Module 2

The Companies Act, 2013

Prof. P.A. Mohandas

M.A, LL.B, MBA, LL.M(IPR), D.Tech
Introduction
The Company Act, or Corporate Law, relates every aspect of a business
organization, its survival, and growth. It defines all aspects of business
practices.
In the changed context of liberalization and globalization of the Indian
economy, the Company Law has become more central in regulating and
fostering competition.
The Company law deals with the formation and operations of
corporations, and it is related to commercial and contract law.
SCOPE:-
Unlike criminal or Civil Law , the Corporate law is largely focused with
practice outside the courtroom. In general, it deals with how laws relate
to businesses, corporations, shareholders, and other entities involved in
the practice of commerce.
 Importance of Company law
Introduction:-
Designing the right legal system is the fundamental challenge, when attempting to
promote economic growth in a developing Country.
There are two primary links in promoting economic growth of a developing country.
First link, the Business enterprises are more likely to grow and prosper if adequate
financial capital is available.
The second link, The investors will be reluctant to invest in equities if they are not
adequately protected from abuse at the hands of directors and officers, and
shareholders (i.e., insiders). (Example-Satyam Computers).
In other words, the investors will be more willing to invest, and will do so at higher
valuations, if they are sufficiently confident that their wealth will not be expropriated.
As such, for developing nations like India, the basic policy argument has been to adopt
reforms that protect shareholders in order to foster equity markets. To a greater
extent, this has been achieved by The Companies Act, 2013.
 The Companies Act, 2013 (CA- 2013)

Meaning of “COMPANY”:-
The English word Company has its origins from the Old French military
term called COMPAGNIE (first recorded in 1150), meaning a "body of soldiers”.
It is originally taken from the Late Latin word ’COMPANIS’.
It means companion, or the one who eats bread [pane] with you”,
( i.e.:-Com means “with or together”, Panis means “bread”).
Section 2, (Clause 20) of CA- 2013, provides that a “company” means a company
incorporated under this Act or under any previous company law.
A Company, in common parlance, means a group of persons
associated together for the attainment of a common business end.
Definition of a Company
1. “Osborn’s Dictionary” defines that a “Company is an association of
persons formed for the purpose of some business or undertaking carried on
in the name of the association, each member having the right of assigning
his shares to any other persons, subject to the regulation of the company.
2“Lord Lindley” defines that a company means “an association of many
persons who contribute money or money worth to a common stock and
employ it for a common purpose. The common stock so contributed is called
the Capital of the Company, and the persons who contribute to it or to
whom it belongs, are Members, and the proportion of such capital to which
each member is entitled to is his Share”
 ********“CHARACTERISTICS OF A COMPANY”
OR
“ADVANTAGES” OF A COMPANY
1. Incorporated Association:-A company must be registered or incorporated under
Companies Act 2013. (Minimum number required for registration of Public limited
company is 07 and for private limited company 02, and one person in case of OPC).
2. ****Independent Corporate Existence (Separate Legal Entity) (Salomon
Vs Salomon & Co. Ltd.(1897 AC 22)
3. Limited liability.
4. Artificial Person.
5. Perpetual succession.
6. Separate property (Macaura Vs. Northern Assurance Co. Ltd).
7. Transferable shares
8. Capacity to sue and be sued.
9. Accumulation of large capital.
10. Common seal (Official signature of the Company)
 *****“Disadvantages” of Company.

1. Lifting the corporate Veil? ***

2. Formality and Expenses?
3. Company is not a Citizen?
4. Criminal Liability “Jenkins”.

Module-1:-Important questions.
*******Define a “Company”, and explain the important characteristics of a company?
******* What are the advantages and disadvantages of a company?
*******“A company is an independent Corporate Personality” Substantiate with a case law?
• What are the advantages of a Company?
******* Explain the brief facts and principles of Salomon Vs Salomon & Co. Ltd case?

******* What is the concept called “Lifting of Corporate veil”?

 MODULE-2

KINDS OF COMPANIES
 KINDS OF COMPANIES (Classification of Companies)
Companies can be classified on the following basis.
(1)ON THE BASIS OF INCORPORATION:-
(a). Statutory Companies:- Companies which are formed or incorporated by a special act
of parliament, are known as statutory companies. The activities of such companies are
governed by their respective Acts and are not required to have
any Memorandum or Articles Of Association.
Examples:- RBI, SBI, LIC, Industrial Finance Corporation, etc.
(b) Registered Companies:
Registered companies are those companies which are formed by registration under the
Company Act. Registered companies may be divided into two categories.
(i) Private Company
(ii) Public Company
(i) Private Company
A Company is said to be a Private Company which by its Memorandum of
Association restricts the right of its members to:-
(a) Transfer shares,
(b) Limits Minimum members (02) and maximum number of members to
200. (A Private company which is a subsidiary of a public company shall be
deemed to be a public company).,
©and does not invite the Public to subscribe its shares or debentures.
(ii) Public Company
A Public Company is a Company whose shares can be bought by the general
Public. It needs minimum seven persons for its registration and maximum to
the limit of its registered capital. There is no restriction on issue or transfer
of its shares and this type of Company can invite the Public to purchase its
shares and debentures.
2.CLASSIFICATION OF COMPANY ON THE BASIS OF LIABILITY
(A) COMPANIES HAVING LIMITED LIABILITY:-
This liability can be limited in two ways:
(i) COMPANIES LIMITED BY SHARES.
It means a company having the liability of its members limited by the memorandum to
the amount, if any, unpaid on the shares respectively held by them;
(ii) COMPANIES LIMITED BY GUARANTEE.
The liability of a member in the case of the Company limited by guarantee, where the
company has no share capital, is limited to the amount which he has undertaken by the
MOA to contribute to the assets of the company in the event of its being wound-up.
Examples:-Community Clubs, NGO’S, Charity Organizations etc.
(iii) COMPANIES LIMITED BY GUARANTEE HAVING SHARES:-
The liability of a member of a guarantee company having share capital is not merely limited
to the amount guaranteed but he may be called upon to also contribute to the extent of
any sums remaining unpaid on the shares held by him.
(B) ***COMPANIES HAVING UNLIMITED LIABILITY.
1. A company not having any limit on the liability of its members, as in the case
of a partnership or sole trading concern, is an unlimited company. If such a
company goes into liquidation, the members can be called upon to pay an
unlimited amount even from their private properties to meet the claim of the
creditors of the company.
2. An unlimited liability Company is a hybrid Company (corporation)
incorporated either with or without a share capital but where the legal
liability of the members or shareholders is not limited - that is, its members
or shareholders have a joint, several and non-limited obligation to meet any
insufficiency in the assets of the Company to enable settlement of any
outstanding financial liability in the event of the Company's formal
liquidation.
 (3) ON THE BASIS OF NUMBER OF MEMBERS.
1. A Private Company:-
1. Restricts the number of members of the Company to a maximum of 200,
and minimum of 02 .
2. It is a Company which has a minimum paid up capital of Rs. One lakh or
such higher paid-up capital as may be prescribed by its MOA/AOA.
3.Restricts the right to transfer its shares, if any. This restriction is needed to
preserve the ‘Private’ character of a Company.
4. Prohibit any invitation to the Public to subscribe for any shares or
debentures of the Company.
5.Prohibits any invitations or acceptances of deposits from persons other
than its members, directors or their relatives.
2.Public Limited Company:
1. Is not a Private Company.
2. It has a minimum paid-up share capital of FIVE LAKH rupees or such higher paid-
up capital, as may be prescribed.

3.Its shares can be bought by the general Public. It needs MINIMUM SEVEN (7)
PERSONS for its registration and maximum to the limit of its registered capital.
There is no restriction on issue or transfer of its shares and this type of Company can invite
the Public to purchase its shares and debentures.

4. CLASSIFICATION OF A COMPANY ON THE BASIS OF CONTROL.

Based on control, Companies can be classified into:
(a)***Holding Companies and (b) Subsidiary Companies
(1) Holding Company:-A Company becomes a Holding Company by three ways:-
(a) When owning 51% of share holding of another Company (called subsidiary
Company).
(b) When a Company gets controlling power on other Company, such as having power
to remove or appoint majority board of directors of a Company. Holding company is
also called controlling company.
© When a Company become holding Company for its Subsidiary Company’s
Subsidiary. (Ex. Company “C” is subsidiary of Company “B”, Company “B” is
Subsidiary of Company “A”, So Company C is subsidiary of Company A)
(2) Subsidiary Company:- A Company, which operates its business under the control
of another Company (i.e holding Company), is known as a subsidiary Company. A
subsidiary Company is a controlled Company.
Examples:-SBI is a holding Company to the following of its subsidiary companies:- SBI
mutual fund, SBI Housing limited, SBI Capitals etc, likewise LIC Housing is a
subsidiary to LIC of India.
The Walt Disney Company is a holding company of subsidiaries like ABC, ESPN, Disney
Channel etc.
5. ON THE BASIS OF OWNERSHIP
(A) GOVERNMENT COMPANY.
A Government Company means any Company in which not less than 51% of paid-up share
capital is held by either:-
1. The central government or
2. Any State government or Partly by the Central Government and partly by one or more state
governments.
Examples:-
(A) State Trading Corporation of India Ltd, (B) Minerals and Metals Trading
Corporation of India Ltd etc.
The subsidiary of a Government Company is also a Government Company.
(B) NON-GOVERNMENT COMPANY.
If the government does not subscribe a minimum 51% of the paid-up capital,
the company will be a non-government company,
OR those Companies which are controlled and operated by Private Capital is
called Non-Government Companies.
6.ON THE BASIS OF DOMICILE
a. National Companies.
A company which is registered in a country by restricting its area of
operations within the national boundary of such country is known as a
national company.
b. Foreign Companies.
A foreign company is a company having business in a country, but not
registered in that country.
c. Multinational Companies.
Multinational companies have their presence and business in two or more
countries. In other words, a company, which carries on business activities in
more than one country, is known as multinational company (MNC).
***********7. ONE MAN Company OR OPC FAMILY COMPANY).
The concept of One Person Company [OPC] is a new form of business, introduced by
The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying
on the business in the Sole-Proprietor form of business to enter a Corporate
Framework.
One Person Company is a hybrid of Sole-Proprietor and has been provided with relaxed
requirements under The Companies Act , 2013.
• One man Company means the Company which has only one person as member, and
practically he holds the whole of the share capital of a Company.
Note:-It is normally a great opportunity for an NRI, PIO, & OCI, who can set up their
companies in India, with Certain relaxed procedures. If a person does not want to share
an “innovate idea” with anyone, one-person Company is an option.
 ***Salient features of One Person Company
1. OPC has only person as member/shareholder.
2. OPC can be registered as a Private Company.
3. OPC may be a company limited by share/guarantee or an unlimited company.
4. OPC limited by shares shall comply with the followings:-
(a) shall have minimum paid-up capital of INR-One Lakh.
(b) Restricts the right to transfer its Shares.
© Prohibits any invitation to public to subscribe for its shares.
5. OPC is required to give legal identity by specifying the name under which the
activities of business could be carried on.
6. The words “One Person Company” to be mentioned below the name of the
company, wherever the name of the company is used or affixed.
 *****Incorporation of a Company
Section 3. (1), of The Companies Act, 2013,
Provides that a Company may be formed for any lawful purpose by—
(a) Seven or more persons, where the company to be formed is to be a Public
company;
(b) Two or more persons, where the company to be formed is to be a Private
company; or
(c) One person, where the company to be formed is to be One Person Company.
In order to get the benefits of a “Corporate personality”, it is mandatory for “an
association of people” to become incorporated under Companies Act, 2013. After
Incorporation of “association of persons”, the Company becomes an independent
Corporate Personality, and it can start its business operations hence forth.
 ****HOW IS A COMPANY FORMED OR INCORPORATED?
PROMOTION:-
The first stage in the process of formation of a Company is the promotion. At this
stage, the idea of carrying on a business is conceived by a person or group of persons,
called “Promoter” or “Promoters”, respectively.
“Procedure & Necessary Documents” For Incorporation Of A Company
Preliminary Steps:-
1.Before a Company is formed, certain preliminary steps are necessary e.g. whether it should be a
Private Company or a Public Company, what its capital should be, and whether it is worthwhile
forming a new Company or taking over the business of an already established concern. All these
steps are taken by the “Promoters”.
2. Since the promoters conceptualizes the idea of a Company and the purpose of its formation,
they must do all the necessary preliminary work incidental to the formation of a Company. The
promoter acquires and invests initial capital for the Company. Once all the formalities are
completed including the registration of a Company, the promoters' handover the authority to
the directors of the Company (BOD).
 ****Steps/Procedures for Incorporation of a Company
1. Availability of Names:-
As per section 4(4), Rule 9 of The Companies Rules, 2014, ( Management &
Administration), an application for reservation/availability of Name of a Company
shall be filed with ROC, in Form INC-1 along with prescribed fee of Rs/-1000/. On
approval of Name, the ROC will issue Name availability letter for the proposed
company. The Name will be valid for a period of 60 days from the date of intimation of
availability letter by the ROC.
2. Obtain Digital Signatures.
3. Obtain Director Identification Number (DIN) (Section-153).
4. Preparation of :-
(A)Memorandum of Association (MOA).
(B) Articles of Association (AOA).
5. Application for Incorporation of a Company:-
As per Rule 12 of Companies Rules, 2014, application for incorporation of
private/public company shall be filed, with the ROC, in whose jurisdiction the
proposed company is to be incorporated, in Form No-INC-7 with *mandatory
attachments, as required by the ROC.

6. Form No- DIR-12, as per Rule 17, of Companies Rules, 2014. (Particulars of
appointment of Directors & key managerial persons)

7. Form No- INC 22:- As per Rule 25, of Companies Rules, 2014, vide section 12 (2) of
CA, 2013:-Verification of company’s registered office.
The company shall furnish the verification report of its registered office along with
above documents OR within 30 days of its incorporation, in a manner as prescribed
by the ROC.
8. E- Form- INC-7 :- This form is mandatory for incorporation of a new
private/public company, but not for OPC. Form-INC-7 (*Mandatory Attachment)
is to be accompanied with all supporting documents such as details of
subscribers/Directors, MOA, AOA, and evidence of stamp duty etc.
It should be filed within 60 days from the date of application for reservation of name
of proposed company, with the ROC.

Once the E- Form- INC-7 is processed and found to be complete in all respect by the
Registrar of Company, the ROC shall register the company and allocate Certificate of
Incorporation (CIN), in form No. INC-11, as per Rule 18, of Companies Rule, 2014
(Incorporation of company).
CERTIFICATE OF INCORPORATION
When all requisite documents are filed with the Registrar with adequate fees, and
when the Registrar satisfies himself that all statutory requirement regarding
registration have been duly complied with, the Registrar registers the Company and
retains the Memorandum of association, the Articles of association, and other
documents filed with him and issues a “Certificate of the Incorporation (CIN-
INC11)”. This is the proof of the formation of a Company.

*******What are the effects OF CERTIFICATE OF REGISTRATION?

1. COMMENCEMENT OF BUSINESS.
Certificate of registration brings a company into existence as a legal person or juristic
person, and it is legally entitled to begin* its business.
2. CONCLUSIVE EVIDENCE:
The Certificate of Incorporation” issued by ROC is a “Conclusive
Evidence”.
******** “Sometimes, the objects of MOA may be illegal, even then, the
Certificate of Incorporation is a “Conclusive Evidence” Substantiate with a
case law?

************Case Law:- “TV KRISHNA Vs. ANDHRA PRABHA Pvt.

Ltd. (AIR 1960 AP 123”.

****************** Can the certificate of incorporation issued by the ROC be

cancelled or revoked? Discuss with a case law?

********** Once the “Certificate of Incorporation” is issued by the ROC,

it cannot be cancelled or revoked. Once it is granted, it becomes conclusive.
Substantiate with a case law?
IMPORTANT QUESTIONS:- MODULE-2
1. Explain the kinds of companies based on their classifications?
2. **********Briefly explain the procedure of incorporation of a company?
3. What are the effects of certificate of registration?
4. *********“Some times, the objects of MOA may be illegal, even then, the
Certificate of Incorporation is a “Conclusive Evidence”. Substantiate with a case
law? Or explain the case law “TV Krishna Vs Andhra Prabha Pvt Ltd”? OR
5. *********Can the “Certificate of Incorporation” issued by the ROC, be
cancelled or revoked? Substantiate with a Case Law?
 MODULE-3

Memorandum of Association [MOA]

 Memorandum of Association(MOA)
Meaning:- Memorandum means “a note of particulars of any transaction or
matter”.
1. The memorandum of association of a company, often simply called the
memorandum, is the document that governs the relationship between the
company and the outside.
2. It gives Name to the Company, and directs all important matters, such as
Object clause, Registered Office clause, Liability clause, Subscription, and
Share Capital clause. It anticipates the future of the Company, and regulates
external affairs of the Company.
• It is scribed and signed by the subscribers according to their wishes, and
breach of MOA is Ultra Vires and Void act.
 Memorandum of Association (MOA):
Definition:-PALMER defines that “MOA is a document of great importance in relation to the
proposed Company”

****OBJECTIVES OF MOA
• MA is a document of great importance which contains the fundamental conditions upon which the Company is
allowed to be operating.
• It directs all important matters, such as Name clause, Object clause, Registered office clause, Liability clause,
Subscription and Capital clause. Out of these 5 clauses, the Object clause is the most important clause. All these
clauses give shape to a Company to be incorporated.
• After incorporation, a Company is confined to conduct its business within the periphery of MOA, and if it
exceeds the periphery of MOA, it is treated as Ultra Vires and Void acts.
• Therefore, some jurisprudents say that the MOA is Raison D’etre (reason for existence) and “*******Magna
Carta” for the Company.
Note:-The Magna Carta (“Great Charter”) is a document guaranteeing English political liberties that was drafted at
Runnymede, a meadow by the River Thames, and signed by King John on June 15, 1215, under pressure from his
rebellious barons.
 **MAIN CONTENTS OF MOA:

1. THE NAME CLAUSE

2. THE REGISTERED OFFICE CLAUSE

3. THE OBJECTS CLAUSE ( it reveals the nature, purpose, motto, and objects of the company)

4.THE CAPITAL CLAUSE (This clause is required to specify the amount of share capital with
which the company proposes to be registered, and secondly the divisions of that capital into
shares of a fixed amount).

5.THE LIABILITY CLAUSE. (This clause of memorandum contains the declaration that the
liability of the shareholders is limited to the extent of the value of shares held by them).

6. THE Subscription CLAUSE (This clause contains a statement by the subscribers that they are
eager of forming themselves into a company and agree to have a number of shares written
against their respective names).
 *********DOCTRINE OF “ULTRA VIRES”

MEANING:-Ultra Vires (Latin)= Ultra means “beyond”, Vires means “Power/authority”.

It means “an act in excess of the authority conferred by law”, and therefore invalid.
The Memorandum of Association expressly provides the objects of the Company, and confer certain
powers to the Directors, Managers, Managing Directors. Thus, the Company’s powers are limited
to carrying out of its objects as set out in its Memorandum of Association, including anything
incidental to or consequential upon those authorized objects . “Any contravention, and
breach of such objects could not be rectified or ratified even by 100% majority of
the shareholders”. Such contravention and breach is called the “Doctrine of Ultra Vires”.
Such acts are held invalid in the interests of the Company, its shareholders,
creditors, and outsiders (all Stakeholders).
Example:- The object of a Company is to finance only for Passenger cars. If the
Director/s of the Company have advanced loan to purchase house/s, it would be
held as an act of Ultra Vires.
 IMPORTANT QUESTIONS:- MODULE-3

1. **********Define MOA? Briefly explain the objects of MOA?

2. *********What are the compulsory clauses of MOA?
3. *********MOA is the “Magna Carta” of the Company. Discuss?
4. *********What is called the “Doctrine of Ultra Vires”?
 MODULE-4

ARTICLES OF ASSOCIATION
 ARTICLES OF ASSOCIATION(AOA)
Meaning:-
The Articles of Association is a document that contains the purpose of the
company as well as the duties and responsibilities of its members defined and
recorded clearly. It is an important document which needs to be filed with
the Registrar of Companies.
IMPORTANCE of AOA:-
A company is an incorporated body. So, there should be some rules and
regulations for the management of its internal affairs, conduct of its
business, as well as the relation between the members and the company.
Moreover, the rights and duties of its members and the company are to be
recorded. Here comes the need and Significance of Articles of Association.
NATURE of AOA:
The AOA is a document that contains the entire internal Management of the company such
as the duties and responsibilities, rights and liabilities, obligation, and performance of its
members, etc. All these activities are clearly defined and recorded. AOA are the “rules,
regulations & bye-laws for the internal management or internal arrangement” of the
Company.

They are subordinate to MOA and framed with the object of carrying out the
Aims & Objects as set out in the MOA. In framing the AOA a company, care must
be taken to see that regulations framed do not go beyond the powers of the Company itself,
as contemplated by the MOA. Where a conflict arises between AOA and MOA, the MOA
prevails.
 CONTENTS OF THE ARTICLES
1. Share capital, rights of share holders, variation of these rights,
payment of commissions, share certificates
2. Lien on shares
3. Calls on shares
4. Transfer of shares
5. Transmission of shares
6. Forfeiture of shares
7. Conversion of shares into stock
8. Share warrants
9. Alteration of capital
10. General meetings & proceedings
11. Voting rights of members, voting & poll, proxies
12. Directors, their appointment, remuneration, qualifications,
powers & proceedings of board of directors.
13. Manager
14. Secretary
15. Dividends & reserves.
16. Accounts, audit & borrowing powers.
17. Capitalization of profits.
18. Winding up.
 RELATIONSHIP BETWEEN MOA & AOA
*****POINTS OF SIMILARITY
1.Both these documents shall be prepared at the time of incorporation of company.
2. Both these documents must be signed by the same persons.
3. Both these documents must be attested by at least one witness for each signatory.
4.Both these documents must be printed, sub-divided into paragraphs, numbered
consecutively, and signed by the same persons.
5. Both these documents have effects of a signed contract between the company and every
member of the company, and also between one member and another through the company.
6. Both these documents must be registered with ROC.
7. As soon as they are registered, they become public documents.
8. A member of that company is entitled to get a copy of these documents on payment of
nominal fee.
9. The court may alter the contents of these documents through an order as legal remedy
against oppression and mismanagement.
10. These are models in schedule-I for various companies giving various models of
memorandum and articles of association.
11. Both these documents must be scribed in accordance with the provisions of Companies
Act, 2013.

***********Differences of MOA & AOA:-

1. MOA governs the relationship between the company and the outside, whereas AOA is a
document that governs internal management (byelaws) the company.
2. The MOA is the primary and supreme document of a Company, whereas the AOA is secondary
and sub-ordinate to MOA.
3. MOA is subordinate to the Companies Act 2013, whereas AOA is subordinate to the MOA.
4. The MOA is a document which sets out the Power, Objects and constitution of a
company, whereas the AOA is a document which regulates the internal
management of the company.
5. The MOA of the company cannot be amended retrospectively, whereas the AOA
can be amended retrospectively.
6. The MOA must contain six clauses, whereas the AOA can be drafted as per the
choice of the Company.
7. Any acts done beyond the scope of MOA is Ultra-Vires and void which can't be
ratified even with 100% majority of shareholders in AGM, but any act done
beyond the scope of AOA can be ratified by Shareholders.
 **************DOCTRINE OF CONSTRUCTIVE NOTICE
It is mandatory and statutory rule that every company shall register its “MOA & AOA” with the
ROC. These documents, on registration with the ROC, assume the character of public
documents. Anybody can have access to them and have certified copies from the office of ROC.
The members, investors, outsiders, Creditors, or whoever, wants to have contracts with that
company , first shall have to read the contents of the “MOA & AOA”. Even if they do not read,
the Law presumes that they have “Constructive notice” of these documents.

This is known as “Constructive Notice” of Memorandum and Articles. This doctrine is intended
to protect the Company against the outsider, giving no scope to them to lodge baseless
allegations, and exploit the company resources.
Case Law:-Kotla Venkataswamy Vs. Rammurthy & Associates (AIR 1934)?
 ********** DOCTRINE OF INDOOR MANAGEMENT OR
“TURQUAND RULE”
There is one limitation to the doctrine of “Constructive Notice” of the “MOA & AOA”
of company. The objects and the procedures of the company are given in its MOA and
AOA, which on registration is accessible to public. But they represent the “Outdoor
management” of the company. Every affair of the company is not open to the public,
such as, certain Strategic decision, resolutions, internal affairs, Confidential
Correspondence, etc. of each company. Those are the internal affairs of the company,
managed by its Managing Directors, Directors, Managers etc, which are not open to
public, and are not seen with the documents registered with ROC. Such affairs of the
company is called doctrine of “Indoor Management” also known as “Turquand Rule”.
This doctrine protects the outsider against the company.
Case Law:-******* “Royal British Bank Vs. Turquand (1856) 119 ER)”?
 IMPORTANT QUESTIONS:- MODULE-4
1. What is AOA? Briefly explain its contents?
2. Define AOA, and explain its importance ?
3. *******Briefly explain the Doctrine of “Constructive notice” and “Indoor
Management”?
6. ******* “The Doctrine of Indoor Management protect the outsider against the
company” Discuss with a case law/ OR Explain Turquand Rule? Case Law:- “Royal
British Bank Vs. Turquand (1856) 119 ER)”?
7. ******* The Doctrine of Constructive notice protect the Company against the
outsider” Substantiate with a case law? Case Law:-Kotla Venkataswamy Vs.
Rammurthy (AIR 1934)?
 MODULE-5
PROSPECTUS
 PROSPECTUS
Meaning:- A prospectus is a legal document issued by companies that
are offering securities for sale. It is an invitation to offer.
Object:- The people will invest their money in a sound and profitable company. The
prospectus gives information about the profitability, soundness, and prosperity
of a company. The public are attracted to a company on the basis of its objects and
fundamental functions, as envisaged in the prospectus.

Definition:- As per clause (70) of Section 2, of The Companies Law, 2013,

Prospectus “ means any document described or issued as a prospectus, and
includes any notice, circular, advertisement or other document, inviting deposits
from the public or inviting offers from the public for the subscription or purchase
of any shares in, or debentures of, a body of corporate.
 CONTENTS OF THE PROSPECTUS
(Section, 26 of 2013)
1. Names and addresses of the registered office of the company, company secretary, Chief Financial
Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as
may be prescribed;
2. Dates of the opening and closing of the issue, and declaration about the issue of allotment letters
and refunds within the prescribed time;
3. A statement by the Board of Directors about the separate bank account where all monies received
out of the issue are to be transferred and disclosure of details of all monies including utilized and
unutilized monies out of the previous issue in the prescribed manner;
4. Details about underwriting of the issue, consent of the directors, auditors, bankers to the issue,
expert’s opinion, if any, and of such other persons, as may be prescribed; the authority for the issue
and the details of the resolution passed there for; procedure and time schedule for allotment and
issue of securities;
5. Particulars regarding the company and other listed companies under the same management
Outstanding litigations
7. Management perception of risk factors
5. Particulars regarding the company and other listed companies under the same
management
6. Outstanding litigations
7. Management perception of risk factors

CAUTION:-If a prospectus is issued in contravention of the provisions of section 26, of

the Companies Act, 2013, the company shall be punishable with fine which shall not be
less than fifty thousand rupees, but which may extend to three lakh rupees and every
person who is knowingly a party to the issue of such prospectus shall be punishable
with imprisonment for a term which may extend to three years or with a fine which
shall not be less than fifty thousand rupees but which may extend to three lakh rupees,
or with both.
 REGISTRATION OF PROSPECTUS

The CA-2013, explains about registration of Prospectus. The CLB, SEBI, RBI,
etc. are the competent authorities to give permission for the prospectus.
Every Prospectus must be registered with ROC, before it is issued to the
public. It must be dated and signed by every person who is named therein as
the Director, or proposed director of the company, or by his agent authorized
in writing.
Every prospectus must contain all necessary particulars mentioned as per
section 26, of The Companies Act, 2013.
 *****What are the “GOLDEN RULES OF PROSPECTUS”?
(The Golden Legacy and Golden Rule as to Framing of Prospectus)
• Section 26, of The Companies Act 2013, provide about conditions for framing
of prospectus to protect/safeguard the interests of the share holders and
investors.
• The company must disclose all truths and facts about the present and previous
economic conditions to create real confidence among the public. This is the
basic function of prospectus. The directors or promoters must reveal only the
real facts, and if they give false information to attract the investors, they shall
be held with criminal/civil liabilities.
• So, the creation of good faith among investors is the golden rule in framing the
prospectus.
 *** WHAT IS “STATEMENT IN LIEU OF PROSPECTUS”?

Every public company, whichever wants to procure money by way of

shares, debentures, or deposits from the investors, must issue prospectus.
If a Public Company has any financial supporter, who can afford with
sufficient funds, then it need not issue any prospectus. But it should issue
a statement in lieu of prospectus to such financial supporter, which is
called “Statement in lieu of prospectus”
Note:- The company shall not issue any shares or debentures or deposit
certificates to such financial supporter, without issuing “statement in lieu
of prospectus” and without registering the same before the ROC, at least
three days before the first allotment of either share or debentures.
 UNIT-6

Share, Share Capital,

Debentures etc
 “SHARE”
Meaning of “SHARE”
Share is the basis and basic feature of the Company. It is a small fraction of
huge investment, and denotes the holder’s proportional financial stake in the
Company. It is a share in the “Share Capital” of a Company.
Definition of “SHARE”
Farwell JJ defines that “A share is the interest of a shareholder in the Company by
a sum of money, for the purpose of liability in the first place, and of the interest in
the second, but also consisting of series of mutual covenants entered into by all the
shareholders inter se”.
Concept of “SHARE”:-By possessing share, a person can become member of a
Company, and can enjoy rights such as right to vote, right to express opinions,
right to stand in election for board of directors of the Company, share in profits
and loss etc.
 Share Capital
Share Capital is the fund or corpus (total amount of money invested by all investors in a
scheme), the yield of which is profit or income. It bears the same relation to income as a tree
does to its fruits. It is nothing but the Capital raised by a Company by the issues of shares .
Kinds of shares: Shares are mainly classified as two kinds, namely:-
“PREFERENCE SHARES” & “EQUITY SHARES”.
(A). PREFERENCE SHARES :-Preference shares allow an investor to own a stake at the
issuing Company with a condition that whenever the Company decides to pay
dividends, the holders of the preference shares will be the first to be paid.
It is the money that a Company has from selling preference shares. Shareholders with
these shares must be paid before those with ordinary shares when a
Company is paying dividends, or if it goes bankrupt. Preference shares typically pay a fixed
dividend, whereas common stocks do not.
**KINDS OF PREFERENCE SHARES
1.Cumulative preference shares:-
Where a Company has not got any profits for a year, the arrears of dividends
on the preference share, shall be carried forward and paid them in the
subsequent year’s profits, such shares are called “Cumulative Preference
Shares”.
2. Non-cumulative preference shares
The Company promises to pay dividend out of profit of that year to its
Preference Shareholders. If the Company does not get any profit for any year,
the arrears of dividends on the preference share shall not be carried forward to
the subsequent year, and it lapses. It is called “Non-Cumulative Preference
Shares”.
3. Redeemable preference shares
Those preference shares, which can be redeemed or repaid after the expiry of a
fixed period or after giving the prescribed notice as desired by the Company, are
known as redeemable preference shares. Such preference shares can be
redeemed out of profits or out of fresh issue of shares made for purpose of
redemption. Terms of redemptions are announced at the time of issue of such
shares.
4. Non-redeemable preference shares
Those preference shares which cannot be redeemed during the lifetime of
Company are known as irredeemable preference shares. The amount of such
shares is paid only at the time of liquidation of Company
5. Convertible preference shares:
Those preference shares which can be converted into equity shares at the
option of holder after fixed period according to the terms and conditions of
their issue are known as convertible preference shares.
6. Non-convertible preference shares.
Preference shares which are not convertible into equity shares are called
non-convertible preference shares.
7. Participating preference shares
Those preference shares which have right to participate in any surplus profit of
Company after paying the equity shareholders in addition to the fixed rate of
their dividend, are known as participating preference shares. Holders of such
share get return on their Capital in two forms: (a) fixed dividend on their share
(b) share in surplus profit after equity dividend up to a certain limit. Similarly,
at the time of liquidation of a Company, if there are surplus fund after
repayment of equity shareholders, that may also be shared by participating
preference shareholders, on the basis of pre determined proportion. But all these
should be clearly stated in AOA. If AOA is silent, all preference shares are
considered as non-participating preference shares.
8. Non-participating preference shares
Preference shares which have no right to participate on the surplus profit, or any
surplus on liquidation of Company, are called non-participating preference
shares.
(B) EQUITY SHARES
An equity share, commonly referred to as ordinary share also represents the
form of fractional or part ownership in which a shareholder, as a fractional
owner, undertakes the maximum entrepreneurial risk associated with a
business venture. The holders of such shares are members of the company
and have voting rights.
Important Points:-
1. The equity share holders are the real caretakers of the Company.
2. They have the voting rights.
3. Dividend:- The dividends, first, shall be paid to the Preference Shareholders,
as per the agreement. The rate of dividend payable to the preference share
holders is already decided.
 UNIT-7

COMPANY
MANAGEMENT
 COMPANY MANAGEMENT

INTRODUCTION: “The success of any business depends heavily on the Director/ Managers ability
to make the right decisions, and to ensure that their business is able to exploit any opportunities
open to it, and at the same time, good managers protect the business by anticipating and acting
against any threats to its welfare. effectiveness of its management. The Directors/ Managing
MEANING:- It is the process of “Leading, Administering, and Directing of a Company”.
The business tasks often performed by Corporate Management might include “Strategic
Planning, as well as Managing Company resources” and applying them toward attaining the
company’s objectives.
THE DIRECTORS. A company, as soon as gets the certificate of incorporation, becomes a juristic
person. Though it has its own legal entity, it has no physical existence, and it cannot bee seen by human eye. It
can only be seen by the eye of law. But it does business, and performs several functions through human
instruments, called BOD or “Directors”. The Directors are the brain of a company.

Section 149(1) of the Companies Act, 2013 requires that every company shall have a minimum number of three
directors in the case of a public company, two directors in the case of a private company, and one director in
the case of a One Person Company. A company can appoint maximum 15 directors.

DEFINITION OF DIRECTOR:
“LORD SELBORNE L.C”. defines” The directors are mere “Trustees or Agents” of
a company… Trustees of the “company’s money and property”,…. Agents in
“transactions which they enter into on behalf of the company”.
1. BOARD OF DIRECTORS
Minimum number:-
A Public limited company shall have at least 3 directors, and a Private limited
company shall have at least 2 directors. Only individuals can be appointed as
Directors.
MAXIMUM NUMBER:-
Articles of Association of a company may prescribe the maximum and minimum
number of directors for its Board, but a Company can have maximum of 15
directors. But a company may appoint more than 15 Directors after passing a
special resolution.
The prescribed class or classes of companies shall have at least one-woman
Director.
2. Resident Director
3.Independent Directors.
4. Small shareholder Director.
5. Right of other persons to stand for Directorship.
6. Alternate Director.
7. Independent Director.
8. Number of Directorship.

*** DUTIES OF THE DIRECTOR (Fiduciary duties-in-brief)

1. He shall act in accordance with the MOA/AOA of the company.
2. He shall act in good faith to promote the objects of the company.
3. He shall exercise his duty with due diligence, reasonable care, skill, and exercise independent judgment.
4. Shall not involve in conflicting situation.
5. Shall not achieve or attempt to achieve any undue advantage.

6. Shall not assign/delegate his office.

7. If provisions related to duties contravened, then punishable with fine which shall not be less than one lakh rupees, but which
may extend to five lakhs rupees. OR may face civil and criminal liabilities (JENKINS).
 Appointment of Directors:-
The Directors can be appointed in any of the following modes:-

1.Deemed Directors or First Directors.

2.Appointment at General meeting.
3.Appointment by Board of Directors: To fill up casual vacancy among
directors, provided the AA permits)
4.Appointment by the Central Government: (To prevent mismanagement &
oppression).
6.Appointment by Company Law Board
Note:-
******** “The Directors, generally, only owe the duty to the Company, but in
certain situations they also owe to individual shareholder, how and why?
Substantiate with a case law.
CASE LAW:- “Allen Vs Hyatt (1914) 30 TLR 444”
Brief facts:-In this case, the Directors of Hyatt company induced its
shareholders by promising them an option that the directors shall negotiate
and sell their shares to another company. Instead of selling the shares directly
to the other company, the directors used the options to purchase the shares
themselves, and then later resold them to the other company, there by making
huge profit. One of the shareholders of the company, Allen, knew the fraud
made by those directors, and sued them to make up the loss suffered by the
affected members.
Judgment:-
In favor of Allen. The court held that the Directors being the agents of the
company, they were held liable to make good the loss sustained by the
affected members.
The principles of judgment:-
The Directors, generally, only owe a duty to the company, but not to any
individual shareholder of the company, regardless of whether he is a
majority shareholder or minority shareholder in the company. However, if
the directors have actively made themselves agents of any individual
shareholder, on such exceptional circumstance, directors shall owe a duty
to that shareholder.
 IMPORTANT QUESTIONS:- MODULE-7
1. What is the nature and importance of Company Management?
2. *******The Directors are “Trustees and Agents” of a company. Discuss?
3. ********The Directors, generally, only owe a duty to the company, but in
certain situations they also owe to individual shareholder, how and why?
Substantiate with a case law?
4. Briefly explain the Powers and Duties of Director/s of Company?
5. Explain brief facts of case law “Allen Vs. Hyatt” (PC 1914 30 TLR 444)?
 UNIT-8

MEETINGS AND
PROCEEDINGS
 KINDS OF MEETINGS:-
(I) ANNUAL GENERAL MEETINGS (AGM)
(Section 96 & 97 of CA-2013)
Applicability:- Every Company other than OPC.
Key features:-
1. First AGM within 9 moths from the closure of financial year, and subsequent AGM
within 6 months from the closure of financial year. The gap between the two shall not
be more than 15 months, and incase of first AGM, it is not necessary to hold the
AGM in the first year of incorporation.
2. The ROC has the power to give extension of 3 months except for first AGM, for
special reason.
3. It is usually held at the registered office of the company.
4. It should be called during the business hours, on a day (9-6 PM), but not on a
National Public holiday.
5. The Central Government has power to exempt a company from AGM, vide
subsection (2) of Section 96, of CA-2013.
6. Incase of default in holding AGM, The Tribunal has power to call AGM, on application from any
member of the company, and give directions to the Company, to that effect.
7. Report on AGM (Section 121).
8. Meeting by the Tribunal (Section-98).

*** (II). EXTRA-ORDINARY GENERAL MEETING (EOGM) (Section-100)

• It is an emergency meeting.
• All general meetings other than AGM are called Extra-ordinary general meetings.
• Examples:- Removal of director, discussion on changed taxation policy of CG/SG,
appointment of director etc.
• EOGM should focus only the particular matter which warranted the EOGM, and nothing
else.
• The BOD can call EOGM.
(III) The power of Tribunal to call meeting. (Sec-98)
In case if it is impractical for a Company to hold a meeting other than AGM, The National
Company Law Tribunal, either suo-motu, or on application by the Director/Member of
the concerned Company who is entitled to vote in a company meeting, shall order for a
Company meeting to be conducted in a manner as the Tribunal may think fit, and give
any ancillary or consequential directions/ decisions, as applicable with respect to the
situations.
********QUORUM (Section-103)
In case of Public Limited Company, on the date of meeting:-
1. If members less than 1000, then 5 members to be personally present,
2. If members more than 1000, but up to 5000, then 15 members to be
personally present.
3. If members more than 5000, then 30 members to be personally present.
Note:- In case of PVT Company, (TWO) 2 members personal presence shall validate the
Quorum.
If QUORUM is not present within half an hour of the meeting, the meeting shall be adjourned for the
next week for the same day, same time, and venue, as the Board may determine, but at least three days
notice shall be given to the members as prescribed by the Company Act, 2013.
In case of absence of Quorum in the adjourned meeting, the members present shall be the Valid Quorum.

Appointment of Chairman in the General Meeting (Sec-104).

Proxies (Section 105)
Postal ballet (Section-110)
BOD Meetings (Section-173)
The BOD may also adopt video conferencing meetings vide Rule No-3 (Meeting of Board & its powers),
of The Companies Rules, 2014.
(IV) Audit Committee Meetings (Section 177, Rule 6-Meeting of Board & its
powers),
Applicability
1. All listed Companies,
2. All public limited companies with paid-up capital of Crore or more,
3. All Public Companies having annual turn over of 100 crore or more,
4. All public companies, having in aggregate, outstanding loans, or
borrowing, or debentures or deposit exceeding 50 crores, as on date of last
audited financial statements,
VIGIL MECHANISM (Section 177, Rule 7-Meeting of Board & its powers),
Every listed company and every public company who have accepted more
than 50 Cr deposit from various source must constitute Vigil Mechanism
for redressal of grievances.
 ****** REQUISITES OF A VALID MEETING

There are certain essential procedure and requisites for a valid meeting. They are:-
1. Meeting should be called by proper authority.
2. Notice.
3. Quorum.
4. Chairman.
5. Voting.
What is the meaning of Proxy?
“It is the agency or authority to act for another, a deputy, or a representative”.
Under the Companies Act, 2013, a person may vote either in person or by
proxy.
 PREVENTION OF
“OPPRESSION” AND
“MISMANAGEMENT”
 *****OPPRESSION AND MISMANAGEMENT
Introduction:-The democratic decisions are made in accordance with the majority
decision and are deemed to be fair and justified while overshadowing the minority
concerns. The corporate world has adopted this majority rule in decision making
process and management of the companies. Statutory provisions in this regard have
been provided under The Companies Act, 2013 ("CA 2013").
MEANING OF “OPPRESSION”:- It is burdensome, unbearable, cruel, harsh etc. It is an
act or instance of oppressing, the state of being oppressed, and the feeling of being
heavily burdened, mentally or physically, by troubles, adverse conditions, and anxiety,
etc.
Definition-Oppression:-The Companies Act, 2013:- “When affairs of the company are
being conducted in a manner prejudicial to public interest or in a manner oppressive to
any member or members of a company” it is called oppression.
Osborn’s dictionary:-defines that:- “Oppression is a misdemeanor committed by
majority shareholders, who under clout of their majority power, wrongfully
inflict upon the minority shareholder or minority shareholders any harm or
injury”.
MISMANAGEMENT OF THE COMPANY:-
The Companies Act, 2013, defines mismanagement as “Conducting the affairs of the
company in a manner prejudicial to public interest or in a manner prejudicial to
the interests of the company” or there has been a material change in the
management and control of the company, and by reason of such change it is
likely that affairs of the company will be conducted in a manner prejudicial to
public interest or interest of the company”.
******Examples of Mismanagement of a Company
1. Absence of basic records of the company.
2. Drawing considerable expenses for personal purposes by director/s or management of the
company.
3. Not filing documents with The Registrar of Companies relating to compliances under
The Companies Act,2013.
4. Misuse of company's finances/funds.
5. Sale of assets at very low prices
6. Violation of provisions of Indian law, MOA or AOA
7. Making Secret Profits.
8. Diverting company funds for personal use of Directors.
9. Continuation in office by Director beyond the specified term and not holding any
Qualification shares etc.
 ********LEGAL REMEDIES AGAINST
“OPPRESSION & MISMANAGEMENT”
The aggrieved minority/party shall invoke legal remedies by way of invoking-
(a)National Company Law Tribunal
(b)Class Action Suit (CAS)

(A) National Company Law Tribunal [NCLT]

The section 241, of Companies Act 2013, provides that an application for relief
against “Oppression & Mismanagement” can be made to the Tribunal
(National Company Law Tribunal).
WHO CAN APPLY FOR RELIEF
Section 244(1) provides for the right to apply to Tribunal under Section 241 for relief against
oppression & Mismanagement, as follows:-
1. In case of a Company having share capital,
Not less than one hundred members of the company or not less than 1/10th of the total of the
members, whichever is less, or any member of members holding not less than 1/10th of the
issued share capital of the company. Provided that, the applicant/applicants have paid all
calls and other sum due on their shares.

2. In the case of Company not having a share capital,

Not less than 1/5th of the total number of its members.
3. Power of Tribunal to waive any or all of the requirements of Section 244(1) and allow any number
of shareholders and/or members to apply for relief. Contd…
Note:-The Tribunal (The National Company Law Tribunal)-Section 2(90) of CA-2013), may also waive any
or all of the requirements of Section 244(1) and allow any number of shareholders and/or members
to apply for relief. This is a huge departure from the provisions of CA 1956 as the discretion which
was provided to the Central Government to allow any number of shareholders to be considered as
minority is, under the new CA 2013 been given to the Tribunal and therefore is more likely to be
exercised.
POWERS OF “TRIBUNAL (Sec-242)”:- It can enforce the following:-
(A) Restrictions on the transfer or allotment of the shares of the company;
(B). Removal of the managing director, manager or any of the directors of the company;
©. Recovery of undue gains made by any managing director, manager or director during the period of his
appointment as such and the manner of utilization of the recovery including transfer to Investor Education
and Protection Fund or repayment to identifiable victims.
(d) To decide the way the managing director or manager of the company may be appointed subsequent to
an order removing the existing managing director or manager of the company;
(e) Appointment of such number of persons as directors, who may be required by the Tribunal to report to
the Tribunal on such matters as the Tribunal may direct; and,
(f) Imposition of costs as may be deemed fit by the Tribunal.
 ***** (B)Class Action Suit (CAS)
Section 245 of CA 2013, Provides for CAS to be instituted against
the:-“Company & members, The Directors, as well as the Auditors/Audit
Firms of the company”.
The Companies Rules (2014) allow for CAS to be filed by the minority
shareholders under Clause 16.1 of Chapter-XVI (Number of members who can
file an application for class action). From this Section 245 of the Companies Act,
2013, the intent of the section is not only to empower the minority shareholder
and/or members of the company “but also the stakeholders”.
NOTE:- CAS can be filed by a person or persons representing affected
persons. Section 245 does not empower the Tribunal with discretionary
power to admit/allow any class suit wherein class of members or depositors
are unable to comply with the minimum number of members/depositors
requirement to be laid down in the Companies Rules, 2014.
 ***** CAS Relief U/S 245:-
The different kinds of Relief granted by the Tribunal U/S 245 (1) are as follows:-

1. To restrain the company from committing any act which is “Ultra vires” of MOA &
AOA of the company.
2. To restrain the company from committing any breach of provisions of the MOA &
AOA of the company.
3. To declare a resolution altering the MOA & AOA as void if such resolution was
passed by suppression of material facts or obtained by mis-statements to the
shareholders and depositors.
4. To restrain the company and directors from acting on such resolution.
5. To restrain the company from doing any act contrary to the provisions of this act or
against any law in force.
6. To restrain the company from taking action contrary to any resolution passed by
the members.
7. To claim damages or compensation or demand any other suitable action from or
against:-
(A) The company or its Directors for any fraudulent, unlawful or wrongful act or omission or
conduct or any likely act or omission or conduct on its or their part,
(b) The auditor including Audit firm of the company for any improper or misleading statements
made in their audit report or for any fraudulent, unlawful or wrongful acts or conduct,
© Any expert, consultant, or any other person for any improper or misleading statements made
in their audit report or for any fraudulent, unlawful or wrongful acts or conduct or any likely
conduct on his part,
(f) To seek any other remedy the Tribunal may deem fit.

NOTE:- An Order passed by the Tribunal is binding on the Company and

Members/Directors/Depositors/Auditors, and non-compliance of the same will attract
Fine/Imprisonment vide Sub-Section-7 of Section-245 of CA-2013.
Consequences of Non-Compliance of Tribunal Order?
Sub-Section-7 of Section-245 of CA-2013.
U/S 425 of The Companies Act, 2013, The Tribunal has also been conferred the same
Jurisdiction, Powers, and authority in-respect of Contempt of its Order as conferred on the
High Court under the Contempt of Courts Act, 1971.
1. Fine of not less than 5 lakh but extendable up to 25 lakhs.
2. Any officer of the Company who is in default, can be punished with imprisonment for a
term up to 3 years, and can be imposed a fine not less than 25,000/- but extendable up to
One Lakh.
CONCLUSION
Satyam Scam Scenario?
Materially overstated, inflated & Falsified invoices for hundreds of million dollars in
consumer products that actually did not exist, but due to lack of Class Action Suit
provision in CA-1956, no suit could be filed against Company Audit firms, which
paved way for enactment of CAS vide Sec-245/CA-2013.
1.*****Case Law of “Oppression”.
“IN RE HINDUSTAN CO-OPERATIVE INSURANCE SOCIETY LTD.(AIR
1961)”?
Brief facts:-The insurance business was nationalized in 1956, resulting Life Insurance
Corporation of India taking over the subject Insurance Company by paying adequate
compensation to it. The majority shareholders did not want to distribute that compensation to
the minority shareholders. To achieve their object, they changed the Object clause of the
company by the power of majority. The minority share holders sued the company for relief
against “Oppression
Judgment:-in favor of minority shareholders. The court quashed the newly inserted
object clause, and also ordered the company for the payment of appropriate share to the
minority shareholders
The principles of judgment:-The court held that it was a clear instance of oppression on
the part of majority shareholders against the minority shareholders.
2.***** Case Law of “Mismanagement”.
“Nageswara Rao Vs. Rajahmundry Electric Corporation (AIR 1956 SC 213)”?
Brief facts:-The Directors had the support of majority shareholders and had great extent of
influence over them. The Vice-chairman of the company had political influence. The
Chairman was helpless. The group of Directors and Vice-chairman mismanaged the funds of
the company for their personal use. As a result, the company could not supply Electricity to
the parties as per Company’s agreement. The machinery required repairs, which were not
attended to. As the result of all these consequences, the company was put in heavy loss. The
petitioner, Nageswara Rao, sued the company for mismanagement.
Judgment:- The court admitted with the contention of the petitioner, and appointed two
administrators for the management of the company for a period of six months, vesting in
them all the powers of directors, and ousting the powers of vice-chairman and the group of
directors.
Principles of Judgment:- The Court asserted that it was a clear case of Company
Mismanagement.
 ***** WINDING UP OF A COMPANY
Meaning:
Winding-up or liquidation process is the last stage in the life of a
company, wherein its existence is dissolved, and all its assets are used to
satisfy the creditors and shareholders.
Prof. Gower states that “ Winding up of a company is a process whereby
its life is ended, and its property liquidated by an administrator for the
benefits of its creditors and members”.
An administrator called, “Liquidator”, is appointed who takes control of
the company, collects its assets, pays its debts, and distributes any surplus
among the members in accordance to their rights.
 *******EXPLAIN THE MODES OF WINDING UP OF A COMPANY
(Section 270 of CA-2013)
As per section 270 of the Companies Act, 2013, the winding up of a company may be either –
1. by Voluntary and,
2. by the Tribunal [NCLT]
CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP VOLUNTARILY
(SECTION 304):
A company may be wound up voluntarily:-
1. if the company in general meeting passes a resolution requiring the company to be
wound up voluntarily:
(a) As a result of the expiry of the period for its duration fixed by its articles, or
(b) On the occurrence of any event in respect of which the articles provide that the
company should be dissolved; or
© The company passes a special resolution that the company be wound up
voluntarily.
 *********** (I) PROCEDURE OF VOLUNTARY WINDING-UP OF A
COMPANY
(A) DECLARATION OF SOLVENCY (SECTION 305):
In case of a proposed voluntary winding up, majority of its directors but not less than two
directors, shall at a Board meeting make a declaration verified by an affidavit that they
have made full inquiry into the affairs of the company, and they have formed an opinion
that the company has no debt or whether it will be able to pay its debts in full from the
proceeds of assets sold in voluntary winding up.

(B) MEETING OF CREDITORS (SECTION 306):

The company shall along with the calling of meeting of the company at which the resolution
for the voluntary winding up is to be proposed, cause a meetings of its creditors either on
same day or on the next day. The company shall cause a notice of the meeting to be sent by
registered post to the creditors with the notice of the meeting of the company.
(C)PUBLICATION OF RESOLUTION TO WIND UP VOLUNTARILY
(SECTION 307):
Where a company has passed a resolution for voluntary winding up and a
resolution by creditors is passed, it shall within fourteen days of the passing
of the resolution give notice of the resolution by advertisement in the
Official Gazette and also in a newspaper which is in circulation in the
district where the registered office or the principal office of the company is
situate.
If a company contravenes, the company and every officer of the company
who is in default shall be punishable with fine which may extend to five
thousand rupees for every day during which such default continues.
(D) COMMENCEMENT OF VOLUNTARY WINDING UP (SECTION 308):
A voluntary winding up shall be deemed to commence on the date of passing
of the resolution for voluntary winding up under section 304.
(E)EFFECT OF VOLUNTARY WINDING UP (SECTION 309):
In the case of a voluntary winding up, the company shall from the commencement
of the winding up cease to carry on its business except as far as required for the
beneficial winding up of its business. The corporate state and corporate powers of
the company shall continue until it is dissolved.

***** (II)PROCEDURE FOR WINDING-UP BY TRIBUNAL

(COMPULSORY WINDING-UP)
***What are the Conditions for Compulsory Winding-Up.
1. If the company has by a special resolution resolved that it may be wound up by
the Tribunal.
2. Default in holding statutory meeting.
3. Inability to pay debts.
4. Failure to repay its debts.
5. Failure to oblige the decree or order of court.
6. Commercial insolvency.
7. If the Tribunal is of the opinion that the affairs of the Company have been
carried-out in a fraudulent and unlawful ways
8. If the Company has acted against the Sovereignty and integrity of India, or
Security of the Nation, or against the interest of the friendly Nations, or
Public Order and Morality.
9. On just and equitable grounds.
Who can file petition for Compulsory Winding-up (Section 272, of CA-
2013-Filing of petition)
1. The Company, The creditors, or any Contributory/Contributors of the
Company,
2. All or any persons mentioned above,
3. By the Central or State Government,
4. By the ROC or any persons authorized by the Central Government for that
purpose.
 *****Process of Compulsory winding up by Tribunal
(A) Filing of Winding up Petition:- The winding up petition (‘Petition’) is to be filed under section
272 of the CA-2013, in the prescribed form no 1, 2 or 3, whichever is applicable and is to be
submitted in three sets.
(B) Statement of Affairs of the Company:- If the company files the Petition, it shall be
accompanied with the statement of affairs (‘Statement’) in Form No. 4 vide section 272(5) of CA-
2013. The Petition shall state the facts up to a specific date, which shall not be the date more than
fifteen days prior to the date of making of the Statement. A Chartered Accountant in practice shall
duly certify this Statement. The fee for filing the Petition shall be submitted as prescribed in
Annexure-B of the Companies Rules-2014.
© Advertisement of the Petition.
Subject to the directions of the Tribunal, the petition shall be advertised in not less than fourteen days
before the date fixed for hearing in one daily newspaper in English language and one daily newspaper in
the principal regional language circulating in the State or union territory where the registered office of
company is situated. The advertisement needs to be carried out in Form No 6.
(D) Final Order and its Content.
The Tribunal after hearing the Petition has the power to dismiss it, with or without cost, or to make an
interim order, as it thinks fit, or can appoint the provisional liquidator of the company till the passing of
the winding up order. Contd…..
An order for winding up of a company will be in Form 11 and contains the
footnote prescribing the following duties:
(A) To submit the complete and audited book of accounts up to the date of
order.
(B). To attend the company liquidator at the required time and place with all
information.
©.To surrender the assets3 of the company and documents related to it,
including those documents from which the benefit from the assets.
CONCLUSION:-
Winding up or liquidation is not only a legal exercise to satisfy the debts
of creditors, but also signifies loss of brand value that the company
enjoyed in its entire history. Winding-up of every company is guide-line
thought to others in the field to understand what went wrong in
governing a company.
 IMPORTANT QUESTIONS
1. What are the kinds Company meetings and explain the importance of such meetings?
2.******** Define “Oppression and Mismanagement”. Explain the various legal remedies against
“Oppression and Mismanagement”?
3. ********Briefly explain Class Action Suit? Discuss the Relief U/S 245 of CA-2013?
4. Explain brief facts and principles of case law “IN RE Hindustan Co-operative Insurance Society
Ltd.( Air 1961)”?
6. Narrate the brief facts and principles laid down in “Nageswara Rao Vs. Rajahmundry Electric
Corporation (AIR 1956 SC 213)”?
7. ********Explain the concept of winding-up of company. Briefly explain various modes of winding
up of a company?
9. *******Explain the conditions for “compulsory winding up” of a company by the Tribunal?
10. *******Explain the power & Functions of National Company Law Tribunal?
11. What is the differences between winding-up, liquidation, and dissolution of company?
Indian Companies Act, 2013 (Important questions)
1. Define a Company and explain the important characteristics of a Company?
2. Explain the advantages and disadvantages of a Company?
3. What is the concept called “Lifting of Corporate Veil”?
4. “A Company is an independent Corporate Personality”. Substantiate with a Case Law?
5. Explain the salient features of “One man Company”?
6. Briefly explain the procedures for incorporation of a Company?
7. What are the effects of Certificate of Registration of a Company?
8. Can the certificate of incorporation issued by the ROC be cancelled or revoked? Discuss with a case law?
9. The Memorandum of Association is called the “Magna Carta” of a Company. Substantiate OR Explain the
objects and significance of Memorandum of Association?
10.What is called “Doctrine of Ultra Vires”?
11.Explain the similarities and differences between “Memorandum of Association and Articles of Association”?
12.Briefly explain the Doctrine of “Constructive notice” and “Indoor Management”?
13.What are the “Golden Rules of Prospectus”?
• “The doctrine of indoor management” protects an outsider against the company”. Substantiate with a case law?
• What is called “Statement in-lieu of Prospectus”?
• Explain the kinds of Preference shares?
• What is the nature and importance of Company Management?
• The Directors are “Trustees and Agents” of a company. Discuss?
• “The Directors, generally, only owe the duty to the Company, but in certain situations they also owe to individual shareholder, how and
why? Substantiate with a case law.

• What are the kinds Company meetings and explain the importance of such meetings?
• What are the requisite of a valid meeting? Discuss “Quorum” of meeting?
• Define “Oppression & Mismanagement”?
• What are the legal remedies against “Oppression and Mismanagement”?
• Briefly explain Class Action Suit? Discuss the Relief U/S 245 of Companies Act 2013?
• Explain “Oppression” in the Company with a case law?
• Explain “Mismanagement” of a Company with a case law?
• Explain the concept of Winding-up of a Company, and discuss various modes of Winding-up?
• Briefly explain the procedures of “Voluntary & Compulsory” winging-up of a company?
• What are the conditions for compulsory winding up of a Company?
• Explain the power & Functions of National Company Law Tribunal?