COMPANY LAW

Unit 1-incorporation of company and constitution instruments

1.1 company definition and characteristic

Introduction -Corporate law (also known as business law, company law or enterprise law) is the body
of law governing the rights, relations, and conduct of persons, companies, organizations and
businesses. The term refers to the legal practice of law relating to corporations, or to the theory of
corporation. Meaning of company- A company is a third legal business structure and has
entirely a different organizational structure from the sole proprietorship or partnership. Its formation
is due to firstly, the sole proprietorship and partnership cannot meet the increased capital demand of
industry and commerce. Secondly, the company ensures the protection of limited liability to the
shareholders and investors.

Nature of a Company-A company, in its ordinary, non-technical sense, means a body of individuals
associated for a common objective, which may be to carry on business for gain or to engage in some
human activity for the benefit of the society.Accordingly, the word ‘company’ is employed to
represent associations formed to carry on some business for profit or to promote art, science,
education or to fulfill some charitable purpose. This body of individuals may be incorporated or
unincorporated. Concept-The concept of ‘Company’ or ‘Corporation’ in business is not new but was
dealt with, in 4th century BC itself during ‘Arthashastra’ days. The nature of company got revamped
over a period according to the needs of business dynamics. Company form of business has certain
distinct advantages over other forms of businesses like Sole Proprietorship/Partnership etc. It includes
features such as Limited Liability, Perpetual Succession etc. Definition of Company & Nature---In
the legal sense, a company is an association of both natural and artificial persons (and is incorporated
underthe existing law of a country). In terms of the Companies Act, 2013 (Act No. 18 of 2013) a
“company” means acompany incorporated under this Act or under any previous company law
*Section 2(20)+. In common law, acompany is a “legal person” or “legal entity” separate from, and
capable of surviving beyond the lives of itsmembers. However, an association formed not for profit
also acquires a corporate character and falls within themeaning of a company by reason of a license
issued under Section 8(1) of the Act. Characteristics of a Company-The definitions quoted above
illuminate the principal attributes of a company, otherwise known as a corporation. They are given
below:. 1. Legal Personality-The law divides person into two kinds viz.,natural persons, andlegal
persons.Natural persons are human persons such as men, women, children etc. The natural persons
are the creations of nature.Legal persons or artificial persons, on the other hand, are created and
devised by human laws i.e. created by a legal process and not through natural birth. An artificial
person, though abstract, invisible and intangible, can do everything like a natural person except a few
acts, which only natural persons can do A company is a distinct legal person, existing independent of
its members. The independent corporate existence is the outstanding feature of a company. 2.
Limited Liability--The principle of limited liability is a feature as well as a privilege of the corporate
form of enterprise. In other words, the liability of the members is limited. It means that the
shareholders enjoy immunity from liability beyond a certain limit. A shareholder cannot be called
upon to pay anything more than the unpaid valueof the share that he has undertaken to pay under a
contract between himself and the company. 3. Perpetual Succession--As a juristic person, a
company enjoys perpetual succession. In other words, a company never dies, nor its life depends on
the life of its members. Even if all the members die, it shall not affect the privileges, immunities,
estates and possessions of the company. 4. Right to Property--A company, being a legal
person has a right to acquire, possess and dispose of property in its own name. Its property is not that
of the shareholders. Although the members contribute the capital and assets of company, the
property of the company will not be considered as the joint property of the members constituting the
company. 5. Common Seal--The common seal is considered as the Official Signature of the
company. Its common seal must authenticate all the acts. When common seal is affixed on a
document, it is considered as the authoritative document of the company. The secretary of the
company should keep the seal under lock and key. He should make use of it only according to the
directions of the Board of Directors. 6. Transferability of Shares--The capital of a company is
divided into several small parts known as shares.The primary objective of joint stock companies is that
it should be able to transfer shares easily. The law also considers the share of a company as movable
property and hence like any other movable asset, the shareholder can transfer his title over his share
to some other person. 7. Capacity to Sue and be Sued--A company being a legal person, can sue
other persons in its corporate name. Similarly, others can also sue the company in their own name. It
can also be fined for contravening any law but it cannot be imprisoned for a criminal offense. 8.
Not a Citizen--Although a company is a legal person, it is not a citizen under the Indian Constitution. It
can act only though natural persons. Types of companies -. 1. Statutory Companies : These
companies are constituted by a special Act of Parliament or State Legislature. These companies are
formed mainly with an intention to provide the public services. Though primarily they are governed
under that Special Act, still the CA, 2013 will be applicable to them except where the said provisions
are inconsistent with the provisions of the Act creating them (as Special Act prevails over General Act).
2. Registered Companies: Companies registered under the CA, 2013 or under any previous Company
Law are called registered companies. Such companies comes into existence when they are registered
under the Companies Act and a certificate of incorporation is granted to it by the Registrar.
3.One Person Company-The Act introduced the concept of a One Person Company (OPC). As per the
Act, an OPC is a company that has only one member. The member can also be the director of the
company. Though the OPC should have only one member, it can have a maximum of fifteen directors.
4.Private Limited Company--A private limited company is a company where there cannot be more
than 200 members. A minimum of two members are required to establish a private limited company.
The members cannot transfer their share, and it is suitable for businesses that prefer to register as
private entities. There needs to be a minimum of two directors, and there can be a maximum of 15
directors in a private limited company. 5-Public Limited Company--A public limited company
means a company where the general public can hold the company shares. There is no maximum
shareholders limit for a public limited company, but there needs to be a minimum of seven members
to establish a public company. The company needs to have two directors and can have a maximum of
fifteen directors. 6-Section 8 Company (NGO)-An association of persons or individuals can
register a company under section 8 of the Act for charitable purposes. These companies are
established to promote commerce, science, art, education, sports, research, religion, social welfare,
charity, the protection of the environment, or such other objects. The company should apply its
profits and other incomes to promote its activities. Such companies intend to prohibit any dividend
payments to their members. Types of Companies Based on Size :- The MSME Act classifies
companies based on their size to give benefits provided by the government for MSMEs. The
differentiation of companies based on size to obtain MSME benefits is as follows:1.-Micro Companies-
-A micro company is a company whose investment in plant and machinery does not exceed Rs.1 crore,
and the annual turnover does not exceed Rs.5 crore. 2.Small Companies--A small company is
a company whose investment in plant and machinery does not exceed Rs.10 crore, and the annual
turnover does not exceed Rs.50 crore. However, the Companies Act, 2013, also provides many
benefits to small companies. A company with a paid-up share capital of below Rs.2 crore and an
annual turnover of below Rs.20 crore is considered a small company under the Companies Act.
3.Medium Companies--A medium company is a company whose investment in plant and machinery
does not exceed Rs.50 crore, and the annual turnover does not exceed Rs.250 crore. Types of
Company Based on Liability :- The members of a company have either limited or unlimited liability.
The liability of the company member arises at the time of bankruptcy, company loss, winding up or
paying the company’s debt. Thus, a company established under the Companies Act, 2013 can also be
classified based on the liability of its shareholders. 1.Limited By Shares--A company limited by
shares means the liability of the company members is limited by the Memorandum of Association
(MOA). The company members are liable only for the unpaid amount on the shares respectively held
by them. The equity shares held by a member measure the shareholder’s ownership in the company.
2.--Limited by Guarantee--A company limited by guarantee means the member’s liability is limited to
the amount they guarantee to contribute towards the company’s assets. The member’s liability is
limited by the company MOA. The members undertake in the MOA to contribute the guaranteed
amount in the event of the company being wound up. The percentage of the member’s ownership is
based on the amount guaranteed by them. 3.Unlimited Company--An unlimited company
means the company members do not have any limit on their liability. If any debt arises, the member’s
liability is unlimited and extends to their personal assets. Usually, the company entrepreneurs choose
not to incorporate this type of company. Types of Company Based on Control-- The
companies can be classified based on the ownership structure and control as follows:
1.Holding Company--A holding company is a company having the majority of voting powers of
another company (subsidiary company). The holding company is the parent company controlling the
subsidiary company’s policies, assets and management decisions. However, it remains uninvolved in
the subsidiary’s day-to-day activities. 2.Subsidiary Company--A subsidiary company is owned
by another company (holding company) either partially or entirely. The holding company controls the
composition of the board of directors of the subsidiary company or more than 50% of its voting
powers. Where a single holding company holds 100% voting powers, the subsidiary is known as the
Wholly Owned Subsidiary (WOS) of the holding company. Types of Company Based on Listing :-
The companies are classified into listed and unlisted companies based on access to capital. Every
listed company must be a public company, but vice versa need not be true. An unlisted company can
be a private or public limited company.

Listed Company-- A listed company is a company which is registered on various recognised stock
exchanges within or outside India. The shares of the listed companies are freely traded on the stock
exchanges. They have to follow the guidelines given by the Securities Exchange Board of India (SEBI).
A company that wishes to list its shares on stock exchanges should issue a prospectus to the general
public for subscribing to its debentures or shares. A company can list its shares through an Initial
Public Offer (IPO), while an already listed company can make a Further Public Offer (FPO).

Unlisted Company-- An unlisted company is a company that is not listed on any recognised stock
exchange, and its shares are not freely tradable on the stock exchanges. These companies fulfil their
capital requirements by obtaining funds from friends, family members, relatives, financial institutions,
or private placement. An unlisted company must convert to a public company and issue a prospectus
if it wishes to list its securities on the stock exchanges. Corporate personality --Introduction--
Corporate personality is a fiction of law. It is an artificial personality given to corporation whereby
certain rights and duties are attributed to it. The doctrine of Corporate personality was approved for
the first time in a leading case Soloman vs Soloman & Co. Ltd. (1897) A.C 22 (1895-99) All E.R. 33 (H.L).
a corporation has a personality of its own which is different from the personalities of the individuals.
A corporation can sue and be sued. A Corporation can enter into contracts. A Corporation can have
property and rights and duties. unlike natural person Corporation can act only through its agents. It
does not die in the way natural persons. Law provides special procedure for the winding of a
corporation. Corporation -- A corporation or Company is an artificial or fictitious Person created by
the personification of a group or a series of individuals. The individuals forming the corpus of the
corporation is called its members. In simple words, it is an organized the body of coexisting or
successive persons, which by a legal fiction is regarded and treated as itself a person.There are two
types of Corporation, Corporation aggregate or Corporation sole. The municipal corporation or
company incorporated and registered under the Companies Act is an example of Corporation
aggregate, on the other hand, a sovereign is a corporation sole. Essential conditions for the
existence of Corporation -There are three conditions necessary for the existence of a corporation -1.
There must be a group or body of human being associated for certain purposes.2.There must be
organs through which the body or the group acts.3. A will is attributed to corporation by a legal fiction.
A corporation is either a corporation aggregate or a corporation sole. There are two kinds of
Corporation or a Company. 1) Corporate sole and 2) Corporate Aggregate. 1) Corporation
Aggregate --- A Corporation aggregate is an incorporated group or body of coexisting persons
United for the purpose of advancing certain points of interests. The number of corporations
aggregate is very large and they are of various kinds. Their importance is also very great in the field of
law. Thus, we have a very large number of Limited companies having millions of shareholders spread
in different parts of the world. It is to be observed that a limited company is something different from
its shareholders. It has a personality of its own which is different from its shareholders. The property
of the company is not the property of the shareholders. The assets and liabilities of the company are
different from those of its members. a company can contact with its shareholders. It is liable for tort.
Even if the member of shareholders is reduced to one the shareholder and the company are two
distinct persons. Corporation aggregate maybe Trading Corporation or non-Trading Corporation.
2) Corporation sole- Corporation Sole is an incorporated series of successive persons. It is a
corporation, which has one member at a time. It is a body of politic having a perpetual succession. It
is constituted in a single person who, in right of some office or function, has the capacity to take,
purchase, hold and demise land and hereditaments. A corporation sole is perpetual but there may be
and mostly are periods in the duration of corporations sole, occurring irregularly, in which there is
vacancy or no one in existence in whom the Corporation resides and is visibly represented.

2.Lifting or piercing the corporate veil- :- Introduction--The doctrine of lifting the corporate veil
means ignoring the corporate nature of the body of individuals incorporated as a company. A
company is a juristic person, but in reality it is a group of people who are the beneficial owners of the
property of the corporate body. Being an artificial person, it (company) cannot act on its own, it can
act only by natural persons. The doctrine of lifting the veil can be understood as the identification of
the company with its members. The company is equal in law to a natural person. This is one of the
cornerstones of Indian Company Law and has been followed since 1897. Meaning & Definition
Of Corporation Veil-- A corporate veil is a legal concept that separates the acts done by the
companies and organizations from the actions of the shareholders. It protects the shareholders from
being liable for the actions done by the company. This is not an absolute right the court depending on
the facts of the case can take the decision whether the shareholder is liable or not.

Lifting or Piercing the Corporate Veil-- The company, in the contemplation of law, is a person
distinct from the shareholders. In other words, the company alone is liable for all the acts done and
the debts incurred by it and not the directors or the shareholders who are in fact the beneficial
owners of the company. This principle is known as “The Veil of Incorporation“. The
Courts, in general, consider this principle as a basic one on which the entire Law of Corporation is
based. Therefore, the Courts in many cases, were reluctant to break through the corporate veil and
refused to identify a company with its members even a company was found as a mere fraud.
This magic corporate personality gave protection to fraudulent directors to conduct the affairs of the
company to defraud the public interest. The experience of the past was very sad and so many
investing public and creditors of various companies were badly hit. Therefore, the Courts, began to
realize that the Doctrine of Corporate Entity should not be an unmixed blessing as it goes against
natural justice. As such, it has become necessary to lift the corporate veil and to see the realities
behind the veil. Consequently, the Courts, both in India and England, if circumstances
demanded so, have lifted corporate veil and identified the company with its members. In other words,
the Courts, in compelling situations, ignored all the conceptions of the corporate personality and hold
the directors and shareholders personally liable. This is known as lifting or piercing the corporate veil.

Circumstances in which the Court can lift the Corporate Veil-- According to Palmer, there are
seven instances where the corporate veil or the legal personality can be lifted or pierced by the Court.
In those circumstances, the corporate veil cannot give any protection to the directors. The following
are the instances in which the corporate veil can be lifted. When Company tries to avoid Legal
Obligations: When the corporate personality is used to avoid any legal obligation, the Court can
disregard the legal personality and can identify with its members. In other words, the Court can hold
the shareholders with unlimited liability.

2. Where the Character of the Company is to be Determined:- In case doubt arises, that a company
is owned or controlled by enemies of another country, the Courts, at their discretion, ignore the
corporate fiction and examine the persons who exercise de facto (real) control over the affairs of the
company. 3. Where a Fraud is Suspected:- The corporate entity may also be disregarded where
the veil is used for some fraudulent purpose or defeating the claims of the creditors. 4. Where
it is essential to Protect the Interest of the Revenue:- The Courts are also empowered to pierce the
corporate shell if it is used for avoiding tax obligations. The Courts can break through the corporate
veil, only when the sole object of its formation is tax evasion. 5.. Where the Company Acts
as an Agent:- A company may sometimes act as an agent or trustee of its members or of another
company. In those circumstances, such company is deemed to have lost its individuality and shall be
identified with its members. 6. Avoidance of Welfare Legislation:- Avoidance of welfare
legislation is as common as the avoidance of taxation. It is the duty of the Court in such cases to get
behind the smoke screen and discover the true state of affairs. 7. Where the Company is a
Clock:- The Courts also lift the veil where a company is a mere cloak, which means to disguise or
pretend. 8. Where the Welfare Legislation is Avoided:- In case of avoidance of welfare
legislation the Courts lift the corporate veil to get behind the smoke screen and discover the true
state of affairs.

9. Where the Public Policy is to be Protected:- The Courts invariably lift the corporate veil in order to
protect the public policy and prevent transactions, which are contrary to public policy.

3.Promoter - their role, right, liability,and legal position - Definition of Promoter- -In simple words,
a promoter is a person who takes initial responsibility to set up a company. The definition of the
promoter is not given in the Companies Act, 1994. The legislature and judges are reluctant to define
the term ‘promoter’ due to the fact that sometimes the promoter may be using the company to
perpetrate fraud against the investors. That’s why common law judges leave the meaning of the term
‘promoter’ flexible enough to include as many such fraudsters as possible. The common law judges
elaborated a broad range of fiduciary duties targeted at setting exemplary standards of conduct for
promoters. As the term ‘promoter’ is not defined in the Companies Act 1994, we need to seek help
from judicial principles. Role of Promoter-- The promoter plays a significant role in the
creation of the company. The functions of the promoter are –Selecting the name of the company and
obtaining the Name Clearance Certificate;1.Negotiating the pre-incorporation contracts;2.Finding the
initial directors and shareholders;3.Preparing and registering the Memorandum of Association (MoA)
and Articles of Association (AoA) for the company;4.Effecting the registration of the
company;5.Registration and issuance of a prospectus in case of public companies;6.Collecting the
minimum subscription to pay the preliminary expenses;7.Allotting the shares and debentures to the
shareholders and debenture-holders;8.Obtaining the Certificate of Commencement of Business from
the Registrar of Joint Stock Companies and Firms. Rights of Promoters:- Since promoters have
duties, it implies that they have rights too. Rights are:(i) They are entitled to take assistance of the
experts in preparing the documents.(ii) They can enter into preliminary or pre-incorporation contracts
on behalf of the proposed company.(iii) They may claim reasonable remuneration for their services.
Liabilities of Promoters:--A promoter may be made liable in a suit by an aggrieved share-holder or
debenture holder for damages for deceit, besides, being liable for compensation. A promoter, even
though he may only act as agent or trustee, is personally liable for the contract on behalf of the
company. A promoter is liable to pay compensation for misstatements in prospectus, for
non-disclosure of any matter in the prospectus and for non-compliance of the provisions under Sec.
56. There is a liability of the promoter under the general law enforceable by suit for recovery of
damages on the ground of fraud etc. For untrue statements in the pro-spectus, a promoter has
criminal liability. Legal Position of a Promoter:--The promoter is neither a trustee nor an agent of
the company because there is no company yet in existence. The correct way to describe his legal
position is that he stands in a fiduciary position towards the company about to be formed. Lord
Cairns has correctly stated the position of promoter in Erlanger V. New Semberero Phophate Co. “The
promoters of a company stand undoubtedly in a fiduciary position. They have in their hands the
creation and moulding of the company. They have the power of defining how and when and in what
shape and under what supervision, it shall start into existence and begin to act as a trading
corporation.” From the fiduciary position of promoters, the two important results follow:(1) A
promoter cannot be allowed to make any secret profits. If it is found that in any particular transaction
of the company, he has obtained a secret profit for himself, he will be bound to refund the same to
the company. (2) The promoter is not allowed to derive a profit from the sale of his own
property to the company unless all material facts are disclosed. If he contracts to sell his own
property to the company without making a full disclosure, the company may either repudiate/rescind
the sale or affirm the contract and recover the profit made out of it by the promoter.A promoter who
wishes to sell his own property to the company must make a full disclosure of his interest.
4.Memorandum of association and its alteration -- MOA Full Form is a Memorandum of Association
(MOA) which is of a company that explains the company's constitution and scope of power. In simpler
words, the MOA tables is the base on which a company relies on. MOA is a legal memorandum
prepared during the registration process of a company.
The scope of this content includes the following topics, and table of MOA and memorandum of
association format.

Objective of MOA (Memorandum of Association)--A company can undertake only those activities
that are mentioned in the objective of memorandum of association. In other words, the
Memorandum of Association lays down the boundary beyond which the actions of the company
cannot exceed. MOA helps the creditors, shareholders and any other person that are
interacting and dealing with the company, to know the company's powers and objectives. In addition
to this, M0A contents help the prospective shareholders in taking the right decision while investing in
the company. The Format of MOA (Memorandum of Association)--As per Section 4 of the
Companies Act, 2013, companies shall forms of MOA as specified in Tables A to E in Schedule I of the
Act. The company shall adopt a Table applicable to it as there are various tables of moa for different
companies. Here is the list of forms with their details:Table A of MOA: MOA Form of the company
limited by shares.Table B: MOA Form of the company limited by guarantee and not having a share
capital.Table C: MOA Form of the company limited by guarantee and having a share capital.Table D:
MOA Form of an unlimited company.Table E: MOA Form of an unlimited company and having share
capital.

The Content of the MOA (Memorandum of Association)--The number of clauses in the memorandum
of association is:Clauses of Memorandum of Association. Name Clause in the MOA of company
provides protection against subsequent company registration in the same or closely similar name.
1.The name of the Public Limited Company shall contain ‘Limited’ as the last word. 2.The
name of the Private Limited Company shall contain ‘Private Limited’ as the last words.

3.For the companies formed under Section 8 of the Act must include one of the following words, as
applicable.Foundation,Forum,Association ,Chambers,Confederation,Council,Federation,Electoral
Trust, etc.

Registered Office clause--MOA clauses shall clearly specify the location at which registered office
address of the company will be situated.

Object Clause--It shall clearly describe the objectives behind the formation of the company. Moreover,
if a company alters its activities that are not specified in its clause, then it can amend its clause within
6 months of such alteration. This clause can be further divided into three sub-categories:

a) Main Objective: This states the main business of the company. b) Incidental Objective: These are
the objectives ancillary to the attainment of the main objectives of the company. c) Other objectives:
Any other objectives that are not covered in above (a) and (b) which the company may pursue.

Liability Clause--This clause clearly states the liability of a company's member whether the liability is
limited or unlimited. In addition to this,
For an unlimited company – It should state that the liability of the member of the company is
unlimited.

For a company limited by shares – it should describe the liability of the member of the company is
limited to any unpaid amount on the shares that they have.

For a company limited by guarantee – it should specify the amount agreed by each member to
contribute to the assets at the time of winding up.

5.Articles of association and it's alternation

Articles of Association are called the structure of an organization. It sketches the terms and conditions
that specify the internal affairs of a company. Articles of Association contains manuals for a company
of a user that reveals the organizational purpose and its planning to fulfill its goals on a short-term or
long-term basis. Commonly, the AOA comprises a legal identity, objectives, financial provision,
location of the company along with share capital and provisions related to the investors’ meetings.

Elements of Articles of Association --Articles of Association will generally stipulate the way an
organization issues shares, distributes dividends, conducts financial reports. Articles of Association
contains an archive that is concentrated on stipulating the user information relating to the
organizational methods of an organization to accomplish its goal on a regular, monthly, or annual
basis. Articles of Association are comparatively the same on every side of the globe, despite the
similar norms and items change across jurisdictions. Generally, it comprises the following:Inclusion of
the identity of the company ,Objectives of the organization,Equity capital,Organization of the
concern,Provisions on stakeholders’ meetings

Scope of the Articles of Association---The Articles secure the concern and its people sooner they
inscribe the contract. The contract is between the concern and its staff. Members have particular
rights and obligations towards the organization and the concern has particular duties towards its
employees. Meanwhile, the organization also anticipates some obligations and responsibilities which
the employee must accomplish for the effective operation of the organization. Importance of
Articles of Association --Articles of Association structure an indenture between the organization and
its stakeholders. Their several provisions are implemented by the Act of Companies 2013 but the rest
are optional. However, every provision contained in the articles of association of a company has the
legal power and should be complied with, subject to other overriding laws. Some breach of provisions
within articles of association usually makes the contracts void. Moreover, a limitedorganization
cannot exist legally without lawful articles of association. Commonly, the articles of association give
protection to organization stakeholders and assist to confirm the concern is conducted correctly
within stipulated parameters.

Alterations Of Articles Of Association--The alteration of the Articles should not sanction anything
illegal. They should be for the benefit of the company. They should not lead to breach of contract with
the third parties. The following are the regulations regarding alteration of articles:A company may
alter its Articles with a special resolution. Due importance and care should be given to ensure that the
alteration of AoA does not conflict with the provisions of the Memorandum of Association or the
Companies Act. A copy of every special resolution altering the Articles must be filed with the Registrar
within 30 days of its passing. 1. The proposed alteration should not contravene the provisions of
the Companies Act.2. The proposed alteration should not contravene the provisions of the
Memorandum of Association.3. The alteration should not propose anything that is illegal 4. The
alteration should be bonafide for the benefit of the company. 5. The proposed alteration should in
no way increase the liability of existing members. 6. Alteration can be made only by a special
resolution. 7. Alteration can be done with retrospective effect. 8. The Court does not have any
power to order alteration of the Articles of Association. Conclusion--The articles of association
can be found in every company and it is a document containing the rules, regulations and bye-laws for
the efficient and hustle free administration of the company. The articles of association are
compulsory for a few classes of the company such as an unlimited company, a company whose shares
are limited by guarantee and a private company. The articles of association have all the important
subjects which are required for the management and administration of the companies. It can even be
altered or amended when required by following the procedures laid down in the Companies Act, 2013.

6.Doctrine of ulta - vires ---Definition of Ultra Vires :- The term “Ultra Vires” originated from a Latin
phrase meaning “beyond the power.” Actions beyond the corporate charter’s ambit or most
appropriately beyond the predetermined power could be cited as ultra vires. Ultra vires acts shall
always exceed the limitation of power so approved or determined. It could also include legally
forbidden acts subject to corporate law. Every company or organization has got its directives, article
and memorandums that demarcate its actions to function efficiently. The provision of Section 4
(1) (c) of the Companies Act 2013 states that a company must incorporate all the MOA objectives,
based on which the company came into existence along with other necessary matters responsible for
its effective functioning. A detailed draft of the MOA shall prevent confusion among the company
members and the company, thereby restraining any contract breach. Section 245 (1) (b) of the 2013
Act prevents the Company from committing any ultra vires acts or transactions. The section explains
the members and depositors’ right to apply to the tribunal against any conduct of the company or any
of its members, which could be detrimental to the company’s interest and shareholders.*3+ The
concerned section is a legal weapon to restrain a company’s acts and its members ultra vires
transactions, which could naturally breach the objectives mentioned in their MOA and AOA.
Features of Doctrine of Ultra Vires :- An ultra vires act is void, and it never binds the company. For
any ultra vires act, neither the company nor the parties could sue each other. Any acts that have been
clearly stated as ultra vires by the company charter could not be granted a valid intra vires status even
if the company’s members assent to it. In India, the doctrine of ultra vires was applied for the first
time in the leading judgment of Jahangir R. Modi v. Shamji Ladha Exceptions to Doctrine of
Ultra Vires :- Intra vires acts include those activities that are essential for accomplishing the
objectives mentioned in the object clause of the MOA, within the permissible limits ofconducting a
business and are authorized by the Companies Act. Excluding the activities mentioned above, the
activities performed in excess of power shall be considered ultra vires within Company Law’s purview.
However, there are exceptions to the conditions mentioned above, which shall be our discussion topic.
They are as follows:1. Acts or contracts ultra-vires to the Companies ActActs which are ultra vires the
company act, if a company performs any such act or its MOA or AOA authorizes such act, it will still
hold the status of void ab initio and cannot be ratified in any case. 2. Acts or contracts ultra-vires to
the memorandum of the companyActs or contracts that a company initiates beyond the powers
provided by its MOA shall be considered ultra vires.3. Acts or contracts which are ultra-vires to the
Articles but intra-vires to the memorandumThe acts beyond the AOA’s powers but within the power
provided by MOA, are termed as ultra vires the AOA but intra vires the MOA4. Acts or contracts which
are ultra-vires to the directors but intra-vires to the companyWhen the acts performed by the
directors are beyond the powers that have been provided to them, such acts could be termed as ultra
vires to the directors, but they could be intra vires to the company5. An irregular act or contract
which is intra vires the company6. Ultra vires Investment-A company retains its right over any
property it acquires through an ultra vires investment. Effects of Ultra Vires Transactions :-
The effects of ultra vires transaction undertaken by a company could be as follows:1. Injunction :-
The company members could issue an injunction against the company to restrain it from engaging
into any ultra vires activities. 2. Ultra Vires Contract--It has already been mentioned earlier that
ultra vires contract is the void ab initio, valid status even by ratification or estoppel. The question here
revolves around the company’s competency and authority regarding the contract but not its legality.
3. Liability of the Company ---There are no certain principles concerning a company’s liability against
the damagesdamages resulting from ultra vires acts. However, the tortious liability arises if it is
proved with plausible evidence that the activity in the course of which the ultra vires act or the tort
occurred falls within the ambit of MOA. It occurred in the course of employment. 4.Breach of
Warranty--The acts that a Company cannot perform as stated under MOA, the directors being the
company’s agents are also prohibited from performing such acts. 5. Personal Liability of the
Directors--In Trevor v. Whitworth, it was held that a company could never invest any of its funds for
any objectives that do not come within the ambit of the objects specified in the MOA and should be
utilized only for the authorized objectives Conclusion--The ultra vires doctrine safeguards the
investors and the creditors’ interest. Repeated and continuous unbarred ultra vires activities within a
company could be detrimental to its operability, resulting in winding up where a loss to the company
is evident.

Doctrine of constructive notice -- A company has separate legal entity which can be formed by an
association of individuals to with the intention to carry commercial activities to generate profit. The
formation and functioning of the company are governed by certain laws, rule and regulations. The
intention to behind the enactment of such laws is to provide protection to company, its management
as well as the outsider person who is contractually engaging with the company. There are
certain set of laws and the principles which provide safeguard to the company from the outsider
person and vice versa. Companies use to resources in the country and generate revenues. So,
companies constitute important role in the growth of the economy and hence, it becomes necessary
to create the laws governing them. These laws operate as prevention to curb the unfair and wrong
practices in the corporate world. The doctrine of constructive notice and the doctrine of indoor
management are important principles in the Company Laws. The former being the rule and the latter
being the exception to it. The doctrine and its exception provide the protection. The
doctrine of constructive notice protects the company from the actions of outsider person and the
doctrine of indoor management protects the outsider person from the actions of the company. The
interest of the company and the outsider person has been protected. Both the doctrines make sure
that no party gets unfair gain out of any contractual operation.

Doctrine of indoor management -- The nature of the Doctrine of Indoor Management is wholly
opposite to that of the doctrine of the constructive notice. The former protects the outsider person
from the illegal actions of the company and the latter works as a protection to the company from the
illegal actions of the outsider person. The principle of the constructive extends to operation that there
shall no need to deliver actual notice.Doctrine of Indoor Management sets the principle that the
persons involving into contract with the company cannot be compelled to obtain the knowledge of
the internal functioning and the proceeding of the company in relation with the contract. The
doctrine of Indoor Management is exception to the rule established by the Doctrine of constructive
notice. This doctrine of indoor management is derived on the concept that the person getting into
the contract with the company operates in good faith and he shall not suffer by the illegal actions of
the company. The Doctrine of Indoor Managements states that outsider person has no
responsibility to have the knowledge about the internal affairs of the company. The outsider person
cannot be bound by the duty to review the internal functioning or the internal managerial
proceedings of the company. So, the outsider person shall not be made liable for the irregularities in
the internal proceedings of the company. The company cannot transfer its liability on the outsider
person of its own irregular internal actions. This principle is called the Doctrine of the Indoor
Management. It is not the responsibility of the outsider person to look into internal management and
the compliances of the company except MOA and AOA. If any such irregularity occurs due to the
actions of the company then the company itself is responsible as the outsider person has acted in
good faith. As it is assumed that the outsider person has the knowledge of the MOA and AOA, it shall
also be assumed that, the internal compliance has been done by the company. It is the
responsibility of the company to comply all the requirements provided in the in the MOA and AOA,
the outsider person cannot be bound with the responsibility of to inspect the internal matters of the
company. Though, it is obligatory for the outsider person to check whether the contract is in
consistency with the MOA and AOA. If the object of the contract is in accordance with and authorised
by the MOA or AOA of the company, then the outsider person can presume that all the internal
regulations are being completed by the Company.The obligation of the outsider person ends there
and the company becomes responsible for any ultra vires act or any irregularity remained in the
contract. The doctrine of Indoor Management simply states that the indoor affairs of the company are
the company’s difficulty to tackle and company has to bear its consequences. This doctrine is essential
for directors who act on behalf of the companies. Persons contracting with the company can presume
that the acts done by these directors are within their powers and scope. So, any act done by
them in accordance with the MOA or AOA then the outsider person can assume validity of that act as
it is done in their capacity. Both the doctrines have been established maintain the balance between
both the parties to the contract. No party in the contract shall take unfair advantage of its irregular
and illegal actions and it is made sure that the other party shall not suffer by its consequences

7.Prevention of oppression and mismanagement - Sections 241-245 of the Companies Act, 2013 deal
with prevention of oppression and mismanagement within a company. The sections are described in
brief below:Section 241: Application to the Tribunal for relief Section 242: Powers of Tribunal
Section 243: Consequences of termination or modification of certain agreements Section 244:
Right of members to apply for Tribunal Section 245: Class Action

The provisions lay down rules for filing complaint against oppression and mismanagement in the
company. However, the rules are structured in such a technique that they protect the rights of the
minorities without being biased against the majority. It wouldn’t be wrong to conclude that
the Act, along with the courts, tries to balance the Right of Majority while providing protection to the
minority. An application to the tribunal can be made by individuals as well as groups of
people who are of the opinion that oppression or mismanagement has taken place in the internal or
external matters of a company. Moreover, the government itself can make an application to the
tribunal if it believes that a company’s actions are prejudicial to the interest of general public. The
tribunals are bestowed with great responsibility and power to handle such matters. After
critical analysis, it can be ascertained that the Companies Act, 2013 strives to protect minority rights
in a comprehensive and inclusive way. However, it must be ensured that such principles are
implemented in an appropriate method to address the contemporary gaps in the implementation of
the legislation. Methods to inculcate confidence among minority shareholder shall also be devised in
order to obtain the desired results.

power of national company law tribunal -(1) If an application is made under Section 241, and the
Tribunal is of the opinion that-affairs of the Company are being conducted in a manner prejudicial to
the interests of the members ORthat to wind up the Company, would unfairly prejudice such
members,the Tribunal may pass such necessary orders. The orders may provide for conduct
of affairs in the future, reduction in share capital, restriction on transfer of securities, removal of
managerial personnel, recovery of undue gains done by managerial personnel, etc.

Note: A copy of the order passed by the Tribunal should be filed by the Company, with the ROC
within 30 days.The Tribunal may, on the application of any party to the proceeding, make any interim
order which it thinks fit for regulating the conduct of the company’s affairs along with any terms and
conditions, it thinks fit.
 Court --Chapter XVI of the Companies Act, 2013 deals with the prevention of oppression and
mismanagement. The majority rule is normally followed in the company and thereby, courts do not
interfere to protect minority rights. However, prevention of oppression and mismanagement is an
exception to the rule.Section 241 Section 241 states that an application to the Tribunal for relief in
cases of oppression, etc can be made. Any member of the company can file an application under
section 241 subject to fulfilling the requirement under section 244. The complaint can be made when
the company affairs have been conducted in a manner prejudicial to the public interest or against the
company’s interests, or oppressive to a particular member or other members of the company.

Central Government --:1. Any Person Concerned In The Management Of The Company Is Guilty Of
Fraud, Misfeasance, Persistent Negligence, Default In Carrying His Obligations, Breach Of Trust.
2.Sound Business Practices Have Not Been Used 3.The Company Has Been Managed By A Person Who
Is Likely To Cause Damage To The Interest Of Trade And Business To Which The Company Pertains
4.The Company Has Been Managed By A Person Who Intends To Defraud The Creditors, Members, Or
Another Person For A Fraudulent Or Unlawful Purpose Or In A Manner Prejudicial To The Public
Interest. The Central Government may initiate a case against such person and refer him to the
Tribunal and request the Tribunal to enquire into the case. The Tribunal will inquire and record its
decision as to whether such person is fit and proper to manage the company or not.

Unit-2 ; prospectus, share, debentures,and investment.

1.prospectus meaning-- The Securities and Exchange Commission requires that security issuers file a
prospectus when offering investment securities to the public. The prospectus provides details about
the investment/security and the offering. A mutual fund prospectus contains details on investment
objectives, strategies, performance, distribution policy, fees, and fund management. The risks of
the investment are typically disclosed early in the prospectus and then explained in more detail later
in the document.

Definition:-. Definition of prospectus Under Companies Act, 2013The prospectus is described in

Section 2(70) of the Companies Act of 2013; “A prospectus means any document described or issued
as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus
referred to in section 31 or any notice, circular, advertisement or other document inviting offers from
the public for the subscription or purchase of any securities of a body corporate.”

Types Of Prospectus--There are various type of prospectus, some of which are stated below: Shelf
Prospectus: A prospectus issued by any class or companies allowed by SEBI for one or more issuances
of the securities or class of securities mentioned in the prospectus over a certain period of time
without the publication of new prospectuses. The provisions for it have been given in section 31.
Red herring prospectus: A prospectus that lacks comprehensive information about the price or
quantity of the securities is considered a red herring prospectus. Three days or more prior to the
opening of the subscription list, this prospectus must be filed with the Registrar. Deemed
prospectus: Any document by which a company issues or agrees to issue securities with a view to
making such securities available for sale to the public is referred to as the company's deemed
prospectus. Abridged Prospectus: Abridged Prospectus is a type of prospectus that is short on
information about the company. The act states that the abbreviated prospectus must be enclosed
with any form of application for the purchase of any of the company's stocks. However, in two
circumstances—namely, if the securities are not made available to the general public or in the case of
an underwriting agreement—it won't be necessary.Issue of Shares is the process in which companies
allot new shares to shareholders. Shareholders can be either individuals or corporates. The company
follows the rules prescribed by Companies Act 2013 while issuing the shares.

Issues of shares - -Issue of Prospectus, Receiving Applications, Allotment of Shares are three basic
steps of the procedure of issuing the shares. The process of creating new shares is known as
Allocation or allotment. Let us see the two types of shares of a company and the procedure for issue
of shares that a company must follow. When a company wishes to issue shares to the
public, there is a procedure and rules that it must follow as prescribed by the Companies Act 2013.
The money to be paid by subscribers can even be collected by the company in installments if it wishes.
Let us take a look at the steps and the procedure of issue of new shares. Issue of prospectus--
As mentioned above, shelf prospectus can only be issued by companies that are already public. But
that is not the only restriction here. Below is the list of companies that can issue bonds and file a shelf
prospectus. 1.A publicly listed company that has its shares trading on a stock exchange in India. 2.A
public financial institution or PFI. They are companies where the government owns more than 51% of
the shares 3.Public sector banks. 4.Non-banking financial corporations or NBFC 5.The company
should also be eligible to file a shelf prospectus and raise funds through bonds. Below are the
eligibility criteria. 6.The company should have a market value of more than Rs.5000 crores. 7.The
company must have filed an agreement with the SEBI for dematerialising its securities. 8.The
company must ensure that the bonds have a good credit rating. Bonds that are rated AA- are
considered good.

Public Offer--No business can run without funding. Private companies that seek to raise capital
through issuing securities have two options: offering securities to the public or through a private
placement. Regulations on publicly traded securities are subject to more scrutiny than those for
private placements. Each offers capital but the criteria for issuing, ongoing financial reporting, and
availability to investors differ with each type of issue. An initial public offering, or IPO, is the
first issue of security made for sale on the open market. These issues are under regulation by the
Securities and Exchange Commission, and require financial reporting on a regular basis to remain
available for trade by investors.

Going public provides an opportunity to the companies to raise cash for setting up a project or for
diversification/expansion or sometimes for working capital or even to retire debt or for potential
acquisitions. This is called the fresh issue of the capital where the proceeds of the issue go to the
company. Companies also go public to provide a route for some of the existing
shareholders including venture capitalists to exit fully or partially from the company's shareholding or
for promoters to partially dilute their holding. This is called an offer for sale where the proceeds of
the issue go to the selling shareholders and not to the company.

private placement--- Private placement is a tool for raising additional capital, where an offer is made
for the issue of securities to a selected group of people by the Company (other than by way of a
public offer) (Section 42, Companies Act, 2013) Securities here shall mean “shares, scrips, stocks,
bonds, debentures, debenture stock or other marketable securities of a like nature in or of any
incorporated company or other body corporate” as defined in section 2(h) of SCRA, 1956. That is, we
can issue equity (shares) as well as take debt (Debentures) under Private Placement.

2.What is Allotment--Allotment refers to the portion of shares that are allocated to an underwriting
participant during an Initial Public Offering (IPO). Once the underwriting firm has been allotted, the
remaining shares are allocated to the other firms that participated in the same and have won the
right to sell them. Allotment of Shares--Issuer company allows its securities in a span of 60 days
from the date of receiving the application money for such securities and if the company is not able to
allot securities within the given time, it has to refund the application money to the subscribers within
15 days after the completion of sixty days. In case the company fails to repay the application money
within the stated period, it would be liable to refund the money with interest at the rate of 12% per
annum from the expiry of the 60th day.

Return of Allotment for Private Placement of Shares/ Securities

A return of allotment of securities has to be filed with the Registrar in a span of 15 days of allocation
in Form PAS-3 along with a complete list of all the allottees mentioning the following details. The
full name, address, PAN and E-mail ID of the security holder. The class of security held.
The date of allotment of security.

The number of nominal value, securities herd and amount paid on such particulars and securities of
consideration received if the securities were issued for consideration besides cash.

Restrictions on Allotment of Shares: The following restrictions have been prescribed by the
Companies Act regarding allotment of shares:

(a) Minimum Subscription: Sec. 69(1) states that no allotment can be made by the company until
the minimum subscription has been received. (b) Application Money:- Sec. 69(3), however,
lays down that the amount payable on each share with the application form must not be less than 5%
of the nominal value of the shares. (c) Money to be Deposited in a Scheduled Bank: Sec. 69(4)
states that money received from the applicants must be deposited in a Scheduled Bank until the
certificate to commence business has been obtained or until the entire amount payable on
applications for shares in respect of the minimum subscription has been received by the company.
(d) Returns of Money : Sec. 69(5) states that if the minimum subscription has not been raised or if
the allotment could not be made within 120 days from the date of publication of the prospectus, the
directors must return the money received from the applicants. If the money is refunded within 130
days no interest is payable, beyond which the directors are liable to pay interest @ 6% p.a. from the
130th day to the day of repayment.

(e) Statement in lieu of Prospectus: :-. Sec. 70 of the Companies Act states that a public company
which has not issued any prospectus must deliver to the Registrar for registration a statement in lieu
of prospectus signed by every director or proposed director or his agent in the form prescribed in
Schedule III of the Act, at least 3 days before the first allotment of shares. (f) Opening of the
Subscription List:- Sec. 72 lays down that no allotment can be made until the beginning of the 5th
day after the publication of the prospectus or such later time as may be prescribed for the purposes in
the prospectus. (g) Revocation of Application:- Application for shares cannot be revoked until
after the expiration of the 5th day after the time of opening of the subscription list except in one case,
i.e. if any responsible person gives public notice of withdrawal of the consent to the issue of the
prospectus, any applicant can revoke his application

3.Transfer of Shares--Transfer' is an act of the parties, or of the law, by which the title to property is
conveyed from one person to another. It is an act of conveying te or interest in property to another. A
transfer is an act or transaction by which property of one person is by him vested in another. The
term 'transfer' r to convey or pass the right of one person over to another, unless the general
meaning is restricted or limited by something accompanying it as, for example, that the transfer was
for a limited time or for a particular purpose. The word 'transfer' would mean transfer of possession
which is lawful and valid. The 'transferee' is one to whom a transfer is made. The 'transferor' is a
person who makes a transfer.

Shares are movable property. They are prima facie transferable. But they are not negotiable
instruments. As such they cannot be transferred by mere delivery. They can be transferred in the
manner prescribed by the Companies Act and the Articles of the company.

According to Section 44 of the Companies Act, 2013, the shares ordebentures or other interests of
any member in a company shall be movable property, transferable in the manner provided by the
Articles of the company.

Thus, every member of a public limited company has a statutory right to transferhis shares in the
manner prescribed by the Articles of the company. In Re Bahia & San Francisco Rly. Co.. [(1868) 3 QB
584, 595], Blackbur J has held, "when the joint stock companies were established, the great object
was that the shares should be capable of being easily transferred".

In Delavenne v. Broadhurst, [(1931) 1 Ch 234, 238] Bemnet J has held that subject to the company's
Articles, "the shareholders has.............. the right to transfer his shares without the consent of any
body to any transferee. even though he be a man of straw, provided it is a bona fide transaction in the
sense that it is an out and out disposal of the property without retaining any interest in the property".
In Re Discoverers Finance Corpn. Ltd., [(1910) 1 Ch 207] it was held that a transfer made with the
avowed object of escaping liability would be valid in the absence of any collusion between him and
the directors.

Interpretation of Transfer of Shares--Articles 19 to 22 of Para II of Table F of Schedule 1 of the

Companies Act, 2013 provides the interpretation of transfer of shares: 19 (1) The instrument of
transfer of any share in the company shall be or on behalf of both the transferor and transferee
executed by(it) The transferor shall be deemed to remain a holder of the share until the name of the
transferee is entered in the register of members in respect thereof. 20. The Board may, subject to the
right of appeal conferred by Section 58decline to register-(a) the transfer of a share, not being a fully
paid share, to a person of whom they do not approve, or(b) any transfer of shares on which the
company has a lien.

21. The Board may decline to recognise any instrument of transfer unless- (a) the instrument of
transfer is in the form as prescribed in rules madeunder sub-section (1) of Section 56,(b) the
instrument of transfer is accompanied by the certificate of the shares to which it relates, and such
other evidence as the Board may reasonably require to show the right of the transferor to make the
transfer, and(c) the instrument of transfer is in respect of only one class of shares.

22. On giving not less than seven days' previous notice in accordance with Section 91 and rules made
thereunder, the registration of transfers may be suspended at such times and for such periods as the
Board may from time to time determine:Provided that such registration shall not be suspended for
more than thirty days at any one time or for more than forty-five days in the aggregate in any year.

Forfeiture of shares:--When any company allots share to the applicants, it is done on the basis of a
legal contract between the company and the applicant, which makes it binding upon the shareholders
to pay the amount of allotment and calls whenever they are due. Now if any shareholder fails
to pay the allotment and or call money due to him, the shareholder violates the contract and the
company is entitled to take its share back, which is known as forfeiture of shares.

The company can forfeit such shares if authorised by the Articles of Association. Forfeiture of share
can be done according to the rules laid sown in the Articles and if no rules are given in Articles, the
provisions of Table A, regarding forfeiture will apply. Forfeiture of shares means cancellation of
allotment to defaulting shareholders and to treat the amount already received on such shares is not
returnable to him – it is forfeited.

Effect of forfeiture of shares:--section 79 of the Companies Act 1956: The membership of the
defaulting will be terminated and they lose all the rights and interest on those shares i.e. ceases to be
the member / shareholder / owner of the company and his name will be removed from the Register
of Members. Seizure of money paid: The amount already paid on the forfeited shares by the
defaulting shareholders will be seized by the company and in no case will be refunded back to the
shareholder.

Non payment of dividend: When shares are forfeited the shareholder remains no longer the member
of the company therefore he loses the right to receive future dividend. Reduction of share
capital: Forfeiture of shares result in the reduction of share capital to the extent of amount called up
on such shares.

4.Meaning of Debentures--When we define debentures, we see that it is essentially an instrument of

debt issued by companies for borrowing money. Let’s learn more about debentures.Debentures are
the debt of a company. In simpler terms, one can call them loans or debts that different companies
avail themselves of with the motive of raising capital. In terms of validity, they can range from
medium to long-term. After a specific interval (annual, quarterly, or monthly), the holder also receives
a fixed interest rate from the company. In most cases, the company pays off the debenture interest
before paying the dividends. Thus, we see that when there is a need for borrowing money for
expansion, the companies make use of debentures. Now, let’s learn more about debentures, their
types, and their pros and cons.

Define Debentures--The term debenture has its origin in the Latin word ‘debere’. The meaning of
‘debere’ is to borrow. It is an instrument that a lender, like a bank, uses for offering capital to a
company or individual. As a result, the lender is able to secure loan repayments against the assets of
the borrower. Thus, a debenture is a bond that a company issues under its seal.

fixed charge --In the case of fixed charge debentures, the lender retains full control over the
borrower's assets as security. If the company wants to sell this asset, they will have to get the lender’s
permission or first pay off any outstanding debt. Hence, a fixed charge debenture ranks ahead of
unsecured creditors in the case of insolvency. More often than not fixed-charge debentures are used
by business owners for their short-term borrowing needs, where assets such as plant and machinery
are put forward as collateral for the loan. Collateral is required, in this case, as there is no other
security in place against the loan.

Let’s take an example of a property development company that wants to raise capital for a new
building project. To access a fixed charge debenture, the developer will need to put forward a
separate house or apartment for security. The lender, in this case, would prohibit the selling of this
asset until the loan is repaid in full. Once the loan is repaid, the developer will take back full control of
the asset. If the developer uses a limited company to trade and the company becomes insolvent due
to cash flow issues, the lender can allow the developer to sell the asset to repay the loan, alternatively,
they could take control of the asset themselves and sell it to cover monies owed.

floating charge--In contrast, a floating charge debenture is linked to all assets (current or future). This
type of debenture gives the borrower the opportunity to continue trading with the assets in question,
or to sell them. Floating charge debentures are favoured by businesses with little or no capital,
allowing them to secure funds and also trade without any restrictions. Floating charges are often used
for intellectual property and shares.

The charge will only apply if the agreement that sits with the registrar of companies is breached,
usually when a payment has been missed or the company has been passed over to an insolvency
practitioner. Once the agreement has been broken, the floating charge crystalises and becomes a
fixed charge on the assets. Henceforth, the borrower can no longer trade with these assets in the
normal course of business, and cannot sell without prior permission from the lender.

Kinds Debentures--Secured debentures: The assets of the issuing company are essentially held as
collateral to encourage payment to its creditors. The charge may be floating or fixed. A floating
charge is applied to the general assets, while a fixed charge is applied to a specific asset. Unsecured
debentures: There are no assets held as additional security.

Redeemable debentures: Payable at the end of a specific period or through installments

Irredeemable debentures: The business pays a specific interest rate regularly but provides no data on
when principal will be returned.

Convertible debentures: Debentures that are convertible into shares or any other form of security
that are exercised by option of the company or the holder

Subordinate debentures: Will be repaid after some other privileged debt has been satisfied

Convertible subordinate debentures: Is subordinate or subject to the prior repayment of other

outstanding debts but which can convert into another type of security i. Specific interest rate
debentures: Issued with a specific interest rate ii. Zero-interest rate debentures: Do not carry a
specific interest rate iii. Registered debentures: All details of the debenture holder are entered in
a register that's kept by the company. iv. Bearer debentures: The company doesn't keep a record
of the debenture holder. Therefore, the debenture can be transferred by way of delivery. v. Sinking
debentures: The repayment is secured because the company is making systematic payments into a
sinking fund.

remedies available for a debenture :- In case of unsecured debentures, the holder is an ordinary
unsecured creditor. If the company defaults in the payment of principal or interest he may: i) Sue for
the principal or interest and after judgment levy execution against the company; or ii) Petition for
the winding up of the company by the court. If the company is already in the course of winding up, he
may prove for the amount due to him.

A secured debenture-holder stands in a stronger position as compared to unsecured debenture-

holder. In addition to the above, two remedies available to unsecured debenture-holder, he can
exercise the following remedies: 1. Sale:- -If the debenture-holder is the holder of a single debenture
giving a charge on the assets of the company, he will have an express or implied power of sale. If
there is a trust deed, the trustees have power to sell the property of the company. Any surplus of the
proceeds of sale after payment of debts due to debenture-holders is payable to the company. 2.
Debenture-holder Action:- -When a company commits default in payment of debts, a debenture-
holder may bring an action against the company to obtain payment and to enforce the security. This is
a debenture-holders action. He may sue on behalf of himself and all other debenture-holders. Where
there are separate actions brought by several debenture-holders, the court may consolidate them.
3. Appointment of receiver:-- The debenture-holders or the trustees may appoint a receiver or
manager to take charge of the assets subject to the charge provided they are so empowered. If they
lack the power, they may apply to the court for an appointment. In either case the fact of
appointment must be brought to the notice of the registrar within 30 days. :4. Foreclosure:- A
debenture-holder may apply to the court for foreclosure which may extend even to the uncalled
capital of the company. However, for its proper exercise it is necessary for all the debenture-holders
of every class to be parties to the action. 5. Valuation of security and proof of balance:- If the
company is being wound up and his security is insufficient, the debenture holder may value his
security and prove for the balance of his debt or give up his security and prove for the whole debt. In
case a debenture-holder owes a debt to the company, he cannot set off his debt against the
debenture

.5 Investment in other companies, purchase by company share etc of other companies ., :- (1) The
general reserves of any Producer Company shall be invested to secure the highest returns available
from approved securities, fixed deposits, units, bonds issued by the Government or co-operative or
scheduled bank or insuch other mode as may be prescribed

(2) Any Producer Company may, for promotion of its objectives acquir the shares of another Producer
Company.

(3) Any Producer Company may subscribe to the share capital of, or enter into any agreement or
other arrangement, whether by way of formation of its subsidiary company, joint venture or in any
other manner with any body corporate, for the purpose of promoting the objects of the Producer
Company by special resolution in this behalf.(4) Any Producer Company, either by itself or together
with its subsidiaries.may invest, by way of subscription, purchase or otherwise, shares in any
othercompany, other than a Producer Company, specified under sub-section (2), orsubscription of
capital under sub-section (3), for an amount not exceeding thirty

per cent of the aggregate of its paid-up capital and free reserves:

Provided that a Producer Company may, by special resolution passed in its general meeting and with
prior approval of the Central Government, invest in excess of the limits specified in this section.

(5) All investments by a Producer Company may be made if such investments are consistent with the
objects of the Producer Company
(6) The Board of a Producer Company may, with the previous approval of Members by a special
resolution, dispose of any of its investments referred to in sub-sections (3) and (4).

(7) Every Producer Company shall maintain a register containing particulars of all the investments,
showing the names of the companies in which shares have been acquired, number and value of
shares, the date of acquisition, and the manner and price at which any of the shares have been
subsequently disposed of

(8) The register referred to in sub-section (7) shall be kept at the registered office of the Producer
Company and the same shall be open to inspection by any Member who may take extracts therefrom.

Penalty -- - (1) If any person, other than a Producer Company registered under this Chapter, carries on
business under any name which contains the words "Producer Company Limited", he shall be
punishable with fine which may extend to ten thousand rupees for every day during which such name
has been used by him.

(2) If a director or an officer of a Producer Company, who wilfully fails to furnish any information
relating to the affairs of the Producer Company required by a Member or a person duly authorised in
this behalf, he shall be hable to

imprisonment for a term which may extend to six months and with fine equivalent to five per cent of
the turnover of that Company during the preceding financial year (3) If a director or officer of a
Producer Company-

(a) fails to hand over the custody of books of account and other documents or property in his custody
to the Producer Company of which he is a director or officer, or

(b) fails to convene annual general meeting or other general meetings, he shall be punishable with
fine which may extend to one lakh rupees, and in the case of a continuing default or failure, with an
additional fine which may extend to ten thousand rupees for every day during which such default or
failure continues.

Corporate Loans and Investments Under Companies Act, 2013

Section 186(2) of the Act states how a company can give loans and guarantees to other companies
and body corporates. It states a company can directly or indirectly:

Give loan to any other body corporate.

Provide security or give a guarantee in connection with a loan given to any other body corporate.

Acquire securities of other body corporates by way of purchase, subscription or otherwise.

However, a company can give loans, guarantee and acquire securities of up to 60% of its paid-up
share capital, securities premium account and free reserves or 100% its securities premium account
and free reserves, whichever is more.

Section 186(1) of the Act provides that a company can make investments only through more than two
layers of investment companies, except for the following:

For acquiring any other company incorporated outside India when such other company has
investment subsidiaries beyond two layers according to the laws of such country.

Subsidiary company from obtaining any investment subsidiary for meeting the requirements under
law or under a regulation or rule framed under the law for the time being in force.

Unit 3 Directors

3.1 Introduction-Directors are the person appointed to direct and supervise the affairs of a company
under Section 2 subsection 34 of the company’s act defines “A director as any person appointed to
the board of a company. Further, Director means any person occupying the position of a director by
whatever name called thus a person will be deemed to be a director if he performs the functions of a
director though he may be named differently.

Meaning and Definition of Director- The highest authority that controls the management and
working of the company is known as the director.

‘Director’ is defined under section 2(34) of the Companies Act, 2013, which states a director is a
person appointed to the board of the company. This means that any person who is not appointed to
the board of the company is not a director.

‘Board’ or ‘Board of Directors’ of a company is defined under section 2(10) of the Companies Act,
2013, which means a collective body of company directors.

Types of Directors in a Company :- A company has different types of directors, and all of them have
different roles in the company. Let’s study about all the directors one by one.

1.Managing Director-Managing director is a person who has substantial powers of management of

the company. He is given this power by the articles of the company, agreement with the company,
passing resolution in the general meeting of the company, or by the board of directors.

2.Independent Director--A person becoming the independent director of the company must fulfil
certain criteria given under section 149(6) of the Companies Act, 2013, which states that an
independent director is a person other than managing director, whole-time director, or nominee
director, and:

I-He must have relevant experience and should be a person of integrity as per the board.
II-A person appointed as an independent director shall not be a promoter of the same company or
any other company which is the holding, subsidiary, or associate company of the same company in
which he has been appointed.

3.Small Shareholders Director--As per the Companies Act, 2013, a small shareholder means a
shareholder holding shares of the nominal value of Rs. 20,000 or less.

4.Women Director--Every listed company, and every other public company having a turnover of Rs.
300 crore or more and paid-up share capital of Rs. 100 crore or more must appoint at least one
women director in the company.

5.Additional Director--The board of directors has the power to appoint additional directors if required
by the company. If a person has not been appointed as an additional director in the general meeting,
then he or she will not be appointed as an additional director of the company.

6.Alternate Director--If the existing director of the company is not present in India for the last three
months, then the company shall appoint an alternate director in his place.

7.Nominee Director--The nominee director is not appointed or removed by the company. He is

appointed by the financial institution, by an agreement, by the Government, or by any other person in
order to represent his interest in the company.

8.Executive Director

An executive director is the company’s full-time working director. They are in charge of the company’s
activities and have a higher level of accountability. During their operations in the company, they must
be attentive and cautious.

9.Non-executive Director

A non-executive director is not involved in the day-to-day operations of the company. They may take
part in the planning or policy-making process, challenging the executive directors to make decisions
that are in the company’s best interests.

Legal Positions of the Directors--Directors are the persons duly appointed by the company to direct
and manage the affairs of the company. They are sometimes described as agents, trustees,
employees, managing partners, and so on but each of these expressions is used not as exhaustive of
their powers and responsibilities but as indicating useful points of view from which they may for the
moment and the particular purpose be considered.

Appointment of a Director-- 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.

Conditions for Appointing Directors

The following conditions are applicable when appointing a director:He or she should have completed
twenty-five (25) years of age, but be less than the age of seventy (70) years. However, this age limit is
not applicable if the appointment is approved by a special resolution passed by the company in
general meeting or the approval of the Central Government is obtained.

They should be a managerial person in one or more companies and draws remuneration from one or
more companies subject to the ceiling specified in Section III of Part II of Schedule XIII.

He or she should be a resident of India. ‘Resident’ includes a person who has been staying in India for
a continuous period of not less than twelve (12) months immediately preceding the date of his or her
appointment as a managerial person and who has come to stay in India for taking up employment in
India or for carrying on business or vocation in India.

Removal of Director -Section 169 governs removal of a Director. A company may, by ordinary
resolution, remove a director, after giving him a reasonable opportunity of being heard, Such
resolution, to remove a director under this section, or to appoint somebody in place of a director so
removed, at the meeting at which he is removed shall have an attachment as a Special Notice which
shall lay down the reasons for removal and any written representations made by the Director. The
Board/ shareholders calling the meeting shall provide the Director, proposed to be removed, an
opportunity to be heard on the matter.

Conclusion--A company must have a total of 15 directors, but there are different types of directors
that a company must have depending upon the requirements and provisions of the Companies Act,
2013.

3.2 board of directors in a company construction

The term “director” is defined under Section 2 (34) of the Companies Act 2013 as “a director
appointed to the Board of a company,” where “Board of Directors” or “Board” in relation to a
Company refers to the collective body of the firm’s directors. According to Chapter XI, Section 149 of
the Companies Act 2013, every company must have a Board of directors, the composition of which
should be as follows:-Public Company: A minimum of three and a maximum of fifteen directors should
be appointed. Also, at least one-third of the directors must be independent.

Private Company: Minimum of two and a maximum of fifteen directors are required for a private
company.

One Person Company (OPC): A minimum of one director must be appointed.

Powers of the directors of a company

Most corporations have not included a separate article or passed a resolution stating that directors do
not have the authority to conduct certain tasks. However, the Act requires a resolution at a general
meeting to specify this sort of power. The following decisions should be taken by the directors, but
generally also requires shareholder approval through a resolution:

Loans to the directors

Fixed-term employment contracts of directors for more than two years.

Significant property transactions in which the directors have a personal stake.

The issuance of the shares.

The directors are granted the above-mentioned powers collectively. Actually, the board is to delegate
authority to the concerned director in order to do this. This is permitted by both the Model Articles
and Table A of the Act.

Restrictions on the powers of Board of Directors:

According to section 179(3), the following powers can be exercised by the board of directors on
behalf of the company by means of a resolution passed at the meetings of the board: - 1.Making
calls on shareholders with respect to money unpaid on their shares. 2.Authorizing buyback of
securities under section 68. 3.Issuing securities, debentures, in or outside India. 4.To borrow
monies. 5.To invest fund of the company. 6. To grant loans or to give guarantee or provide
security in respect of loans. 7.Approving financial statement and board’s report. 8.To diversify
the business of the meeting. 9.Approving amalgamation, merger, and reconstruction.
12.Taking over a company or acquiring control or substantial stake in other companies. 13.Any
other matter which may be prescribed.

Duties of director towards company--Following duties of directors have been specified in section 166
of Companies Act, 2013.

Director to act according to Articles – Subject to the provisions of this Act, a director of a company
shall act in accordance with the articles of the company – section 166(1) of Companies Act, 2013.

Director to act in good faith and in interest of all stakeholders – A director of a company shall act in
good faith in order to promote the objects of the company for the benefit of its members as a whole,
and in the best interest of the company, its employees, the shareholders, the community and for the
protection of environment – section 166(2) of Companies Act, 2013.

Exercise due diligence, care and independence – A director of a company shall exercise his duties
with due and reasonable care, skill and diligence and shall exercise independent judgment – section
166(3) of Companies Act, 2013.
No conflict of interest with company – A director of a company shall not involve in a situation in
which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the
interest of the company – section 166(4) of Companies Act, 2013.

No undue gains or advantages – A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives, partners, or associates. If such director is
found guilty of making any undue gains, he shall be liable to pay an amount equal to that gain to the
company – section 166(7) of Companies Act, 2013.

Not to assign his office – A director of a company shall not assign his office and any assignment so
made shall be void – section 166(6) of Companies Act, 2013.Punishment for not discharging the duties
– If a director of the company contravenes the provisions of this section, such director shall be
punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh
rupees – section 166(7) of Companies Act, 2013

Liability of Directors--Directors of non-profit corporations, like directors of business corporations, are

largely shielded from personal liability. In most instances they have no obligation to pay any debt or
liability incurred by a corporation. The corporation itself is a separate legal body and is responsible for
the corporation’s own debts and obligations. This is one of the advantages of incorporating. Directors
can become liable for an obligation if the directors themselves agree to be responsible, for example
by giving something like a personal guarantee for a loan.

Statutory Liabilities--Although directors are generally shielded from personal liability, there are some
exceptions and instances where directors may be personally liable for obligations that the corporation
fails to perform.

Civil Liability--In general directors are not personally liable for damages if someone sues because they
have been harmed by something the director did or did not do.

3.3Kinds Meetings--Under the Companies Act, 2013, Company meetings can be classified as under:1.
Meetings of Shareholders:(a) Statutory Meeting(b) Annual General Meetings (AGM)(c) Extraordinary
General Meetings (EGM)

2. Meetings of the Directors(a) Board meeting (b) Committees meetings

3. Special Meetings(a) Class Meetings.(b) Creditors and of Debenture/bond holders meetings

The following picture shows the different types of company meetings

01. Shareholders Meetings :-. The meeting held with the shareholders of the company is called
shareholders meeting. The shareholders meeting can be classified as statutory meeting, annual
general meeting and extra ordinary general meeting
a) Statutory Meeting :-. According to Companies Act, every public company, should hold a meeting
of the shareholders within 6 months but not earlier than one month from the date of commencement
of business of the company. This is the first general meeting of the public company is called the
Statutory Meeting. This meeting is conducted only once in the lifetime of the company. A
private company or a public company having no share capital need not conduct a statutory meeting.
The company gives the circular to shareholders before 21 days of the meeting. b) Annual
General Meeting [AGM] :- Every year a meeting- is held to transact the ordinary business of the
company. Such meeting is called Annual General Meeting of the company (AGM). Company is bound
to invite the first general meeting within eighteen months from the date of its registration. Then the
general meeting will be held once in every year. The differences between two general meetings
should not be more than fifteen months. Every Annual General meeting shall be held during business
hours, on a day which is not a public holiday, at the Registered- Office of the company or at some
other place within the town or village where the Registered Office is situated. AGM should be
conducted by both private and public Ltd companies.

c) Extra-Ordinary General Meeting :-. Both Statutory meeting and annual general meetings are
called as ordinary meetings of a company. All other general meetings other than statutory and annual
general meetings are called extraordinary general meetings. If any meeting conducted in between
two annual general meeting to deal with some urgent or special or extraordinary nature- of business
is called as extra-ordinary general meetings. 02. Meeting of the Directors :- Since the
administration of the company lies in the hands of the board of directors, they should meet
frequently for the proper conduct of the business and to decide policy matters of the company. a)
Board Meetings :- Meetings of directors are called Board Meetings. Meetings of the directors
provide a platform to discuss the business and take formal decisions. First meeting of directors should
be convened within 30 (Thirty) days from the date of incorporation of the company. b) Committee
Meetings :- Every listed company and every other public company having paid up share capital of
₹10 crore is required to have audit committee. This committee should meet at least four times in a
year. In case of other companies, the board of directors shall nominate a director to play the role of
audit committee which is functioning as a vigil mechanism.

03. Special Meeting

a) Class Meeting (Meetings of Particular Share or Debenture Holders)

Meetings, which are held by a particular class of share or debenture holders e.g. preference
shareholders or debenture holders is known as class meeting. The debenture holders of a particular
class conduct these meetings. These meetings are held according to the rules and regulations laid by
the Trust Deed or Debenture Bond, from time to time, where the interests of the debenture holders
play vital role at the time of re-organisation, reconstruction, amalgamation or winding-up of the
company.
b) Meetings of the Creditors :- Strictly speaking, these are not meetings of a company. Unlike the
meetings of a company, there arise situation in which a company may wish to arrive at a consensuses
with the creditors to avoid any crisis or to evolve compromise or to introduce any new proposals.
Procedure and Requisites of a Valid Meeting: :- A meeting is valid provided all the requisites of a
valid meeting are present.Broadly, the requisites are divided into three groups: (1) A meeting must be
properly convened or called, (2) The meeting must be properly constituted and (3) A meeting shall
be properly conducted.It has to be noted that the decisions shall be binding provided the meeting is
valid and in addition the decision has been properly taken. A decision improperly taken at a valid
meeting cannot be implemented. Further, minutes containing the decisions shall be prepared and
confirmed otherwiseit is difficult to enforce the decisions, if challenged. (A) A Meeting must be
Properly Convened or Called:. A meeting is said to be properly convened or called when the
following conditions are fulfilled: (1) A notice containing all the details required, has been sent to
every person entitled to attendthe meeting. The details are:. (a) The date, time and place of the
meeting,. (b) The agenda or the items to be discussed at the meeting in a serial order;. (c) Date of the
notice;. (d) Signature of a competent person calling the meeting. (d) Additional information, if any
(for example, explanatory notes to a special business required in anotice of annual general meeting of
a company),. (e) Any enclosure required to be sent (for example, a copy of final accounts together
with the noticeof annual general meeting)... (2) The Notice is sent With in Proper Time: There are
specific rules with regard to that proper time. For example, a notice for any members! meeting of a
company must be sent at least twenty-one days before the meeting. (3) The notice is sent to
the recorded address of the person entitled to receive the notice. The notice may be sent by ordinary
post. Under exceptional cases notice can be given over the telephone. Thenotice may be sent by a
messenger.

(B) A Meeting must be Properly Constituted: A meeting shall be properly constituted or the
gathering is valid and competent to takedecisions if the following conditions are fulfilled: (1) The
quorum or the required minimum number of persons must be present in person. The quorum shall
preferably be continuously present. (2) There must be a Chairman who is duly elected at the
meeting or already elected. He must be a person competent to be the Chairman. 3.4 Resolution--
As per the Companies Act 2013, for taking any decision or executing any transaction, the consent of
the shareholders, the Board of Directors and other specified is required. The decisions taken at a
meeting are called resolutions. In other words a motion, with or without the amendments which is
put to vote at a meeting and passed with the required quorum becomes resolution.

01. Kinds of Resolution--There are broadly three types of resolutions, namely ordinary resolution,
special resolution and resolution requiring special notice.

a) Ordinary Resolution::- An ordinary resolution is one which can be passed by a simple majority.
i.e. if the members of votes cast by members, entitled to vote in favour of the resolution is more than
the votes cast against the resolution. Ordinary Resolution is required for the following
Matters(i) To change or rectify the name of the company(ii) To alter the share capital of the
company(iii) To redeem the debentures(iv) To declare the dividends(v) To approve annual accounts
and balance sheet(vi) To appoint the directors(vii) To increase or decrease the number of directors
within the limits prescribed(ix) To remove a director and appoint another director in his place(x) To
make inter corporateinvestment, within the limits(xi) To approve voluntary winding up if the articles
authorise(xii) To fill up the vacancy in the office of liquidator, etc.,

b) Special Resolution :- A special resolution is the one which is passed by a not less than 75% of
majority. The number of votes, cast in favour of the resolution should be three times the number of
votes cast against it. The intention of proposing a resolution as a special resolution must be
specifically mentioned in the notice of the general meeting.

Special Resolution is required for the following Matters

(i) To change the registered office of the company from one state to another. (ii) To change the
objectives of the company. (iii) To change the name of the company. (iv) To alter the Articles of
Association. (v) To reduce the share capital subject to the confirmation of the court. (vi) To
commence any new business. (vii) To appoint the auditor for the company (viii) To appoint the sole
selling agents in specified cases. (ix) To determine the remuneration of the Director and the Managing
Director

c) Resolution requiring Special Notice: :- There are certain matters specified in the Companies
Act, 2013 which may be discussed at a general meeting only if a special notice is given at least 14 days
before the meeting.The intention to propose any resolution must be notified to the company. The
following matters require special notice before they are discussed in the meeting:-. (i) To appoint an
auditor, a person other than a retiring auditor (ii) To provide expressly that a retiring Auditor shall not
be reappointed (iii) To remove a director before the expiry of his period of office (iv) To appoint a
director in the place of a director so removed

Unit 4 winding up

1.Types Of winding --company may be wound up whether it is solvent or insolvent. Two types of
winding up exist: voluntary winding up and compulsory winding up. Voluntary winding up--A
voluntary winding up is commenced by the passing of a special resolution by the shareholders
(Insolvency Act 1986, s 84(1)(b)). A voluntary winding up will be:image a members’ voluntary winding
up, if a statutory declaration of solvency (that they are of the opinion that the company will be able to
pay its debts in full within a specified time of no more than 12 months) has been made by the
directors in accordance with s 89; orimage a creditors’ voluntary winding up, if no such statutory
declaration has been made (s 90), or, if a declaration of solvency has been made but, subsequently,
the liquidator disagrees with the declaration and is of the opinion that the company will be unable to
pay its debts in full within the specified period (s 96). compulsory liquidation or compulsory winding
up. The winding up of a company by order of the court
Compulsory winding up--A compulsory winding up is commenced by presentation of a petition to the
court followed by an order of the court (Insolvency Act 1986, ss 122 and 124). The winding up is
deemed to have commenced at the time of presentation of the petition, i.e. earlier than the date of
the order (s 129(2)). The principal grounds on which a company may be wound up by the court
are:image the company is unable to pay its debts (s 122(1)(f)); image the court is of the opinion that
it is just and equitable that the company should be wound up (s 122(1)(g). Creditors typically
present a petition seeking a winding up on the first ground whereas minority shareholders typically
seek a winding up on the second ground.

Ground for winding up--1. The company itself has, by a special resolution of the members
(subscribers or shareholders), resolved that the company be wound up by the Court; 2.the
company does not commence its business within a year from its date of incorporation, or suspends its
business for a whole year; 3.the company has no subscriber or no shareholder;
4.the company is unable to pay its debts;

5.an event occurs on the occurrence of which the company's memorandum or articles of association
provides that the company is to be dissolved; or

6.the Court is of an opinion that it is just and equitable (reasonable) to do so. A winding-up order
may also be made if it is proved that the affairs of the company have been conducted in a manner
unfairly and prejudicial to the interest of some shareholders of the company, or its shareholders
generally. In considering these grounds, the Court will usually take into account the
circumstances of the company including whether it is insolvent and whether there is an alternative
solution to the dispute, such as buying out the shares of a disgruntled/dissatisfied shareholder.

procedure for Winding up a company :-. 1. A Petition presented by the company shall be admitted
only if accompanied by a statement of affairs, whereas if filed by any person other than the company,
the Tribunal on being satisfied that a prima facie case for winding up of the company is made out,
shall by an order direct the company to file its objections along with a statement of its affairs within
30 days of the order. 2. Within 90 days from the date of presentation of the petition, the
tribunal may pass any of the following orders- Dismiss it, with or without costs; Make any interim
order as it thinks fit; Appoint a provisional liquidator of the company till the making of a
winding-up order; Make an order for the winding-up of the company with or without costs; Any
other order as it thinks fit. 3. The Tribunal at the time of the passing of the order of winding
up, shall appoint an Official Liquidator or the Liquidator from amongst the Insolvency Professionals
registered under the Insolvency and Bankruptcy Code, 2016 as the Provisional Liquidator or the
Company Liquidator who shall entirely be responsible for the conduct of the proceedings for the
winding up of the company.

Dissolution of a Company-I. Introduction:--A company is said to be dissolved when it is ceased to be

exist as a corporate entity. After dissolution, the company’s name must be struck off from the
Registrar from the Register of Companies. The owner of the company must publish about the
dissolution of the company in the Official Gazette. In simple words, we can say that after the
dissolution the label of a company puts to an end . After the process of dissolution , the company is
ceased to carry on its business. Management affairs shall we withdraw from the director’s hands.
After this, an administrator called liquidator is appointed who takes the control of the entire company
in his hands.

II.Meaning of Dissolution of Company:--The dissolution of a company is the last stage after the
process of winding up by a liquidator. The process of dissolution of a company resulted in the
termination of a legal entity from the company. It is the last process of closure of a company. In this
process, A company comes to an end and all the acids and the property of the company get
redistributed. The affairs of the company gets also terminated after the dissolution of a company

III. Sec 481-Companies Act, 2013

Dissolution of the company:- (1) When the affairs of a company have been completely wound up or
when the Court is of the opinion that the liquidator cannot proceed with the winding up of a company
for want of funds and assets or for any other reason whatsoever and it is just and reasonable in the
circumstances of the case that an order of dissolution of the company should be made, the Court shall
make an order that the company be dissolved from the date of the order, and the company shall be
dissolved accordingly. (2) A copy of the order shall; within thirty days from the date thereof, be
forwarded by the liquidator to the Registrar who shall make in his books a minute of the dissolution of
the company. (3) If the liquidator makes default in forwarding a copy as aforesaid, he shall be
punishable with fine which may extend to five hundred rupees for every day during which the default
continues. Liquidator-- On a winding up order being made, the official liquidator, by virtue of his
office, becomes the liquidator of the company (Sec. 449). Where the official liquidator becomes or
acts as liquidator, there shall be paid to the Central Government out of the assets of the company
such fees as may be prescribed. A liquidator shall be described by the style of "The official
liquidator" of the particular company in respect of which he acts and not by individual name [Sec.
452]. 2.Powers of Liquidators :- Section 35 of the Code enumerates the Powers and Duties of
the Liquidator which includes the following:- to verify claims of all the creditors and consolidate
them; to take into his custody or control all the assets, property, effects and actionable claims of
the corporate debtor; to evaluate the assets and property of the corporate debtor in the manner
and prepare a report; to take such measures to protect and preserve the assets and properties of
the corporate debtor; to carry on the business of the corporate debtor for its beneficial
liquidation; to obtain any professional assistance, in the discharge of his duties, obligations and
responsibilities; to invite and settle claims of creditors and claimants and distribute proceeds in
accordance with the provisions of this Code; to institute or defend any suit, prosecution or other
legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor; to investigate
the financial affairs of the corporate debtor to determine undervalued or preferential transactions;
to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document,
application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if
any, as may be necessary for liquidation, distribution of assets and in discharge of his duties and
obligations and functions as liquidator; to apply to the Adjudicating Authority for such orders
or directions as may be necessary and to report the progress of the liquidation process in a manner as
may be specified by the Board; and to perform such other functions as may be specified by the
Board.

Power of Court to winding up.:-. (1) The Court may at any time after making a winding up order, on
the application either of the Official Liquidator or of any creditor or contributory, and on proof to the
satisfaction of the Court that all proceedings in relation to the winding up ought to be stayed, make
an order staying the proceedings, either altogether or for a limited time, on such terms and
conditions as the Court thinks fit. (2) On any application under this section, the Court may, before
making an order, require the Official Liquidator to furnish to the Court a report with respect to any
facts or matters which are in his opinion relevant to the application. (3) A copy of every order
made under this section shall forthwith be forwarded by the company, or otherwise as may be
prescribed, to the Registrar, who shall make a minute of the order in his books relating to the
company.

3.liability Past members:. ‘Past member’ includes those persons whose shares have been
forfeited, surrendered, cancelled or transferred but who had held shares at any time within one year
preceding the winding up of the company. past member shall not be liable to contribute:

(a) If he has ceased to be a member for one year or upwards before the commencement of the
winding up, or. (b) The debts or any liability of the company was contracted for after he ceased
to be a member, or ADVERTISEMENTS:(c) Unless it appears to the court that the present members are
unable to make sufficient contribution towards the amounts due on them and which are required for
the payment of liabilities (Sec. 426).

In no case a member of a company, whether past or present, shall be asked to contribute any sum
beyond

the amount of the unpaid part of the nominal value of the shares subscribed by him or the amount he
had guaranteed to pay in the event of a winding up. There will be no limit to the liability of the person
to contribute whose liability is unlimited.p

Payment of liabilities -- Payment Liabilities means all Liabilities (other than contingent obligations of a
Borrower with respect to which neither any Agent nor any Lender has asserted a claim against such
Borrower or against which such Borrower has provided reserves or Collateral satisfactory to such
Agent or such Lender); provided, that Payment Liabilities shall include the Bankers' Acceptance
Obligations and the Letter of Credit Obligations. Payment Liabilities means all Liabilities
other than (i) contingent obligations of Borrower with respect to which none of Agent, Issuer nor any
Lender has asserted a claim against Borrower, and (ii) non-monetary obligations of performance;
provided, that Payment Liabilities shall include the Letter of Credit Obligations.

Examples of Payment Liabilities in a sentence Period Government Demand Savings Time Total
Liabilities From BOJ Institutions Payment Liabilities Total 2004Mar. The above Term Loans and
interest due thereon have been paid upto date and there are no continuing defaults.Deferred
Payment Liabilities (Unsecured) :Deferred Sales Tax CreditLess: Current maturities of long-term debt1.
Period Government Demand Savings Time Total Liabilities From BOJ Institutions Payment Liabilities
Total 2003Jan.

preferential payment--A payment (or a transfer of assets) is said to be given preference when it
benefits one creditor to the detriment of others who have equal rights to be repaid. The preference
might be given to the timing of the payment as well as to the value. For example, a director
who suspects that the company may shortly become insolvent might: 1.repay a loan to a
person connected to the company, such as another director, or his or her wife (a possible shadow
director) 2.pay a supplier in order to maintain or to create goodwill in a personal or business
relationship that might continue post-insolvency 3.repay a debt (such as the company’s
overdraft facility) that is secured with a personal guarantee by the director 4.sell back at the
purchase price surplus stock to a supplier to whom payment is owed 5.return goods that have
been delivered but not paid for 6.release a guarantee, or have a debt secured.

The payment also has to be 'influenced by a desire'. In other words, there must be a motivation.
The issue here is that desire is subjective and difficult to prove. While the circumstances may suggest
desire, sometimes it is necessary to choose the better of two undesirable choices. If there are proper
commercial considerations to justify the payment then it is not said to be influenced by a desire.
It is useful at this point to be reminded about the responsibilities of a director when a company
becomes insolvent.

Unclaimed Dividend--Share in profits made by a company distributed to every shareholder is termed

a dividend. Quantity and quality of Dividends are decided and declared by the Board of Directors.
There can be a final or interim Dividend, where the final is declared at the end of the financial year,
and the Dividend declared on a quarterly or half-yearly basis is an interim Dividend. Dividends are
paid on a pre-determined date; if declared Dividends are not paid until the pay-out date, it is called
Unpaid Dividends.

A dividend paid by the company but not yet claimed or taken by the shareholder is called an
Unclaimed Dividend. It is paid by the company on demand and is a liability for the company.

Provisions of Unpaid Dividend Account: Once dividend transferred in Dividend Account but not has
not been claimed by the shareholder within 30 days of declaration of dividend. The Company shall
transfer such unpaid amount within 37 days from the date of declaration in a special account ‘Unpaid
Dividend Account’. The company shall, within a period of ninety days of making any transfer of an
amount under sub-section (1) to the Unpaid Dividend Account. 4. winding up of
unregistered company :- Subject to the provisions of this Part, any unregistered company may und
up under this Act, in such manner as may be prescribed, and all the s of this Act, with respect to
winding up shall apply to an unregistered pany, with the exceptions and additions mentioned in sub-
sections (2) to No unregistered company shall be wound up under this Act voluntarily (3) An
unregistered company may be wound up under the following sances, namely. (a) if the company
is dissolved, or has ceased to carry on business, or iscarrying on business only for the purpose of
winding up its affairs. (b) if the company is unable to pay its debts. (c) if the Tribunal is of
opinion that it is just and equitable that the company should be wound up (4) An unregistered
company shall, for the purposes of this Act, be deemed the unable to pay its debts- :-. (a) if a creditor,
by assignment or otherwise, to whom the company is indebted in a sum exceeding one lakh rupees
then due, has served on the company, by leaving at its principal place of business, or by delivering to
the secretary, or some director. manager or principal officer of the company, or by otherwise serving
in such manner as the Tribunal may approve or direct, a demand under his hand requiring the
company to pay the sum so due, and the company has, for three weeks after the service of the
demand, neglected to pay the sum or to secure or compound for it to the satisfaction of the creditor.
(b) if any suit or other legal proceeding has been instituted against any member for any debt or
demand due, or claimed to be due, from the company, or from him in his character as a member, and
notice in writing of the institution of the suit or other legal proceeding having been served on the
company by leaving the same at its principal place of business or by delivering it to the secretary, or
some director. manager or principal officer of the company or by otherwise serving the same in such
manner as the Tribunal may approve or direct, the company has not, within ten days after service of
the notice,-. (1) paid, secured or compounded for the debt or demand. 2.procured the suit or
other legal proceeding to be stayed 5.Voluntary Winding Up By members and Creditors :-.
Section 500 to 509 of the Companies Act provides for the voluntary winding up by creditors. Under
this winding up the creditors play a central role in winding up proceedings and in fact, they rule over
the proceedings and are also helpful for it. This proceeding of winding up is initiated in the case when
the company is unable to pay the debts and the board of directors is not in the position to declare the
exact liability of the company towards the creditors. In the member’s voluntary winding up,
it is stated that the directors should make a declaration of solvency before 5 weeks from the date of
such a General Meeting in which the resolution for winding up is to be passed. If the
directors are unable to make such declaration of solvency within the specified time, the winding-up
shall be known as the creditor’s voluntary wind-up and the procedure for it should be followed
according to the provisions provided for that purpose. Voluntary wind-up of the company
causes because of the company is insolvent and unable to perform its liabilities. To carry out
voluntary wind-up of the private limited company procedure, there has to be called a winding-up
meeting in which a resolution is passed to carry out the procedure of wind-up of the company. The
creditors winding up meeting should be called on the days fixed for General Meeting or on the very
next day of it. 6. winding up subject to supervise of court -- When a company has by special or
ordinary resolution resolved wind up voluntarily, the Court may make an order that the voluntary
winding up shall continue, but subject to such supervision the Court and with such liberty for creditors,
contributories or others to apply to the Court and generally on such terms and conditions, as the
Court thinks just. The application for a creditor, contributory or the voluntary liquidator may
make such intervention of the Court, when there are irregularities or frauds in the voluntary winding
up.The effect of such an order is: - 1. The liquidator may exercise his powers for liquidation subject to
terms and conditions imposed by the Court. 2. The Court obtains jurisdiction over suits and legal
proceedings as in case of compulsory winding up by the Court. 3. The supervision order also
confers the power on the Court to make calls or to enforce calls made by the liquidators and to
exercise all other powers which it would have in case of compulsory winding up by the court. 4.
The supervision order when passed, acts as a stay of actions and other proceedings against the
company 5. When an order has been made for winding up subject to supervision of Court and an
order is afterwards made for winding up by the Court up, the Court has power to appoint any person
as either provisional or permanent liquidators, in addition to, and subject to the control of the Official
Liquidator. The Company cannot be dissolved except by order of dissolution by the Court.