Description
Meaning, definition and characteristics of company
Type of companies and features of various types of companies
Incorporation of companies
Memorandum and articles of Association
Prospectus and commencement of Business'
Transfer and transmission of shares
Share warrant and share certificate
Membership of companies
Meetings;
Directors appointment, powers, duties and liabilities,Accounts and Audit
Winding up of companies.
Cases:
Salomon v Salomon Ltd (part 3 page 2 N D Kapoor)
Macaura v Northern assurance Co. Ltd. (
The ashbury Railway carriage & Iron Co. v Riche
Royal British Bank v Turquant
A. V Mohan rao and another v M Kishan Rao, 2002 AIR(SC)2653
BUSINESS LAW Module I: Companies Act, 1956
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Meaning, definition and characteristics of company Type of companies and features of various types of companies Incorporation of companies Memorandum and articles of Association
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Companies Act 1956
“Company” “Body Corporate” or “Corporation” include a company incorporated outside India but does not include
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A Corporation sole A Co-operative Society Any other body corporate not being a company notified by the Central Government 5/29/12 22
Companies Act 1956
Definition of a “Company”
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“A voluntary association of individuals formed for some common purpose. It has capital divided into parts, known as shares. It is an artificial person created by a process of law. It has a perpetual succession and a common seal.”
“Artificial Person” means – No body or soul Refer N D Kapoor for Lindley’s Definition
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5/29/12
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Companies Act 1956
Salient Features of a company (characteristics)
Legal Entity
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Limited Liability
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Separate Property (wealth)
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Perpetual succession Common seal: (no physical existence and hence acts through authorised officers under the seal of the company)
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Companies Act 1956
Corporate Veil:
Corporate Veil of Distinct Legal Entity is not applicable where the court feels that it has to expose the ingenuous persons behind the company or to find out the purpose of incorporation. Corporate Veil is said to be lifted or pierced when the court ignores the company and deals directly with the members Company’s Act provides the following cases where Corporate Veil is lifted
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Reduction of membership Failure to Refund the application money Mis-description of Company name Misrepresentation in the prospectus Fraudulent Conduct 5/29/12
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Companies Act 1956
Corporate Veil: Judicial interpretations in lifting the corporate veil:
Protection of Revenue (tax evasions)
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Prevention of Fraud or Improper conduct
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Determination of the character of the Company
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Where the company is used to avoid welfare legislation
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For determination of the technical competence of the
Companies Act 1956
Types of Companies:
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Limited Company -a) Limited by Shares (both public and private companies) and b) Limited by Guarantee not having share capital; c) Limited by Guarantee having share capital also
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Unlimited Company
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Government Company
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Foreign Company
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Private Company 5/29/12
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Companies Act 1956
Features of Private Companies:
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Minimum Two members-Maximum Fifty Members (excluding employee members)-Joint shareholders treated as one member. No restrictions on the number of debenture holders Minimum paid up capital of Rs1 lakh (Company’s amendment Act 2000) Minimum Two directors Consent of directors need not be filed with the Registrar Raises capital by private arrangement—public subscription not allowed. Raises deposits only privately from members, directors or their relatives. Debentures can be raised without any restriction Shares are not transferable except for the provision in the 5/29/12 88 Articles (Restriction not prohibition)
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Companies Act 1956
Features of Private Companies:
When issuing rights issues –need not be first offered to the existing shareholders Directors need not retire by rotation Private company need not hold any statutory meeting or file a statutory report Quorum required is two persons By virtue of restriction in public participation, a private company is exempt from all the provisions of the Act relating to prospectus No restrictions on commencement of business
5/29/12 99
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Companies Act 1956
Features of Public Company
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Minimum 7 members—No maximum Limit Minimum Paid up capital of Rs5 lakh Minimum three directors Consent of directors to be filed with the ROC or sign an undertaking for their qualification shares. Raises capital by inviting public subscription or by private arrangement May raise deposits subject to regulations Shares are freely transferable—tradeable in the market Quorum: 5 members personally present. Articles may provide for higher number of members. Restrictions on total managerial remuneration 5/29/12 1010
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Companies Act 1956
Features of Public Company
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Private company gets converted to a Public company by default when the conditions alter Petition shall be filed in such cases where conditions alter accidentally or by inadvertence. No time limit to inform the ROC when Public limited company gets converted to private limited. (conversion by default) Conversion by choice: Private to Public: Special Resolution required providing for the change of name of the company; Articles to be changed; File a prospectus or a statement in lieu of prospectus with the ROC; raising the members to seven and raising the number of directors to three. Conversion of public limited to private limited company: Change in the articles should be approved by the Central 5/29/12 1111 Government
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Companies Act 1956
Incorporation of a Company : Check whether proposed name is available and get the same from ROC in writing.
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Type of Company: People coming together shall subscribe their names to a Memorandum of Association and also comply with other formalities with the Registration of the company with the ROC. Company limited by shares is the most popular type.
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Name of the Company
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Filing of documents with ROC: M/A; A/A; Agreement with any individual for appointment as its MD or whole-time director or manager, List of Directors; Declaration(Form No 5/29/12 1) stating that the requirements of Companies Act 1212
Companies Act 1956
Incorporation of a Company : List of Documents
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Particulars in favour of one of the persons named in the M/A or any other person authorised to file documents for Registration. This will be on Non-judicial stamp paper Any other agreement which forms 1313
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5/29/12
Companies Act 1956
Incorporation of a Company : List of Documents
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Form No 1 (declaration)—by an advocate of the Supreme Court or High Court, an attorney or a pleader entitled to appear before the High Court of a Secretary or a Chartered Accountant, in whole time practice in India who is engaged in the formation of a company or by a person named in the Articles as a director, manager, secretary of the company that all the requirements of the Act and the rules there under have been complied with
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Stamped and signed copy of the M/A and A/A
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Notice of the situation of the Regd office of the company in Form No 18 within 30 days of incorporation.
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Companies Act 1956
Memorandum of Association:
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A fundamental document containing conditions upon which the company is allowed to be formed. Twin purposes- shareholders know the field in which their money is being used and outsiders know the objects of the company Should be printed (laser print allowed) Suitable paragraphs with numbers Signed by each subscriber ( with address, description and occupation) with minimum witness
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Companies Act 1956
Clauses in M/A
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Name Clause Regd Office clause Objects –Main objects, Objects incidental or ancilliary and other objects. Powers clause Non-trading companies when their operations extend beyond one State, the States inwhcih they operate. Capital Clause: Share Capital—initial capital subscribed by the promoters.
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Companies Act 1956
Articles of Association:Bye laws or rules that govern the management of its internal affairs and the conduct of its business. It defines the powers of officers and the relationship between the company and its members
A/A plays a subsidiary part to the M/A
M/A and A/A are contemporaneous documents which means uncertainty or ambiguity can be understood by reference to one another.
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Companies Act 1956
Articles of Association: --A company shall have its own articles in the absence of
which Provisions in Table A given in schedule 1 of the Companies Act apply. --Shall be printed divided into paragraphs and signed by each subscriber of the M/A with details of address, occupation along with minimum witnesses --Conents of Articles:
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Share capital—including sub-divisions Lien on shares Calls on Shares Transfer/Transmission of Shares
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Forfeiture/Surrender of Shares
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Companies Act 1956
Articles of Association:
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Share Warrants Alteration of Share Capital General Meetings and Proceedings Voting rights of members Directors—first directors, directors for life, theie appointment, remuneration, qualification, powers and proceedings of BOD meetings
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Companies Act 1956
Doctrine of Ultra Vires:
Activity beyond the powers of the company even though ratified by all members will be ineffective. Powers should be within the scope of M/A, sometimes implied. Following powers should be explicit
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Acquiring any business similar to that of the company Entering into Pp, JVs or other arrangements Investing shares of other company having similar objectives Promoting other companies and helping them financially Using funds for political purpose Giving gifts, donations or contributions for charities not 5/29/12 relating to the objects stated in the M/A/ 2020
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Companies Act 1956
Consequences of Ultra Vires:
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Shareholder may obtain an injunction Directors are personally liable for diversion of funds Shareholder can bring action against directors who are also personally liable for breach of warranty of authority In case company’s money is spent on acquiring some property, the company’s right over that property must be held secure though the company was not authorised to acquire the property The doctrine is used for protecting the company’s interest and cannot be used against the company’s interests.
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Companies Act 1956
Doctrine of Indoor Management
M/A and A/A provides proper rules and an outsider is entitled to assume that the provisions have been observed by the officers of the company.
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M/A and A/A are public documents and hence any outsider who enters into a contract with the company has the means of ascertaining the propriety of the contract entered into by a company –This is called Doctrine of Constructive Notice.
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Exceptions to the rule of Doctrine of Indoor Management– Knowledge of irregularity; No knowledge of articles; 5/29/12 2222 Negligence; Forgery; Non-existent authority of the
Companies Act 1956
PROSPECTUS: Raising the Capital from Public: Public issues: Private companies need not issue prospectus. Public Companies shall issue Prospectus.
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Prospectus include any notice, circular, advertisement or other document inviting deposits, shares or debentures from the public Prospectus should be dated –date appearing in the prospectus is the date of publication and date of issue is the date on which prospectus first appears as an advertisement. It should be signed.
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Matters to be stated in the prospectus: 1) General Information; 2) Capital structure; 3) Terms of present issue; 4) Management and project and 5) Management perception of risk factors 5/29/12 2323
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Companies Act 1956
Information Memorandum: (Sec 60 B as inserted by Companies Amendment Act 2000) A public company may circulate an information memorandum to the public before filing of prospectus. If subscriptions are invited through this information memorandum, the company is bound to file a prospectus prior to the opening of subscription lists and the offer as RED HERRING PROSPECTUS. RED HERRING PROSPECTUS means a prospectus which does not have complete particulars on the price of the shares and the quantum of the issue.
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Companies Act 1956
Contents of Prospectus
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General Information –Name and address of the regd office, consent of the central government, Names of stock exchange where listing appn is done, declaration about refund for under subscription etc…. Capital Structure –authorised, subscribed and paid up capital, size of the present issue, Paid up capital after the present issue, after conversion of debenture Terms of the present issue Particulars of the present issue
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Company Management and projects
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Companies Act 1956
Contents of Prospectus (contd..)
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Consent of Directors, Auditors, Advocates, Managers to the issue, Registrar of issue, Bankers to the Company, Bankers to the issue and experts Names and address of the company secretary, legal advisors, lead managers, auditors, bankers, bankers to the issue, brokers to the issue Financial Information—accountants report, auditors report, terms and conditions of secured loans Statutory and other information Statement by experts
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Companies Act 1956
Raising the Capital from Public: Public issues:
Golden Rule for framing of Prospectus: Every fact must be stated with strict and scrupulous accuracy.
Civil Liability for misstatement in Prospectus available against
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Any director at the time of issue Any person who authorised himself to be put in the prospectus as a director—immediately or after an interval of time A promoter of the company Every person (including an expert) who has authorised the issue of prospectus.
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Companies Act 1956
Transfer and transmission of shares
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Shares of a company are movables and hence transferable Shares of a private company are not transferable Shares of a public company are transferable Articles of Association prescribes the manner in which transfer shall take place Physical transfer of shares shall be through executing transfer deed Blank Transfer is also permitted without filling the name of the transferee
5/29/12 Electronic 2828 transfer is through demat accounts
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Companies Act 1956
Transfer and transmission of shares
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Sec 109 A and 109 B introduced by Companies Amendment Act 1999. 109A deals with Nomination and 109B deals with Transmission of Shares Nomination by single or joint shareholders shall be in favour of a single person. A minor can also be a nominee Any person by virtue of nomination as per 109A is entitled to –a) get himself registered as the holder of shares or debentures or b) to make transfer of shares in favour of the nominee as if the deceased would have transferred them.
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Indian Companies Act 1956
Share Certificate and Share warrant Share Certificate:
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Share certificate shall be under the seal of the company and shall specify the shares to which it relates, the amount paid up and the name of the holder. It shall be signed by at least 2 directors and the secretary Time limit for issue of share certificate—3 months of the allotment and 2 months in case of transfer Shareholding can be in demat form in which a statement of holding is given to the shareholder
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Indian Companies Act 1956
Share Certificate and Share warrant Share Warrant
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Share Warrant is a document issued by a public company stating that its bearer is entitled to the shares specified therein. It is transferable b y mere delivery and is a perfect substitute for Share certificate. Articles should contain a provision of issue of share warrant and the permission of the Central Government should have been obtained. Public Company can issue share warrants by converting its fully paid up shares
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Advantage is that the shares can be transferred by 3131 mere delivery of the warrant and need not be
Indian Companies Act 1956
Membership of companies (page 69 of N D Kapoor)
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Member and Shareholder are synonymous in case of companies limited by Shares. Companies limited by guarantees having share capital and an unlimited company having shares In case of companies limited by Guarantees not having shares, member is not a shareholder A registered shareholder is always a member but a member may not be a shareholder A holder of share warrant is a shareholder but not a member A legal representative is not a member until he applies for registration. However, he is3232 a 5/29/12 shareholder though his name does not appear in
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Indian Companies Act 1956
Membership of companies (contd..)
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Every person competent to contract can become a member Minor is not competent to become a member. However, he can be represented by the guardian (company law board) An insolvent can be a member and is entitled to vote despite his shares are being held by the official assignee or receiver A partnership firm can be a member in the individual names of the partners jointly. A company can be a member of another company.
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Membership can be by a)subscription; b)
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Indian Companies Act 1956
Meetings: ( p149 onwards N D Kapoor);
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General Meetings:Statutory Meetings Annual General Meetings Extraordinary Meetings Class Meetings: Meetings of different classes of shareholders and debenture holders—during the lifetime of the company and at the time of winding up of the company Meetings of Directors
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Indian Companies Act 1956
Statutory Meetings:
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General Meeting of Members shall be held one month after the commencement of business but within six months from the date on which the company is entitled to commence business. This is the first meeting of a shareholders of a public company and is held only once in the lifetime of the company Board of Directors shall forward a report (called statutory report) to all the members 21 before the meeting date. Notice of the meeting shall state that the meeting is a statutory meeting.
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5/29/12
Indian Companies Act 1956
Annual General Meetings
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AGM shall be held every year with intervals not exceeding 15 months ROC may permit extension of 3 months—not applicable to the first AGM Notice shall specify that the meeting is an AGM First AGM can be held within 18 months. 21 days’ notice in writing (electronic mode welcome) duly indicating all particulars like date, time, venue, agenda etc AGM shall be held during business hours on a working day at the Regd office or any other 5/29/12 3636 location in the town/city where the regd office is
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Indian Companies Act 1956
Extra Ordinary General meetings
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Statutory meetings and AGMs are called ordinary meetings. A meeting other than these is called Extra Ordinary General meeting Extra ordinary General Meeting is called to transact some special or urgent business which cannot be postponed till the next AGM. Directors on their own or at the request of members can call Extra Ordinary General Meeting Requisitionists themselves can call the meeting when the Directors fail to call the meeting
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Indian Companies Act 1956
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Directors on their own call for EGM for: a)transacting any special business; b)Issue of Right Shares or c)Increase in the remuneration of MD, whole time director When the Directors call the EGM on the requisition such Requisition shall set out the matters for consideration On members’ requisition: Purpose of EGM a)Shareholders’ right to requisition the meeting; b)It shall be deposited with the Regd office of the company; c) Member need not disclose the reasons for the resolutions to be proposed at the meeting.
5/29/12 Company 3838 Law Board (by its powers)where it is
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Indian Companies Act 1956
Requisites of a valid meeting:
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Proper Authority Notice of the meeting—sufficient time period and contents Ordinary business:-a) Considering accounts and audit; b) Dividend declaration; c) appointment of directors in place of those retiring; and d) appointment of auditors and fixing their remuneration Special Business:- a)Removal of a director; b) Issue of Rights/Bonus Shares; and c) Election of a person (other than a retiring director) as a director
5/29/12 Quorum: 3939 generally fixed by Articles: a) 5 members
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Indian Companies Act 1956
Resolutions:
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Ordinary Resolution: passed at the General Meeting by a simple majority Unless the Companies Act or M/A expressly require a special resolution, any matter can be taken up through an ordinary resolution. a) Rectification of name or adoption of a new name of the company; b) issue of shares at a discount; c) Alteration of share capital; d)Reissue of redeemed debentures; e) adoption of statutory report ; f) passing annual accounts and Bal sheet; g) appointment of auditors and fixing remuneration; h) appointment of first directors; i) appointment of whole time MD; k)appointment of sole 4040 selling 5/29/12
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Indian Companies Act 1956
Resolutions: Special Resolution: ----Intention to be specified --Notice --Subject matter of the special resolution, nature & concern /or interest of every director/manager--A copy of the resolution to be filed with ROC within 30days-Voting by ¾ to protect the minority interests Purpose of Special Resolution: a) Alteration of M/A re; change of the regd office from one State to another b) Alteration of A/A; c) Reduction of Share Capital; and many other items where it cannot wait till the AGM or certain activities requiring Special Resolution as per Law. ( Refer Text for more points) 5/29/12 4141
Indian Companies Act 1956
Directors appointment, powers, duties and liabilities, Accounts and Audit Appointment of Directors:
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First Directors: --Articles usually mention the First Directors, their number, their names; If Articles are silent, then subscribers to the M/A shall in writing determine the names --If both the above are not carried out, then subscribers to the M/A who are individuals become the First directors Appointment of Directors by the company: Shareholders in the AGM. At least 2/3rds retire by rotation every year. Vacancies caused by retiring directors will be filled by the same retiring directors or other persons. However, 1/3 of the 5/29/12 4242
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Indian Companies Act 1956
Appointment of Directors:
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Appointment of Directors by directors: Existing directors may appoint directors as additional directors or in a casual vacancy ( a director vacating his office before his term) or as alternate director ( appointment by the board where an existing director is absent for at least 3 months) Appointment of Directors by Third Parties: Articles may allow Debenture holders or other creditors (bankers/financiers). The number shall not exceed 1/3 of the total number. These directors are not liable to retire by rotation Appointment of Directors by proportional representation: Articles may prescribe 4343 5/29/12 appointment of 2/3rds on proportional
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Indian Companies Act 1956
POWERS OF DIRECTORS:
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General Powers-co-extensive with those of the company.—Shall not do any act which is to be done in a General meeting—General powers are subject to the Companies Act or in the M/A or A/A or in any regulations made in the General meeting. However, Regulations made in a General Meeting have prospective effect ( not retrospective). –will not affect directors actions taken earlier to the passing of regulations in the General meeting. Powers at the Board Meeting: Through Board Resolutions, the following powers available:--make calls on shareholders; issue debentures; borrow money other than debentures; invest the company 5/29/12 4444 funds; make loans. Powers to borrow, invest the
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Indian Companies Act 1956
POWERS OF DIRECTORS:
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Powers with the approval of the company in General meeting:--Sell, Lease, dispose of whole or substantially whole of the undertaking (amalgamation scheme)—Remit or give time for repayment of any debt due to the company by a director (excepting renewal or continuance of a bank loan to a director)—investing the compensation received in case of compulsory acquisition of any undertaking or property of the company—to borrow moneys subject to certain conditions—to contribute to charitable and other funds Powers to make political contributions:--Out of 5/29/12 4545 profits only—Max 5% of the Net Profits—board
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Indian Companies Act 1956
Duties of Directors: Fiduciary Duties--Honest, bona fide duties for the company as a whole—Not to place themselves in situations conflicting the company interests and their personal interests—(fiduciary duties owed to the company not to the shareholders) Duties of Care, Skill and Diligence—Setting up standards, Delegation of powers between directors/other officers—general usages and practices –whether directors work gratuitously or for remuneration Other duties: --to attend board meetings—not to 5/29/12 4646 delegate his functions except to the extent
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Indian Companies Act 1956
Liabilities of directors: Liability to Third parties: a) Issue of prospectus, particulars required by the Companies Act missing in prospectus, or material misrepresentation; b) Personal liability in case of –failure to repay the application money-- irregular allotment--faiilure to repay application money if no application to the stock exchange is made or stock exchange refuses to list the securities –failure of the company to pay a Bill of Exchange, hundi or Promissory Note or cheque However, directors are not personally liable on contracts entered into on behalf of the company (as agents in normal course of business). Major 5/29/12 4747
Indian Companies Act 1956
Liability to the Company a)Personally –jointly and severally liable for ultra vires acts ( not necessary to prove fraud) eg dividends paid out of capital or involve funds in ultra vires transactions; b)Personally liable for NEGLIGENCE.(not exercising proper care and diligence in duties c) Breach of Trust d) Misfeasance (wilful misconduct)
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Indian companies Act 1956
Liability for breach of statutory duties: Maintenance of proper accounts; filing of returns or observing certain statutory formalities Liability for acts of co-directors: Not liable for the acts of co-directors unless he himself is a party or has knowledge of the acts of co-directors
Validity of acts of directors: Acts of Directors are valid even if at a later date his appointment is discovered to be invalid.
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Indian Companies Act 1956
Accounts and Audit: Regd Office to maintain properly the following books of accounts:
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Receipts and disbursements of money(particulars thereto) Purchases and Sales of goods and services Assets and Liabilities Mfg, processing, Mining etc, utilisation of materials or labour or other items of cost as prescribed by the Central Government The above books should be subjected to audit. Books to give a true and fair view of the affairs of 5/29/12 5050 the company
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Indian Companies Act 1956
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Normally, books are to be kept at the regd office. Board of Directors may permit them to be kept at other places with due information to the ROC within 7 days. Companies having foreign offices(branches)—account books may be kept in those offices. Books of accounts (with respective vouchers) to be maintained for a minimum period of 8 years.5151 case In 5/29/12
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Indian Companies Act 1956
Statutory Books: In addition, certain books to be maintained to safeguard shareholders’ interest (statutory books).
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Register of investments not held in company’s name( open to inspection by shareholders and debenture holders) Register of Charges (open to all) Register of Members (including index of members)-- Open to all Register of Debenture holders (incl index)—open to all Foreign Register of Members books
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Indian Companies Act 1956
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Annual Accounts and Balance Sheet—P & L Account, Balance Sheet, Director’s Report (board of director’s report), Director’s responsibility statement Form and contents shall be as prescribed by the Companies Act. Certain sectors like Banking, Insurance, Electricity or Railways will have the formats governing such companies. Compliance with Accounting Standards of ICAI. (Recently allignment with IFRS is also required ) Three copies of the Balance Sheet, Profit and Loss Account along with other reports and documents shall be filed with the ROC within 5/29/12 5353
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Indian Companies Act
Audit
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Companies Act provides for appointment of an auditor. Auditors may be appointed by Board Meeting or in a general meeting or by the Central Government or any other appropriate authority as permitted by relevant law. Auditor is an independent agency which safeguard the shareholders’ interests—things like unbusiness like manner, mislaying funds or misappropriation shall be found out and reported Companies having paid up capital of Rs 5crores and above shall constitute a audit committee 5/29/12 the Board ).Minimum number should be 3. 5454 (from
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Indian Companies Act 1956
WINDING UP OF COMPANIES:
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Winding up or Liquidation of a Company means the company is dissolved. Assets are disposed off and the debts are paid off out of the realised assets or from contributions and the surplus, if any distributed among the members. The priority in which the claims are disposed off is important The property is administered in the hands of and administrator called the liquidator who will undertake the process of liquidation
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Indian Companies Act
Modes of Winding Up:
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Compulsory winding up by the Court Voluntary Winding up; a) by members; b) by creditors Winding up subject to supervision of the court
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Court Winding up:
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Special Resolution of the company. Voluntary winding up is cheaper than this Default in delivering the statutory report to the Registrar or in holding the meeting—ROC or a contributory may move a petition after 14 days 5/29/12 5656 from the date of the statutory meeting date. Court
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Indian Companies Act 1956
Court Winding up: Grounds on which such petition can be filed:
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Illegal or ultra vires acts Frauds on the minority, oppression of the minority Company’s act inconsistent with the Articles Ordinary resolution passed where special resolution is required Infringement of rights of individual members Breach of duty Mismanagement of the company
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Company Law -Case Laws
1) Salomon v Salomon & Co Ltd (1897)—Separate legality entity
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S sold his boots business to a newly formed company for 30000 pounds.. His wife, one daughter and four sons took up one share of 1 pound each. S took 23000 pounds shares of 1 pound each and 10000 pounds debentures in the company. Debentures gave S a charge over the assets of the Company as the consideration for transfer of the business. The company was wound up. Its assets were worth 6000 pounds and its liabilities were 17000 pounds of which 10000 were due to secured debentures and 7000 due to unsecured creditors. Unsecured creditors claimed 5/29/12 S and the company were one and the same 5858 that
Company Law -Case Law 2)Macaura v Northern assurance Co. Ltd. (Corporate Veil)
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Macaura v Northern Assurance Co Ltd [1925] AC 619 Macaura v Northern Assurance Co Ltd Court House of Lords Citation(s) [1925] AC 619 Judge(s) sitting Lord Sumner, Lord Buckmaster, Wrenbury, Atkinson and Phillimore concurred. Mr Macaura owned the Killymoon 5/29/12 5959 estate in County Tyrone,
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Company Law—Case Law
3)The Ashbury Railway carriage & Iron Co. v Riche Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653 is a UK company law case, which concerned the objects clause of a company. Its importance has been diminished as a result of the Companies Act 2006 s 31, which allows for unlimited objects for which a company may be run. Incorporated under the Companies Act,1869, the Ashbury Railway Carriage and Iron Company Ltd’s memorandum, clause 3, said its objects were ‘to make and sell, or lend on hire, railway-carriages…’ and clause 4 said activities beyond needed a special resolution. But the company agreed to give Riche 5/29/12 6060 and his brother a loan to build a railway in Belgium.
Company Law- Case Law
3)The Ashbury Railway carriage & Iron Co. v Riche (contd..) JUDGEMENT
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The House of Lords, agreeing with the three dissentient judges in the Exchequer Chamber, pronounced the effect of the Companies Act to be the opposite of that indicated by Mr Justice Blackburn. It held that if a company pursues objects beyond the scope of the memorandum of association, the company's actions are ultra vires. Lord Cairns LC said, “It was the intention of the legislature, not implied, but actually expressed, that the corporations, 5/29/12 should not enter, having regard to this6161
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Company Law-Case Law
4)Royal British Bank v Turquant Royal British Bank v Turquand (1856) 6 E&B 327 is a UK company law case that held people transacting with companies are entitled to assume that internal company rules are complied with, even if they are not. This "indoor management rule" or the "Rule in Turquand's Case" is applicable in most of the common law world Mr Turquand was the official manager (liquidator) of the insolvent ‘Cameron’s Coalbrook Steam, Coal, and Swansea and London Railway Company’. It was incorporated under the Joint Stock Companies Act 1844. The company had given a bond for £2000 to the Royal British Bank, 5/29/12 6262 which secured the company’s drawings on its current
Company Law- Case Law
JUDGEMENT
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Sir John Jervis CJ, for the Court of Exchequer Chamber “the Royal British Bank could enforce the terms of the bond. He said the bank was deemed to be aware that the directors could borrow only up to the amount resolutions allowed. Articles of association were registered in Companies House, so there was constructive notice. But the bank could not be deemed to know about which ordinary resolutions passed, because these were not registrable. The bond was valid, because there was no requirement to look into the company’s internal workings. This is the ‘indoor management 5/29/12 that the company’s indoor affairs are the 6363 rule’,
Company Law-Case Law
5)A. V Mohan rao and another v M Kishan Rao, 2002 AIR(SC)2653
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Supreme Court of India A.V. Mohan Rao & Anr vs M.Kishan Rao And Anr on 16 July, 2002 Author: D.P. Mohapatra Bench: D.P.Mohapatra, K.G.Balakrishnan. CASE NO.: Appeal (crl.) 688 of 2002 PETITIONER: A.V. MOHAN RAO & ANR. Vs. RESPONDENT: M.KISHAN RAO AND ANR.
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DATE OF JUDGMENT: 16/07/2002
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Company Law-Case Law
5)A. V Mohan rao and another v M Kishan Rao, 2002 (CONTD.)
This appeal filed by the accused persons is directed against the order dated 1.3.2000 of the High Court of Andhra Pradesh in Criminal Petition No.3052/99 declining to grant the prayer of the appellants for quashing the proceedings in CC No.24/99 on the file of the Court of Sub-Judge, Economic Offences at Hyderabad. The proceeding was instituted on the complaint petition filed by respondent No.1. The appellants and the respondent No.1 are stated to be Directors of a Company- M/s Spectrum Power Generation Limited (hereinafter referred to as "the Power Company") incorporated under the Indian Companies Act, 1956 (for short 'the Act'), having its registered office at Secundrabad, in the State of Andhra Pradesh.
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Business Law Companies Act amendmen ..\Business Law Companies Act amendm
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doc_442661692.pptx
Meaning, definition and characteristics of company
Type of companies and features of various types of companies
Incorporation of companies
Memorandum and articles of Association
Prospectus and commencement of Business'
Transfer and transmission of shares
Share warrant and share certificate
Membership of companies
Meetings;
Directors appointment, powers, duties and liabilities,Accounts and Audit
Winding up of companies.
Cases:
Salomon v Salomon Ltd (part 3 page 2 N D Kapoor)
Macaura v Northern assurance Co. Ltd. (
The ashbury Railway carriage & Iron Co. v Riche
Royal British Bank v Turquant
A. V Mohan rao and another v M Kishan Rao, 2002 AIR(SC)2653
BUSINESS LAW Module I: Companies Act, 1956
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Meaning, definition and characteristics of company Type of companies and features of various types of companies Incorporation of companies Memorandum and articles of Association
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5/29/12
Companies Act 1956
“Company” “Body Corporate” or “Corporation” include a company incorporated outside India but does not include
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A Corporation sole A Co-operative Society Any other body corporate not being a company notified by the Central Government 5/29/12 22
Companies Act 1956
Definition of a “Company”
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“A voluntary association of individuals formed for some common purpose. It has capital divided into parts, known as shares. It is an artificial person created by a process of law. It has a perpetual succession and a common seal.”
“Artificial Person” means – No body or soul Refer N D Kapoor for Lindley’s Definition
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5/29/12
33
Companies Act 1956
Salient Features of a company (characteristics)
Legal Entity
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Limited Liability
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Separate Property (wealth)
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Perpetual succession Common seal: (no physical existence and hence acts through authorised officers under the seal of the company)
5/29/12 44
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Companies Act 1956
Corporate Veil:
Corporate Veil of Distinct Legal Entity is not applicable where the court feels that it has to expose the ingenuous persons behind the company or to find out the purpose of incorporation. Corporate Veil is said to be lifted or pierced when the court ignores the company and deals directly with the members Company’s Act provides the following cases where Corporate Veil is lifted
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Reduction of membership Failure to Refund the application money Mis-description of Company name Misrepresentation in the prospectus Fraudulent Conduct 5/29/12
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Companies Act 1956
Corporate Veil: Judicial interpretations in lifting the corporate veil:
Protection of Revenue (tax evasions)
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Prevention of Fraud or Improper conduct
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Determination of the character of the Company
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Where the company is used to avoid welfare legislation
5/29/12 66
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For determination of the technical competence of the
Companies Act 1956
Types of Companies:
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Limited Company -a) Limited by Shares (both public and private companies) and b) Limited by Guarantee not having share capital; c) Limited by Guarantee having share capital also
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Unlimited Company
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Government Company
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Foreign Company
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Private Company 5/29/12
77
Companies Act 1956
Features of Private Companies:
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Minimum Two members-Maximum Fifty Members (excluding employee members)-Joint shareholders treated as one member. No restrictions on the number of debenture holders Minimum paid up capital of Rs1 lakh (Company’s amendment Act 2000) Minimum Two directors Consent of directors need not be filed with the Registrar Raises capital by private arrangement—public subscription not allowed. Raises deposits only privately from members, directors or their relatives. Debentures can be raised without any restriction Shares are not transferable except for the provision in the 5/29/12 88 Articles (Restriction not prohibition)
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Companies Act 1956
Features of Private Companies:
When issuing rights issues –need not be first offered to the existing shareholders Directors need not retire by rotation Private company need not hold any statutory meeting or file a statutory report Quorum required is two persons By virtue of restriction in public participation, a private company is exempt from all the provisions of the Act relating to prospectus No restrictions on commencement of business
5/29/12 99
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Companies Act 1956
Features of Public Company
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Minimum 7 members—No maximum Limit Minimum Paid up capital of Rs5 lakh Minimum three directors Consent of directors to be filed with the ROC or sign an undertaking for their qualification shares. Raises capital by inviting public subscription or by private arrangement May raise deposits subject to regulations Shares are freely transferable—tradeable in the market Quorum: 5 members personally present. Articles may provide for higher number of members. Restrictions on total managerial remuneration 5/29/12 1010
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Companies Act 1956
Features of Public Company
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Private company gets converted to a Public company by default when the conditions alter Petition shall be filed in such cases where conditions alter accidentally or by inadvertence. No time limit to inform the ROC when Public limited company gets converted to private limited. (conversion by default) Conversion by choice: Private to Public: Special Resolution required providing for the change of name of the company; Articles to be changed; File a prospectus or a statement in lieu of prospectus with the ROC; raising the members to seven and raising the number of directors to three. Conversion of public limited to private limited company: Change in the articles should be approved by the Central 5/29/12 1111 Government
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Companies Act 1956
Incorporation of a Company : Check whether proposed name is available and get the same from ROC in writing.
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Type of Company: People coming together shall subscribe their names to a Memorandum of Association and also comply with other formalities with the Registration of the company with the ROC. Company limited by shares is the most popular type.
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Name of the Company
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Filing of documents with ROC: M/A; A/A; Agreement with any individual for appointment as its MD or whole-time director or manager, List of Directors; Declaration(Form No 5/29/12 1) stating that the requirements of Companies Act 1212
Companies Act 1956
Incorporation of a Company : List of Documents
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Particulars in favour of one of the persons named in the M/A or any other person authorised to file documents for Registration. This will be on Non-judicial stamp paper Any other agreement which forms 1313
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5/29/12
Companies Act 1956
Incorporation of a Company : List of Documents
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Form No 1 (declaration)—by an advocate of the Supreme Court or High Court, an attorney or a pleader entitled to appear before the High Court of a Secretary or a Chartered Accountant, in whole time practice in India who is engaged in the formation of a company or by a person named in the Articles as a director, manager, secretary of the company that all the requirements of the Act and the rules there under have been complied with
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Stamped and signed copy of the M/A and A/A
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Notice of the situation of the Regd office of the company in Form No 18 within 30 days of incorporation.
5/29/12 1414
Companies Act 1956
Memorandum of Association:
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A fundamental document containing conditions upon which the company is allowed to be formed. Twin purposes- shareholders know the field in which their money is being used and outsiders know the objects of the company Should be printed (laser print allowed) Suitable paragraphs with numbers Signed by each subscriber ( with address, description and occupation) with minimum witness
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Companies Act 1956
Clauses in M/A
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Name Clause Regd Office clause Objects –Main objects, Objects incidental or ancilliary and other objects. Powers clause Non-trading companies when their operations extend beyond one State, the States inwhcih they operate. Capital Clause: Share Capital—initial capital subscribed by the promoters.
5/29/12 1616
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Companies Act 1956
Articles of Association:Bye laws or rules that govern the management of its internal affairs and the conduct of its business. It defines the powers of officers and the relationship between the company and its members
A/A plays a subsidiary part to the M/A
M/A and A/A are contemporaneous documents which means uncertainty or ambiguity can be understood by reference to one another.
5/29/12 1717
Companies Act 1956
Articles of Association: --A company shall have its own articles in the absence of
which Provisions in Table A given in schedule 1 of the Companies Act apply. --Shall be printed divided into paragraphs and signed by each subscriber of the M/A with details of address, occupation along with minimum witnesses --Conents of Articles:
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Share capital—including sub-divisions Lien on shares Calls on Shares Transfer/Transmission of Shares
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Forfeiture/Surrender of Shares
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Companies Act 1956
Articles of Association:
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Share Warrants Alteration of Share Capital General Meetings and Proceedings Voting rights of members Directors—first directors, directors for life, theie appointment, remuneration, qualification, powers and proceedings of BOD meetings
5/29/12 1919
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Companies Act 1956
Doctrine of Ultra Vires:
Activity beyond the powers of the company even though ratified by all members will be ineffective. Powers should be within the scope of M/A, sometimes implied. Following powers should be explicit
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Acquiring any business similar to that of the company Entering into Pp, JVs or other arrangements Investing shares of other company having similar objectives Promoting other companies and helping them financially Using funds for political purpose Giving gifts, donations or contributions for charities not 5/29/12 relating to the objects stated in the M/A/ 2020
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Companies Act 1956
Consequences of Ultra Vires:
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Shareholder may obtain an injunction Directors are personally liable for diversion of funds Shareholder can bring action against directors who are also personally liable for breach of warranty of authority In case company’s money is spent on acquiring some property, the company’s right over that property must be held secure though the company was not authorised to acquire the property The doctrine is used for protecting the company’s interest and cannot be used against the company’s interests.
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Companies Act 1956
Doctrine of Indoor Management
M/A and A/A provides proper rules and an outsider is entitled to assume that the provisions have been observed by the officers of the company.
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M/A and A/A are public documents and hence any outsider who enters into a contract with the company has the means of ascertaining the propriety of the contract entered into by a company –This is called Doctrine of Constructive Notice.
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Exceptions to the rule of Doctrine of Indoor Management– Knowledge of irregularity; No knowledge of articles; 5/29/12 2222 Negligence; Forgery; Non-existent authority of the
Companies Act 1956
PROSPECTUS: Raising the Capital from Public: Public issues: Private companies need not issue prospectus. Public Companies shall issue Prospectus.
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Prospectus include any notice, circular, advertisement or other document inviting deposits, shares or debentures from the public Prospectus should be dated –date appearing in the prospectus is the date of publication and date of issue is the date on which prospectus first appears as an advertisement. It should be signed.
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Matters to be stated in the prospectus: 1) General Information; 2) Capital structure; 3) Terms of present issue; 4) Management and project and 5) Management perception of risk factors 5/29/12 2323
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Companies Act 1956
Information Memorandum: (Sec 60 B as inserted by Companies Amendment Act 2000) A public company may circulate an information memorandum to the public before filing of prospectus. If subscriptions are invited through this information memorandum, the company is bound to file a prospectus prior to the opening of subscription lists and the offer as RED HERRING PROSPECTUS. RED HERRING PROSPECTUS means a prospectus which does not have complete particulars on the price of the shares and the quantum of the issue.
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Companies Act 1956
Contents of Prospectus
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General Information –Name and address of the regd office, consent of the central government, Names of stock exchange where listing appn is done, declaration about refund for under subscription etc…. Capital Structure –authorised, subscribed and paid up capital, size of the present issue, Paid up capital after the present issue, after conversion of debenture Terms of the present issue Particulars of the present issue
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Company Management and projects
2525
Companies Act 1956
Contents of Prospectus (contd..)
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Consent of Directors, Auditors, Advocates, Managers to the issue, Registrar of issue, Bankers to the Company, Bankers to the issue and experts Names and address of the company secretary, legal advisors, lead managers, auditors, bankers, bankers to the issue, brokers to the issue Financial Information—accountants report, auditors report, terms and conditions of secured loans Statutory and other information Statement by experts
5/29/12 2626
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Companies Act 1956
Raising the Capital from Public: Public issues:
Golden Rule for framing of Prospectus: Every fact must be stated with strict and scrupulous accuracy.
Civil Liability for misstatement in Prospectus available against
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Any director at the time of issue Any person who authorised himself to be put in the prospectus as a director—immediately or after an interval of time A promoter of the company Every person (including an expert) who has authorised the issue of prospectus.
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5/29/12
Companies Act 1956
Transfer and transmission of shares
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Shares of a company are movables and hence transferable Shares of a private company are not transferable Shares of a public company are transferable Articles of Association prescribes the manner in which transfer shall take place Physical transfer of shares shall be through executing transfer deed Blank Transfer is also permitted without filling the name of the transferee
5/29/12 Electronic 2828 transfer is through demat accounts
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Companies Act 1956
Transfer and transmission of shares
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Sec 109 A and 109 B introduced by Companies Amendment Act 1999. 109A deals with Nomination and 109B deals with Transmission of Shares Nomination by single or joint shareholders shall be in favour of a single person. A minor can also be a nominee Any person by virtue of nomination as per 109A is entitled to –a) get himself registered as the holder of shares or debentures or b) to make transfer of shares in favour of the nominee as if the deceased would have transferred them.
5/29/12 2929
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Indian Companies Act 1956
Share Certificate and Share warrant Share Certificate:
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Share certificate shall be under the seal of the company and shall specify the shares to which it relates, the amount paid up and the name of the holder. It shall be signed by at least 2 directors and the secretary Time limit for issue of share certificate—3 months of the allotment and 2 months in case of transfer Shareholding can be in demat form in which a statement of holding is given to the shareholder
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Indian Companies Act 1956
Share Certificate and Share warrant Share Warrant
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Share Warrant is a document issued by a public company stating that its bearer is entitled to the shares specified therein. It is transferable b y mere delivery and is a perfect substitute for Share certificate. Articles should contain a provision of issue of share warrant and the permission of the Central Government should have been obtained. Public Company can issue share warrants by converting its fully paid up shares
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Advantage is that the shares can be transferred by 3131 mere delivery of the warrant and need not be
Indian Companies Act 1956
Membership of companies (page 69 of N D Kapoor)
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Member and Shareholder are synonymous in case of companies limited by Shares. Companies limited by guarantees having share capital and an unlimited company having shares In case of companies limited by Guarantees not having shares, member is not a shareholder A registered shareholder is always a member but a member may not be a shareholder A holder of share warrant is a shareholder but not a member A legal representative is not a member until he applies for registration. However, he is3232 a 5/29/12 shareholder though his name does not appear in
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Indian Companies Act 1956
Membership of companies (contd..)
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Every person competent to contract can become a member Minor is not competent to become a member. However, he can be represented by the guardian (company law board) An insolvent can be a member and is entitled to vote despite his shares are being held by the official assignee or receiver A partnership firm can be a member in the individual names of the partners jointly. A company can be a member of another company.
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Membership can be by a)subscription; b)
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Indian Companies Act 1956
Meetings: ( p149 onwards N D Kapoor);
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General Meetings:Statutory Meetings Annual General Meetings Extraordinary Meetings Class Meetings: Meetings of different classes of shareholders and debenture holders—during the lifetime of the company and at the time of winding up of the company Meetings of Directors
3434
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5/29/12
Indian Companies Act 1956
Statutory Meetings:
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General Meeting of Members shall be held one month after the commencement of business but within six months from the date on which the company is entitled to commence business. This is the first meeting of a shareholders of a public company and is held only once in the lifetime of the company Board of Directors shall forward a report (called statutory report) to all the members 21 before the meeting date. Notice of the meeting shall state that the meeting is a statutory meeting.
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Indian Companies Act 1956
Annual General Meetings
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AGM shall be held every year with intervals not exceeding 15 months ROC may permit extension of 3 months—not applicable to the first AGM Notice shall specify that the meeting is an AGM First AGM can be held within 18 months. 21 days’ notice in writing (electronic mode welcome) duly indicating all particulars like date, time, venue, agenda etc AGM shall be held during business hours on a working day at the Regd office or any other 5/29/12 3636 location in the town/city where the regd office is
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Indian Companies Act 1956
Extra Ordinary General meetings
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Statutory meetings and AGMs are called ordinary meetings. A meeting other than these is called Extra Ordinary General meeting Extra ordinary General Meeting is called to transact some special or urgent business which cannot be postponed till the next AGM. Directors on their own or at the request of members can call Extra Ordinary General Meeting Requisitionists themselves can call the meeting when the Directors fail to call the meeting
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Indian Companies Act 1956
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Directors on their own call for EGM for: a)transacting any special business; b)Issue of Right Shares or c)Increase in the remuneration of MD, whole time director When the Directors call the EGM on the requisition such Requisition shall set out the matters for consideration On members’ requisition: Purpose of EGM a)Shareholders’ right to requisition the meeting; b)It shall be deposited with the Regd office of the company; c) Member need not disclose the reasons for the resolutions to be proposed at the meeting.
5/29/12 Company 3838 Law Board (by its powers)where it is
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Indian Companies Act 1956
Requisites of a valid meeting:
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Proper Authority Notice of the meeting—sufficient time period and contents Ordinary business:-a) Considering accounts and audit; b) Dividend declaration; c) appointment of directors in place of those retiring; and d) appointment of auditors and fixing their remuneration Special Business:- a)Removal of a director; b) Issue of Rights/Bonus Shares; and c) Election of a person (other than a retiring director) as a director
5/29/12 Quorum: 3939 generally fixed by Articles: a) 5 members
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Indian Companies Act 1956
Resolutions:
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Ordinary Resolution: passed at the General Meeting by a simple majority Unless the Companies Act or M/A expressly require a special resolution, any matter can be taken up through an ordinary resolution. a) Rectification of name or adoption of a new name of the company; b) issue of shares at a discount; c) Alteration of share capital; d)Reissue of redeemed debentures; e) adoption of statutory report ; f) passing annual accounts and Bal sheet; g) appointment of auditors and fixing remuneration; h) appointment of first directors; i) appointment of whole time MD; k)appointment of sole 4040 selling 5/29/12
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Indian Companies Act 1956
Resolutions: Special Resolution: ----Intention to be specified --Notice --Subject matter of the special resolution, nature & concern /or interest of every director/manager--A copy of the resolution to be filed with ROC within 30days-Voting by ¾ to protect the minority interests Purpose of Special Resolution: a) Alteration of M/A re; change of the regd office from one State to another b) Alteration of A/A; c) Reduction of Share Capital; and many other items where it cannot wait till the AGM or certain activities requiring Special Resolution as per Law. ( Refer Text for more points) 5/29/12 4141
Indian Companies Act 1956
Directors appointment, powers, duties and liabilities, Accounts and Audit Appointment of Directors:
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First Directors: --Articles usually mention the First Directors, their number, their names; If Articles are silent, then subscribers to the M/A shall in writing determine the names --If both the above are not carried out, then subscribers to the M/A who are individuals become the First directors Appointment of Directors by the company: Shareholders in the AGM. At least 2/3rds retire by rotation every year. Vacancies caused by retiring directors will be filled by the same retiring directors or other persons. However, 1/3 of the 5/29/12 4242
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Indian Companies Act 1956
Appointment of Directors:
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Appointment of Directors by directors: Existing directors may appoint directors as additional directors or in a casual vacancy ( a director vacating his office before his term) or as alternate director ( appointment by the board where an existing director is absent for at least 3 months) Appointment of Directors by Third Parties: Articles may allow Debenture holders or other creditors (bankers/financiers). The number shall not exceed 1/3 of the total number. These directors are not liable to retire by rotation Appointment of Directors by proportional representation: Articles may prescribe 4343 5/29/12 appointment of 2/3rds on proportional
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Indian Companies Act 1956
POWERS OF DIRECTORS:
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General Powers-co-extensive with those of the company.—Shall not do any act which is to be done in a General meeting—General powers are subject to the Companies Act or in the M/A or A/A or in any regulations made in the General meeting. However, Regulations made in a General Meeting have prospective effect ( not retrospective). –will not affect directors actions taken earlier to the passing of regulations in the General meeting. Powers at the Board Meeting: Through Board Resolutions, the following powers available:--make calls on shareholders; issue debentures; borrow money other than debentures; invest the company 5/29/12 4444 funds; make loans. Powers to borrow, invest the
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Indian Companies Act 1956
POWERS OF DIRECTORS:
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Powers with the approval of the company in General meeting:--Sell, Lease, dispose of whole or substantially whole of the undertaking (amalgamation scheme)—Remit or give time for repayment of any debt due to the company by a director (excepting renewal or continuance of a bank loan to a director)—investing the compensation received in case of compulsory acquisition of any undertaking or property of the company—to borrow moneys subject to certain conditions—to contribute to charitable and other funds Powers to make political contributions:--Out of 5/29/12 4545 profits only—Max 5% of the Net Profits—board
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Indian Companies Act 1956
Duties of Directors: Fiduciary Duties--Honest, bona fide duties for the company as a whole—Not to place themselves in situations conflicting the company interests and their personal interests—(fiduciary duties owed to the company not to the shareholders) Duties of Care, Skill and Diligence—Setting up standards, Delegation of powers between directors/other officers—general usages and practices –whether directors work gratuitously or for remuneration Other duties: --to attend board meetings—not to 5/29/12 4646 delegate his functions except to the extent
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Indian Companies Act 1956
Liabilities of directors: Liability to Third parties: a) Issue of prospectus, particulars required by the Companies Act missing in prospectus, or material misrepresentation; b) Personal liability in case of –failure to repay the application money-- irregular allotment--faiilure to repay application money if no application to the stock exchange is made or stock exchange refuses to list the securities –failure of the company to pay a Bill of Exchange, hundi or Promissory Note or cheque However, directors are not personally liable on contracts entered into on behalf of the company (as agents in normal course of business). Major 5/29/12 4747
Indian Companies Act 1956
Liability to the Company a)Personally –jointly and severally liable for ultra vires acts ( not necessary to prove fraud) eg dividends paid out of capital or involve funds in ultra vires transactions; b)Personally liable for NEGLIGENCE.(not exercising proper care and diligence in duties c) Breach of Trust d) Misfeasance (wilful misconduct)
5/29/12 4848
Indian companies Act 1956
Liability for breach of statutory duties: Maintenance of proper accounts; filing of returns or observing certain statutory formalities Liability for acts of co-directors: Not liable for the acts of co-directors unless he himself is a party or has knowledge of the acts of co-directors
Validity of acts of directors: Acts of Directors are valid even if at a later date his appointment is discovered to be invalid.
5/29/12 4949
Indian Companies Act 1956
Accounts and Audit: Regd Office to maintain properly the following books of accounts:
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Receipts and disbursements of money(particulars thereto) Purchases and Sales of goods and services Assets and Liabilities Mfg, processing, Mining etc, utilisation of materials or labour or other items of cost as prescribed by the Central Government The above books should be subjected to audit. Books to give a true and fair view of the affairs of 5/29/12 5050 the company
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Indian Companies Act 1956
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Normally, books are to be kept at the regd office. Board of Directors may permit them to be kept at other places with due information to the ROC within 7 days. Companies having foreign offices(branches)—account books may be kept in those offices. Books of accounts (with respective vouchers) to be maintained for a minimum period of 8 years.5151 case In 5/29/12
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Indian Companies Act 1956
Statutory Books: In addition, certain books to be maintained to safeguard shareholders’ interest (statutory books).
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Register of investments not held in company’s name( open to inspection by shareholders and debenture holders) Register of Charges (open to all) Register of Members (including index of members)-- Open to all Register of Debenture holders (incl index)—open to all Foreign Register of Members books
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Indian Companies Act 1956
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Annual Accounts and Balance Sheet—P & L Account, Balance Sheet, Director’s Report (board of director’s report), Director’s responsibility statement Form and contents shall be as prescribed by the Companies Act. Certain sectors like Banking, Insurance, Electricity or Railways will have the formats governing such companies. Compliance with Accounting Standards of ICAI. (Recently allignment with IFRS is also required ) Three copies of the Balance Sheet, Profit and Loss Account along with other reports and documents shall be filed with the ROC within 5/29/12 5353
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Indian Companies Act
Audit
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Companies Act provides for appointment of an auditor. Auditors may be appointed by Board Meeting or in a general meeting or by the Central Government or any other appropriate authority as permitted by relevant law. Auditor is an independent agency which safeguard the shareholders’ interests—things like unbusiness like manner, mislaying funds or misappropriation shall be found out and reported Companies having paid up capital of Rs 5crores and above shall constitute a audit committee 5/29/12 the Board ).Minimum number should be 3. 5454 (from
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Indian Companies Act 1956
WINDING UP OF COMPANIES:
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Winding up or Liquidation of a Company means the company is dissolved. Assets are disposed off and the debts are paid off out of the realised assets or from contributions and the surplus, if any distributed among the members. The priority in which the claims are disposed off is important The property is administered in the hands of and administrator called the liquidator who will undertake the process of liquidation
5/29/12 5555
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Indian Companies Act
Modes of Winding Up:
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Compulsory winding up by the Court Voluntary Winding up; a) by members; b) by creditors Winding up subject to supervision of the court
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Court Winding up:
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Special Resolution of the company. Voluntary winding up is cheaper than this Default in delivering the statutory report to the Registrar or in holding the meeting—ROC or a contributory may move a petition after 14 days 5/29/12 5656 from the date of the statutory meeting date. Court
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Indian Companies Act 1956
Court Winding up: Grounds on which such petition can be filed:
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Illegal or ultra vires acts Frauds on the minority, oppression of the minority Company’s act inconsistent with the Articles Ordinary resolution passed where special resolution is required Infringement of rights of individual members Breach of duty Mismanagement of the company
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Company Law -Case Laws
1) Salomon v Salomon & Co Ltd (1897)—Separate legality entity
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S sold his boots business to a newly formed company for 30000 pounds.. His wife, one daughter and four sons took up one share of 1 pound each. S took 23000 pounds shares of 1 pound each and 10000 pounds debentures in the company. Debentures gave S a charge over the assets of the Company as the consideration for transfer of the business. The company was wound up. Its assets were worth 6000 pounds and its liabilities were 17000 pounds of which 10000 were due to secured debentures and 7000 due to unsecured creditors. Unsecured creditors claimed 5/29/12 S and the company were one and the same 5858 that
Company Law -Case Law 2)Macaura v Northern assurance Co. Ltd. (Corporate Veil)
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Macaura v Northern Assurance Co Ltd [1925] AC 619 Macaura v Northern Assurance Co Ltd Court House of Lords Citation(s) [1925] AC 619 Judge(s) sitting Lord Sumner, Lord Buckmaster, Wrenbury, Atkinson and Phillimore concurred. Mr Macaura owned the Killymoon 5/29/12 5959 estate in County Tyrone,
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Company Law—Case Law
3)The Ashbury Railway carriage & Iron Co. v Riche Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653 is a UK company law case, which concerned the objects clause of a company. Its importance has been diminished as a result of the Companies Act 2006 s 31, which allows for unlimited objects for which a company may be run. Incorporated under the Companies Act,1869, the Ashbury Railway Carriage and Iron Company Ltd’s memorandum, clause 3, said its objects were ‘to make and sell, or lend on hire, railway-carriages…’ and clause 4 said activities beyond needed a special resolution. But the company agreed to give Riche 5/29/12 6060 and his brother a loan to build a railway in Belgium.
Company Law- Case Law
3)The Ashbury Railway carriage & Iron Co. v Riche (contd..) JUDGEMENT
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The House of Lords, agreeing with the three dissentient judges in the Exchequer Chamber, pronounced the effect of the Companies Act to be the opposite of that indicated by Mr Justice Blackburn. It held that if a company pursues objects beyond the scope of the memorandum of association, the company's actions are ultra vires. Lord Cairns LC said, “It was the intention of the legislature, not implied, but actually expressed, that the corporations, 5/29/12 should not enter, having regard to this6161
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Company Law-Case Law
4)Royal British Bank v Turquant Royal British Bank v Turquand (1856) 6 E&B 327 is a UK company law case that held people transacting with companies are entitled to assume that internal company rules are complied with, even if they are not. This "indoor management rule" or the "Rule in Turquand's Case" is applicable in most of the common law world Mr Turquand was the official manager (liquidator) of the insolvent ‘Cameron’s Coalbrook Steam, Coal, and Swansea and London Railway Company’. It was incorporated under the Joint Stock Companies Act 1844. The company had given a bond for £2000 to the Royal British Bank, 5/29/12 6262 which secured the company’s drawings on its current
Company Law- Case Law
JUDGEMENT
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Sir John Jervis CJ, for the Court of Exchequer Chamber “the Royal British Bank could enforce the terms of the bond. He said the bank was deemed to be aware that the directors could borrow only up to the amount resolutions allowed. Articles of association were registered in Companies House, so there was constructive notice. But the bank could not be deemed to know about which ordinary resolutions passed, because these were not registrable. The bond was valid, because there was no requirement to look into the company’s internal workings. This is the ‘indoor management 5/29/12 that the company’s indoor affairs are the 6363 rule’,
Company Law-Case Law
5)A. V Mohan rao and another v M Kishan Rao, 2002 AIR(SC)2653
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Supreme Court of India A.V. Mohan Rao & Anr vs M.Kishan Rao And Anr on 16 July, 2002 Author: D.P. Mohapatra Bench: D.P.Mohapatra, K.G.Balakrishnan. CASE NO.: Appeal (crl.) 688 of 2002 PETITIONER: A.V. MOHAN RAO & ANR. Vs. RESPONDENT: M.KISHAN RAO AND ANR.
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DATE OF JUDGMENT: 16/07/2002
6464
Company Law-Case Law
5)A. V Mohan rao and another v M Kishan Rao, 2002 (CONTD.)
This appeal filed by the accused persons is directed against the order dated 1.3.2000 of the High Court of Andhra Pradesh in Criminal Petition No.3052/99 declining to grant the prayer of the appellants for quashing the proceedings in CC No.24/99 on the file of the Court of Sub-Judge, Economic Offences at Hyderabad. The proceeding was instituted on the complaint petition filed by respondent No.1. The appellants and the respondent No.1 are stated to be Directors of a Company- M/s Spectrum Power Generation Limited (hereinafter referred to as "the Power Company") incorporated under the Indian Companies Act, 1956 (for short 'the Act'), having its registered office at Secundrabad, in the State of Andhra Pradesh.
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Indian Companies Act 1956
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Business Law Companies Act amendmen ..\Business Law Companies Act amendm
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doc_442661692.pptx