsibilities are defined under the Companies Act, 2013, and
the company's Articles of Association (AOA).

---

⿡ Powers of Whole-time Director & Managing Director

They have almost the same powers but with different levels of authority:

✅ Whole-time Director (WTD)

Works full-time for the company and actively manages day-to-day

operations.

Executes Board decisions and company policies.

Supervises departments like finance, HR, marketing, and operations.

Represents the company in legal and financial matters.

Can make operational decisions within their assigned role.

✅ Managing Director (MD)

Holds the highest executive power in the company.

Has the authority to make key business decisions and strategies.

Controls major financial and operational policies.

Appoints or removes key executives and department heads.

Represents the company in contracts, negotiations, and legal cases.

📌 Key Difference: The MD has broader authority than a WTD and is
responsible for the overall management of the company.

---

⿢ Duties of Whole-time Director & Managing Director

As per Section 166 of the Companies Act, 2013, both MDs and WTDs have
legal responsibilities:

✅ Common Duties

1. Act in Good Faith – Work for the benefit of the company and its
shareholders.

1. Avoid Conflict of Interest – Cannot engage in activities that compete

with the company.

1. Follow Company Policies & Laws – Must comply with the Companies Act,
company rules, and board decisions.

1. Exercise Due Care & Skill – Make responsible and informed decisions to
protect the company.

1. Ensure Financial Integrity – Oversee proper financial reporting,

budgeting, and auditing.

1. Prevent Fraud & Mismanagement – Take steps to avoid illegal or

unethical activities.

1. Attend Board Meetings – Regularly participate in board discussions and

decision-making.

1. Ensure Compliance with Laws – Follow rules under SEBI, tax laws, labor
laws, and corporate governance.

📌 Additional Duty for MDs:

Lead Business Strategy – Set long-term goals and guide the company's
overall direction.

---
Conclusion

Managing Directors (MDs) have higher authority and make strategic

decisions for the company.

Whole-time Directors (WTDs) manage daily operations and ensure the

company's smooth functioning.

Both must act in the best interest of the company and comply with laws.
Take differences from the chat gpt
Q15) explain Women Director , Alternate director ?
Women Director & Alternate Director (As per Companies Act, 2013)

1. Women Director

A Women Director is a female director appointed to a company's Board to

promote gender diversity and better corporate governance.

Applicability (Section 149 of Companies Act, 2013)

The following companies must have at least one Women Director:

1. Listed companies (companies whose shares are traded on stock

exchanges).

1. Public companies with:

Paid-up capital of ₹100 crore or more, OR

Annual turnover of ₹300 crore or more.

Duties & Role

Brings diversity and inclusivity to the Board.

Helps in better decision-making and corporate governance.

Ensures compliance with legal and ethical standards.

---
1. Alternate Director (Section 161(2))

An Alternate Director is a temporary director appointed to act in place of

an original director who is absent for at least 3 months from India.

Key Points:

Appointed only if permitted by the Articles of Association or by a

resolution in a general meeting.

Cannot be appointed for an Independent Director, unless they also qualify

as an Independent Director.

Holds office until the original director returns or until their term expires.

Why is an Alternate Director Appointed?

Ensures continuity in decision-making when a director is unavailable.

Useful for multinational companies where directors travel frequently.

Q16)define independent director under clause 49 of listing agreement

Independent Director (As per Clause 49 of the Listing Agreement &
Companies Act, 2013)

An Independent Director is a non-executive director who does not have

any material or financial relationship with the company, ensuring
unbiased decision-making and better corporate governance.

Key Features of an Independent Director

Not involved in day-to-day operations of the company.

No significant financial interest in the company (cannot own more than 2%

shares).

No relatives in key managerial positions of the company.

Appointed to protect the interest of shareholders and ensure transparency.

Applicability as per Clause 49

Listed companies must have:

1. At least 50% Independent Directors (if the Chairman is an executive
director).

1. At least 1/3rd Independent Directors (if the Chairman is a non-executive

director).

Role & Duties

Ensure transparency in financial reporting.

Protect minority shareholders from fraud or mismanagement.

Oversee corporate governance and compliance with regulations.

Q17) qualifications and disqualifications for the appointment of directors?

Qualifications for appointment as a director. As per the Companies Act, no
academic or even shareholding qualifications are prescribed for a Director.
To be so appointed, a person has to be:

• an individual, and
. competent to contract as per requirements of the Indian Contract Act.
Unless the Articles provide otherwise, a director need not be a shareholder
of the company.
Disqualifications for the Appointment of Directors (Section 164 of
Companies Act, 2013)

A person cannot be appointed as a director if they meet any of the

following conditions:

1. Legal Disqualifications:

Declared mentally unsound by a court.

Declared insolvent (bankrupt) and their case is still pending.

Convicted of an offense involving fraud or dishonesty (with a sentence of

6 months or more).

If sentenced for 7 years or more, they are permanently disqualified.

1. Financial Disqualifications:
Has not paid calls on shares held by them within 6 months from the due
date.

Director of a company that has failed to file financial statements or annual

returns for 3 consecutive years.

1. Company-related Disqualifications:

If they were a director in a company that:

Failed to repay deposits, loans, or interest for 1 year or more.

Was involved in fraudulent activities.

Has been disqualified by a court or tribunal.

Additional Disqualification (For Listed Companies - SEBI Rules)

If found guilty of insider trading or market manipulation.

Impact of Disqualification:

A disqualified person cannot be reappointed in any company for 5 years

(unless the court allows otherwise).

If a sitting director becomes disqualified, they must resign immediately.

Q18)what are the provisions of Companies Act 2013 regarding the

appointment and rotation of an auditor?

Provisions of Companies Act, 2013 Regarding Appointment and Rotation of

Auditor

The Companies Act, 2013 (Sections 139-144) governs the appointment

and rotation of auditors in companies.

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1. Appointment of Auditor (Section 139)

First Auditor

For Private & Public Companies (except government companies):

Appointed by the Board of Directors within 30 days from incorporation.

If the Board fails, shareholders appoint in an Extraordinary General

Meeting (EGM) within 90 days.

For Government Companies:

Appointed by the Comptroller and Auditor General (CAG) within 60 days.

Subsequent Appointment

In listed and other prescribed companies, the auditor is appointed for 5

years in the Annual General Meeting (AGM).

In government companies, the CAG appoints an auditor within 180 days

from the financial year’s start.

---

1. Rotation of Auditors (Section 139(2))

Applicability of Rotation

Rotation is mandatory for:

Listed Companies

Unlisted Public Companies with paid-up share capital of ₹10 crore or more.

Private Companies with paid-up share capital of ₹50 crore or more.

Companies having public borrowings of ₹50 crore or more.

Rotation Rules

Individual Auditor: Maximum one term of 5 years.

Audit Firm: Maximum two terms of 5 years each (total 10 years).

Cooling-off Period: After completing the term, the same auditor or firm
cannot be reappointed for 5 years.
---

1. Other Important Provisions

Auditor's Consent: The auditor must give written consent before

appointment.

Removal of Auditor (Section 140):

Can be removed before term completion only with shareholder approval

and prior approval of the Central Government.

Resignation of Auditor: The auditor must file a statement explaining

reasons with the company and ROC.

These provisions ensure independence, transparency, and accountability

in financial reporting. Let me know if you need further clarification!

Q19)There are only two members of company. They are also the
characters of the company both have them are not on speaking
terms ,can the company be bound of on the ground give reason
Yes, the company can still be bound by its actions, even if the two
members (who are also the directors) are not on speaking terms.

Reasoning:

1. Separate Legal Entity: A company is a separate legal entity from its

members and directors (as established in Salomon v. Salomon & Co. Ltd.).
The personal disputes between the members do not affect the company's
existence or its obligations.

1. Binding Nature of Decisions:

If the company's Articles of Association provide for decision-making

through meetings or voting, then any validly passed resolution will bind
the company.

If one director refuses to cooperate, the other director may still call for a
meeting as per the company's Articles and Companies Act, 2013.

1. Deadlock Situations:

If the dispute leads to a management deadlock, the company may

approach the National Company Law Tribunal (NCLT) under Section 241-
242 (for oppression and mismanagement).

The Tribunal may order the appointment of an independent director or

suggest a resolution.

1. Binding Contracts: If the company has entered into a contract with an

external party, it remains bound by that contract unless proven that the
contract was made without proper authority.

Conclusion:

The company's obligations remain valid despite the internal disputes.

However, if decision-making is completely blocked, legal intervention may
be required to resolve the deadlock.

Q20)Explain doctrine of ultra vires and its effects

Doctrine of Ultra Vires (Beyond Powers of a Company)

The term "Ultra Vires" means "beyond powers." If a company does

something that is not mentioned in its Memorandum of Association (MoA),
it is considered ultra vires and is invalid. This means the company is not
legally bound by such actions, and even all shareholders together cannot
approve or ratify them.

Purpose of the Doctrine

This rule protects investors and creditors by ensuring that a company only
uses its funds for its stated business activities. It prevents misuse of their
money in unauthorized activities.

Important Case: Ashbury Railway Carriage & Iron Co. Ltd. vs. Riche

In this case, a company had permission to make and sell railway carriages
and work as mechanical engineers. However, it entered into a contract to
finance the construction of a railway in Belgium. The court ruled that this
was beyond the company's powers (ultra vires) and was therefore invalid,
even if all shareholders agreed to it.

Effects of Ultra Vires Transactions

1. Court Injunction – If a company tries to do something ultra vires, even a

single shareholder can go to court and stop it.
Example: Attorney General vs. Great Eastern Railway Co.

1. Directors' Personal Liability – Directors must ensure that company funds

are used for legal business activities. If they misuse funds for ultra vires
activities, they are personally responsible for any losses.

1. Breach of Authority – Directors act as agents of the company. If they

make agreements beyond the company's powers, they become personally
liable to third parties.

1. Ultra Vires Contracts are Void – Any contract that goes beyond the
company’s powers is legally invalid and cannot be enforced.

1. Ultra Vires Acquired Property – If a company acquires any property

through an ultra vires act, it can keep and use the property only if it paid
for it.

1. Ultra Vires Torts (Wrongful Acts) – If employees commit a wrongful act

within the company’s legal activities, the company is responsible.
However, if the act is outside the company’s stated objectives, the
company is not liable.

Key Takeaway

All ultra vires acts are null and void. Even if all shareholders agree, the
company cannot approve or validate them. However, if an act is allowed
under the Memorandum of Association but not under the Articles of
Association, it can be approved by changing the Articles.

Q21)doctrine of indoor management is opposed to that of doctrine of

constructive notice comment along with its exceptions
Doctrine of Constructive Notice and Doctrine of Indoor Management

(A) Doctrine of Constructive Notice

This rule says that anyone dealing with a company is assumed to have
read and understood its Memorandum of Association (MoA) and Articles of
Association (AoA). These documents are publicly available as they are
registered with the Registrar of Companies, which is a public office.

Even if a person has not actually read these documents, the law assumes
they know their contents. This means outsiders cannot claim ignorance of
the company’s rules and powers. This doctrine prevents outsiders from
arguing that they were unaware of any company restrictions when making
deals.

(B) Doctrine of Indoor Management (Turquand’s Rule)

While the Constructive Notice doctrine protects the company, the Indoor
Management doctrine protects outsiders dealing with the company. This
rule says that outsiders are not responsible for checking the company’s
internal processes and approvals.

For example, if a company’s Articles say that directors need a formal

resolution before issuing bonds, an outsider does not have to check
whether the resolution was actually passed. In the Royal British Bank vs.
Turquand case, the court ruled in favor of an outsider who assumed that
the company had followed its internal rules.

This doctrine is important for fairness and convenience, as internal

company rules are not public, and outsiders cannot be expected to verify
every internal decision.

Exceptions to the Doctrine of Indoor Management

There are situations where an outsider cannot claim protection under this
rule:

1. Knowledge of Irregularity – If a person knows that the company is not

following its internal rules, they cannot use this doctrine.

Example: In Howard vs. Patent Ivory Manufacturing Co., the directors

loaned the company more money than allowed without shareholder
approval. Since they knew the rule, they could only recover the approved
amount (£1,000).

1. Suspicion of Irregularity – If a person has reasons to doubt the

company’s actions but fails to investigate, they cannot claim protection.

Example: In Underwood Ltd. vs. Bank of Liverpool, a company’s sole

director deposited company cheques into his personal account. The bank
should have checked this irregularity, so it was held liable.

1. Not Knowing the Articles – If a person has not read the company’s rules,
they cannot claim protection.
Example: In Rama Corporation vs. Proved Tin & General Investments Ltd.,
a director accepted a cheque, but he was not authorized to do so. Since
the outsider did not check the company’s rules, the company was not held
responsible for the loss.

1. Forgery – If a document is forged, this doctrine

Q22)Explain the following:

A) Buyback of shares and which funds used for buy back of shares , why
does the Companies Act allow a company to buy back its securities?
conditions of buy back

Buyback of Shares: Simple Explanation

A buyback of shares happens when a company repurchases its own

shares from its shareholders. This reduces the number of shares available
in the market. Companies do this to increase the value of remaining
shares, use excess cash wisely, or prevent a hostile takeover.

Restrictions on Buyback (Section 67 of the Companies Act, 2013)

 A company limited by shares or guarantee with share capital

cannot buy back its shares unless allowed under Section 66
(which deals with reducing share capital).

 However, a company with unlimited liability is free from this

restriction.

How Can a Company Buy Back Its Shares? (Section 68 of the

Companies Act, 2013)

A company can buy back shares using:

1. Free Reserves – Profits not distributed as dividends.

2. Securities Premium Account – Extra money earned when shares

were issued at a premium.

3. Money from a Fresh Issue of Shares/Securities – But a

company cannot use money raised from issuing the same
type of shares for buyback.

Conditions for Buyback

Before a company can buy back shares, it must follow these rules:
 1. Approval in the Articles of Association (AOA) – The company’s
rules must allow buyback.

2. Approval from Board or Shareholders:

o If the buyback is ≤10% of total paid-up equity capital + free

reserves → Board approval is enough.

o If the buyback is >10% but ≤25% → Special Resolution is

needed in a General Meeting.

3. Buyback Limit – A company cannot buy back more than 25% of

its total paid-up capital and free reserves in one financial year.

4. Debt-Equity Ratio Restriction – After buyback, the company’s

total debt must not be more than twice (2:1) its equity and
free reserves.

5. Only Fully Paid-Up Shares – The company can’t buy back

unpaid shares.

6. SEBI Rules Compliance – If the company is listed, it must follow

SEBI regulations.

7. Completion Timeline – The buyback must be completed within

12 months from approval.

Ways a Company Can Buy Back Shares

A company can buy back shares from:

1. Existing Shareholders – In proportion to their holdings.

2. Open Market – Buying from stock exchanges.

3. Employees – If employees have shares through stock options or

sweat equity.

Additional Rules After Buyback

1. Solvency Declaration – The company must prove it is financially

stable and file this with the Registrar of Companies (ROC) and
SEBI.

2. Destroying Bought-Back Shares – The company must

physically destroy the repurchased shares within 7 days of
completing the buyback.
 3. No New Share Issue for 6 Months – The company cannot issue
the same type of shares for 6 months after the buyback (except
for stock splits, ESOPs, or bonus shares).

4. Register of Buyback – The company must maintain a record of

all repurchased shares.

5. Filing a Return – The company must file a return with the ROC
and SEBI within 30 days of completing the buyback.

Penalties for Violating Buyback Rules

 Company Fine: ₹1 lakh to ₹3 lakh.

 Officer Fine: ₹1 lakh to ₹3 lakh and/or up to 3 years of

imprisonment.

Capital Redemption Reserve (Section 69 of the Companies Act,

2013)

If a company buys back shares using free reserves, it must transfer an

equal amount to a Capital Redemption Reserve Account. This
reserve can only be used to issue fully paid-up bonus shares.

Restrictions on Buyback (Section 70 of the Companies Act, 2013)

A company cannot buy back shares if:

1. It does so through a subsidiary or an investment company.

2. It has defaulted on:

o Deposits or interest payments.

o Redeeming debentures or preference shares.

o Declared dividends but hasn’t paid them.

o Repaying bank loans or term loans.

3. It hasn’t filed its Annual Return (Section 92), declared

dividends (Section 123), or prepared financial statements
(Section 129).

B) Sweat Equity Shares and conditions for issue sweat equity ?

Sweat Equity Shares (Section 2(88) of the Companies Act, 2013)

Sweat Equity Shares are shares issued by a company to its employees
or directors at a discount or for consideration other than cash, in
exchange for:

 Their intellectual property,

 Know-how,

 Value addition, such as innovative ideas or expertise.

These shares are given as a reward for their contribution in enhancing

the company's value.

Conditions for Issuing Sweat Equity Shares (Section 54 of

Companies Act, 2013)

A company can issue sweat equity shares only if it meets the following
conditions:

1. Approval in a General Meeting

o A special resolution must be passed by shareholders

authorizing the issue.

o The resolution should mention:

 Number of shares,

 Current market price,

 Consideration (if any), and

 Class of employees/directors eligible.

2. Time Limit for Issue

o Sweat equity shares must be issued within 12 months from

the date of passing the resolution.

3. Eligibility

o The company can issue sweat equity shares only to

permanent employees or directors.

o The employee should have worked for at least one year

before receiving these shares.

4. Valuation of Shares

o The valuation of shares and the intellectual property

should be done by a registered valuer.
 5. Lock-in Period

o Sweat equity shares have a mandatory lock-in period of 3

years. This means the employee/director cannot sell them
for 3 years.

6. Maximum Limit

o A company cannot issue more than 15% of its paid-up

share capital in a year or exceed ₹5 crore in value.

o The total sweat equity issued should not exceed 25% of

the paid-up capital.

o For startups, the limit is 50% of paid-up capital for the

first 10 years.

7. Listed Companies

o If the company is listed, it must follow SEBI regulations

along with Companies Act provisions.

8. Disclosure in Financial Statements

o The company must disclose details of issued sweat equity

shares in its Board’s Report.

Conclusion

Sweat equity shares help retain talented employees and reward

them for their contributions. However, companies must follow strict
conditions to ensure fairness and transparency.

C)ESOP

Employee Stock Option Scheme (ESOS) – Section 62(1)(b),

Companies Act 2013

ESOS allows companies to offer shares to employees at a pre-

determined price in the future, encouraging retention and
motivation.

Key Features

1. Eligibility – Only permanent employees, directors, and

officers can participate. Promoters and major shareholders
(10% or more) are not eligible.
 2. Approval – Requires special resolution in the General Meeting.

3. Vesting & Exercise Period – Minimum 1-year vesting before

employees can buy shares.

4. Pricing & Lock-in – Companies decide the purchase price and

may impose a lock-in period for selling.

5. Non-Transferable – Employees cannot transfer or sell stock

options.

6. Resignation/Termination – Options may lapse unless otherwise

stated.

7. Listed Companies – Must follow SEBI (SBEB) Regulations,

2021.

Benefits

 Encourages Retention – Employees stay longer to benefit from

share price growth.

 Improves Performance – Employees are motivated as company

shareholders.

 Cost-Effective – No immediate cash payout like bonuses.

Conclusion: ESOS aligns employee interests with company success,

making it a valuable incentive tool.

D) Difference between transfer and transmission of shares and provisions

regarding them

Difference Between Transfer and Transmission of Shares

Basis Transfer of Shares Transmission of Shares

Voluntary transfer of Automatic transfer due to death,

Meaning
shares by a shareholder. insolvency, or inheritance.

Initiated
Shareholder (seller). Legal heir, receiver, or nominee.
By

Nature Sale, gift, or agreement. Legal process.

Considerati Involves payment or No consideration (inherited or legal

on exchange. transfer).
Basis Transfer of Shares Transmission of Shares

Needs share transfer Requires proof of inheritance

Execution deed signed by both (death certificate, will, succession
parties. certificate, etc.).

Requires approval by Usually automatic, subject to legal

Approval
the Board of Directors. verification.

Stamp Payable as per the value

No stamp duty required.
Duty of shares.

Provisions Regarding Transfer of Shares (Section 56, Companies

Act 2013)

1. Proper Instrument – Transfer must be made through a duly

stamped and executed transfer deed.

2. Approval – The Board of Directors has the right to reject a

transfer (especially in private companies).

3. Entry in Register – Once approved, the company must record the

transfer in its Register of Members.

4. Time Limit – The company must register the transfer within 30

days from receiving the transfer deed.

Provisions Regarding Transmission of Shares

1. No Transfer Deed Required – Shares are transferred

automatically due to legal events.

2. Proof Required – Legal heir must submit supporting documents

like death certificate, succession certificate, or probate.

3. Approval by Board – The company must verify documents but

cannot refuse the transmission.

4. No Stamp Duty – Since it's not a sale, stamp duty is not

applicable.

5. Register Update – The company updates the Register of

Members with the new owner’s name.

Conclusion
  Transfer is voluntary and involves a sale or gift of shares.

 Transmission is involuntary and happens due to legal events

like death or insolvency.

 While transfer requires shareholder and board approval,

transmission follows legal succession laws.

Q23) define and Difference between Bonus Issue and Right Issue the
condition that must be compiled with before a company makes these
issue

Rights Shares & Bonus Shares (Simplified Explanation)

Rights Shares

A company can increase its subscribed capital by issuing new shares,

but within its authorized capital limit (as per its Memorandum of
Association). These new shares are first offered to existing
shareholders in proportion to their current holdings. This is called the
Right Issue, and shareholders have the pre-emptive right to buy these
shares before they are offered to outsiders.

Main Rules (As per Section 62(1)(a) of Companies Act, 2013):

1. Offer to Existing Shareholders – The company must first offer

shares to its current shareholders.

2. Proportionate Offer – Shares must be offered in proportion to their

existing holdings.

3. Proper Notice – Shareholders must get proper notice with at least

15 days to accept, reject, or sell (renounce) their rights.

4. Renunciation Option – Shareholders can transfer their right to

someone else if they wish.

5. Unsubscribed Shares – If shareholders do not accept or renounce,

the company can allot these shares in any way it deems fit.

Exceptions (When Rights Shares Can Be Issued to Outsiders)

 Section 62(1)(b): The company can issue shares to employees

under an Employee Stock Option Scheme (ESOS), with
shareholders’ approval (special resolution).

 Section 62(1)(c): The company can issue shares to any person,

even if they are not existing shareholders, with special resolution
and valuation by a registered valuer.

These rules apply to both public and private companies.

Bonus Shares

Companies do not distribute all their profits as dividends. Some

profits are kept as reserves (statutory or general reserves). If allowed by
its Articles of Association, a company can convert these reserves
into capital and issue Bonus Shares to existing shareholders for free.
This process is called capitalization of profits.

Key Rules for Issuing Bonus Shares

1. Source of Bonus Shares – They can be issued from:

o Free Reserves

o Securities Premium Account

o Capital Redemption Reserve

(But not from revaluation reserves)

2. Conditions to Issue Bonus Shares:

o The company’s Articles of Association must allow it.

o Approval from Board of Directors and shareholders

(general meeting) is required.

o The company must not have defaulted on loan payments,

fixed deposits, or statutory dues (like employee PF, gratuity,
etc.).

o Any partly paid-up shares must be fully paid before

issuing bonus shares.

3. Bonus Shares ≠ Dividend – Bonus shares cannot be

issued as a substitute for dividends.

Definition & Difference Between Bonus Issue and Right

Issue
 Bonus Right
Basis
Issue Issue

Free shares Shares

issued to offered to
existing existing
Meaning shareholders shareholder
from s at a
company’s discounte
reserves. d price.

To reward To raise
shareholders additional
Purpose and capital for
capitalize the
reserves. company.

No payment Shareholder
Considerati required; s must pay
on issued as a for the
gift. shares.

Only
Given to all
eligible
existing
shareholder
shareholde
Eligibility s can
rs
subscribe
proportionall
or sell
y.
rights.

Reduces free Increases

reserves but company’s
Impact on
does not capital and
Reserves
affect cash cash
flow. reserves.

Requires
compliance
No prior with SEBI
SEBI
approval regulations
Approval
needed. (for listed
companies)
.
Q24) discuss the legal provisions regarding valid allotment of
shares by a public company

The allotment of shares refers to the process where a company grants

shares to applicants who have subscribed. In a public company, this
process must follow certain legal provisions under the Companies Act,
2013 and SEBI guidelines to ensure transparency and fairness.

I. General Provisions (Applicable to All Companies)

1. Proper Authority – Allotment must be made by the Board of

Directors or an authorized committee.

2. Written Application – Shares can only be allotted based on a

written request on the prescribed form. Oral requests are invalid.

3. Reasonable Time – Allotment must be completed within a

reasonable time; otherwise, the offer lapses.

4. Communication – The company must inform applicants about the

allotment. Sending an allotment letter is sufficient.

5. Unconditional Allotment – Allotment must be absolute and

match the terms mentioned in the application.

II. Special Provisions (For Public Companies Raising Capital from

the Public)

1. Registration of Prospectus – Before issuing shares, a copy of

the prospectus must be filed with the Registrar of Companies.

2. Application Money – Applicants must pay at least 5% of the

share price or as per SEBI guidelines.

3. Minimum Subscription – At least 90% of the total issue must

be subscribed within 60 days of issue closure. If not, the company
must return the money within 10 days or pay 15% annual
interest on the delayed refund.

4. Separate Bank Account – All application money must be kept in

a scheduled bank and used only for share allotment or refund.

5. Stock Exchange Listing – Before making a public offer, the

company must apply to a stock exchange for listing its shares.
The prospectus must mention the name of the stock exchange.
 6. Dematerialized Form – Public shares must be issued only in
dematerialized (electronic) form as per the Depositories Act,
1996.

Consequences of Non-Compliance

1. Fines – Failure to comply with the above rules leads to penalties

on the company and officers.

2. Void Allotment – If the company does not get listed on a stock

exchange, the allotment becomes invalid.

3. Legal Action – If application money is not refunded on time,

officers can be personally liable for repayment with 15%
interest.

Conclusion

 General provisions apply to all companies and cover basic rules

for allotment.

 Special provisions apply to public companies to ensure investor

protection and transparency.

 Failure to follow these provisions results in fines, invalid

allotments, or legal action.

Q24)define call and discuss the essential requirements of a valid call?

Definition of Call
A call refers to a demand made by a company on its shareholders to pay a part or the full
unpaid amount on their shares. Calls are typically made in installments after the initial
allotment of shares.

Essential Requirements of a Valid Call

1. Made by Proper Authority – The Board of Directors must approve the call through
a resolution in a properly conducted board meeting.
2. As Per Articles of Association – The company must follow the rules mentioned in its
Articles of Association regarding making calls.
3. Uniformity Among Shareholders – Calls must be made equally to all shareholders
of the same class of shares.
4. Reasonable Time Gap – There should be a reasonable interval between two
consecutive calls.
5. Proper Notice – Shareholders must be given adequate notice specifying the amount
due, the due date, and payment instructions.
6. Legal Compliance – The call must comply with the Companies Act, 2013 and any
relevant regulations.
7. Not Excessive – The call money should be within the limits set at the time of share
allotment.

Conclusion
A valid call ensures fairness and legal compliance. It must be properly authorized,
uniformly applied, and notified to shareholders with a reasonable payment schedule.
Q25)what do you mean by forfeiture of shares explain the requirements of a valid
forfeiture of shares by company?
Forfeiture of Shares – Simple Explanation
What is Forfeiture of Shares?
When a shareholder fails to pay the required amount (call money or installment) on time,
even after reminders, the company can take back (forfeit) their shares. The company
may also keep the amount already paid by the shareholder.

Rules for a Valid Forfeiture

1. Only for Non-Payment – Shares can be forfeited only if the shareholder does not pay
the required amount.
2. Proper Notice – The company must send a 14-day notice warning that shares will be
forfeited if payment is not made.
3. Board Approval – If the shareholder still doesn’t pay, the Board must pass a
resolution to officially forfeit the shares.
4. Fair Process – The company must follow fair and legal procedures.
5. No Liability After 1 Year – If the company shuts down after 1 year, the ex-
shareholder doesn’t have to pay any pending amount.

Effects of Forfeiture
1. The shareholder loses ownership, and their name is removed from company records.
2. They still owe any outstanding dues unless the company gets full payment.
3. If the company closes within 1 year, they might still have to pay pending dues.
4. The company owns the forfeited shares and can re-sell or cancel them.

Re-Issue of Forfeited Shares

 The company can sell forfeited shares but not at a big discount (as per Section 53).
 The new buyer becomes a shareholder once added to company records.
 This process is re-sale, not a fresh allotment, so no extra paperwork is needed.
In Short: If a shareholder doesn’t pay on time, the company can take back their shares
and re-sell them, but the process must be fair and legal.
Q26) A prospectus must state truth and nothing but truth . DO you agree ?explain.
A Prospectus Must State the Truth – Explanation
Yes, a prospectus must always be truthful and accurate because it forms the basis of
the contract between a company and its investors. It should clearly disclose all
important facts that may influence an investor's decision and must not include false or
misleading statements.
What is a Misleading Prospectus?
A misleading prospectus contains false statements or hides important facts, leading
investors to make wrong decisions. Investors who buy shares based on such a prospectus
have the right to take legal action against the company and the people responsible.

Conditions for a Prospectus to be Misleading

1. Misrepresentation of Material Facts – If a prospectus provides incorrect or
misleading information about important facts, it is considered fraudulent.
2. Omission of Important Information – Hiding any major fact that affects investment
decisions also makes a prospectus misleading.
3. Misrepresentation of Law is Not Misleading – If a prospectus states that shares will
be issued at a 10% discount (which is illegal under Section 53 of the Companies Act),
it is a misrepresentation of law, and investors cannot claim damages.
4. Opinions Are Not Misleading – If the company's directors say they believe the
company will make profits and pay dividends in the first year, it is just an opinion,
not a false fact.

Consequences of a Misleading Prospectus

1. Legal Action Against the Company – Investors can sue the company for
compensation.
2. Liability of Directors and Promoters – Those responsible for issuing the misleading
prospectus may face penalties or imprisonment.
3. Loss of Investor Trust – A company issuing a false prospectus loses credibility,
making it hard to raise funds in the future.

Conclusion
A prospectus must always be honest, transparent, and accurate. Any misleading
statement or omission can harm investors and lead to legal consequences for the
company and its officials.
Q27) Discuss about the Deemed Prospectus, Shelf Prospectus, Red herring Prospectus
Types of Prospectuses in Company Law
A prospectus is a formal document issued by a company to attract investors by providing
details about securities being offered. Under the Companies Act, 2013, different types of
prospectuses serve different purposes.

1. Deemed Prospectus (Section 25)

A Deemed Prospectus arises when a company does not directly issue a prospectus but
offers securities through an intermediary, such as an investment bank or stockbroker. If
the public is invited to subscribe to these securities, the document used for the offer is
treated as a prospectus issued by the company itself.
Key Features:
 If a company issues securities to an intermediary (e.g., stockbroker), and the
intermediary offers them to the public, the document used for such an offer is treated
as a Deemed Prospectus.
 The company is held legally responsible for the accuracy of the information in the
document.
 Prevents companies from avoiding legal obligations by issuing securities indirectly.
2. Shelf Prospectus (Section 31)
A Shelf Prospectus allows a company to issue multiple securities over a period of time
without filing a new prospectus for each issue. It is used mainly by financial institutions
and public sector companies for raising funds in stages.
Key Features:
 The company files the prospectus once with the Registrar of Companies (ROC).
 Securities can be issued in multiple rounds within a validity period of up to 1 year.
 Before each new issue, the company must file an Information Memorandum
containing updated details.
 Reduces time and paperwork as separate prospectuses are not needed for each
offering.

3. Red Herring Prospectus (Section 32)

A Red Herring Prospectus (RHP) is issued before the final price of securities is
determined in an Initial Public Offering (IPO). It contains all necessary details except
for the price and the number of shares being issued.
Key Features:
 Issued before price determination to gauge investor interest.
 Must be filed with SEBI and Registrar of Companies (ROC) before the IPO.
 Contains details like company financials, risks, business strategy, and market
conditions.
 Once the price is finalized, a final prospectus is issued.

Comparison Table
Type of
Purpose Key Feature
Prospectus
Prevents companies Intermediary sells securities, and the
Deemed
from avoiding document is treated as a company-
Prospectus
prospectus rules issued prospectus
Allows multiple Single prospectus valid for up to 1 year
Shelf
security issues without with updates via an Information
Prospectus
refiling Memorandum
Lacks final price and number of
Red Herring
Used before IPO pricing shares, later converted into a final
Prospectus
prospectus

Conclusion
Different types of prospectuses serve different functions in corporate fundraising.
Deemed prospectuses prevent misuse, shelf prospectuses reduce administrative
burden, and red herring prospectuses help assess market demand before an IPO.
Understanding these concepts is essential for investors and companies.
Q28) what do you mean by misleading prospectus what are the effects of misstatement
statement in a prospectus , Explain the remedies to the allottee who has brought shares on
the
basis of misleading prospectus with the help of a case study.
Misleading Prospectus: Meaning, Effects & Remedies
What is a Misleading Prospectus?
A misleading prospectus contains false, incomplete, or misleading information that can
deceive investors. It may involve:
1. Misrepresentation of material facts – False claims about the company’s financials
or operations.
2. Omission of important facts – Hiding key details that affect investment decisions.
3. False promises – Unrealistic projections or guarantees about the company’s future.
A prospectus is the basis of the contract between the company and investors, so it must
be honest, accurate, and complete.

Effects of Misstatement in a Prospectus

If a company issues a misleading prospectus, it can lead to:
1. Contract Rescission – Investors can cancel their share purchase and demand a
refund.
2. Legal Action & Compensation – The company and its officials can be sued for
financial losses.
3. Criminal Liability – Directors and promoters may face fines and imprisonment
under Sections 34 & 447 of the Companies Act, 2013.
4. Loss of Investor Trust – The company’s reputation and stock value may suffer.

Remedies for Misleading Prospectus

1. Remedies Against the Company
✅ Rescission of Contract – Investors can return their shares and get a refund if:
 The prospectus contained a false statement or misrepresentation of facts (not
opinion or law).
 The investor relied on the misleading statement while buying shares.
 The investor acts within a reasonable time after discovering the fraud.
 The company has not gone into liquidation.
🚨 Loss of Right to Rescind occurs if the investor:
 Delays legal action.
 Accepts dividends or pays call money.
 Tries to sell the shares.
✅ Damages for Fraudulent Misstatement – Investors can sue for financial losses caused
by false statements. However, they must first return their shares to the company.

2. Remedies Against Directors, Promoters & Experts

An investor can take action against those responsible for false statements in the
prospectus.
✅ Damages for Fraudulent Misrepresentation (Derry v. Peek Case, 1889) –
 In this case, a company’s directors falsely claimed they had government permission
to run tramways using steam power.
 Investors relied on this statement, but the claim was false, and the company’s shares
lost value.
 The House of Lords ruled that directors were not liable because they honestly
believed their statement was true.
 Principle: Fraudulent misrepresentation requires proof that the false statement was
made knowingly, recklessly, or without belief in its truth.
✅ Compensation under Section 35 – Investors can claim compensation from directors,
promoters, or experts who authorized the misleading prospectus.
✅ Damages for Omission (Section 26) – If an investor suffers a loss due to missing
information, those responsible for issuing the prospectus must compensate them.
🚨 Defenses Against Liability:
A director or promoter can avoid liability if they prove:
 They withdrew their consent before the prospectus was issued.
 The prospectus was issued without their knowledge.
 They believed the statement was true based on reasonable grounds or official
reports.

3. Criminal Liability (Section 34 & 447)

📌 If a prospectus contains false statements, those responsible may face imprisonment
(6 months to 10 years) and fines up to 3 times the amount of fraud.
📌 If fraud involves public interest, the minimum jail term is 3 years.
⚠️Note: Criminal liability is a punishment for fraud, but investors cannot claim
damages under it.

Conclusion
A misleading prospectus can cause financial loss and legal trouble. Investors can
rescind their contracts, sue for damages, or take legal action. The Derry v. Peek case
highlights that fraudulent misrepresentation requires intent, and directors may escape
liability if they honestly believed their statements were true. Companies and directors
must ensure that the prospectus is accurate, complete, and free from misrepresentation
to maintain investor trust and avoid penalties.
Q29) Explain the fixed price method and the book building method of public issues
Fixed Price Method vs. Book Building Method in Public Issues
When a company issues shares to the public, it can choose between two pricing methods:
1. Fixed Price Method
2. Book Building Method

1. Fixed Price Method

In this method, the company sets a fixed price for its shares before the IPO (Initial Public
Offering). Investors know the exact price they have to pay when applying for shares.
Key Features:
✅ Pre-determined Price – The issue price is decided by the company and mentioned in
the prospectus.
✅ Investor Certainty – Investors know the price before applying for shares.
✅ Price Determination – The company sets the price based on past financial
performance, market conditions, and expected demand.
✅ Full Payment Required – Investors must pay the full price when applying.
Advantages:
✔️Simple and easy to understand.
✔️Investors have clarity about the share price.
✔️Suitable for small companies with limited market demand.
Disadvantages:
❌ The price may not reflect actual market demand.
❌ If priced too high, the issue may fail; if too low, the company may raise less capital.

2. Book Building Method

This method allows the market to determine the price of shares based on demand. Instead
of a fixed price, the company sets a price band (minimum & maximum price), and
investors place bids within this range.
Key Features:
✅ Price Band Instead of Fixed Price – Example: A company may set a price band of
₹100-₹120 per share.
✅ Market-Driven Price Discovery – Investors bid for shares at different prices within
the band. The final price is set based on demand.
✅ Different Bidding Categories – Institutions, retail investors, and high-net-worth
individuals bid separately.
✅ Partial Payment at Application – Investors pay a fraction of the highest price while
bidding.
How It Works?
1. The company announces the price band.
2. Investors place bids within this range, stating how many shares they want and at what
price.
3. The price at which the highest demand is generated becomes the final issue price.
4. Shares are allocated to investors based on their bid price.
Advantages:
✔️Ensures a fair market price based on demand.
✔️Reduces the risk of underpricing or overpricing shares.
✔️Attracts large institutional investors, improving credibility.
Disadvantages:
❌ More complex than the fixed price method.
❌ Retail investors may not fully understand the bidding process.

Key Differences: Fixed Price vs. Book Building

Feature Fixed Price Method Book Building Method
Pricing Pre-determined and fixed Market-driven (price band)
Price Discovery Decided by the company Based on investor bids
Investors bid within a price
Investor Bidding No bidding, price is fixed
band
Transparency Less transparent More transparent
Decided after bidding
Final Price Known before IPO
process
Payment at
Full amount Partial amount
Application
Risk of underpricing or Reduced risk due to market
Risk for Issuer
overpricing pricing

Conclusion
 The Fixed Price Method is simple but less flexible and may not always reflect true
market demand.
 The Book Building Method helps discover the best price based on demand, making it
more transparent and efficient.
Most large IPOs today use the Book Building Method because it provides better price
discovery and reduces risk for both the company and investors.
Q30) What is memorandum of association? Explain the law relating to the
alteration of object clause or name clause
Memorandum of Association (MOA)
The Memorandum of Association (MOA) is the founding document of a company. It
defines the company’s objectives, scope of activities, and relationship with
shareholders. It acts as a charter and must be registered with the Registrar of
Companies (ROC) during incorporation.
Key Contents of MOA:
1. Name Clause – States the company’s name.
2. Registered Office Clause – Specifies the company’s registered address.
3. Object Clause – Defines the company’s purpose and permitted activities.
4. Liability Clause – Specifies the liability of members (limited or unlimited).
5. Capital Clause – Mentions the company’s share capital.
6. Subscription Clause – Lists the initial shareholders and their shareholding.

Alteration of Object Clause

The Object Clause in the MOA defines the main activities a company can undertake. If
a company wants to change or expand its objectives, it must follow legal procedures.
Legal Provisions for Alteration (Section 13 of the Companies Act, 2013)
A company can alter its object clause by passing a special resolution and obtaining
approval from the Registrar of Companies (ROC).
Steps to Alter the Object Clause:
1. Board Meeting – The board of directors must approve the proposed change.
2. Special Resolution – The company must pass a special resolution in a general
meeting (requires approval from at least 75% of shareholders).
3. Approval from ROC – The resolution and revised MOA must be submitted to the
Registrar of Companies (ROC).
4. New Certificate of Incorporation (if required) – If the change affects the
company’s name, a fresh incorporation certificate is issued.
Restrictions on Alteration:
 The new objective must be lawful.
 The change should not be against public interest.
 If the company is listed, approval from SEBI and stock exchanges may be required.
 Companies that have raised funds from the public must pass a special resolution
and publish the change in newspapers.

Example Case: Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875)
 A company’s object clause restricted it to manufacturing railway carriages.
 The company entered into a contract for financing railway construction.
 The court held that the contract was ultra vires (beyond the powers) and void, as it
was outside the company’s object clause.
This case established that companies cannot act beyond their object clause, making
alterations necessary if they want to expand activities.

Conclusion
The Memorandum of Association (MOA) is crucial for defining a company’s purpose.
Changing the Object Clause requires board approval, shareholder consent, and ROC
approval. Proper compliance ensures that a company can expand its business legally
while protecting shareholders and public interests.
Alteration of Name Clause in Memorandum of Association
The Name Clause in the Memorandum of Association (MOA) states the official name
of the company under which it operates. If a company wants to change its name, it must
follow the legal procedure prescribed under the Companies Act, 2013.

Legal Provisions for Alteration (Section 13 of the Companies Act, 2013)

A company can alter its name by passing a special resolution and obtaining approval
from the Central Government (Registrar of Companies - ROC).
Procedure to Alter the Name Clause:
1. Board Meeting:
o The Board of Directors must approve the proposed name change.
o A resolution is passed to call a General Meeting for shareholder approval.
2. Name Availability Check:
o The company must apply to the Ministry of Corporate Affairs (MCA) to
check the availability of the new name.
o If the name is available and complies with the law, the ROC will approve it.
3. Special Resolution:
o A special resolution (approval from at least 75% of shareholders) must be
passed in the General Meeting.
4. Application to ROC:
o The company must file Form MGT-14 (for the special resolution) and Form
INC-24 (for name change approval) with the Registrar of Companies
(ROC).
5. Approval and Issue of New Certificate:
o After verification, the ROC approves the name change and issues a new
Certificate of Incorporation with the updated name.
o The company’s MOA and Articles of Association (AOA) must be updated
with the new name.

Restrictions on Name Change:

 A company cannot change its name if:
o It has defaulted in filing annual returns or financial statements.
o It has outstanding dues with creditors, the government, or regulators.
o The new name is identical or too similar to an existing company’s name.
o The name is misleading, offensive, or against public interest.
 A company listed on the stock exchange must get SEBI approval before changing
its name.

Example Case: Punjab Distilling Industries Ltd. v. Registrar of Companies (1965)

 The company applied for a name change, but the ROC refused due to similarity with
an existing company’s name.
 The court upheld the ROC’s decision, stating that a company’s name should not
cause confusion or mislead the public.

Conclusion
Changing a company’s name requires board approval, shareholder consent, ROC
approval, and compliance with legal formalities. Proper due diligence ensures that the
new name is legally valid, distinct, and does not mislead stakeholders.
Q31) What are the provisions of law and the procedure for shift of registered
office from one state to another?
Shifting of Registered Office – Simplified Explanation
A company can change its registered office based on different situations. The
rules for shifting are covered under Sections 12 and 13 of the Companies Act,
2013. This can be understood under four main categories:

1. Shifting within the same city, town, or village

 If the company wants to shift its office within the same city, town, or village,
it can do so by passing a board resolution.
 The Memorandum of Association (MOA) is not altered in this case.
 The company must inform the Registrar of Companies (ROC) within 15
days of the change.

2. Shifting to another city or town within the same state (without ROC
jurisdiction change)
 If the office is being shifted to a different city, town, or village within the
same state, but the ROC remains the same, a special resolution must be
passed in a general meeting.
 The MOA is not altered in this case.
 The special resolution must be filed with the ROC within 30 days.
 The company must also inform the ROC within 15 days of shifting to the new
office.
 Postal ballot voting is required, except for small companies with fewer than
200 members.

3. Shifting to another city within the same state (with ROC jurisdiction
change)
 If shifting to another city within the same state changes the ROC
jurisdiction, the company needs:
o A special resolution in a general meeting.
o Approval from the Regional Director (RD).
 The MOA is not altered in this case.
 The Regional Director must approve the shift within 30 days of receiving
the application.
 Once approved, the company must file this confirmation with the ROC within
60 days.
 The ROC will certify the change within 30 days.
 This rule is applicable in states with multiple ROC offices, such as
Maharashtra (Mumbai & Pune) and Tamil Nadu (Chennai & Coimbatore).

4. Shifting to another state

 If a company wants to shift its office to a different state, it must:
o Pass a special resolution in a general meeting.
o Get approval from the Central Government.
 The MOA must be altered to reflect the new state.
 The Central Government must approve within 60 days after ensuring that
the rights of creditors, debenture holders, and other stakeholders are
protected.
 After approval, the company must file a certified copy of the order with the
ROC of both states.
 The new state’s ROC will issue a fresh Certificate of Incorporation
confirming the shift.
 The special resolution must be filed with the ROC within 30 days, and
notice of the new office must be sent within 15 days.

Conclusion
The process of shifting the registered office depends on whether the move is
within the same city, within the same state, or to a different state. The level
of approval required increases for bigger moves, with board resolution needed
for local shifts, special resolution for intra-state moves, and government
approval for inter-state moves.
Q32)Explain the provision regarding Reduction of Share Capital
Reduction of Share Capital – Section 66 of the Companies Act, 2013
A company limited by shares or a company limited by guarantee with share
capital can reduce its issued share capital by following the procedure laid down
in Section 66 of the Companies Act, 2013. This process allows companies to
restructure their capital by reducing liabilities, adjusting losses, or returning
surplus funds to shareholders.

Procedure for Reduction of Share Capital

1. Passing a Special Resolution
o The company must pass a special resolution approving the reduction
of share capital in a general meeting.
o A copy of the resolution must be filed with the Registrar of
Companies (ROC) within 30 days of its approval.
2. Filing a Petition with the Tribunal (NCLT)
o The company must apply to the National Company Law Tribunal
(NCLT) for confirmation of the reduction.
o Reduction is not allowed if the company has unpaid deposits or
outstanding interest on them.
3. Notice to Government Authorities & Creditors
o The Tribunal (NCLT) will notify:
 Central Government
 Registrar of Companies (ROC)
  Securities and Exchange Board of India (SEBI) (for listed
companies)
 Company’s creditors
o These parties have three months to raise objections. If no objections
are received, it is assumed that they have no issues with the reduction.
4. Tribunal’s Approval & Creditor Protection
o The NCLT will verify that the reduction:
 Does not harm creditors or different categories of
shareholders.
 Has been communicated to all affected parties.
 Ensures that all objecting creditors have been paid in full or
have consented.
 Is fair and equitable to shareholders.
o If satisfied, the Tribunal will approve the reduction with necessary
conditions.
5. Publication of Tribunal’s Order
o The company must publish the Tribunal’s confirmation order in the
manner specified by the Tribunal.
6. Filing with ROC & Final Registration
o The company must submit a certified copy of the Tribunal’s order
and the updated Memorandum of Association (MoA) to the
Registrar of Companies (ROC) within 30 days.
o Once the ROC registers the reduction, the change legally takes effect
from the date of registration.

Ways a Company Can Reduce Share Capital

1. Canceling Unpaid Share Capital
o The company can reduce uncalled liability on partly paid shares,
meaning shareholders will no longer be required to pay the remaining
amount.
2. Returning Surplus Capital to Shareholders
o If the company has extra fully paid-up capital, it can refund the
excess amount to shareholders.
3. Repayment with Reissue Option
o The company may return part of the fully paid-up capital to
shareholders with a condition that they may be asked to repay in the
future if needed.
4. Writing Off Capital Lost Due to Losses
o If the company has huge losses, it can adjust them by reducing the
share capital.
5. Other Methods Approved by NCLT
o The company can use any other method permitted by the Tribunal.

Conclusion
The reduction of share capital helps companies improve their financial health,
manage losses, and optimize capital. However, it requires shareholder
approval, creditor protection, and Tribunal confirmation to ensure fairness
and transparency.
Q33) A company cannot justify a breach of contract by altering its articles
of association, Discuss in brief.
Articles of Association (AoA) and Breach of Contract
What is Articles of Association (AoA)?
The Articles of Association (AoA) is a legal document that defines the internal
rules and regulations of a company. It governs the management, administration,
and conduct of business, including rights of shareholders, powers of
directors, and procedures for decision-making. The AoA must align with the
Memorandum of Association (MoA) and the Companies Act.

Can a Company Justify a Breach of Contract by Altering its AoA?

No, a company cannot justify breaching a contract simply by altering its
Articles of Association. The Articles of Association are a self-imposed internal
document, and any changes made to them cannot override existing
contractual obligations or affect third parties who have entered into agreements
based on the previous articles.
Legal Perspective
1. Binding Nature of Contracts
o When a company enters into a contract, it becomes legally bound to
fulfill the agreed terms.
o A subsequent change in the AoA does not affect pre-existing
contracts.
2. Doctrine of Privity of Contract
o A company cannot use internal changes to escape its commitments
to an external party.
o If the company unilaterally amends its AoA to avoid fulfilling a
contract, the other party can legally enforce the original contract
terms.
3. Judicial Precedents
o Southern Foundries Ltd. v. Shirlaw (1940)
 In this case, a company changed its AoA to remove a
managing director, which violated his employment contract.
 The court held that a company cannot alter its articles to
override an existing contract, and the managing director was
entitled to damages.
o Vodafone International Holdings BV v. Union of India (2012)
 The Supreme Court ruled that a company cannot change
internal rules (such as AoA) to justify actions that
contradict legal or contractual obligations.
4. Companies Act, 2013
o Section 10: The AoA is a contract between the company and its
members, but it does not affect third-party contracts.
o Section 14: While companies can alter their AoA by passing a special
resolution, it cannot affect rights already granted under a valid
contract.

Conclusion
A company cannot escape its contractual liabilities by altering its Articles of
Association. Any such attempt is legally invalid, and the other party can enforce
the original agreement. The AoA governs internal management, but it cannot
override external legal commitments.
Q34) explain turquands rules are there any exceptions to it or outline the rule in
Royal British bank versus Turquand . What are the exceptions to this rule?
Turquand’s Rule (Indoor Management Rule)
Turquand’s Rule, also known as the "Indoor Management Rule," protects third
parties who deal with a company in good faith. It states that outsiders can
assume that a company’s internal procedures have been properly followed
and are not required to verify whether all internal approvals have been obtained.
Case: Royal British Bank v. Turquand (1856)
This rule was established in the case of Royal British Bank v. Turquand (1856).
Facts of the Case
 The company’s Articles of Association allowed it to borrow money, but only
with a resolution passed by the shareholders.
 The company’s directors borrowed money from the Royal British Bank but
without passing the required shareholder resolution.
 When the company later refused to repay the loan, arguing that proper
approval was not obtained, the bank sued the company.
Judgment
The court held that the bank had the right to assume that the internal
procedure (passing of a resolution) had been followed. The company was still
liable for the loan.
Principle Established
The court ruled that third parties dealing with a company are not expected to
check whether the company’s internal approvals have been properly
completed. If an action appears valid based on the company’s public
documents (such as its Memorandum and Articles of Association), then
outsiders can assume that internal requirements have been fulfilled.

Exceptions to Turquand’s Rule

Although this rule protects outsiders, there are some exceptions where it does
not apply:
1. Knowledge of Irregularity
o If the third party knows that the company has not followed the proper
procedures, they cannot claim protection under Turquand’s Rule.
o Example: If a person is aware that the directors are borrowing money
without shareholder approval and still lends money, the rule will not
apply.
2. Forgery or Fraud
o If an outsider is dealing with a company representative who has
committed forgery or fraud, the rule does not apply.
o Example: If a director falsifies a signature to approve a loan, the
company is not liable to repay it.
3. Ultra Vires Acts (Beyond the Company’s Powers)
 o If the company does not have the legal power to perform a
transaction, Turquand’s Rule does not apply.
o Example: If the company’s Memorandum of Association prohibits
borrowing money, but a director still borrows, the lender cannot claim
protection under this rule.
4. Negligence by the Third Party
o If a person fails to check public documents, such as the company’s
Memorandum or Articles, and enters into an invalid transaction, they
cannot later claim protection under this rule.
o Example: If a company’s Articles clearly state that the approval of all
directors is needed for a contract, but an outsider deals with only one
director, they cannot claim Turquand’s protection.
5. No Apparent Authority
o If a company officer acts beyond their role and an outsider deals with
them without verifying their authority, the rule does not apply.
o Example: A company secretary issuing shares (a task meant for
directors) would not bind the company.

Conclusion
Turquand’s Rule is a key principle in corporate law that protects outsiders who
deal with a company in good faith. It ensures that businesses do not suffer due
to internal mismanagement. However, it does not apply in cases of fraud, ultra
vires acts, negligence, or where the third party has knowledge of internal
irregularities.
Q35) Explain different types of board committees.(Corporate Social
Responsibility (CSR) Committee , Advisory committee)
Audit Committee: Powers and Functions
An Audit Committee is a subcommittee of the Board of Directors, responsible for
overseeing financial reporting, internal controls, and audit processes of a
company. It ensures transparency, accountability, and compliance with
financial regulations.
Legal Framework
In India, the formation of an Audit Committee is mandatory for:
 Listed companies (under SEBI (LODR) Regulations, 2015).
 Certain public companies as per Section 177 of the Companies Act, 2013
(companies with paid-up share capital of ₹10 crore or more, turnover of ₹100
crore or more, or outstanding loans, debentures, or deposits exceeding ₹50
crore).

Composition of the Audit Committee

 Minimum three directors, with a majority of independent directors.
 At least one member should have expertise in finance or accounting.
 The Chairperson must be an independent director and present at all
General Meetings.

Powers of the Audit Committee

 The Companies Act, 2013 and SEBI regulations grant the Audit Committee the
following powers:
1. Authority to Investigate – Can seek information from any employee and
probe into financial matters.
2. Access to Records & Information – Has unrestricted access to company
financial statements, reports, and policies.
3. External Advice – Can seek legal or professional advice from external
experts.
4. Interaction with Auditors – Has direct access to internal and external
auditors for independent opinions.
5. Review & Approve Transactions – Reviews related-party transactions to
prevent conflicts of interest.
6. Reporting to the Board – Reports key findings and recommendations to the
Board of Directors.

Functions of the Audit Committee

1. Financial Reporting Oversight
o Reviews quarterly and annual financial statements before submission
to the Board.
o Ensures compliance with accounting standards and regulatory
requirements.
2. Internal Controls & Risk Management
o Evaluates the adequacy of internal controls to prevent fraud or
mismanagement.
o Assesses risk management policies and fraud prevention
mechanisms.
3. Internal & External Audit Supervision
o Oversees the internal audit process, scope, and findings.
o Reviews appointment, removal, and performance of external auditors.
4. Compliance Monitoring
o Ensures compliance with Companies Act, SEBI regulations, and tax
laws.
o Examines whistleblower complaints and ethical concerns.
5. Approval of Related-Party Transactions (RPTs)
o Reviews and approves transactions with related parties to avoid
conflicts of interest.
6. Whistleblower Mechanism & Fraud Prevention
o Oversees the Vigil Mechanism/Whistleblower Policy for employees
to report financial misconduct.

Importance of an Audit Committee

 Ensures financial integrity and transparency.
 Strengthens corporate governance by reducing fraud risks.
 Protects shareholders' and stakeholders' interests.
 Helps maintain investor confidence in the company.
2. Nomination and Remuneration Committee
Purpose: Handles the selection, evaluation, and compensation of directors and
senior executives.
Key Functions:
 Identifies and recommends candidates for Board positions.
 Designs and approves executive remuneration and incentives.
 Evaluates the performance of directors and executives.
4. Risk Management Committee
Purpose: Identifies and mitigates financial, operational, and compliance risks.
Key Functions:
 Develops and implements risk management policies.
 Assesses potential business and financial risks.
 Recommends measures to mitigate risks.
5. Stakeholders Relationship Committee
Purpose: Handles issues related to shareholders, investors, and other stakeholders.
Key Functions:
 Resolves shareholder grievances (dividends, transfers, etc.).
 Ensures timely investor communication.
 Monitors compliance with SEBI (LODR) regulations.
6. Ethics and Compliance Committee
Purpose: Ensures the company follows ethical and legal guidelines.
Key Functions:
 Monitors compliance with laws and regulations.
 Implements ethical business practices.
 Investigates and reports misconduct or fraud.
7. Strategy and Investment Committee
Purpose: Assesses major business strategies, mergers, and investment decisions.
Key Functions:
 Evaluates potential mergers and acquisitions.
 Oversees long-term business strategy.
 Assesses large capital investments.
8. Environmental, Social, and Governance (ESG) Committee
Purpose: Ensures sustainable and responsible business practices.
Key Functions:
 Oversees environmental and social impact.
 Monitors corporate governance policies.
 Reports on sustainability initiatives.
Q36) What is an audit committee ? discuss its powers and functions
Audit Committee: Powers and Functions
An Audit Committee is a subcommittee of the Board of Directors, responsible for
overseeing financial reporting, internal controls, and audit processes of a company. It
ensures transparency, accountability, and compliance with financial regulations.
Legal Framework
In India, the formation of an Audit Committee is mandatory for:
 Listed companies (under SEBI (LODR) Regulations, 2015).
 Certain public companies as per Section 177 of the Companies Act, 2013
(companies with paid-up share capital of ₹10 crore or more, turnover of ₹100
 crore or more, or outstanding loans, debentures, or deposits exceeding ₹50
crore).

Composition of the Audit Committee

 Minimum three directors, with a majority of independent directors.
 At least one member should have expertise in finance or accounting.
 The Chairperson must be an independent director and present at all
General Meetings.

Powers of the Audit Committee

The Companies Act, 2013 and SEBI regulations grant the Audit Committee the
following powers:
1. Authority to Investigate – Can seek information from any employee and
probe into financial matters.
2. Access to Records & Information – Has unrestricted access to company
financial statements, reports, and policies.
3. External Advice – Can seek legal or professional advice from external
experts.
4. Interaction with Auditors – Has direct access to internal and external
auditors for independent opinions.
5. Review & Approve Transactions – Reviews related-party transactions to
prevent conflicts of interest.
6. Reporting to the Board – Reports key findings and recommendations to the
Board of Directors.

Functions of the Audit Committee

1. Financial Reporting Oversight
o Reviews quarterly and annual financial statements before submission
to the Board.
o Ensures compliance with accounting standards and regulatory
requirements.
2. Internal Controls & Risk Management
o Evaluates the adequacy of internal controls to prevent fraud or
mismanagement.
o Assesses risk management policies and fraud prevention
mechanisms.
3. Internal & External Audit Supervision
o Oversees the internal audit process, scope, and findings.
o Reviews appointment, removal, and performance of external auditors.
4. Compliance Monitoring
o Ensures compliance with Companies Act, SEBI regulations, and tax
laws.
o Examines whistleblower complaints and ethical concerns.
5. Approval of Related-Party Transactions (RPTs)
o Reviews and approves transactions with related parties to avoid
conflicts of interest.
6. Whistleblower Mechanism & Fraud Prevention
 o Oversees the Vigil Mechanism/Whistleblower Policy for employees
to report financial misconduct.

Importance of an Audit Committee

 Ensures financial integrity and transparency.
 Strengthens corporate governance by reducing fraud risks.
 Protects shareholders' and stakeholders' interests.
 Helps maintain investor confidence in the company.
Q37) Can a Central Government appoint a director in a public company?
Discuss.
Can the Central Government Appoint a Director in a Public Company?
Yes, under certain circumstances, the Central Government has the power to
appoint a director in a public company as per the provisions of the Companies
Act, 2013. This ensures proper management, compliance, and transparency in the
company's operations.
Legal Provisions Under the Companies Act, 2013
1. Appointment of Directors by the Central Government (Section 242(2)(h))
The National Company Law Tribunal (NCLT), on an application made by the
Central Government, can direct the appointment of new directors in a company if it
finds that:
 The company's affairs are being conducted in a manner oppressive to any
shareholder or prejudicial to public interest.
 There is mismanagement or fraud affecting shareholders or the company.
This provision allows the government to step in and restore corporate governance.
2. Appointment in Government Companies (Section 149(1))
In Government Companies, the Central Government has the right to nominate
directors to represent its interests.
3. Appointment in Companies Involved in Public Interest Matters
Under Section 161(3), if a company's Articles of Association allow it, the Central
Government can appoint directors in cases where public interest, national
security, or economic stability is at risk.
Key Situations Where the Central Government Can Appoint a Director
1. Oppression and Mismanagement – If a company’s management is harming
shareholders or public interest.
2. Failure to Comply with Regulations – If a company repeatedly violates the
Companies Act or SEBI regulations.
3. Fraud and Corporate Misconduct – If directors are involved in fraud or
financial mismanagement.
4. National Security and Public Interest – If the company is engaged in
activities that threaten economic stability.
Conclusion
Yes, the Central Government can appoint directors in a public company under
special circumstances, mainly to protect public interest, prevent
mismanagement, or ensure compliance. This power is used only when
necessary, ensuring companies operate transparently and fairly.
Q38) What is Annual General Meeting?. State its importance. Does the
Tribunal have the power to call an AGM?
What is an Annual General Meeting (AGM)?
An Annual General Meeting (AGM) is a mandatory yearly meeting held by a
company's shareholders to review the company’s financial performance, approve
dividends, appoint directors, and discuss other key matters.
Legal Provision (Section 96 of the Companies Act, 2013)
 Applicability: All companies except One Person Company (OPC) are
required to hold an AGM.
 Timeframe:
o The first AGM must be held within 9 months from the end of the first
financial year.
o Subsequent AGMs must be held within 6 months from the end of the
financial year, but there should not be more than 15 months between
two AGMs.

Importance of an AGM
1. Review of Financial Performance – Shareholders discuss the company’s
financial statements, profit & loss, and audit reports.
2. Appointment/Reappointment of Directors – Directors retiring by rotation
are reappointed or replaced.
3. Dividend Declaration – Shareholders approve the dividends proposed by the
board.
4. Approval of Auditor’s Report – The financial statements and audit reports
are presented and approved.
5. Ensuring Transparency and Accountability – Shareholders get a platform
to ask questions and hold management accountable.

Can the Tribunal Call an AGM?

Yes, the National Company Law Tribunal (NCLT) has the power to call an AGM
under Section 97 and Section 98 of the Companies Act, 2013:
1. Section 97 – If a company fails to hold an AGM within the prescribed time,
any member (shareholder) can apply to the Tribunal, which may order the
AGM to be held in the manner it deems fit.
2. Section 98 – If it is impractical for a company to hold a general meeting
(including AGM) under normal conditions, the Tribunal can direct a meeting to
be held, specifying how it should be conducted.
Conclusion
An AGM is crucial for maintaining transparency, reviewing financial performance,
and protecting shareholder rights. If a company fails to conduct an AGM, the NCLT
can intervene and order the meeting to be held to ensure compliance with corporate
laws.
Q39) what is an extraordinary general meeting ? by whom can an extraordinary
general meeting be called?
Who May Call an Extraordinary General Meeting (EGM)?
An Extraordinary General Meeting (EGM) is a special meeting of a company's
shareholders held outside the Annual General Meeting (AGM) to discuss urgent
matters. The Companies Act, 2013 provides specific provisions regarding who can
call an EGM and under what circumstances.

Who Can Call an EGM?

1. By the Board of Directors
o The Board of Directors may call an EGM whenever it feels
necessary by passing a resolution in a Board meeting.
2. By the Board of Directors on Requisition of Members (Section 100(2))
o Shareholders holding at least 10% of the total voting power can
submit a written request to the Board to call an EGM.
o The request must mention the matters to be discussed, be signed
by the requisitionists, and be submitted at the company’s
registered office.
o The Board must act within 21 days and ensure the meeting is held
within 45 days from the date of receiving the requisition.
3. By the Shareholders (Requisitionists) if the Board Fails to Act
o If the Board does not call the EGM within 21 days, the
requisitionists themselves can organize the meeting within 3
months from the date of the request.
o The expenses incurred by them can be recovered from the company,
and the company may deduct these expenses from the remuneration
of the responsible directors.
4. By the Tribunal (Section 98)
o The National Company Law Tribunal (NCLT) can order an EGM if it
is not possible to call one in the usual way.
o The Tribunal may act on its own or on the request of a director or
shareholder who has voting rights.

Additional Provisions for an EGM

 Unlike AGMs, EGMs can be held on a national holiday.
 The meeting may be held at a place other than the company’s registered
office or outside the city of its registered office.

Conclusion
An EGM is a crucial tool for handling urgent business matters. It can be called by the
Board, the shareholders, or the Tribunal, depending on the situation. This
ensures that important decisions requiring immediate attention can be taken
without waiting for the next AGM.
Q40) state the legal provisions regarding calling and holding of an Annual General
Meeting what are the consequences of default in holding of such meeting
Annual General Meeting (AGM) – Meaning, Importance, Provisions &
Consequences of Default
What is an AGM?
An Annual General Meeting (AGM) is a yearly meeting held by a company where
shareholders get a chance to review the company’s performance, approve financial
statements, and discuss key decisions. It ensures transparency and accountability
by allowing members to interact with the board of directors.
Importance of AGM
 Ensures Transparency: Shareholders can question the directors about the
financial statements and company performance.
 Decision-Making: Important matters like dividend declaration, appointment of
directors, and auditor selection are finalized.
 Shareholder Control: Members can reject the reappointment of directors if
they are dissatisfied with their performance.

Legal Provisions for Holding an AGM (As per Section 96 of the Companies Act,
2013)
1. Companies Required to Hold AGM
 Every company except a One Person Company (OPC) must hold an AGM
every year.
 The company must clearly mention "Annual General Meeting" in the notice
calling the meeting.
2. First AGM
 The first AGM must be held within 9 months from the end of the first financial
year.
 If this is done, another AGM is not required in the year of incorporation.
3. Subsequent AGMs
 Must be held once every calendar year.
 The gap between two AGMs should not exceed 15 months.
 The AGM must be held within 6 months from the end of the financial year.
 If required, the Registrar may extend the time limit by 3 months for special
reasons.
4. Who Can Convene an AGM?
 The Board of Directors is responsible for calling the AGM.
5. Place of AGM
 It must be held at the registered office of the company or any other place in
the same city, town, or village.
 For unlisted companies, an AGM can be held anywhere in India if all
members agree.
6. Timing of AGM
 Must be held between 9 AM and 6 PM on a working day.
 Cannot be held on a national holiday.
7. Notice for AGM
 A 21-day clear notice must be sent to:
o All shareholders.
o Directors of the company.
o Auditors of the company.
 The notice must include:
o Date, time, and venue of the meeting.
o Agenda (matters to be discussed).
o Financial statements, Director’s Report, and Auditor’s Report.
 Accidental omission to send a notice does not invalidate the meeting.

Business Transacted at an AGM

1. Ordinary Business (Required in every AGM)
 Approval of financial statements and reports of the Board of Directors and
Auditors.
 Declaration of dividends (if any).
 Appointment or reappointment of directors who are retiring.
 Appointment or reappointment of auditors and deciding their
remuneration.
2. Special Business
 Any matter other than ordinary business, such as:
o Changes in Memorandum and Articles of Association.
o Buy-back of shares.
o Approval of mergers or acquisitions.

Consequences of Default in Holding an AGM

1. Power of the Tribunal to Call an AGM (Section 97)
 If a company fails to hold an AGM, any member can apply to the National
Company Law Tribunal (NCLT).
 The Tribunal can order the company to conduct the AGM and give
necessary instructions.
 Such a meeting will be considered a valid AGM.
2. Penalty for Default (Section 99)
 Company’s Liability: A fine of up to ₹1,00,000.
 Officers in Default (e.g., Directors):
o Fine of ₹5,000 per day for every day the default continues.

Conclusion
An AGM is essential for maintaining corporate transparency and giving
shareholders the power to review and influence company decisions. Failure to hold
an AGM on time can result in legal action and heavy penalties. To avoid these
issues, companies must comply with the provisions under the Companies Act, 2013
and ensure timely AGMs.
Q41) Explain the provisions regarding ordinary resolution, special resolution and
differences between them
Resolutions in a Company
Definition of Resolution (Section 114(1))
A resolution is a formal decision taken by the members or board of directors in a
company meeting. It is passed when the required majority of members approve it,
following the rules of the Companies Act, 2013.
There are three types of resolutions:
1. Ordinary Resolution (OR)
2. Special Resolution (SR)
3. Resolution Requiring Special Notice

1. Ordinary Resolution (OR) – Section 114(1)

An Ordinary Resolution is passed when more than 50% of the members present
and voting approve the resolution.
When is an Ordinary Resolution Required?
Ordinary Resolutions are used for routine matters, such as:
1. Annual General Meeting (AGM) business, like:
o Approval of financial statements and auditor reports.
o Declaration of dividends.
o Appointment of directors in place of those retiring.
o Appointment or reappointment of auditors and fixing their
remuneration.
2. Special business matters requiring an OR, such as:
o Changing the company name (if directed by the Central Government
– Section 16(1)).
o Alteration of share capital (Section 65(1)).
o Issuing bonus shares (Section 63(2)).
o Removing a director (except when appointed by the Tribunal –
Section 169(1)).
Voting Method for OR
 Can be passed by show of hands, poll, electronic voting, or postal ballot.
 Requires more than 50% approval of members present and voting.

2. Special Resolution (SR) – Section 114(2)

A Special Resolution is passed when at least 75% of the members present and
voting approve it.
When is a Special Resolution Required?
Special Resolutions are needed for important decisions, such as:
1. Changes in the Memorandum of Association (MOA) and Articles of
Association (AOA).
2. Changing the registered office from one state to another.
3. Reduction of share capital.
4. Changing the rights of shareholders.
5. Altering the terms of contracts mentioned in the prospectus.
6. Increasing the number of directors beyond 15.
7. Removing an auditor before the completion of their term.
8. Buy-back of shares.
Voting Method for SR
 Must be clearly mentioned in the meeting notice that it is a Special
Resolution.
 Requires at least 75% approval from members present and voting.
 Voting can be by show of hands, poll, electronic voting, or postal ballot.

3. Resolution Requiring Special Notice – Section 115

A Resolution Requiring Special Notice is a type of Ordinary Resolution but with
a special procedure.
Conditions for Special Notice
 The mover of the resolution (shareholder proposing it) must give at least 14
days’ notice before the meeting.
 The company must inform other members about this resolution at least 7
days before the meeting.
  Can be moved by members holding:
o At least 1% of total voting power, or
o Shares worth at least ₹5 lakh (paid-up capital).
When is a Resolution Requiring Special Notice Needed?
1. Appointment of an auditor other than the retiring auditor.
2. Passing a resolution to not reappoint a retiring auditor (except if the
auditor has completed a 5-year term).
3. Removal of a director before the end of their term.
4. Appointment of a new director in place of a removed director.

Key Differences Between Ordinary Resolution, Special Resolution, and

Resolution Requiring Special Notice
Resolution
Ordinary Resolution Special Resolution
Basis Requiring Special
(OR) (SR)
Notice
More than 50%
Approval
More than 50% of votes At least 75% of votes (like OR) but with
Needed
special notice
Special cases like
Type of Important policy
Routine matters auditor or director
Business decisions
removal
Show of hands, poll, Show of hands, poll, Show of hands,
Voting
electronic voting, postal electronic voting, postal poll, electronic
Method
ballot ballot voting
Appointment of auditors, Change in MOA/AOA,
approval of financial share capital reduction, Removal of a
Examples
statements, dividend mergers, buy-back of director or auditor
declaration shares

Conclusion
Resolutions play an important role in company decision-making.
 Ordinary Resolutions are for routine matters and require a simple majority
(>50%).
 Special Resolutions are for important decisions and need at least 75%
approval.
 Resolutions Requiring Special Notice follow a unique process and apply to
specific cases like director or auditor removal.
Companies must follow the correct process as per the Companies Act, 2013 to
ensure legal compliance.
Q42) what is the procedure to be followed to conduct a board of directors meeting
through video conferencing or other audio visual means?
Procedure for Conducting a Board of Directors Meeting via Video
Conferencing or Other Audio-Visual Means
The Companies Act, 2013, along with the Companies (Meetings of Board and its
Powers) Rules, 2014, allows Board meetings to be conducted through video
conferencing (VC) or other audio-visual means (OAVM). The procedure for
conducting such a meeting is as follows:
1. Notice of the Meeting
 A notice of at least 7 days must be given to all directors.
 The notice should mention:
o The date, time, and agenda of the meeting.
o Details of the video conferencing system or software to be used.
o Instructions for joining the meeting.
 Directors must confirm their attendance at least 3 days before the meeting.

2. Arrangements for the Meeting

 The company must ensure the following:
o A secure and reliable video conferencing system.
o A system for recording and storing proceedings.
o Facilities for verifying participants' identity.
o Proper audio-visual connectivity for all attendees.

3. Conducting the Meeting

(a) Roll Call by the Chairperson
 At the start of the meeting, the Chairperson or Company Secretary will take
a roll call, where each director must confirm:
1. Their name and location.
2. That they have received the agenda and documents.
3. That they are alone or in a place where confidentiality is maintained.
(b) Quorum Requirement
 The minimum number of directors (as per the Articles of Association or
Companies Act) must be present.
 Directors attending via VC or OAVM are counted towards quorum.
(c) Discussion and Voting
 Directors can speak, discuss, and vote through electronic means.
 The Company Secretary will record all decisions and votes.

4. Recording and Signing of Minutes

 The proceedings must be recorded and stored securely.
 The minutes of the meeting must be circulated within 15 days to all
directors.
 Directors must confirm the minutes within 7 days.
 The signed minutes should be maintained in the company’s records.

5. Restrictions on Certain Matters

The following cannot be approved via video conferencing unless a physical
meeting is held:
1. Approval of financial statements.
2. Approval of Board’s Report.
3. Approval of prospectus.
4. Audit Committee meetings for auditor approval.
5. Approval of matters relating to mergers, acquisitions, and takeovers.
Conclusion
Conducting a Board meeting via video conferencing or audio-visual means
ensures efficiency and flexibility while maintaining transparency and compliance
with the Companies Act, 2013. However, companies must follow the prescribed
procedure and restrictions to ensure validity.
Q43) Explain the provisions regarding proxy, e-voting, quorum?
A proxy is a person appointed by a shareholder to attend and vote on their behalf at
a general meeting of the company. The provisions related to proxies are given in
Section 105 of the Companies Act, 2013.
The term "proxy" refers to both:
1. The person appointed to represent a member, and
2. The instrument (document) used to appoint that person.
A proxy does not need to be a member of the company and has no right to
speak at the meeting. However, they can vote on a poll on behalf of the shareholder.

Key Provisions Regarding Proxy

1. Right to Appoint a Proxy
 Every member of a company who is entitled to attend and vote at a meeting
can appoint a proxy.
 A proxy need not be a member of the company.
 A person can act as a proxy for up to 50 members and hold shares not
exceeding 10% of the total share capital. If a person is appointed as a
proxy for more than 50 members, they must get specific instructions from the
shareholders on how to vote.
2. Procedure for Appointing a Proxy
 The notice of the meeting must clearly mention the right of a member to
appoint a proxy and state that the proxy need not be a company member.
 The proxy appointment must be in writing and signed by the shareholder or
their authorized representative.
 If the member is a body corporate, the proxy appointment must be under its
seal or signed by an authorized officer.
 The proxy form must be submitted to the company at least 48 hours
before the meeting.
 A separate proxy form is required for each meeting.
3. Rights and Limitations of a Proxy
 A proxy can attend and vote on behalf of the member.
 A proxy cannot speak at the meeting.
 A proxy cannot vote on a show of hands, unless the Articles of Association
allow it.
 A proxy can vote on a poll, and their vote is counted just like the
shareholder’s vote.
4. Revocation and Validity of a Proxy
 A proxy is revocable and can be canceled anytime before it is acted upon.
 If the shareholder attends the meeting, the proxy cannot vote.
  If the shareholder who appointed the proxy dies or becomes insane, the
proxy becomes invalid—provided the company is informed before the meeting
starts.
 Members have the right to inspect proxy forms at least 24 hours before
the meeting until the meeting ends.
5. Restrictions on Proxy Appointment
 No company funds can be used to encourage members to appoint a specific
person as a proxy.
 A proxy cannot be appointed for Board of Directors' meetings.
E-Voting under the Companies Act, 2013 (Section 108 & Rule 20 of Companies
(Management and Administration) Rules, 2014)
E-voting (Electronic Voting) is a facility that allows shareholders to vote on
company resolutions electronically, without being physically present at the meeting.
It enhances transparency and shareholder participation in decision-making.

Key Provisions Regarding E-Voting

1. Applicability of E-Voting (Section 108)
 E-voting is mandatory for:
o Listed companies.
o Companies having 1,000 or more shareholders.
 Other companies may voluntarily adopt e-voting as per their Articles of
Association.
2. Process of E-Voting
(i) Notice of Meeting
 The company must mention e-voting details in the notice of the general
meeting.
 The notice should specify the date and time of e-voting, the cut-off date, and
login credentials for shareholders.
(ii) E-Voting Period
 E-voting must be kept open for at least 3 days and up to 30 days before the
general meeting.
 Voting must end at least one day before the meeting.
(iii) Eligibility to Vote
 Only shareholders as of the cut-off date can vote electronically.
 Each share carries one vote, and the vote is cast electronically.
(iv) Appointment of Scrutinizer
 A scrutinizer (a Chartered Accountant, Company Secretary, or Cost
Accountant) is appointed to monitor and verify the voting process.
 The scrutinizer must submit a report within 48 hours of voting closure.
(v) Declaration of Results
 The chairman or authorized director declares the results based on the
scrutinizer’s report.
 Results must be published on the company’s website and stock
exchange (if applicable).

3. Types of Resolutions Passed via E-Voting

E-voting can be used for passing:
 Ordinary Resolutions (Simple Majority)
 Special Resolutions (Three-Fourth Majority)

4. Rights and Safeguards for Shareholders

 Shareholders can vote only once (either electronically or physically).
 Once a vote is cast via e-voting, it cannot be changed or withdrawn.
 Shareholders attending the meeting physically after e-voting cannot vote
again.

Conclusion
E-voting ensures a fair, transparent, and efficient voting process, enabling
shareholders to participate in key company decisions from anywhere. It is an
essential tool for corporate governance and compliance.
Quorum and its Provisions under the Companies Act, 2013
What is Quorum?
Quorum refers to the minimum number of members required to be present at a
meeting to make the proceedings valid and legally binding. Without a quorum, the
meeting cannot be held, and no decisions or resolutions can be passed.

Provisions Regarding Quorum (Section 103 of the Companies Act, 2013)

1. Quorum for General Meetings
The minimum quorum required for a general meeting depends on the number of
members in the company:
Type of Company No. of Members (as per MOA) Quorum Required
Private Company Any number 2 members personally present
Public Company Upto 100 members 5 members personally present
101 – 500 members 15 members personally present
More than 500 members 30 members personally present
 Presence can be physical or through video conferencing.
2. Adjournment if Quorum is Not Present
 If the quorum is not met within 30 minutes of the scheduled time, the
meeting is:
o Adjourned to the same day, time, and place in the next week, OR
o As decided by the Board of Directors.
 No quorum is needed for the adjourned meeting unless the Articles of
Association specify otherwise.
3. Quorum for Board Meetings (Section 174)
 Minimum 1/3rd of the total directors or 2 directors, whichever is higher,
should be present.
 If directors are interested in a transaction, the quorum should exclude them.
 If a meeting lacks quorum for 3 months, the Board can act only to increase
the number of directors.

Conclusion
Quorum ensures that company decisions are made with proper participation. It
prevents a small group from making critical decisions without adequate
representation.
Q44) explain Postal ballot
Postal Ballot and Its Provisions under the Companies Act, 2013
What is a Postal Ballot?
A postal ballot is a method of voting where shareholders cast their votes via post,
electronic means, or other prescribed methods instead of attending a general
meeting in person. This ensures wider participation, especially in large companies
with many shareholders.

Provisions Regarding Postal Ballot (Section 110 of the Companies Act, 2013 &
Rule 22 of the Companies [Management and Administration] Rules, 2014)
1. Companies Required to Conduct Postal Ballot
The following types of companies must conduct voting through postal ballot:
 Listed companies
 Companies with more than 200 members (excluding One Person
Companies and Small Companies)
2. Matters that Require Postal Ballot
The following decisions must be approved via postal ballot:
1. Alteration of the Object Clause in the Memorandum of Association (MOA).
2. Change of Registered Office outside the local limits of the city or town.
3. Change in the Main Business of the company.
4. Conversion of a Public Company into a Private Company and vice versa.
5. Variation of rights of shareholders.
6. Buy-back of shares under Section 68.
7. Issuance of shares with differential voting rights.
8. Sale of a company’s whole or substantial undertaking under Section
180(1)(a).
Note: A company cannot conduct postal ballot for ordinary business matters or if the
matter requires a physical general meeting as per the Board's discretion.
3. Procedure for Postal Ballot
1. Board Approval: The Board of Directors must approve the resolution to be
voted on through postal ballot.
2. Notice to Members: The company must send a notice along with the ballot
form and voting instructions via post, email, or electronic means.
3. Voting Period: Shareholders must be given at least 30 days to cast their
votes.
4. Independent Scrutinizer: A neutral third party (e.g., a Chartered Accountant,
Company Secretary, or Advocate) is appointed to count the votes.
5. Declaration of Results:
o Results are announced within 48 hours after the closing of the voting
period.
o The company must publish the results on its website and stock
exchanges (for listed companies).
4. Electronic Voting (E-Voting) and Postal Ballot
  Listed companies and companies with 1000+ shareholders must provide
electronic voting (e-voting) as an option for postal ballot.
 This is governed by Section 108 of the Companies Act, 2013 and the SEBI
(LODR) Regulations.

Conclusion
Postal ballot helps ensure transparency and participation by allowing shareholders to
vote on important matters without physically attending meetings. It is especially
useful for companies with a large number of members, ensuring fair decision-
making.
Postal Ballot and Its Provisions under the Companies Act, 2013
What is a Postal Ballot?
A postal ballot is a method of voting where shareholders cast their votes via post,
electronic means, or other prescribed methods instead of attending a general
meeting in person. This ensures wider participation, especially in large companies
with many shareholders.

Provisions Regarding Postal Ballot (Section 110 of the Companies Act, 2013 &
Rule 22 of the Companies [Management and Administration] Rules, 2014)
1. Companies Required to Conduct Postal Ballot
The following types of companies must conduct voting through postal ballot:
 Listed companies
 Companies with more than 200 members (excluding One Person
Companies and Small Companies)
2. Matters that Require Postal Ballot
The following decisions must be approved via postal ballot:
1. Alteration of the Object Clause in the Memorandum of Association (MOA).
2. Change of Registered Office outside the local limits of the city or town.
3. Change in the Main Business of the company.
4. Conversion of a Public Company into a Private Company and vice versa.
5. Variation of rights of shareholders.
6. Buy-back of shares under Section 68.
7. Issuance of shares with differential voting rights.
8. Sale of a company’s whole or substantial undertaking under Section
180(1)(a).
Note: A company cannot conduct postal ballot for ordinary business matters or if the
matter requires a physical general meeting as per the Board's discretion.
3. Procedure for Postal Ballot
1. Board Approval: The Board of Directors must approve the resolution to be
voted on through postal ballot.
2. Notice to Members: The company must send a notice along with the ballot
form and voting instructions via post, email, or electronic means.
3. Voting Period: Shareholders must be given at least 30 days to cast their
votes.
4. Independent Scrutinizer: A neutral third party (e.g., a Chartered Accountant,
Company Secretary, or Advocate) is appointed to count the votes.
5. Declaration of Results:
 o Results are announced within 48 hours after the closing of the voting
period.
o The company must publish the results on its website and stock
exchanges (for listed companies).
4. Electronic Voting (E-Voting) and Postal Ballot
 Listed companies and companies with 1000+ shareholders must provide
electronic voting (e-voting) as an option for postal ballot.
 This is governed by Section 108 of the Companies Act, 2013 and the SEBI
(LODR) Regulations.

Conclusion
Postal ballot helps ensure transparency and participation by allowing shareholders to
vote on important matters without physically attending meetings. It is especially
useful for companies with a large number of members, ensuring fair decision-
making.
Q45) explain the provisions regarding declaration of dividend and what is the penalty
for failure to distribute dividend(unpaid and unclaimed dividend)?
Provisions Regarding Declaration of Dividend and Penalty for Non-Payment
1. Meaning of Dividend
A dividend is the portion of a company’s profits that is distributed to its
shareholders. It is declared at the Annual General Meeting (AGM) of the company.
As per Section 2(35) of the Companies Act, 2013, dividend includes interim
dividend (dividends declared by the Board before the AGM). The final dividend is
declared in the AGM.

2. Legal Provisions Regarding Dividend

1. Sources for Declaring Dividend (Section 123)
A company can pay a dividend from:
 Current year's profits or profits of previous years (after depreciation).
 Both current and previous profits combined.
 Money provided by the Central or State Government (if there is a
government guarantee).
Important: A company cannot declare a dividend out of capital.
2. Transfer to Reserves
Before declaring a dividend, a company may transfer a portion of its profits to its
reserves.
3. Declaration of Dividend from Reserves
 If a company has no or insufficient profits, it can pay dividends from free
reserves (subject to conditions).
 A company cannot declare dividends unless past losses and depreciation
are adjusted against profits.
4. Recommendation by the Board of Directors
 The Board of Directors decides whether to declare a dividend.
 Shareholders at the AGM can approve or reduce the recommended dividend
but cannot increase it.
5. Declaration of Final Dividend
  The final dividend is declared at the AGM.
 If a company fails to declare a dividend at the AGM, it can declare it at a
later general meeting.
 Final dividend cannot be declared twice in a year.
6. Deposit of Dividend in a Separate Bank Account
 The company must deposit the declared dividend in a separate bank
account within 5 days of declaration.
 This account is used only for dividend payments.
7. Mode of Payment
 Dividend must be paid in cash (by cheque, demand draft, or electronic
transfer).
 Exception: If a shareholder has unpaid amounts on shares, the dividend
can be adjusted against it.
8. Who is Entitled to Receive the Dividend?
 Dividend is paid only to registered shareholders or their bankers.
 It is distributed in proportion to the amount paid-up on shares.
9. Time Limit for Payment of Dividend
 Once a dividend is declared, it must be paid within 30 days.
 If not paid within 30 days, it becomes a debt against the company.

3. Penalty for Non-Payment of Dividend (Section 127)

If a company fails to pay the declared dividend within 30 days, the following
penalties apply:
A. Penalty on the Company
 The company must pay simple interest at 18% per annum for the period of
delay.
B. Penalty on Directors and Officers
 Imprisonment up to 2 years, or
 Fine of ₹1,000 per day of default, or
 Both imprisonment and fine.
C. Exceptions (No Penalty if)
 Dividend payment is restricted by law.
 Shareholder provided incorrect payment details.
 There is a dispute regarding the right to receive the dividend.
 The company adjusted the dividend against dues from the shareholder.

4. Unpaid and Unclaimed Dividend (Section 124 & 125)

1. Transfer to Unpaid Dividend Account
 If a shareholder does not claim the dividend within 30 days, the company
must transfer it to the Unpaid Dividend Account within 7 days.
 A statement of unpaid dividends must be submitted to the Registrar of
Companies (ROC).
 If the company delays transferring, it must pay 12% interest per annum.
2. Transfer to Investor Education and Protection Fund (IEPF)
 If the dividend remains unclaimed for 7 years, it must be transferred to the
Investor Education and Protection Fund (IEPF).
  Shareholders can claim their dividend from IEPF Authority by following the
prescribed procedure.

Conclusion
The Companies Act, 2013 has strict provisions to ensure that dividends are
declared and paid fairly. If a company fails to distribute the dividend on time, it faces
penalties. The system of Unpaid Dividend Account and IEPF protects the
interests of shareholders, ensuring they can claim their dividends even after several
years.
Q46) Explain the following provisions:
Investor Education and Protection Fund
Annual Return

Director Identification Number (DIN):

Maintenance of books of account

Investor Education and Protection Fund (IEPF) – Section 125 of the Companies
Act, 2013
The Investor Education and Protection Fund (IEPF) is a fund established by the
government to protect investors' money and promote awareness. It collects
unclaimed funds from companies and ensures they are either refunded to the rightful
owners or used for investor education.
Sources of Money for IEPF
The following amounts are transferred to the IEPF:
1. Unpaid dividends that remain unclaimed for 7 years.
2. Matured deposits and debentures with companies that remain unclaimed
for 7 years.
3. Refundable application money for shares or securities not claimed for 7
years.
4. Sale proceeds of fractional shares from mergers or bonus issues.
5. Unclaimed redemption money of preference shares.
6. Interest earned from investments made using the fund.
7. Donations and grants from the government and other institutions.
Utilization of IEPF
The money in the IEPF is used for:
1. Refunding investors who claim their unclaimed amounts.
2. Investor education and awareness programs.
3. Compensating investors who suffered losses due to fraud, as per court
orders.
4. Supporting legal expenses for class-action lawsuits by shareholders or
debenture holders.
How to Claim Money from IEPF?
If an investor’s money has been transferred to IEPF, they can apply for a refund
through Form IEPF-5 on the MCA portal. After verification, the money is returned to
the rightful investor.
This fund ensures that investors do not lose their unclaimed money and promotes
financial awareness among the public.
2. Annual Return (Section 92 of the Companies Act, 2013)
An Annual Return is a report filed by every company with the Registrar of
Companies (ROC) every year. It provides details of the company's structure,
management, and shareholding.
A. Applicability of Annual Return
All companies, except One Person Companies (OPCs) and small companies,
must file an annual return with the ROC.
B. Contents of Annual Return
The annual return includes the following details:
1. Company Information: Name, Registered Office Address, Corporate Identity
Number (CIN).
2. Shareholding Structure: Details of shareholders and changes in
shareholding.
3. Directors & Key Managerial Personnel: Names, Designation, and changes
during the year.
4. Meetings of Members & Board: Number of meetings held and attendance of
directors.
5. Debts & Loans: Details of borrowings and financial transactions.
6. Penalties & Legal Actions: Any penalties imposed on the company.
7. Certification by a Practicing Company Secretary: (For certain companies).
C. Filing Procedure and Due Date
 The Annual Return must be filed within 60 days from the Annual General
Meeting (AGM).
 Private and public companies must file Form MGT-7 with the ROC.
 Small companies and OPCs can file Form MGT-7A (a simplified version).
D. Penalty for Non-Filing
If a company fails to file its annual return:
1. The company is liable to pay a penalty of ₹100 per day of default.
2. Directors and officers in default may also be fined up to ₹5,00,000 or face
imprisonment up to 6 months.
Director Identification Number (DIN) – Simple Explanation
A Director Identification Number (DIN) is a unique number given by the Central
Government to anyone who wants to become a director in a company. This number
helps in identifying directors and ensures transparency in corporate governance.
Key Provisions of DIN
1. Applying for DIN (Section 153)
o Anyone who wants to be a director must apply for a DIN from the
Central Government using the prescribed form and by paying the
required fee.
o The government may allow the use of another identification number
(like Aadhaar) as a DIN.
2. Allotment of DIN (Section 154)
o The Central Government must allot the DIN within one month of
receiving the application.
3. One Person, One DIN (Section 155)
o A person cannot have more than one DIN.
4. Director to Inform Company (Section 156)
 o Once a director gets a DIN, they must inform all companies where they
are a director within one month.
5. Company to Inform Registrar (Section 157)
o After receiving the DIN details, the company must inform the
Registrar of Companies (ROC) within 15 days.
6. DIN to be Used in Documents (Section 158)
o Whenever a company or director submits any official documents, they
must mention the DIN in relevant records.
7. Penalty for Non-Compliance
o If someone does not follow the rules, they may be fined up to
₹50,000.
o If the delay continues, there is an additional fine of ₹500 per day.
Why is DIN Important?
 Helps track directors in multiple companies.
 Prevents fraud by ensuring every director has a unique identity.
 Ensures compliance with corporate laws.
DIN is a mandatory requirement for all company directors in India and helps maintain
transparency in business operations.

Books of Accounts to be Maintained by a Company

As per Section 2(13) of the Companies Act, 2013, every company must maintain
proper books of accounts. These records should include details of:
1. Money Transactions – All amounts received and spent by the company and
the reasons for such transactions.
2. Sales & Purchases – A record of all goods and services bought and sold by
the company.
3. Assets & Liabilities – Details of everything the company owns (assets) and
owes (liabilities).
4. Cost Records – Some companies (as specified under Section 148) must
also maintain details about material usage, labor, and other costs.
Where Should Books of Accounts Be Kept?
 The company must keep its books of accounts at its registered office.
 If the company wants to keep them at another place in India, the Board of
Directors must approve the decision and inform the Registrar of Companies
(ROC) within 7 days.
System of Accounting
 The company must maintain its books using the accrual basis and the
double-entry system of accounting.
Who Can Check the Books?
 Directors of the company can inspect the books of accounts during business
hours.
For How Long Should the Books Be Kept?
 Companies must preserve their books of accounts for at least 8 financial
years.
 If the Central Government orders an investigation, companies may be
required to keep records for a longer period.
Who is Responsible for Maintaining the Books?
The following people are responsible for keeping proper books of accounts:
1. Managing Director
2. Whole-Time Director in charge of Finance
3. Chief Financial Officer (CFO)
4. Any other person assigned by the Board of Directors
Penalty for Not Maintaining Books Properly
 If the responsible persons fail to maintain books properly, they may face:
o Imprisonment for up to 1 year, or
o Fine between ₹5,000 and ₹5,00,000, or both.
Electronic Records
 The Companies Act, 2013 allows companies to maintain books of
accounts electronically.
Proper bookkeeping ensures transparency, legal compliance, and smooth financial
management of a company.
Q47) What is winding up of a company?
what are the grounds for compulsory winding up

Winding Up of a Company
Winding up of a company means closing the business permanently and selling its
assets to pay off debts. Once the process is complete, the company ceases to exist
legally.
Winding up can be of two types:
1. Voluntary Winding Up – When the company itself decides to shut down.
2. Compulsory Winding Up – When the company is forced to shut down by the
National Company Law Tribunal (NCLT) based on legal grounds.

Compulsory Winding Up by Tribunal (Section 271 & 272)

A company may be ordered to wind up by the NCLT under the following situations:
1. Company’s Own Decision – If the company passes a special resolution to
be wound up.
2. Against National Interest – If the company has acted against India's
sovereignty, security, or public order, or harmed friendly relations with
other countries.
3. Fraudulent Activities – If the company has been involved in fraud,
mismanagement, or unlawful activities, and the Registrar of Companies or
the Central Government files a case against it.
4. Non-Filing of Financial Statements – If the company fails to submit
financial statements or annual returns for five consecutive years.
5. Just and Equitable Grounds – If the Tribunal finds it necessary to wind up
the company for fairness and justice.

Just and Equitable Grounds for Winding Up

The Tribunal has broad powers to decide when winding up is necessary based on
fairness. Some common reasons include:
1. Deadlock in Management – When directors or key decision-makers are in
conflict, making it impossible to run the company effectively.
 2. Failure to Achieve Business Purpose – If the company is unable to fulfill
the purpose for which it was formed.
3. Continuous Losses – If the company cannot run without making losses,
and continuing operations would be impractical.
4. Oppression of Minority Shareholders – If the majority shareholders are
unfairly exploiting the minority, making the business environment unjust.
5. Illegal or Fraudulent Business – If the company was created for fraud or
illegal activities, or if a change in law makes its business unlawful.
6. Shell or "Bubble" Company – If the company does not conduct any real
business or own any assets, it may be shut down to prevent misuse.
Once winding up is ordered, a liquidator is appointed to sell assets, pay off debts,
and legally close the company.
Q48) discuss the grounds under which a company can be bound by the nclt?
Grounds for Winding Up of a Company by NCLT (National Company Law
Tribunal)
As per Section 271 of the Companies Act, 2013, the National Company Law
Tribunal (NCLT) can order the winding up of a company under the following
grounds:

1. Special Resolution by the Company

 If the company itself decides to shut down by passing a special resolution,
NCLT can approve the winding-up process.
 However, the Tribunal is not bound to approve it immediately. It will assess
whether the closure is justified and in the interest of stakeholders.

2. Acting Against National Interest

 If the company is involved in activities that threaten:
o Sovereignty and integrity of India
o National security
o Public order, decency, or morality
o India’s relations with foreign states
 NCLT can order the company to wind up to protect national interest.

3. Fraudulent and Unlawful Activities

 If the company was formed for fraudulent purposes, or
 If the company’s management is guilty of fraud, misconduct, or
mismanagement, and
 If the Registrar of Companies (ROC) or the Central Government files a
complaint,
 NCLT can order winding up to protect investors and the public.

4. Non-Filing of Financial Statements

 If the company fails to submit financial statements or annual returns for
five consecutive years,
 The Tribunal can assume the company is not conducting legitimate
business and order its closure.
5. Just and Equitable Grounds
The Tribunal has the power to wind up a company when it is fair and reasonable to
do so. Some common situations include:
(i) Deadlock in Management
 If there is a serious dispute between directors or shareholders that prevents
smooth functioning, the company may be wound up.
 Example: When directors are in conflict and are not making decisions in the
company’s best interest.
(ii) Failure of Business Purpose
 If the company cannot fulfill its main objectives or its business model has
failed, its existence has no purpose.
 Example: A company formed to develop a specific project fails to complete
it, making the business irrelevant.
(iii) Continuous Losses
 If the company is unable to operate without making losses and there is no
hope of revival, NCLT may order its winding up.
 However, a company cannot be closed just because some shareholders
fear losses—actual financial distress must be proven.
(iv) Oppression of Minority Shareholders
 If the majority shareholders are misusing their power to suppress minority
shareholders’ rights, NCLT can step in.
 Example: If minority shareholders are denied profits or voting rights
unfairly, the company may be wound up to protect them.
(v) Illegal Business Operations
 If the company’s business becomes illegal due to a change in law, NCLT
can order it to shut down.
 Example: A company running an online lottery business in a state where
lotteries are banned may be forced to close.
(vi) Shell or "Bubble" Companies
 If a company is not conducting any real business and exists only on paper,
it may be wound up.
 Example: A company that has no operations, no employees, and no
assets but exists only to manipulate funds.

Conclusion
The NCLT plays a crucial role in ensuring that companies operate legally and
ethically. If a company is involved in fraud, financial mismanagement, or illegal
activities, or if it is unable to function properly, NCLT can protect stakeholders
by ordering its winding up.
Q49) Distinguish between winding up and dissolution of a company?
Difference Between Winding Up and Dissolution of a Company
Basis Winding Up Dissolution
Winding up is the process of
Dissolution is the final stage
closing a company's business,
Meaning where the company ceases to
selling its assets, and paying off
exist legally.
liabilities.
Basis Winding Up Dissolution
Existence of The company still exists as a After dissolution, the company
Company legal entity during winding up. ceases to exist completely.
Involves removing the
Involves selling assets, repaying
Process company’s name from the
debts, and distributing remaining
Involved official records (Registrar of
funds to shareholders.
Companies).
Handled by the Registrar of
Authority Handled by a liquidator or
Companies (ROC) after
Responsible tribunal (e.g., NCLT).
completion of winding up.
The company cannot be sued or
Legal The company can still be sued or
take any legal action after
Proceedings continue legal actions.
dissolution.
The company is completely
The company prepares for
Outcome closed and its name is removed
closure but is still in existence.
from official records.
After selling all assets and
A company in financial trouble
clearing debts, the company is
Example sells its assets to pay off
officially removed from the
creditors.
company register.
Conclusion
 Winding up is the step-by-step process of closing a company.
 Dissolution is the final act that legally ends the company's existence.
Q50) What is process of dematerialisation of shares under the depository
system?(not much imp)
Process of Dematerialisation of Shares under the Depository System
Dematerialisation (Demat) is the process of converting physical share certificates
into electronic form, making them easy to trade and manage. It is done through a
depository system such as NSDL (National Securities Depository Limited) or
CDSL (Central Depository Services Limited) in India.
Steps in the Dematerialisation Process:
1. Open a Demat Account
o The shareholder must open a Demat account with a Depository
Participant (DP) (such as a bank or broker) registered with NSDL or
CDSL.
2. Submit a Dematerialisation Request
o The shareholder fills out a Dematerialisation Request Form (DRF)
and submits it along with physical share certificates to the DP.
o The certificates must be marked as "Surrendered for
Dematerialisation."
3. Verification by DP
o The DP checks the details on the DRF and verifies the share
certificates.
o If everything is in order, the DP forwards the request to the Depository
(NSDL/CDSL) and informs the Company/Registrar and Transfer
Agent (RTA).
4. Processing by Company/RTA
 o The Company/RTA verifies the details and confirms the
dematerialisation request to the Depository.
o If approved, the physical certificates are cancelled and the demat
shares are credited to the Depository.
5. Credit to Demat Account
o Once the Depository receives confirmation from the company/RTA, the
electronic shares are credited to the shareholder’s Demat account.
o The DP updates the shareholder's account, and they can now trade
shares electronically.
Important Points:
 Time Taken: The process usually takes 15-30 days.
 No Stamp Duty: Unlike physical shares, demat shares do not attract stamp
duty on transfer.
 Safe & Convenient: Eliminates the risk of loss, theft, or damage to share
certificates.
Conclusion
Dematerialisation simplifies share trading by converting physical certificates into
digital format, ensuring faster transactions, reduced paperwork, and greater
security.
Q51) what is depository? explain the benefits and working of depository system.
Depository: Meaning, Benefits, and Working of the Depository System
Meaning of Depository
According to Section 2(1)(e) of the Depositories Act, 1996, a depository is a
company registered under the Companies Act and granted a certificate under
Section 12(1A) of the SEBI Act, 1992. It holds securities such as shares,
debentures, bonds, mutual fund units, and government securities in electronic
form at the request of investors through registered Depository Participants (DPs).
The depository system allows securities to be transferred electronically without the
need for physical movement of share certificates. This is also known as the
Scripless Trading System.
In India, there are two depositories:
1. National Securities Depository Limited (NSDL)
2. Central Depository Services Limited (CDSL)
Benefits of the Depository System
1. Immediate Transfer of Securities – Investors no longer need to follow up
with stockbrokers or companies for share transfers.
2. No Stamp Duty – Stamp duty on transfer of securities is eliminated,
reducing transaction costs.
3. Elimination of Physical Risks – No risk of loss, theft, forgery, or damage
to share certificates.
4. Easy Settlement – No need to send securities to different locations for
transfer or registration.
5. No "Odd Lot" Issues – Investors can buy or sell any quantity of shares,
unlike physical certificates where trading small lots was difficult.
6. Direct Credit of Bonus & Rights Shares – Companies directly credit bonus
and rights issues into the investor’s Demat account without paperwork.
 7. Simplified Transmission Process – In case of an investor’s death, legal
heirs only need to submit documents to the DP, rather than contacting
multiple companies.
8. Automated Record Keeping – Investors receive a periodic statement from
their DP, reducing the need for manual record maintenance.
9. No Need for Physical Storage – Eliminates the requirement of bank vaults
or lockers for storing physical share certificates.
10. Single Update for Change of Address – Investors need to update their
address only with the DP, which automatically updates records for all
companies.

Working of the Depository System

The Depository System functions through three main participants:
1. Depository (NSDL/CDSL) – Maintains records of securities in electronic
form.
2. Depository Participant (DP) – Acts as an intermediary between investors
and the depository (e.g., banks, stockbrokers).
3. Issuer Company – The company whose securities are held in electronic
form.
Step-by-Step Process:
1. Opening a Demat Account
o Investors must open a Demat account with a DP (Depository
Participant).
o An agreement is signed between the investor and DP.
2. Buying and Selling of Securities
o Investors can buy/sell securities electronically through a broker.
o For selling securities: The investor instructs the DP to debit the sold
securities from their Demat account and credit them to the broker’s
clearing account. This is done using a Delivery Instruction Slip (DIS).
o For buying securities: The investor provides a Receipt Instruction
Slip (RIS) to the DP for crediting purchased securities into their Demat
account.
3. Trade Settlement
o The depository and stock exchange coordinate to ensure the proper
transfer of securities between buyers and sellers.
4. Corporate Actions (Bonus, Rights, Dividends)
o Companies obtain investor details from depositories and credit
dividends, bonus shares, and rights issues directly into their
Demat accounts.
5. Transmission of Securities
o If an investor passes away, the legal heirs can complete all
formalities through the DP, rather than contacting each company
separately.

Conclusion
The Depository System has transformed the securities market by making trading,
transfer, and settlement of securities fast, safe, and efficient. It eliminates the
problems of paper-based securities, reduces costs, and enhances investor
confidence.
Q52) what are the rights and obligations of depository and participants under the
depository act 1996?
Rights and Obligations of Depository and Depository Participants under the
Depositories Act, 1996
The Depositories Act, 1996 provides a legal framework for the electronic holding
and transfer of securities through depositories and their participants. It defines
the rights and obligations of both depositories and depository participants (DPs)
to ensure smooth functioning.

1. Rights of Depository (Section 5 & 6)

1. Registration of Securities – A depository has the right to register securities
in its name or in the name of its nominee. However, the investor remains the
beneficial owner.
2. Maintenance of Records – It has the right to maintain records of securities
held electronically and their transactions.
3. Facilitating Dematerialization & Rematerialization – The depository can
convert physical securities into electronic form (dematerialization) and
vice versa (rematerialization).
4. Transfer of Securities – It has the right to facilitate the transfer of
securities through book entries without the need for physical movement.
5. Corporate Benefits Distribution – The depository can handle corporate
actions like bonus issues, dividends, and rights shares directly into investors’
accounts.
6. Inspection & Audit – Depositories can conduct inspections and audits of
Depository Participants to ensure compliance with regulations.
7. Right to Make Regulations – Depositories can frame rules and regulations
for the functioning of depository participants and investors.

2. Obligations of Depository (Section 16 & 17)

1. Security & Confidentiality – The depository must ensure the safety and
confidentiality of investor data and transactions.
2. Maintenance of Records – It must maintain proper records of holdings,
transactions, and accounts of all investors.
3. Account Opening & Verification – The depository must verify investor
details before opening an account.
4. Error Rectification – If a depository makes any wrong entry, it is obligated
to correct it.
5. Liability for Loss – If an investor suffers losses due to errors or fraud by
the depository, it is liable to compensate the investor.
6. Compliance with SEBI Regulations – The
Rights and Obligations of Depositories and Depository Participants Under the
Depositories Act, 1996
A Depository is an organization that holds securities (such as shares, bonds, and
mutual funds) in electronic form and facilitates securities transactions through
book-entry. A Depository Participant (DP) acts as an intermediary between
investors and the depository.
The Depositories Act, 1996 defines the rights and obligations of depositories and
their participants to ensure a smooth and transparent securities market.

1. Rights of Depository
1. Agreement with Participants – A depository has the right to enter into
agreements with one or more Depository Participants (DPs) to provide
services to investors.
2. Holding Securities as Registered Owner – The depository is considered the
registered owner of securities for transfer purposes, but the actual investor
(beneficial owner) retains ownership rights.
3. No Voting Rights – Even though the depository holds securities, it cannot
exercise voting rights or claim other benefits (such as dividends or bonuses)
on behalf of the investor.
4. Facilitating Pledge of Securities – Investors can pledge or hypothecate
their securities (e.g., for loans) with the depository’s approval.
5. Information to Issuer Company – The depository must provide details of
securities transactions to the issuer company at specified intervals.
6. Enquiry by SEBI – SEBI (Securities and Exchange Board of India) can ask
for information from depositories or participants regarding securities held in
electronic form.

2. Obligations of Depository
1. Maintain Investor Records – Depositories must maintain accurate records
of securities and transactions.
2. Ensure Confidentiality & Security – They must protect investor data and
prevent unauthorized access.
3. Correction of Errors – If any mistake occurs in transactions, the depository
must correct it immediately.
4. Allow Opting Out – Investors can choose to exit from a depository system
and convert their securities back into physical form. The depository must
update its records accordingly.
5. Compliance with SEBI Regulations – Depositories must follow all SEBI
guidelines and provide information when requested.

3. Rights of Depository Participants (DPs)

1. Enter Agreement with Depository – A DP must register with a depository
and act as its agent to provide services to investors.
2. Handle Securities Transactions – A DP can facilitate the buying, selling,
and transfer of securities on behalf of investors.
3. Receive Information from Depository – DPs receive transaction details
from the depository and share them with investors.
4. Charge Fees for Services – DPs can charge investors fees for services like
opening accounts, transferring securities, and pledging shares.

4. Obligations of Depository Participants (DPs)

1. Verify Investor Details – A DP must verify and maintain KYC records of
investors.
 2. Provide Transaction Statements – DPs must regularly send statements of
holdings and transactions to investors.
3. Facilitate Demat & Remat – They help investors convert physical shares
to electronic form (dematerialization) and vice versa (rematerialization).
4. Ensure Compliance – DPs must follow all rules set by SEBI and the
depository.

5. SEBI's Role in Regulation

 SEBI has the power to inspect depositories and DPs to ensure compliance.
 SEBI can issue directions to protect investors and ensure the smooth
functioning of the depository system.

Conclusion
The depository system under the Depositories Act, 1996 has made securities
trading safer, faster, and more efficient by eliminating physical certificates.
Depositories and Depository Participants play a crucial role in ensuring secure
transactions, easy transfers, and better investor protection.
Q53) salient features of the depositories act 1996?
Salient Features of the Depositories Act, 1996
The Depositories Act, 1996 was enacted to facilitate the electronic holding and
transfer of securities, eliminating the risks of physical certificates and ensuring
smooth transactions in the securities market.

Key Features:
1. Legal Framework for Depositories
o The Act allows the establishment of depositories that hold securities
electronically.
o Depositories must be registered under the Companies Act and SEBI
before commencing operations.
2. Dematerialization of Securities
o Investors can hold securities in physical or electronic form.
o Once dematerialized, securities lose their certificate numbers and
become fungible (identical and interchangeable).
3. Depository Participants (DPs)
o Depositories operate through Depository Participants (DPs), who act
as intermediaries between investors and the depository.
o Investors must open a Demat Account with a DP to hold and trade
securities electronically.
4. Book-Entry Transfers
o The transfer of securities is recorded electronically in the
depository’s books, eliminating the need for physical movement.
5. Separation of Ownership
o Depositories become the registered owners of securities in
company records, while investors remain the beneficial owners.
o Investors retain all rights and benefits, including dividends, voting
rights, and bonus shares.
6. No Stamp Duty on Electronic Transfers
 o Stamp duty is waived for securities transferred in demat form,
reducing transaction costs.
7. Pledging of Securities
o Investors can pledge securities with prior approval from the
depository.
8. Faster Settlements & Corporate Actions
o Bonus issues, rights shares, and dividends are credited directly to
the investor’s Demat Account.
o Transactions are faster, safer, and more transparent.
9. Regulation & Investor Protection
o SEBI regulates depositories and DPs to ensure security and prevent
fraud.
o Investors can rematerialize (convert back to physical form) if needed.

Conclusion
The Depositories Act, 1996 transformed India’s securities market by introducing
electronic trading, reducing paperwork, and ensuring secure, efficient
transactions.
Q54) what is a statutory meeting? State the provisions for holding a
statutory meeting?
Statutory Meeting & Its Provisions
A Statutory Meeting is the first meeting of shareholders of a public company
limited by shares. It is held once in the company’s lifetime to inform shareholders
about its financial position and business progress.

Provisions for Holding a Statutory Meeting (As per Companies Act, 2013)
1. Applicability:
o It is mandatory for public companies limited by shares.
o Private companies and public companies limited by guarantee are
not required to hold it.
2. Timeframe:
o Must be held within 6 months but not earlier than 1 month from the
date of commencement of business.
3. Statutory Report:
o The Board of Directors must prepare a Statutory Report and send it
to shareholders at least 21 days before the meeting.
o The report must include:
 Company’s share capital details (number of shares allotted).
 Receipts and payments made by the company.
 Details of directors, auditors, and key managerial
personnel.
 Any contracts, modifications, or major decisions affecting
the company.
4. Filing with Registrar of Companies (ROC):
o A copy of the Statutory Report must be filed with the ROC before the
meeting.
5. Purpose of Meeting:
 oTo update shareholders on the company’s financial health and
operations.
o To discuss any important business decisions.
6. Consequences of Non-Compliance:
o If a company fails to hold a statutory meeting, it may face penalties,
and the court may order winding up of the company.

Conclusion:
The Statutory Meeting ensures transparency by allowing shareholders to review
the company’s progress and financial position soon after it begins operations.
Q55) Write short notes on the following:
National Company Law Tribunal
The National Company Law Tribunal (NCLT) is a quasi-judicial body in India that
handles cases related to company laws and corporate disputes. It was
established under the Companies Act, 2013, and started functioning in 2016.

Functions of NCLT:
1. Company Registration Issues:
o Resolves disputes related to company incorporation.
2. Winding Up of Companies:
o Orders the closure (winding up) of companies due to financial
troubles, fraud, or legal violations.
3. Oppression and Mismanagement Cases:
o Protects minority shareholders from unfair treatment by company
management.
4. Corporate Debt & Insolvency Cases:
o Handles Insolvency and Bankruptcy Code (IBC) cases, helping
companies resolve debt issues.
5. Mergers & Acquisitions Approvals:
o Approves corporate mergers, demergers, and restructuring
decisions.
6. Depositor and Investor Protection:
o Handles complaints related to fraudulent activities by companies
against investors and depositors.

Powers of NCLT:
 Can summon people, examine witnesses, and demand evidence.
 Has the authority to freeze company assets in case of fraud.
 Can overrule decisions made by company boards if they violate laws.
Q56) discuss the rights,power and duties of auditors?
Rights, Powers, and Duties of Auditors under the Companies Act, 2013
An auditor is responsible for checking a company's financial records to ensure they
are accurate and comply with the law. The Companies Act, 2013, gives auditors
certain rights, powers, and duties to help them perform their job effectively.

Rights and Powers of Auditors

1. Right to Access Financial Records:
 o The auditor can check the company’s books, vouchers, and
financial records at any time, whether they are kept at the main office
or elsewhere.
2. Right to Ask Questions:
o The auditor can ask company officers for explanations about
financial matters to perform their audit properly.
3. Right to Attend General Meetings:
o As per Section 146, the auditor must receive notices about General
Meetings. They can attend these meetings and share their views on
financial matters.
4. Right to Check Subsidiary Records:
o If a company owns subsidiary companies, the auditor can check their
records to ensure accurate financial reporting.
5. Right to Receive Payment:
o The auditor has the right to receive their fees and reimbursement for
expenses as decided in the company’s General Meeting.

Duties of Auditors
1. Duty to Inquire About Financial Irregularities (Section 143):
o The auditor must check whether:
 Loans given by the company are properly secured and not
harmful to the company.
 Transactions recorded only in books (without real money
movement) are not hurting the company.
 Non-banking companies are not selling shares and securities at
a loss.
 Loans are not wrongly shown as deposits.
 Personal expenses are not included in company accounts.
 If shares were issued for cash, whether the company actually
received the money.
2. Duty to Report Fraud (Whistleblower Role):
o If the auditor finds that fraud has been committed by company officers
or employees, they must report it to the Central Government within
60 days.
3. Duty to Prepare an Audit Report:
o The auditor must prepare a report on the company’s financial
statements and present it to shareholders during the General Meeting.
4. Duty to Follow Auditing Standards:
o The auditor must follow official auditing standards to ensure
accuracy and fairness in financial reporting.

Conclusion:
The Companies Act, 2013 gives auditors the authority to check financial records,
ask questions, and attend meetings. At the same time, they have important duties,
like reporting fraud, ensuring financial accuracy, and following auditing standards.
Their role helps maintain transparency and trust in the corporate world.