IGNOU BCOC 135 Free Solved Assignment 2022
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BCOC 135
COMPANY LAW
Programme: BAG/2021/2022
Course Code: BCOC 135
Max. Marks: 100
BCOC 135 Free Solved
Assignment
Note:
Attempt all the questions.
Section – A
Q-1 What is
an illegal association? What are its consequences?
Having a highly progressive economy, India is bound to have
all types of business entities doing businesses in a range of sectors of its
economy. This raises an important question as to how many of these entities are
actually registered? Although it’s not mandatory for entities like partnerships
to register themselves, registration certainly provides a range of benefits
including but not limited to, limited liability protection, easy availability
of credit facilities, public confidence, and settlement of claims. Unfortunately,
India still remains a host to several unregistered businesses. IGNOU BCOC 135 Free Solved Assignment 2022 This may be due
to a myriad of reasons, whether it being too costly or the procedure being too
cumbersome. It’s however important to keep in mind that the objective of most
of these entities is to make profits or acquire certain gains. It would hence
be problematic if certain associations or partnerships consisting of several
persons continue to run their businesses for profits without being registered
under any law in force in India. IGNOU BCOC 135 Free Solved Assignment 2022 It would not only cause uncertainty as to the
rights of the members inter se but also as to their accountability to third
parties such as creditors.This calls into question the legality of the
existence of these associations. IGNOU BCOC 135 Free Solved Assignment 2022 The Indian company law right from the Indian
Companies Act, 1913 to the present Companies Act, 2013 has contained a
provision prohibiting certain associations, companies, or partnerships to run a
business with the objective to acquire profits unless such entities register
themselves under the Companies Act or are formed under any other law.
The entities failing to do so are termed “illegal
associations”. This article aims to explain the meaning of illegal association,
the exceptions to it, and the consequences of forming such an association. In
V. Juia vs S. Dalmia, an action was brought for the determination of the
validity of an arbitration agreement. IGNOU BCOC 135 Free Solved Assignment 2022 The petitioner being a stockbroker, was a
member of the Bombay Stock Exchange (BSE) and the respondents employed the
petitioner to effect transactions in shares and other securities. Subsequently,
disputes arose between them and the petitioner sought the disputes to be
resolved by arbitration as provided by the rules, bye-laws, and regulations of
the stock exchange. IGNOU BCOC 135 Free Solved Assignment 2022 On notice of appointment of arbitrator by the petitioner,
the stock exchange called upon the respondents to appoint their own arbitrator,
which was refuted by them stating that the arbitration agreement is not valid
as per law due to the fact that BSE was an illegal association. According to
them, BSE being an illegal body, its rules, regulations, and bye-laws would
also be illegal and hence an arbitration agreement stemming from such rules
would be invalid. The question which arose was whether BSE was formed for the
purpose of carrying on business with an objective to acquire gain to itself or
its members. The court held that the stock exchange cannot be said to be formed
for the purpose of carrying on any business. It can also not be stated that the
motive of BSE was to acquire profits. As per the court, the activities of the
stock exchange are only for effectively regulating and controlling transactions
in shares and securities. IGNOU BCOC 135 Free Solved Assignment 2022 Although profits may arise due to fees charged by it,
it is important to take notice of the fact that these activities are not
intended for the stock exchange to make a profit or gain. Thus, the arbitration
agreement was held to be valid and effective.Forming an illegal association
would naturally have several consequences ensuing from it. While the Act
explicitly provides for certain consequences, it is found that several of them
came into existence by rulings of the courts in India. This is explained in
detail hereunder:
Q-2 Define
a private company. State its privileges and exemptions.
The growth of trade and businessled to many problems that
traditional forms of business did not solve. For example, the unlimited liability
feature of a sole proprietorship form of business resulted in people forming
partnerships, but even that proved to be too inadequate and risky. This is when
the concept of companies emerged, and private companies form of business is the
oldest example of it.
Private Company
Section 2(68) of Companies Act, 2013 defines private
companies. According to that, private companies are those companies whose
articles of association restrict the transferability of shares and prevent the
public at large from subscribing to them. This is the basic criterion that
differentiates private companies from public companies.The Section further says
private companies can have a maximum of 200 members (except for One Person
Companies). This number does not include present and former employees who are
also members. Moreover, more than two persons who own shares jointly are
treated as a single member. IGNOU BCOC 135 Free Solved Assignment 2022 This definition had previously prescribed a minimum
paid-up share capital of Rs. 1 lakh for private companies, but an amendment in
2005 removed this requirement. Private companies can now have a minimum paid-up
capital of any amount.
Formation of Private
Companies
Minimum 2 and maximum of 200 members can come together to
form a private company by submitting an application to that effect to the
Registrar of Companies along with a subscribed copy of their Memorandum of
Association and other required documents after payment of prescribed fees.The
Memorandum must state the name of the company (which should include the words
“Private Limited”), the address of its registered office, its objects and
purposes, and extent of liability of its members. IGNOU BCOC 135 Free Solved Assignment 2022 It must also mention the
details of subscribers to the Memorandum.Apart from this, the Companies Act has
also prescribed certain other compliances, such as requirements relating to
names of private companies, their Articles of Association, details of members,
transferability of shares, etc.Private companies are sometimes referred to as
privately held companies. IGNOU BCOC 135 Free Solved Assignment 2022 There are four main types of private companies: sole
proprietorships, limited liability corporations (LLCs), S corporations
(S-corps) and C corporations (C-corps)—all of which have different rules for
shareholders, members, and taxation.All companies in the U.S. start as
privately held companies. Private companies range in size and scope,
encompassing the millions of individually owned businesses in the U.S. and the
dozens of unicorn startups worldwide. Even U.S. firms such as Cargill, Koch
Industries, Deloitte, and PricewaterhouseCoopers with upwards of $25 billion in
annual revenue fall under the private company umbrella.Sole proprietorships put
company ownership in the hands of one person. A sole proprietorship is not its
own legal entity; its assets, liabilities and all financial obligations fall
completely onto the individual owner. IGNOU BCOC 135 Free Solved Assignment 2022 While this gives the individual total
control over decisions, it also raises risk and makes it harder to raise money.
Partnerships are another type of ownership structure for private companies;
they share the unlimited liability aspect of sole proprietorships but include
at least two owners.Limited liability companies (LLCs) often have multiple
owners who share ownership and liability. This ownership structure merges some
of the benefits of partnerships and corporations, including pass-through income
taxation and limited liability without having to incorporate. S corporations
and C corporations are similar to public companies with shareholders. However,
these types of companies can remain private and do not need to submit quarterly
or annual financial reports. S corporations can have no more than 100
shareholders and are not taxed on their profits while C corporations can have
an unlimited number of shareholders but are subject to double taxation.
Q-3 Explain
and illustrate doctrine of indoor management. What are the exceptions to this
rule?
The doctrine of indoor management, also known as the
Turquand rule is a 150- year old concept, which protects outsiders against the
actions done by the company.Any person who enters into a contract with the
company shall ensure that the transaction is authorised by the articles and
memorandum of the company. BCOC 135 Free Solved Assignment 2022 There is no requirement to look into the internal
irregularities, and even if there are any irregularities, the company shall be
held liable since the person has acted on the grounds of good faith.To absorb the
concept of this doctrine, it is important to understand the concept of the
doctrine of constructive notice. Both the concept of indoor management and
constructive notice is explained below.Section 399 of the Companies Act, 2013
states that any person may, after payment of the prescribed fees inspect by
electronic means any documents kept with the Registrar of Companies. Any person
can also obtain a copy of any document including the certificate of
incorporation from the Registrar.In line with this provision, the Memorandum of
Association and the Articles of Association are public documents once they are
filed with the Registrar. Any person may inspect the same after payment of the
fees prescribed.
The special resolutions are also required to be registered
with the Registrar under the Companies Act, 2013.The doctrine presumes that
every person has knowledge of the contents of the Memorandum of Association,
Articles of Association and every other document such as special resolutions as
it is filed with the Registrar and available for public view.This principle has
been upheld in the landmark case of Oakbank Oil Co. V. Crum (1882) 8 A.C.65.
Thus, if any person enters into a contract, which is inconsistent with the
company’s Memorandum and Article, he shall not acquire any rights against the
company and shall bear the consequences himself. This principle has been upheld
in the landmark case of Oakbank Oil Co. V. Crum (1882) 8 A.C.65. IGNOU BCOC 135 Free Solved Assignment 2022 Thus, if any
person enters into a contract, which is inconsistent with the company’s
Memorandum and Article, he shall not acquire any rights against the company and
shall bear the consequences himself. Listed below are the exceptions to the
doctrine that have been judicially established, which provide circumstances under
which the benefit of indoor management cannot be claimed by a person dealing
with the company.This rule does not apply to circumstances where the person
affected has actual or constructive notice of the irregularity. In Howard V
Patent Ivory Manufacturing Company (1888) 38 Ch D 156, the Articles of the
company empowered the directors to borrow up to 1,000 pounds. The limit could
be raised provided consent was given in the General Meeting. Without the
resolution being passed, the directors took 3,500 pounds from one of the
directors who took debentures. Held, the company was liable only to the extent
of 1,000 pounds. Since the directors knew the resolution was not passed, they
could not claim protection under Turquand’s rule.In case any person dealing
with the company is suspicious about the circumstances revolving around a
contract, then he shall enquire into it. If he fails to enquire, he cannot rely
on this rule.In the case of Anand Bihari Lal V Dinshaw & Co, (1946) 48
BOMLR 293, the plaintiff accepted a transfer of property from the accountant.
The Court held that the plaintiff should have acquired a copy of the Power of
Attorney to confirm the authority of the accountant. Thus, the transfer was
considered void
Q-4 Who can
be a director? State the modes of appointment of directors.
According to the Companies Act, only an individual can be
appointed as a member of the board of directors. Usually, the appointment of
directors is done by shareholders. A company, association, a legal firm with an
artificial legal personality cannot be appointed as a director. It hasto be a
real person.
Appointment of
Directors
In public or a private company, a total of two-thirds of
directors are appointed by the shareholders. The rest of the one-third
remaining members are appointed with regard to guidelines prescribed in the
Article of Association.In the case of a private company, their Article of
Association can prescribe the method to appoint any and all directors. In case
the Articles are silent, the directors must be appointed by the
shareholders. IGNOU BCOC 135 Free Solved Assignment 2022 The Companies Act also has a clause that permits a company to
appoint two-thirds of the company directors to be appointed according to the
principle of proportional representation. This happens if the company has
adopted this policy.Nominee directors will be appointed by third party
authorities or the Government to tackle mismanagement and misconduct. The
duties of directors are to act honestly, exercise reasonable care and skill
while performing their duties on behalf of the organization.
Appointment of
Managing Directors
A managing director must be an individual (a real person)
and can be appointed for a maximum period of five years.A managing director of
a pre-existing company can be appointed as a managing director of another
company as long as the board of directors of the first company are aware and
approve of this new appointment.
Removal of Directors
The following authorities are responsible for the process of
removal of directors from the board of directors.
Removal by the
Government
A director can be removed from office under advice from
Central Government. The Central Government chooses to use this power on the
recommendation of the Company Law Board/National Company Law Tribunal.
Removal by Company
Law Board/National Company Law Tribunal
The Company Law Board or the National Company Law Tribunal
may remove a director from the board. If found guilty of any inappropriate
conduct like fraud, harassment, oppression or any other justifiable cause, he
will be removed. The terminated director cannot assume the position of director
in any other company for the next five years.Directors refer to the part of the
collective body known as the Board of Directors, that is responsible for
controlling, managing and directing the affairs of a company. IGNOU BCOC 135 Free Solved Assignment 2022 Directors are
considered the trustees of the company’s property and money, and they also act
as the agents in transactions that are entered into by them on behalf of the
company.Directors are expected to perform their duties and obligations as
rationally diligent persons with skill, knowledge, and experience as the person
carrying out functions of a director and of that himself.Directors are
responsible for controlling, managing and directing the affairs of a company.
He/She plays multiple roles in the company. Hence, a director plays several
roles in a company, as an agent, as an employee, as an officer and as a trustee
of the company.
Q-5 Who can
be appointed as an auditor of a company? What are the disqualifications of an
auditor?
According to Provisions of Section 141(1) of the Companies
Act, 2013 “a person shall be eligible for appointment as an auditor of a
company only if he is a chartered accountant within the meaning of Chartered
Accountants Act, 1949 and holds a valid Certificate of Practice.It has been
further provided that the firm shall also considered to appointed by its firm
name whereof majority of partners practising in India are qualified for
appointment as auditor of a company.According to Provisions of Section 141(2)
of the Companies Act, 2013, a firm including limited liability partnership who
are chartered accountants shall be authorised to act as auditor and sign on
behalf of the such limited liability partnership or firm. In any private
limited company, an auditor plays a significant role. Every company is required
to present its audit reports as the financial year approaches. IGNOU BCOC 135 Free Solved Assignment 2022 The financial
statements of your company should be thoroughly checked and assessed before
submission. If any anomalies are found in the reports of the company, the
auditor is held responsible. All the government and non-government
organizations have to keep track of their accounts and audit reports as the
financial year approaches. The financial statements of these firms need to be
thoroughly analyzed and assessed before submitting them to the authorized
departments. This assessment of financial documents is done by an Auditor. In
case of any discrepancy in the reports, the auditor is held responsible. IGNOU BCOC 135 Free Solved Assignment 2022 Thus,
the requirement of an auditor is a must for every organization. Every company
must appoint its first auditor or an auditing firm within 30 days of
registration of the company during the annual general meeting or within 90
days, in an Emergency General Body Meeting by the Board of Directors. The first
auditor (or the auditing firm) appointed will hold office from the conclusion
of the meeting (in which the appointment of auditor has been made) to the time
when the sixth annual general meeting is held (five years). Therein, the
auditor appointments are reviewed every sixth year. A written consent from the
auditor, with sufficient proof to suggest that the person (or firm) qualifies
the criteria provided in Section 141 of the Act, needs to be submitted before
an appointment.
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The company should issue an appointment notice to the
auditor, and a Form, ADT- 1 is required to be submitted with the registrar
within 15 days of the meeting in which the auditor is appointed. The Companies
Act, 2013 has revised and added new provisions under Role of Auditors as against
the provisions made in the Companies Act, 1956. BCOC 135 Free Solved Assignment 2022 Accordingly, there are some
very stringent norms and provisions made to the directors to make corporate
governance clear and concise. The new norms also give an auditor a lot of
additional responsibilities, and, therefore, liabilities under which, in case
of any anomalies seen in the financial reports of the company, the auditor will
come under the scanner too. An auditor can be an individual or a firm appointed
by an organization to execute an audit. A person should be authorized by the
regulatory authority of accounting and auditing or possess distinctly
restricted qualifications to act as an auditor. A person is qualified for the
appointment as the auditor of the company only if he is a C.A. under the Chartered
Accountants Act 1949. A firm where all the partners practicing in India are
qualified to be appointed as an auditor may be called to audit a company. IGNOU BCOC 135 Free Solved Assignment 2022 The
certificate holder under the auditor’s certificate rules 1956 is also be
entitled to appointment as an auditor. Under section 143 of the Companies Act,
2013, if an auditor of a company, in the course of his duty has reason to
believe that an offense involving fraud has been committed against the company
by its officers or employees, he shall immediately report the matter to the
Central Government.
Q.6 What
books of accounts are to be kept by a company?
All companies incorporated in India are required to
mandatorily maintain book of accounts under the Companies Act, 2013. In
addition, the Companies Act, a company registered in India will also be mandated
by the Income Tax Act to maintain records. In this article, we look at
maintaining book of accounts for a company, as per Companies Act, 2013. The
book of accounts has to be maintained at the registered office of a company.
However, after providing intimation to the Registrar of Companies, the Board of
Directors could decide to keep or maintain book of accounts at any other
location suitable to the business. In case a company has more than one office,
the main book of accounts of the company must be maintained at the registered
office. In addition, a records of transaction effected at its branch, should be
kept at branch office itself. A regular summary report must be sent to
registered office and it should be be kept open to inspection by the Directors.
The Board of Directors of the company have rights to inspect the book of
accounts and other books and papers of a company. However, in case of
inspection of records of a subsidiary company, it can be done only by a person
authorised by the Board of Directors. As provided in sub-section (3) of section
128, the books of account and other books and papers maintained by the company
within India can be inspected by the director either at the registered office
or such other place where the books are maintained during business hours. In
case of any financial information maintained outside India, copies of such
financial information can be produced subject to rule 4 (2) to (4). The said
rule provides that the director shall furnish a request to the company mentioning
the details of information required. Such request needs to be made by director
himself and not through power of attorney or agent or representative. The
company shall produce such information within 15 days of request. In Vakharia
v. Supreme General Films Exchange Co. Ltd. [(1948) 50 BOMLR 140] the judge
stated that “I do not think, therefore, that the argument that a person can
exercise his right of inspection through his agent only if he is unable
effectively to take inspection has any substance in it. Of course it may be
that in a proper case it is open to the party opposing inspection to show that
the person seeking inspection is guided by improper motives, and if he
succeeded in doing so the Court may refuse inspection through an agent. Section
128(3) covers not only the books of account but also the other books and
papers. The scope of the term is very wide. The Madras High Court, in K.
Kanagasabapathy vs. T.M. Shanmugham [(1972) 42 Comp. Cas. 596 (Mad.)] , held
that ‘other books and papers’ will not include all books and papers. It was
held that “Section 209(4)(a) of the Companies Act 1956 directs that the books
of accounts and other books and papers shall be open to inspection by any
director during business hours. What is the legislative intent behind the
expression “other books and papers”? Can it be reasonably construed to embrace
“the nomination paper”? At page 289 of Maxwell on the Interpretation o]
Statutes, [1859] 28 L.J. M.C. 213, twelfth edition, the following passage
occurs as to how associated words in a common sense have to be understood:
“When two or more words, which are susceptible of analogous meaning are coupled
together noscuntur a sociis. They are understood to be used in their cognate
sense. IGNOU BCOC 135 Free Solved Assignment 2022 They take, as it were, their colour from each other, the meaning of the
more general being restricted to a sense analogous to that of the less
general.” In the expression “ books of account and other books and papers “
occurring in Section 209(4)(a) of the Companies Act, the words “ other books
and papers” are more general, whereas the words “ books of account “ are less
general. But the more general words take their colour from the less general and
become restrictive in meaning. Even if the ejusdem generis Rule is applied, the
general expression is to be read as comprehending only things of the same kind
as that designated by the preceding particular expressions, unless there is
something to show that a wider sense was intended--vide R. v. Edmundson. It
would then follow that the expression “other books and papers” must be
construed as referring to other books and papers of the same kind as the books
of account. IGNOU BCOC 135 Free Solved Assignment 2022 The pattern of the different clauses in Section 209 of the
Companies Act along with the heading “Accounts” would also point to the same
conclusion. As pointed out by Maxwell at page 11 of the book cited supra, the
headings prefixed to sections or sets of sections in some modern statutes are
regarded as preambles to those sections, and that though they cannot control
the plain words of the statute, yet they may explain ambiguous words. It is
true that while the court is entitled to look at the headings in an Act of
Parliament to resolve any doubt, the law is quite clear that you cannot use
such headings to give a different effect to clear words in the section where
there cannot be any doubt as to their ordinary meaning.
Q.7 Under
what circumstances a company can be wound up.
Winding up of a company is defined as the condition when the
life of the company is brought to an end. The properties of the company are
administered for the profit of its members and its creditors. An administrator,
usually denoted as a liquidator, is appointed in the context of liquefaction or
winding up of a company. BCOC 135 Free Solved Assignment 2022 The liquidator takes control over the company,
assembles its assets, pays debts of the company and finally distributes any
surplus amongst the members according to their rights and liabilities. If the
liquidator, for any reason, realizes that the company is on the verge of
insolvency, i.e., thinks that the company will be unable to pay its debts and
liabilities within the limited time as specified by the declaration of
insolvency, he must summon a meeting of the creditors where the statement of
all the assets and liabilities is laid before them. When a resolution of
winding up of a company, as proposed by the creditors, is passed, a notice of
the resolution must be delivered at the registrar’s office within 10 days from
the day when the resolution is passed.
If the creditors wish, they may appoint an inspection
committee for watching over the entire process of winding up of the company.
Winding up is the process of dissolving a company. While winding up, a company
ceases to do business as usual. Its sole purpose is to sell off stock, pay off
creditors, and distribute any remaining assets to partners or shareholders. The
term is used primarily in Great Britain, where it is synonymous with
liquidation, which is the process of converting assets to cash. Winding up a
business is a legal process regulated by corporate laws as well as a company's
articles of association or partnership agreement. Winding up can be compulsory
or voluntary and can apply to publicly and privately held companies. A company
can be legally forced to wind up by a court order. In such cases, the company
is ordered to appoint a liquidator to manage the sale of assets and
distribution of the proceeds to creditors.The court order is often triggered by
a suit brought by the company's creditors. They are often the first to realize
that a company is insolvent because their bills have remained unpaid. In other
cases, the winding-up is the final conclusion of a bankruptcy proceeding, which
can involve creditors trying to recoup money owed by the company. In any case,
a company may not have sufficient assets to satisfy all of its debtors
entirely, and the creditors will face an economic loss.A company's shareholders
or partners may trigger a voluntary winding up, usually by the passage of a
resolution.
If the company is insolvent, the shareholders may trigger a
winding-up to avoid bankruptcy and, in some cases, personal liability for the
company's debts. Even if it is solvent, the shareholders may feel their
objectives have been met, and it is time to cease operations and distribute
company assets.In other cases, market situations may paint a bleak outlook for
the business. If the stakeholders decide the company will face insurmountable
challenges, they may call for a resolution to wind up the business. A
subsidiary also may be wound up, usually because of its diminishing prospects
or its inadequate contribution to the parent company's bottom line or
profit.Winding up a business is not the same as bankruptcy, though it is
usually an end result of bankruptcy. Bankruptcy is a legal proceeding that
involves creditors attempting to gain access to a company's assets so that they
can be liquidated to pay off debts. Although there are various types of
bankruptcy, the proceedings can help a company emerge as a new entity that is
debt-free and usually smaller.Conversely, once the winding-up process has
begun, a company can no longer pursue business as usual. The only action they
may attempt is to complete the liquidation and distribution of its assets. At
the end of the process, the company will be dissolved and will cease to
exist.For example, Payless, the shoe retailer, filed for bankruptcy in April
2017, almost two years before the business finally ceased operations. Under
court supervision, the company shut down about 700 stores and repaid about $435
million in debt. Four months later, the court allowed it to emerge from
bankruptcy. It continued to operate until March 2019, when it abruptly shut
down its remaining 2,500 stores and filed again for bankruptcy. In February
2019, the discount shoe store chain closed its remaining stores, effectively
beginning the winding-up process.
Q.8 Discuss
the Constitution powers of national company law tribunal
The Tribunal and the Appellate Tribunal is bound by the
rules laid down in the Code of Civil Procedure and is guided by the principles
of natural justice, subject to the other provisions of this Act and of any
rules that are made by the Central Government. The Tribunal and the Appellate
Tribunal has the power to control its own procedure.Further, no civil court has
the jurisdiction to consider any suit or proceeding with reference to any
matter which the Tribunal or the Appellate Tribunal is empowered to
decide.Appeal from order of Tribunal can be raised to the National Company Law
Appellate Tribunal (NCLAT). IGNOU BCOC 135 Free Solved Assignment 2022 Appeals can be made by any person aggrieved by an
order or decision of the NCLT, within a period of 45 days from the date on
which a copy of the order or decision of the Tribunal.On the receipt of an
appeal from an aggrieved person, the Appellate Tribunal would pass such orders,
after giving an opportunity of being heard, as it considers fit, confirming,
changing or setting aside the order that is appealed against.The Appellate
Tribunal is required to dispose the appeal within a period of six months from
the date of the receipt of the appeal.This article is written by Chandana.L
pursuing B.Com.LLB(Hons) from The Tamil Nadu Dr. Ambedkar Law University
(SOEL). This is an article which deals with various powers and functions of
NCLT under Companies Act, 2013. Before the establishment of the National
Company Law Tribunal and National Company Law Appellate Tribunal the powers and
functions of the Companies were discharged by the Company law board and Board
for Industrial and Financial Corporation. BCOC 135 Free Solved Assignment 2022 The Central government constituted
NCLT under Section 408 of Companies Act, 2013. It commenced on June 1, 2016,
and it was set up on the basis of the recommendations of the Justice Eradi
Committee. National Company Law Tribunal (NCLT) is a quasi-judicial body which
was set up to resolve the disputes which are arising in Indian Companies. It is
the successor to the Company Law Board. It is governed by the rules framed by
the Central Government. NCLT is a special court where cases relating to civil
court have been barred from the jurisdiction. As under section 97 and 98 of
Companies act, 2013, if the members of the company fail to convene the meeting
within a particular time and the member of the company may give an application
to the tribunal to convene such meeting, the tribunal as such as the power to
convene those meetings.
Q.9 Explain
the provisions of companies act 2013 relating to unpaid and unclaim dividends.
This article seeks to explain the Investor Education and
Protection Fund and the compliances which have to be followed while
transferring the unclaimed or unpaid dividends to the Investor Education and
Protection Fund. Generally, a dividend is a part of the earnings of a company
that is being distributed among its shareholders. Under the Companies Act, 2013
Section 2 (35) defines a dividend as a specified proportion of profit from the
net profit of the company for a financial year that is not being retained in the
business and has been distributed among the shareholders of the company. As per
Section 124 of the Companies Act, 2013 if a dividend has not been paid or
claimed within 30 days of the declaration, the company, after the expiration of
7 days of the said period of 30 days, must transfer the total amount of
unpaid/unclaimed dividend to a special account in any scheduled bank, and the
account would hereby be referred to as an “Unpaid dividend account.”
When the amount has remained unclaimed or unpaid for a said
period of 7 years consecutively in the unpaid dividend account, then within the
next 30 days, the amount unpaid or unclaimed will be transferred to a fund
called the Investor Education Protection Fund (IEPF). As per Section 125 of the
Companies Act, 2015, the Central Government (Ministry of Corporate Affairs)
under the guidance of SEBI, has established a fund called the Investor
Education Protection to protect the interests of investors and to increase the
number of investors by encouraging and educating them on the practical aspects
and their legal responsibilities in the securities market and, lastly, on the
option of refunding the unclaimed dividends which are transferred to this fund.
Q.10
Distinguish between member and shareholder.
When we talk about a company, the terms shareholders and
members are commonly used as synonyms, as one can become a member of the
company, except by way of holding shares. In this way, a member is a
shareholder and a shareholder is a member. The statement is true but not
completely, as it is subject to certain exceptions, i.e. a person can become
the holder of shares through transfer, but is not a member, until the transfer
is entered in the register of members. In the same way, the transferor of
shares lacks shareholding but continues as a member, until entries are made in
the company’s books regarding the transfer. Likewise, there are a few more
points of difference between member and shareholder which are elaborated in the
article in a detailed manner. A person whose name is entered in the register of
members of a company becomes a member of that company. The register includes
every single detail about the member like name, address, occupation, date of
becoming a member, etc. It also includes every person who holds company’s
shares and whose name is entered as the beneficial owners in depository
records.The liabilities of members are limited to the amount of shares held by
them in the case of a company having share capital while in the case of a
company limited by guarantee the liability of members is limited to the amount
of guarantee given by them. But, in the case of an unlimited company the
members have to contribute from his personal assets to pay the debts.The
members cannot take part in the management of the company, i.e. the management
of the company is looked after by the Board of Directors. Although the right to
appoint and remove the directors is in the hands of members.
Section – C
Q.11 How is
first auditor appointed?
First Auditor of a Company, other than a Government Company,
shall be appointed by the Board of Directors within 30 days from the date of Registration
of the Company and in the case of failure of the Board to appoint such Auditor,
it shall inform the members of the Company, who shall within 90 days at an
Extraordinary General Meeting appoint such Auditor and such Auditor shall hold
office till the conclusion of the First Annual General Meeting. [Section
139(6)] Every entity in charge of the business is expected to conduct an audit
on a daily, weekly, monthly, half-yearly, or annual basis. The Company must
conduct an audit to determine its financial soundness, as well as to verify the
Annual Accounts, Risk Policy, Compliance, and other regulations that apply to
it. As per section 139 of the Companies Act, 2013 first auditor needs to be
appointed within 30 days of its incorporation. In this article, there will be
detailed information related to the procedure for the appointment of an
auditor, procedure for the appointment of the First Auditor for a Company. An
Auditor’s role in a company is to safeguard the interest of shareholders in a
company.
The auditor is required by law to analyze the accounts kept
by the directors and to tell them of the company’s true financial status. The
auditor will reveal the true financial position of a company, which will help
investors, shareholders, and stakeholders of a company, along with that it will
help directors in making future decisions related to the company. The first
auditor of a business other than a government business must be appointed by the
Board within 30 days of its incorporation, according to section 139 of
Companies Act, 2013. In the event that the Board fails, an EGM (Extraordinary
General Meeting) must be called within 90 days to appoint the first auditor. The
90-day limit begins on the day of incorporation rather than the expiration of
the 30-day period.
Q.12 When
can registrar refuse registration of a prospectus?
Section 60 of the 1956 Act, which deals with registration of
prospectus also corresponds to section 26 of the 2013 Act. The need for company
registratioisn explained by the companylaw committee: ” This section deals with
the registration of prospectus and follow section 41 of the English Act in
important respects. We have also made certain additions by providing that where
a prospectus names any person as auditor, attorney, solicitor, banker or broker
of the company, the written consent of those person should be filed at the time
of company registration. We would point out that the mere giving of this
consent would not subject such persons to any liability unless any of them is
acting as an expert. The need for the above provisions arises out of the
necessary for circumspection on the part of these persons before they permit
their names to be cited in a prospectus. IGNOU BCOC 135 Free Solved Assignment 2022 They should be remember that the
public attaches importance to the presence of well known and respected names on
the face of a prospectus and they should be careful not to allow themselves to
be associated with the enterprises about whose merits they have not made some
serious enquiry. Sub-section (4) prohibits the issue of a prospectus more than
90 days after it had been filed with the Registrar. The English Act contains no
such restriction, but we think it is desirable to insert such a provision of
the company
If the issue is too long delayed, conditions may alter and
what appears in the prospectus when registered may no longer be valid at the
end of such a long period.Section 60(3) of the 1956 Act was amended by the
Companies (Amendment) Act, 1960 for reasons explained thus “Section 60 provides
that no prospectus shall be issued unless, on or before the date of its
publication, there has been delivered to the registrar for Company registration
of a copy thereof signed by the persons named therein as directors or proposed
directors of the company. It may not always be possible for companies to file
the prospectus with the Registrar on the same date as it bears. In practice, it
appears that prospectus are prepared and printed a few days previous to the
date they bear. There is nothing objectionable in a prospectus bearing a date
posterior to its presentation for company registration.
Q.13 Write
short note on issue of share at a premium
We all know that the capital of a company consists of
shares. The Public Company invites the public to apply for and subscribe to its
share capital. For this purpose, it also issues a Prospectus. The company
generally issues its shares at par i.e. at its face value. However, a company
may choose to bring an Issue of Shares at Premium. The issue of shares at
premium refers to the issue of shares at a price higher than the face value of
the share. In other words, the premium is the amount over and above the face
value of a share.Usually, the companies that are financially strong, well-
managed and have a good reputation in the market issue their shares at a premium.
For example, if a company issues a share of nominal or face value of ₹10 at
₹11, it issues it at 10% premium.A company may call the amount of premium from
the applicants or shareholders at any stage, i.e. at the time of application,
allotment or calls. However, a company generally calls the amount of Premium at
the time of allotment.The company needs to credit the amount of Premium in a
separate account i.e. Securities Premium A/c, as it is not a part of the Share
Capital. It is actually a gain for the company. As per the Companies Act, 2013
the company shows the credit balance of the Securities Premium A/c under the
heading ‘Reserves and Surplus’ on the liabilities side of the Balance Sheet.
Q.14
Explain the provisions of companies act 2013 with regard to proxy.
The term ‘proxy’ is used in two ways under the Companies Act,
2013. The first refers to the individual appointed by a member to attend and
vote in the meeting on his behalf as a representative. The other refers to the
instrument/ document by which such an individual is appointed as a proxy. The
facility of proxy allows a member to vote in a meeting which he personally
cannot attend due to any reason. The concept of proxy is extensively dealt with
under Section 105 of the Companies Act, 2013, Rule 19 of the Companies
(Management and Administration) Rules, 2014, and Point 6 of Secretarial
Standards-2 (SS-2). Although, the Articles of private companies may contain
different provisions for proxy than these statutes; this is according to MCA
Notification dated 5-6- 2015. As far as history is concerned, common law never recognized
voting by proxy. It was only when Articles of Association of a company
conferred a right to vote by proxy, this became a contractual right. It was
first statutorily recognized under Section 79 of the Companies Act, 1913 as
amended in 1936. Then, it was recognized under Section 176 of the erstwhile
Companies Act, 1956. Now, Section 105 of the Companies Act, 2013 deals with
proxies. In this article, the fundamental aspects related to proxies such as appointment,
form, statutory procedure and requirements, and rights/liabilities have been
covered in depth.
The article attempts to paint a comprehensive picture of the
subject. Under Section 105(1) of the Companies Act, 2013 (hereinafter, CA), any
member who is entitled to attend and vote in a company meeting can appoint a
proxy. However, a proxy cannot be appointed by a member of a company not having
a share capital unless the Articles provide for it. The government can also
prescribe a class or classes of companies that may not allow its members to
appoint a proxy. A proxy can represent not more than 50 members whose aggregate
shareholding carrying voting rights must not exceed 10%. In case a member has
more than 10% shareholding carrying voting rights, then the proxy for this
member cannot represent anybody else. As per 6.1 of the Secretarial Standard on
General Meetings, if a proxy is appointed for more than 50 members, he has to
choose and confirm 50 members before the inspection period starts. If he does
not confirm, he will be appointed proxy for the first 50 members, and the other
proxies (instruments) would be declared invalid. Apart from this, if the member
of a company is a body corporate or the President of India or the Governor of a
state, then such member’s authorized representative is empowered to appoint a
proxy under his/her signature.
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