Company Law & Sec. Practice

Biyani's Think Tank
Concept based notes
Company Law & Secretarial

Practice
[B.Com. Part-II]
P.C. Jangir
M.Com., M.A.(Economics),
M.Phil, P.G. Diploma in Labour Laws
Vice Principal
Deptt. of Commerce & Management
Biyani Girls College, Jaipur
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Published by :
Think Tanks
Biyani Group of Colleges
Concept & Copyright :

Biyani Shikshan Samiti
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ISBN : 978-93-81254-51-6
First Edition: 2009

Second Edition: 2010
Price :
While every effort is taken to avoid errors or omissions in this Publication, any mistake or
omission that may have crept in is not intentional. It may be taken note of that neither the
publisher nor the author will be responsible for any damage or loss of any kind arising to anyone in
any manner on account of such errors and omissions .
Leaser Type Setted by :
Biyani College Printing Department

Company Law & Secretarial practice 3
Preface
I am glad to present this book, especially designed to serve the needs of the
students. The book has been written keeping in mind the general weakness in
understanding the fundamental concept of the topic. The book is self-explanatory
and adopts the Teach Yourself style. It is based on question-answer pattern. The language
of book is quite easy and understandable based on scientific approach.
Any further improvement in the contents of the book by making corrections,

omission and inclusion is keen to be achieved based on suggestions from the reader for
which the author shall be obliged.
I acknowledge special thanks to Mr. Rajeev Biyani, Chiarman & Dr. Sanjay Biyani,
Director (Acad.) Biyani Group of Colleges, who is the backbone and main concept provider
and also have been constant source of motivation throughout this endeavour. We also
extend our thanks to M/s. Hastlipi, Omprakash Agarwal/Sunil Kumar Jain, Jaipur, who
played an active role in co-ordinating the various stages of this endeavour and spearheaded
the publishing work.
I look forward to receiving valuable suggestions from professors of various

educational institutions, other faculty members and the students for improvement of the
quality of the book. The reader may feel free to send in their comments and suggestions to
the under mentioned address.
Author
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SYLLABUS
Paper-I : COMPANY LAW AND SECRETARIAL
PRACTICE
Section-A
Definition, essential characteristics and kinds of companies.
Detailed study of Public, Private, Government Companies and a
demmed Public Company. Provisions regarding Incorporation and
raising of capital through shares, Debentures and Public Deposits
and concessions of Private Company, Promoters, Memorandum of
Association and Articles of Association Prospectus, Statement in
lieu of Prospecturs, Membership of a company, Alternation and
Reduction of Share Capital.
Section-B
Management of companies - Board of Directors, Managig Director.
manager, managerial Remuneration, Powers, Position and
Responsibilities of Directors, Prevention of oppression and
mismangement. Winding-up of companies.
Section-C
The Position of a Untitled1Company Secretary in the Organisation
structure of a Company, Duties and qualification of a Company
Secretary. Law and Practice relating to (i0 Allotment of Shares (ii0
Forefeiture of Compnay shares and re-issue of forfeited shares. (iii)
Transfer and Transmission of Shares. (vi) Payment of Divident. (v)
Company Meetings, Resolution. Notices, Agenda, Quorum and
Minutes.

Content
S. No. Name of Topic
1. Short Question
2. Meaning and Nature of a Company
3. Memorandum of Association and Articles of Association
4. Prospectus
5. Directors : Position, Appointment and Removal
6. Company Secretary
7. Unsolved paper 2011 to 2006

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CHAPTER-1
Short Question
Q.1 Define Company under Company Law.

Ans.: In terms of Section 3(2)(i) of the Companies Act, 1956, a company means
A company formed and registered under company Act 1956 or an
existing company. An existing company means a company formed and
registered under any of the former companies Act.
Q.2 What is Body Corporate?

Ans.: According to Section 2(7), Body Corporate or Corporation includes a
company incorporated outside of India but does not include as follows :
(i) A corporate sole.
(ii) A cooperative society registered under any law relating to co-
operative societies.
(iii) Any other body corporate declared by Central Govt. in its gazette.
Q.3 What do you mean by holding company?

Ans.: According to section 4(4) a company shall be deemed to be holding
company of another if but only if that other is its subsidiary. Hence, a
company has control over another company, the controlling company is
known as holding company and the company is known as holding
company and the other company is known subsidiary company.
Q.4 What is a Government Company?

Ans.: According to Section617 a Govt. company means any company in which
not less than 51% of the paid up share capital is held by the following :
(i) By the Central Govt;
(ii) By any State Govt. or Governments; or
(iii) Partly by Central Govt. And partly by one or more State
Governments.
A subsidiary of a Government Company is an also Government
Company.
Q.5 Define Foreign companies.

Ans.: According to Section 591(1) A foreign company is the company which is
or has been incorporated outside India but establish or has established a
place of business within India.
Q.6 What is one man company?

Ans.: It is also known as family company. The one man holds entire share
capital of the company. Other person holds only the minimum or
negligible number of shares in the company.
Q.7 Who is a promoter?

Ans.: A promoter is a person or group of persons who conceives an idea
regarding the formation of a company for the first time. He also takes
necessary steps for formation of a company and takes other essential steps
for its incorporation, raising of capital and making it a going concern.
Q.8 What is commencement of business certificate?

Ans.: A public company cannot start business without it. Hence, a public
company before start of business must get a certificate that is called
Commencement of Business Certificate. At the same time a public as well
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as private company must also commence its business within one year of
its incorporation.
Q.9 What is Ultra Vires?

Ans.: It is composed of two Latin words i.e. Ultra and Vires. Ultra means
beyond and vires means power. Hence ultra vires means beyond ones
power. In the context of company law, ultra vires means the acts beyond
the legal powers or objects of the company. If a company acts/contracts
beyond the memorandum either expressly or impliedly, it is null and
void.
Q.10 How doctrine of Constructive notice is opposed to the doctrine of

indoor management?
Ans.: This is against the principle of constractive notice which protects the
company against outsiders for notice given to all due to public documents
on the other hand doctrine of indoor management believes that internal
management of the company and rules are according to memorandum
and Articles. In case of irregularity and mismanagement, then the
company will be held liable.
Q.11 What is abridged prospectus?

Ans.: Abridged means which is in brief and it is a memorandum containing
such salient features of a prospectus prescribed.
Q.12 What is Statement in lieu of prospectus? Explain the varying conditions

of issue of it.
Ans.: If a company requires to get shares or debentures amount from the public.
The private company is restricted but the public company is required to
issue prospectus. But some time the company privately managed the
funds in such a case statement in lieu of prospectus ;must be filed at least
three days before the allotment of shares or debentures; so it is substitute
to prospectus.
Q.13 Define a Director?

Ans.: The Supreme Court of India defines A person who guides policy and
superintends the working of a company, is a director. The name by
which he is called is immaterial. The term includes a Managing Director
Q.14 How many directorships can be held by an individual?

Ans.: No person shall hold office at the same time as director in more than
fifteen companies. If he does work more than this limit, he has to resign
more than fifteen companies.
Q.15 Define Company Secretary?

Ans.: According to Section2(45) of the Company Secretaries Act 1980 includes
any individual possessing the prescribed qualifications and appointed to
perform the duties which may be performed as Secretary under the act
and any other ministerial or administrative duties.
According to Section 2(1)(C) of the Company Secretaries Act Company
Secretary means a person who is a member of the Institute of Company
Secretaries of India.
Q.16 What is stock of a company?

Ans. Stock is the total of fully paid up shares of a company.
Q.17 What is Debenture?

Ans. Debenture means a document which either creates a debt or
acknowledges the debts company has taken it from the debenture holder.
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Q.18 What is allotment of share?

Ans. The term allotment of share means allotment is the acceptance by the
company of the application (offer) made by an individual to take shares in
a company. It does not include re-issue of forfeited shares.
Q.19 What do you mean by member of a company?

Ans. Member is a person whose names has been entered in the register of
members because he has subscribed to the memorandum of the company
or he agreed in writing to become member of the company or his name
has been entered in the records of the register of members shall be the
number of the company (sec. 41). If a person agrees to become director of
a company and promises to take qualification shares, he may also
becomes a member of a company.
Q.20 Can a minor become member of a company?

Ans. A minor cannot become member of the company because he is
incompetent to enter into contract, hence any agreement made by him is
ab-initio void. When the shares are fully paid up them a minor through
his lawful guidance, apply for registration of a transfer of shares in the
name of minor but a minor can be transfer of fully paid shares.
Q.21 What is qualification share?

Ans. Accordingly to clause 66 of table 'A' provides that atleast one share in a
company should be taken by the director that is called the minimum
qualification.
Q.22 What do you mean by Director?

Ans. A Director is a person or one of the persons through whom the company
acts, who guides the policy, manages and controls or superintendents the
affairs of the company.
Q.23 What is the maximum number of directorship can be held by an

individual?
Ans. According to section 275, No person shall hold office at the same time as
director in more than fifteen companies. If any person hold more than 15
companies immediately before the commencement of the companies
(amendment) Act, 2000 shall, within two months from such
commencement shall have to resign from more than fifteen posts.
Q.24 What is share warrant?

Ans. A share warrant is a document issued by a public company to its
shareholders under its common seal by converting the share certificates
issued narrating that the bearer of the warrant is entitled to the shares
which are fully paid up and which are mentioned therein under common
seal.
Q.25 What is Share Certificate?

Ans. A share certificate is a document of title of share issued by a company
under company's common seal which declares that the person whose
name written therein is a bon a fide holder of company's share specified in
it.
Q.26 What is irregular allotment?

Ans. Irregular allotment has been made when -
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(i) Without receiving the minimum subscription under section 69 or

(ii) Without finding the prospectus /in lieu for registration under section
70.
Q.27 How much donation may be contributed by a company to the national

fund?
Ans. Companies can contribute the donation as much as amount desired to the
National defence fund. There is no limit for it.
Q.28 What is the maximum limit of managerial remuneration in a company?

Ans. In cash of public company or its subsidiary the maximum managerial
remuneration in a year shall not exceed 11 per cent of the net profit of the
company.
Q.29 How much donation may be company contribute to the political parties?
Ans. The maximum limit of managerial remuneration which may be paid by a
public company or its subsidiary in respect of a financial year shall not
exceed 11 per cent of the net profit of a company.
Q.30 What is meant by 'Manager' under Companies Act, 1956?

Ans. According to section 2(24) "Manager means an individual (not being the
managing agent) who subject to the superintendence, control and
direction of the Board of directors, has the management of the whole or
substantially the whole of the affairs of a company and includes a director
or any other person occupying the position of a manager, by whatever
name called and whether under a contract of service or not".
Q.31 What do you mean by Managing Director?

Ans. According to section 2(26) defines that "managing direction" means a
director who by virtue of an agreement with the company or of a
resolution passed by the company in general meeting or by its articles of
association, entrusted with substantial powers of management which
would not otherwise by exercisable by him and includes a director
occupying the position of a managing director, by whatever name called."
Q.32 What do you mean by oppression?

Ans. Oppression is any act exercised in a burdensome, harsh and wrongful
manner. In relation to companies it implies unjust or unfair dealing in the
affairs of a company which is harshly, burdensome or prejudice to some
portion of the members of the company.
In brief, oppression takes place when the affairs of a company are bring
conducted in a manner which is harsh, burdensome or unfair or
prejudicial to the interest some portion of members of the company or to
public interest.
Q.33 What do you mean by winding up of a company?

Ans. The term winding up is a process by which the dissolution of a company
is brought about. Under this process a liquidator is appointed to realize
the assets, pay the debts of the company out of assets so realized and to
distribute the balance, if any among the members of the company.
Q.34 What are the various modes of winding up?

Ans. A company may be winding up in any of the following ways:
i) Winding up by the tribunal
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ii) Voluntary winding up. This may be of two types:

(a) Members' voluntary winding up and
(b) Creditors' voluntary winding up.
Q.35 Which party may apply for winding up?

Ans. The following may apply for winding up as an individual or collectively-
(i) The Company (ii) Creditors
(iii) Registrar (iv) Central Government
(v) Any contributory (vi) Liquidator
Q.36 When winding up process commences?

Ans. i) The winding up process is deemed to commence from the date a
resolution is passed by the company for winding up by the court.
iii) In all other cases from the time of the presentation of the position
for winding up.
Q.37 What is mismanagement?

Ans. Mismanagement exists in the following cases :
i) When the affairs or the company are being conducted in a manner
prejudicial to public in trust or to the company's interest.
ii) When by reason of a material change in the management or control
of a company are likely to be conducted in a manner prejudicial to
public interest or to the company's interest or to the company's
interest.
Q.38 What is member's voluntary winding up of a company?
Ans. When members voluntary wish to wind up a company and the majority of
the director at a meeting of the board makes a declaration of solvency of
the company and deliver it to the registrar within the definite period of
time. It is called members voluntary winding up.
Q.39 What is creditors' voluntary winding up?

Ans. When a company passes a resolution for winding up of the company
without making declaration of solvency by its directors or directors make
such declaration and company fails to pay its debts within the definite
period mentioned in the declaration, such winding up is called as
creditors' voluntary winding up.
Q.40 What is renunciation of allotment?

Ans. It is situation when an allottee of shares in a public company renounces all
or a certain number of shares allotted to him in favour of another person,
it is called renunciation of allotment of shares but is requires and permits
by its articles of association.
Q.41 What is splitting of allotment?

Ans. When shares are allotted in large numbers to an allottee by one allotment
letter. It becomes difficult to sell and transfer the shares in the market. In
such a case, the allottee requests the company to letter into a number of
allotment letters in market lot or other desired lot. Therefore, when
company issues such multiple allotment letters or requested by the
allottee, it is to be splitting of allotment.
Q.42 What is meant by calls on shares?

Ans. A call on shares is a demand made by the Directors of a company on the
holders of shares to a part or whole of the amount.
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Q.43 What is calls in arrears?

Ans. Calls in arrears means a sum called in respect is not paid before or on the
day fixed for payment the person from whom the sum is due shall pay
interest thereon from the day fixed for payment to the day of actual
payment. The person is liable to pay a definite rate of interest specified in
the articles or at lower rate fixed by the directors is called calls in arrears.
The board shall be at liberty to waive payment of any such interest,
wholly or in part.
Q.44 Does shareholder making payment of calls in advance entitle to any

voting right?
Ans. No, the shareholder made payment of calls in advance does not entitle to
any voting rights until the same becomes payable by virtue of a call made
by the company.
Q.45 What is surrender of shares?

Ans. When a shareholder is unable to pay the call due on his shares, he gives
up the shares and rights attached thereto by a shareholder to the
company.
Q.46 What is meant by forfeiture of shares?

Ans. It means confiscation of shares and termination of membership of a
member by the Board of Directors (B.O.D.) by way of penalty for non-
payment of any call over due on such shares.
Q.47 What is balance ticket?

Ans. It is a certificate which certifies that the shareholder whose name therein
has delivered a share certificate for transfer of certain number of shares
and shareholders is still entitled to the balance of shares as specified in it.
Q.48 What is blank transfer?

Ans. In a blank transfer a shareholder takes a transfer deed and fills in it the
name of the company, number of shares sold his name and sign it and
deliver to the same to the subsequent buyer; it is called Blank transfer.
Q.49 Clearly explain forged transfer of share.

Ans. When a transfer of shares founded upon forged transfer deed on the
transfer does not sign the transfer deed but his signatures are forged on
the deed, such transfer is called forged transfer.
Q.50 What is Transmission of shares?

Ans. When the shares of a member are transferred to another person by
operation of law, it to be the transmission of shares. It happens generally,
on the death of a member, insolvency and lunacy.
Q.51 What is dividend?

Ans. Dividend is that part of corporate profit which is used for distribution
amongst the shareholders by the general meeting to be distributed among
the shareholders of the company on the recommendation of its board of
Directors.
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Q.52 Explain Interim dividend?

Ans. Declaration of dividend by the director's in the anticipation of profit
before the close of the year to which it is declared and paid shall apply to
any interim dividend.
Q.53 What is meant by meeting of the company?

Ans. A meeting is a gathering or assembly of two or more persons at a pre-
decided date, time and place for transacting certain lawful business of the
company concern.
Q.54 What is meant by Agenda of meeting?

Ans. Agenda means a statement of the business to be transacted at meeting.
Qs.55 What do you mean by quorum?

Ans. The term quorum means the presence of certain minimum member of
members which is required at a meeting for transacting its business.
Without quorum, the proceedings of the meeting are invalid.
Q.56 What is Amendment motion?

Ans. If any alteration proposed by any member in the main motion before it is
voted upon and adopted is called amendment motion.
Q.57 Who is a proxy? To whom can be appointed as proxy?

Ans. A proxy is a person who is authorized by a member of a company to
attend and vote at a meeting on his behalf. A proxy is also an instrument
authorizing a person to attend the meeting and cast vote. The instrument
appointing a proxy must be in writing and must be signed by the

appointer.
Q.58 What is meant by "Minutes of meeting"?
Ans. Minutes refers to the official record of the proceedings of a company
meeting or the business transacted at a meeting. It's main purpose is to
maintain official record and preserve it as decision reached at a meeting in
brief.
Q.59 What do you mean by motion?

Ans. A motion is a definite proposal submitted for discussion and decision
before a general meeting. It is consideration and adoption.
Q.60 What is resolution and what are kinds of resolutions?

Ans. A resolution is a formal decision of a meeting on any proposed presented
for vote and passed by majority, it becomes resolution.
There are three types of resolutions as follows:
i) Ordinary resolution
ii) Special resolution and
iii) Resolution requiring special notice
Q.61 What is meant by ordinary and special resolution?

Ans. Ordinary resolution means which is passed by ordinary majority i.e.
member of votes is in yes is more than no. On the other hand special
resolution is passed by three fourth majority.
Q.62 What is meant by statutory meeting?

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Ans. Section 165(1) of the companies act lays down that every company limited
by shares and by guarantee and having share capital must hold a general
meeting of its shareholders within a period of six months but not earlier
than one month from the date on which the company is entitled to
commence is called the statutory meeting. It is held only once in the life
time of the company. Private companies exempted from holding this
meeting.
Q.63 What do you mean by Annual General Meeting?

Ans. Every company is mandatory to held at least one meeting of its member
during a calendar year is called AGM.
Q.64 What is meant by extra-ordinary General Meeting?

Ans. All general meeting other than the statutory General Meeting and annual
general meeting is called all extra-ordinary general meeting. It is to be
held during the period between two general meetings.
CHAPTER-II
Meaning and Nature of a Company
Q.1. A company is an artificial person created by law, having a separate

entity with a perpetual succession and common seal. Explain the
above statement and briefly describe the characteristics of a company.
Ans.: Meaning of Company : The term company is a voluntary association of
persons formed and registered for certain common persons under the
present provisions of company law. It exists in the contemplation (eye) of
law. It is an artificial person having separate entity from its members with
perpetual succession and common seal. The liability of the members is
limited. The capital of the company is divided into transferable shares
and shareholders are called members.
Definition of the Company : Company may be defined under three main
heads :
A) Definition given under law
B) Definition given by professors/prolific writers
C) Definition given by judges
(A) Definition according to Law : According to the companies Act
1956, a company means A company formed and registered under
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the companies Act 1956 or an existing company.: [Section 3(1)(i)].

An existing company means a company formed and registered
under any of the former Companies Acts.
This definition is not clear about the elements of a company. Hence
definitions given by Professors can be explained.
(B) Definitions by Famous Writers : Professor Haney defined . A
company is an artificial person created by law, having separate
entity, with a perpetual succession and common seal.
(C) Definition : Definition given by Judges. According to Justice (C.J)
Marshall A company is an artificial person created by law, having
separate entity, with a perpetual succession and common seal.
To conclude, a company may be defined as an incorporated
association of persons, which is an artificial legal person in the eye
of law, having an independent legal entity, with a perpetual
succession, a common seal, a common capital comprising
transferable shares and carrying limited liability. Sometimes it is
also called Corporation.
Characteristics of a Company :
(1) Voluntary Incorporated Association : For the formation of a
company ;registration is compulsory under the Company Act
otherwise it will become illegal association of persons. It is
voluntary and statutory association; hence it is also called body
corporate. It is formed by consensus.
(2) Number of Members/Subscribers : For incorporation/registration
of a company, minimum seven persons in case of public company
and two in case of private are required. The maximum number of
members in case of private company may be 50 but for a public
company, no limit of members.
(3) Artificial Personality : A company is an artificial, invisible and
intangible person, it exists in the eye of law. It is not natural person
because it has no physical body, no soul and no conscience.
(4) Separate Legal Entity : A decision is given in case of Soloman v.
Soloman & Co.(1877) that a company has distinct legal entity from
its members. It has its own legal existence independent of its
members. It has its own name, can sue and be sued by its members
and even by outsiders. A member can enter into contract with his
company in the same manner as other individuals.
(5) Perpetual Succession : Company is created and wind up by law
alone. Its existence is ;not affected by the lanacy, retirement, death
or lunacy of its members. Man may come, man may go but
company goes on for ever like water of river may change but the
river like the Ganga is still existing.
(6) Common Seal : Company is an artificial person, hence cannot sign
like a natural person, thus the common seal which is engraved
should be affixed on any documents for authentication and legally
binding on the company.
(7) Limited Liability : The Principle of limited liability for business
debts is one of the principal advantages of doing business under
the corporate form of business organization. In case of a company
limited by shares, the liability of a member is limited to the nominal
value of the shares held by him. In case of company limited by
guarantee will be liable to pay the amount at the time of winding
up of the company.
(8) Share Capital : Every company have to require share capital
according to law Section 3(1) of Indian Company a public
company is ;required to have a minimum paid up capital of Rs.5
lakh and a private company must have Rs. One lakh. But, in case
of companies engaged in promotion of commerce, art, science,
religion, etc. need not require to have minimum paid up capital.
(9) Transferability of Shares : Section 82 of the companies Act, 1956,
provides that the shares ;or other interest of any member shall be
movable property, transferable in a manner provided for in the
articles of the company. Therefore, a member may (A) sell his
shares in the open market, or (B) transfer his shares to anybody he
likes in a public Limited company as per conditions laid down in
the articles of the company. However, there are certain restrictions
on the transfer of shares in respect of private limited companies as
the very nature of the company indicates, namely private
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(10) Separation of Ownership and Management : A company has a

right to own and transfer property since it is a legal entity. A
shareholder has no proprietary right in the property of the
company but merely to their shares. Therefore, the claims of the
companys creditors will be against the companys property and
not that of the shareholders. A Company can sue and is being sued
for enforcement breach of legal rights as the case may be. The
decision was given in the case of Gramophone & Typewriter Co
Ltd., vs. Stanley (1908),
(11) A Company is not a Citizen : A company on incorporation
assumes a legal personality distinct from its members, but it cannot
claim to be a citizen of a country under the constitution of India or
the citizenship Act, 1955. Hence, the company cannot claim the
fundamental rights guaranteed under the constitution. However, it
has certain rights protected under our constitution as a legal entity
which is guaranteed to all persons whether holding the citizenship
or not. The company is mere abstraction or creation of law on the
other hand, the company is deprived of citizenship, has a
nationality, domicile and residence. Its domicile is the place of its
registration and it is attached to it as long as it is in existence. This
establishes the residence of a company at that place where central
control and Management of its business is located or exercised.
This residence business is located or exercised. This residence of
the company gives jurisdiction to the taxation.
(12) Separate Property : The property of the company is not the
property of share holders. It can acquire and keep it in its own
name. No member has either individually or jointly a right to the
assets of a company during its life or on its winding up. If all the
shares be taken by one man, the man cannot insure the property of
a company because he does not have insurable interest.
(13) Act within Intra Vires : A company cannot work beyond the scope
of memorandum of association. Acts made beyond the scope of
memorandum result into ultra vires.
(14) Democratic Management : It is managed by the board of directors,
elected by the members of the company. Day to day decisions is
taken by the concerned Managers. The shareholders cannot take

part in the decision process directly.
(15) Governance by Majority : Company is managed by rule of
majority decision is taken by simple or special majority.
(16) Statutory Obligations : A company is required to comply with
various statutory obligations regarding management. For instance,
filling balance sheets, maintaining proper accounts books, registers
and filing annual return and P & LA/CS duly audited are statutory
obligations of a company.
(17) Separate Name : Every company must have specific name which
must be registered. Once companys name is registered. It must be
painted or affixed on the outside of every officer or place of
business.
(18) Raising of Capital on a Large Scale : A company can raise the
capital on the large scale by selling its shares to the public at large.
(19) Shareholders are not the Agents of Company : Shareholders have
only invested capital in the company but their entity is different
from that for their company. The company is not bound by its
shareholders.
(20) May Assume Enemy Character : Company exists in the eye of law
as legal person hence it cannot become a friend nor an enemy. A
company may be regarded as enemy company if the persons in
control of its affairs are residents in the enemy country or are acting
in accordance with directions or instructions of the enemy.
Q.2. What is lifting of corporate veil? Explain the circumstances under

which the corporate veil of a company may be lifted.
Ans.: Corporate veil here refers to the partition or curtain between the
company and its members. A company being given a legal status, all
dealings with the company will be in the name of the company and men
behind the company are disregarded. Lifting of corporate veil is a fiction
of law, which means disregarding the separate legal entity of a company
and identifying the realities which lay behind the legal faade. In
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applying this doctrine, the court ignores the company and concern itself
directly with the members or directors.
This doctrine of lifting the corporate veil is understood as identification of
a company with its members when individual member may be held liable
for its acts or titles to property. The corporate veil may be lifted when the
directors or members use the legal entity of the company for any
fraudulent or dishonest purpose or to defeat provisions of the law, public
interest or to defeat crime.
The corporate entity is disregarded in exceptional cases which are
categorized into :
(1) Excess or Violation of Statutory Provisions
(2) Judicial Interpretation
(1) Excess Statutory Provisions :
(i) Reduction of Membership below Statutory Minimum :
Under section 45 of companies Act, 1956, a company is
privileged to carry on its business with a limited liability for
six months when the member is reduced below seven in case
of a public company and below two in case of a private
company. Beyond this period of six months, the members
will be held individually liable for debts contracted by the
company.
(ii) Prevention of Fraud or Improper Conduct : The legal
personality of a company is disregarded when registration is
used for fraudulent purposes like defrauding creditors,
defeating or circumventing law. In such cases, the court
may declare those who are responsible for such conduct,
personally liable for all the debts of the company without
any limitation of liability (See 542). In such a situation the
court is empowered to fine. The corporate veil and identify
the persons who defrauded to the creditors or any other
persons.
(iii) Misstatement in Prospectus : Every person who is
responsible to issue the prospectus will be held liable in case
of misstatement in prospectus. He will be held liable to pay
compensation to every person who bought the shares on the

honesty and faith of the prospectus. For any loss or
damages, the aggrieved party can claim from such person
who believed on the prospectus (See 62(ii).
(iv) Mis-description of a Company : Each company is required
that its name must be fully and properly mentioned on the
documents, contract or negotiable instruments like cheque,
Bill of exchange and promissory note. This is mentioned
under section 147, failing which the person who has
committed the act or made a contract is held personally
liable for it. Hence, the court lifts the veil where a company
is merely a cloak, or a sham
(v) Holding and Subsidiary Companies : Both these are having
separate legal existence. But for establishing a proper
relationship of a holding and subsidiary company, the court
may lift the corporate veil and probe behind it to fix up the
persons who control the companies. This is necessary to
determine how far a subsidiary company is independent. It
is quite possible that subsidiary company may be only a
branch of the holding company depending upon how the
board of directors is constituted and how the profits, the
control and conduct of the subsidiary is conducted.
(vi) Investigation of the Affairs of the Company : Section 239
empowers ;the appointment of an inspector to investigate
into the affairs of a company. He will also investigate the
affairs of anybody corporate in the same management or
group of contral. The object is to investigate the affairs of
some companies which are so related that it is necessary or if
it is felt necessary to bring the affairs of these companies
under investigation.
(vii) Investigation of Ownership of a Company : A company
may be investigated by the central government if it is
satisfied that it has sufficient ground to investigate. It may
appoint the inspectors to investigate and report on the
membership or any company or any matters related to the
company for the purpose of deciding the true persons who
28
are financially entrusted in the company and who control

and materially influence the policy of the company under
section 247 by lifting the corporate veil.
(viii) Failure to Refund Application more or Excess Money :
Under the following cases, the directors of the company are
jointly ;and severally liable to refund the application money
or excess of application money :
(a) Under Section 69(5) in case no shares are allotted to
the applicants.
(b) Under Section 73(2) the stock exchange did not allow
to issue and allot shares.
(c) In case of excess money received from applicants for
issue of shares that have been allotted.
(ix) Directors with Unlimited Liability : According to
Section322, if the liability of Directors of public limited is
unlimited, in such a case liability of director will be
unlimited and he will be personally held liable.
(x) Non Payment of Income Tax : In case of Section197 of
Income Tax Act, company is liable to pay Income Tax. If not
paid then the court will lift the corporate veil and the
Director of the Company will be held responsible for the
default.
(2) Judicial Interpretation :
(i) Determination of Character of the Company : A company
may assume an enemy character when person in de facto
control of its affairs are residents in an enemy country.
Hence, when a company is suspected of being owned or
controlled by enemies, the court may lift the corporate veil
and examine the persons constituting it. This is necessary
during the time when two countries are at war. This was
decided in the famous case of Daimler Company Ltd. vs.
M/s Continental Tyre and Rubber Co As said, Daimler
Company, registered in Great Britain was controlled by
German residents. Thus, it is against public policy to allow
alien enemies to trade under company organization. But a

company registered here can carry on business in an enemy
country and it is not treated as an alien enemy.
(ii) For Benefits of Revenue : In the interest of securing the
revenue from those who are attempting to conceal it through
corporate veil, the court will not hesitate to pierce this veil,
particularly when the individual shareholders are avoiding
to pay income tax. This action becomes essential. This can
be explained with help of the case Sir Dinshaw Maneckjee
(AIR-1977), where the assessee was enjoying the dividend
and income from investment held by him. The investment
was in four companies floated him only. The dividend and
investment was again drawn by him as a sole trustee. Thus
he was avoiding the tax revenue. In this case the company
and assessee were held to be one and same. This was
revealed only when the veil was pierced.
(iii) In case of Fraud and Misconduct : The court will also lift the
corporate veil where the company is formed to defraud
creditors or to defeat the provisions of law or to avoid any
legal obligations. This is fully shown in the case of Gilford
Motor Co vs. Horne (1933) 1 Ch.935. In the present case Mr.
Horne was appointed Managing Director of Gilford Motor
Co on the condition that he would not solicit or entice away
the customers of the company. In the mean while, Mr.
Horne formed another company to carry on his own
business and this company enticed the customers of Gilford
Motor Co. It was hence, held that the company was a mere
cloak or sham for the purpose of enabling the defendant to
commit a breach of his covenant against solicitation.
Hence, it was held that it was a fraud committed by Horne
for his own benefit by forming a company.
(iv) Company Acting as an Agent or Trustee of the
Shareholders : According to agency contract acts done by
agent on behalf of Principal. The principal will be held
liable. Where a company is formed for acting as an agent for
its shareholders, the shareholders will be liable for the acts of
30
the company. This is illustrated in the case of F.G.Films Ltd;

Re(1953) 1. WLR.483. The English company acted as merely
the nominee of an agent for American Company.
(v) Fixing Liability for Economic Offences : If there are
economic offences, the court may draw aside the veil of
corporate entity. For example, offences done under FEMA,
the Excise Act, Salestax Act etc. The person who have the
ultimate control over the affairs of the Company may be
held liable. The decision was given in the case of Santanu
Ray vs. Union of India (1989)65 Comp. cases 196 Delhi.
(vi) Fixing Liability under Welfare Legislations : In India, there
are various legislation for welfare of the employees. Such as
PF, Gratuity, Bonus are provided. If there is any default or
offences under these above acts, the courts are empowered
to lift the corporate entity and determine the persons
responsible for committing offences or defaults. Sometimes
a subsidiary company is formed to reduce tax liability under
the welfare legislations. The courts are empowered to lift
the corporate veil find the reality. In this context case may
be illustrated workmen of associated rubber industry Ltd vs.
Associated Rubber Industry Ltd (1956) 59 Comp cases 134).
(vii) Where the Company is used for Illegal Purposes : In such a
situation the courts are empowered to lift the corporate veil
to detect the real culprit. [(PNB Finance Ltd vs. S.P.Jain
(1983) 54 camp cases, Delhi]
(viii) To Punish for Contempt of Court : Where
Corporate/Company entity is used for contempt of court, in
such a situation the court may lift the corporate veil and
punish the person who is responsible for contempt of court.
Case law Jyoti Ltd vs. Kanwaljit Singh Kaur Bhasin (1987)
62 Camp.cases 626, Delhi.
(ix) Determination of Qualifications or Competence : The court
may also set aside the separate legal entity and lift the
corporate veil in case of determination of qualifications or
technical competence. Case Law New Harisons Ltd vs.

Union of India (1997) 89 camp cases 849 SC)
(x) When Company is Sham or Cloak : If the company is
incorporated to mere sham or cloak, in such a situation
corporate veil may be lifted for knowing the reality.
Case Law Delhi Development Authority vs. Skipper
Construction Company P.Ltd [(1997) 89 camp. Cases 362 SC]
(xi) In case of Fraudulent Scheme of Management or
Compromise : If under section 349 of Company law 1956,
company makes any fraudulent scheme of arrangement or
compromise, then the corporate veil may be lifted. Case law
Bedrock Ltd [R.(1998) IT SCL 385 Bombay]
Q.3 What is a Private Company? Distinguish between Private and Public

Company.
Ans. The term Private Company means a company which has a minimum paid
up capital of Rs.one lakh or more as may be prescribed by the articles :
(i) Restricts the transfer of its shares from one share holder to another.
(ii) Limits the number of its members to 50, excluding its present or
past employees.
(iii) Prohibits an invitation to the public to subscribe to its shares and
debentures and
(iv) Prohibits any invitation or acceptance of deposits from persons
other than its members, directors or their relatives. Section 3(i)(III)
amended Act 2000
To distinguish well it is necessary to know what is a public company? A
public company is a company which (i) is not a private company (ii) has a
minimum paid up capital of rupees five lakh or such higher paid up
capital as may be prescribed. (iii) The subsidiary of a public company is
also a public company [Section3(1) as per amendment Act, 2000]
32
Distinction between Private Company and Public Company :
S.No. Basis of Private company Public company

Distinction
1- Minimum It requires atleast 1 Min. paid up capital of
Capital lac or more as paid Rs.5 lacs or more as
up capital. prescribed.
2- Membership In case of private Min.7 and no limit of
company, minimum maximum of persons.
atleast two and
maximum 50
members are
required.
3- Transfer of Transfer of shares is The shares of public
Shares restricted by its company are freely
articles and its transferable from one
shares cannot be person to another and
transferred. they can be quoted on
the stock exchanges. A
public company must
file a prospectus with
the registrar before
allotting shares.
4- Prospectus It is not needed to A public limited
file a prospectus or company must file a
statement in lieu of prospectus with the
the prospectus. registrar before
allotting shares.
5- Statement in It need not be issued In case of public

Lieu of before allotment of company, if it issues
Prospectus shares. shares to its existing
members or directors
or to their relatives or
friends it must file a
statement in lieu of
prospectus to the
registrar earlier to
allotment of shares.
6- No. of Atleast two directors 3 Directors are
Directors are required in case required in case of
of private company. Public Company.
7- Commencement A private company Contrary to it, a public

of Business can commence its company can start its
business after own business merely
obtaining certificate after obtaining
of incorporation. certificates of
commencement of
business.
8- Right Shares In case of private A public company can

company, the commence its business
existing share only after getting
holders have no Certificate of
right to get allotment commencement of
in further issue of Business.
shares.
9- Statutory A private company A public limited
Meeting and need not hold any company is required to
Report statutory meeting to hold a Statutory
file to the registrar. meeting and file a
statutory report with in
the specified time to
the registrar.
34
10- Directors The Directors of But in case of public

Consent private company are company, it is required
not required to file to do so.
with written consent
to work as directors
to the registrar of the
company.
11- Appointment of All the directors may But contrary to it, in
Directors be appointed by the public company, a
single resolution. separate resolution is
required for
appointment of each
director atleast two
third directors of public
company must retire
by rotation at every
general meeting.
12- Retirement of Here directors are Atleast two third
Directors not required to be directors of public
retired by rotation. company must retire
by rotation at every
general meeting.
13- Maximum No. More than 12 Beyond 12 directors

of Directors directors may be cannot be appointed
appointed without without the consent of
the approval of central govt.
Central Govt.
14- Quorum If two members For legality atleast five
personally present in members must be
the meeting, can present personally to
form quorum of the form quorum of the
meeting. meeting.
15- Managerial There is no fixed It cannot exceed the

Remuneration limit of limit of 11 per cent of
remuneration in case the net profit.
of a private
company.
36
16- Share Warrant Cannot be issued in With the consent of

case of a private central government, it
company. can be issued.
Q.4. Discuss the legal formalities that are required to be compiled with under the Indian Com
Ans. 17- Loan to With the consent of Without the approval
: Directors central Govt. it can of the Central Govt.
grant loans to its public company cannot
W Directors. grant loan to its
i Directors.
t
h 18- Provisions as It can prescribe its It follows all the
o to General own regulations provisions of company
u Meetings regarding the general law in this context.
t meetings.
i 19- Index of It is not required in But it is a must in case

n Members case of private of index of members if
c company. its membership is
o beyond 50.
r
p 20- End Words of A Private Company But the Public
o the Name have the words Company must have
r Private Limited in only the word
a its name. Limited in its name.
t
i 21- Preparation of A private company In case of public
o Articles has to prepare company, need not to
n articles of prepare article of
Association. Association, it can use
a table A.
company cannot be formed. It comes into existence only after registration

and issue of certificate of incorporation. A promoter for registration takes
the following steps.
(1) Preliminary Steps
(2) Delivery of Documents to the Registrar
(3) Scrutiny of Documents by the Registrar

(4) Obtaining Certificate of Incorporation
(1) Preliminary Steps : Following preliminary steps are taken by
promoter for registration :
(i) A Promoter decides the type of Company : either private or
a public company he wants to be registered. It will be either
limited by shares or guarantee or with or without share
capital. The company may be registered with unlimited
liability
(ii) The promoter also decides the place of registered office of
the company. If the proper place is not decided then the
name of state is at least decided by him.
(iii) Selecting the Name of the Company : The promoter also
suggest four names of a proposed company as alternatives
in form 1-A with a free of Rs.500 to the registrar of the
company to decide about the availability and desirability of
the name out of four names. This name will be decided by
the registrar within seven days it will be reserved for six
months.
(iv) Drafting Memorandum : The promoter may draft the
memorandum with help of his solicitor, company secretary
and etc.
(v) Drafting of Articles of Association for private company is
essential but for a private company it is optional in place of
it, it can use Table-A.
(vi) Vetting of the Drafts : The registrar may help in avoiding
mistake and unnecessary delay in avoiding mistake and
unnecessary delay in registration of the company.
(vii) Printing of Memorandums : Such as Memorandum and
Articles of Association are required to be printed by the
promoter.
(viii) Stamping on both the documents is a must according to laws
applicable to them.
38
(ix) Signature by the Subscribers : Atleast 7 and 2 in case of

public and private company respectively, signed by the
subscribers on these public documents. In case of illiterate
subscriber, he may give his thumb impression or mark.
(x) Dating : The subscribers must mention the dates on both the
documents but not before the date of stamping.
(xi) Statutory Declaration : The legal compliance is completed
nothing remain to be declared in connection to registration
of the company. It is duly signed by the competent person
prescribed in the act.
(xii) Getting consent of directors that they will act as directors of
the company by the promoter.
(xiii) Getting undertaking to take atleast one share which is called
qualification shares by the director this consent is also taken
by the promoter.
(xiv) Other contracts such as preliminary are to be drafted by the
promoter.
(2) Delivery of the Documents to the Registrar : The promoter
delivers the following documents to the registrar.
(i) Triplicate copies duly signed on printed copies of
Memorandum of Association, which should be divided into
different paragraphs each copy should be signed by the
witnesses also.
(ii) Articles of Association : Three copies duly printed, signed
;and evidenced by one witnesses should be submitted to the
registrar. It is compulsory in case of private company but a
public company may be exempted due to use of Table-A in
place of Article of Association. It should also be dated and
stamped.
(iii) The promoter also attach agreement copy with the whole
time Managing
Director or Manager.
(iv) Statutory Declaration by the advocate of Supreme Court or

of High Court or An Attorney or a pleader who is entitled to
appear before the High Court or a C.S/C.A.
(v) List of Directors : A list of persons who have agreed to act
as Directors of the proposed company shall also be filed with
other documents by the promoter.
(vi) A written and signed consent of directors shall also be
submitted to the Registrar in prescribed form.
(vii) A written undertaking to take atleast one share known as
qualification share shall also be filed with the Registrar.
(viii) Information of Registered Office : The promoter is also
required to intimate about the registered office address or if
not possible of location, then name of state so that the full
address of the location may be submitted within 30 days of
the registration of the company.
(ix) Copy of the letter confirming availability of the name of the
company must be submitted by the company.
(x) Power of Attorney by any Subscriber : The corporate
subscriber must be given power of attorney to any specific
person who can sign on memorandum. They should also be
given the power of attorney to make corrections also.
(xi) Document in support of payment of fees. The fees receipt is
also to be attached in the file.
(3) Scrutiny of Documents : When the promoter duly file all the
documents relating for incorporation to the registrar, the registrar
then will scrutinize these documents from legal point of view. If all
the documents found correct, he may issue a certificate of
incorporation, but if finds any minor defect in the documents, then
he may require for rectification. But if there is no defect, then he
may be compelled to register if he denies.
(4) Certificate of Incorporation : When the registrar ;after scrutiny of
document feels satisfaction regarding formation formalities, he may
retain all the relevant documents with him and he shall issue a
Certificate of Incorporation to the company.
40

CHAPTER-3
Memorandum of Association
and Articles of Association
Q.1. What are memorandum of Association and Articles of Association.

Make out clearly Relationship and the difference between the two?
Ans.: Memorandum of Association is the charter of the company. It is generally
called the constitution of the company which contains all those
fundamental conditions upon which alone a company is incorporated. It
is the foundation on which the complete structure of the company is to
built up. It includes six clauses namely, name, registered office, object,
capital, liability and subscription clauses. It explains the scope and
limitations of the company and it establishes the relationship between the
company and the outside world.
Article of Association : It is an another document which is very important
document for the company. It includes all the rules, by laws and
procedures for management, administration and control of a company. It
directs and supervises the employees, officers, and management of the
company regarding the conduct of Business. It establishes the
relationship between the company and its employees.
The Relationship between the Two : Both the documents are very
important for the company. They may be regarded as two blades of the
scissor, or two wheels of a vehicle or two legs of an handicapped.
Memorandum states the limitations with in which a company has to
work. While articles of association drafts the guidelines for management
and administration of the company. Memorandum decides what is to be
42
done, while Articles of Association decides how can it be done. These two
are supplementary to each other.
The relationship between the two can be explained as follows :
(1) Articles of Association are subsidiary to the Memorandum of
Association. Articles of Association can be made only within the
limits as decided by the Memorandum of Association. Articles
cannot go beyond the Memorandum of Association.
(2) Supplementary to Each Other : These two documents are not
competitors to each other but they are supplementary to each other.
Memorandum directs for the limit and power of the company
whereas Articles of Association guides for the internal
Management of the company.
(3) Articles of Association cannot amend a memorandum of
Association, because articles of Association are subsidiary of the
Memorandum. They cannot control/amend the memorandum.
(4) Memorandum states objects while articles provide the manner in
which objects may be attained.
(5) Memorandum can be explained as constitution or foundation stone
where as articles are relating to internal regulations.
Distinction between Memorandum and Articles of Association :
S.No. Basis of Memorandum of Articles of Association
Comparison Association
1- Meaning It is the charter of a It is a document which
company which defines contains the rules and
the fundamental regulations for the
conditions upon which the internal affairs of a
company is incorporated. company.
2- Definition It is defined under section But is defined under
2(28) of company law, Section 2(2).
1950.
3- Importance It is a fundamental It is a supplementary
document which is document and not
required to be framed by required to be prepared
every company. by the public company

limited by shares.
4- Contents It contains the objects of a It contains management
company, name, place, of internal affairs of the
capital, liability and company.
Association clause.
5- Purpose Its main purpose is to Its main objective is to
state the objectives for carry out the companys
which the company has objectives.
been established.
6- Dominant and It is the main & dominant It is regulated and
Subordinates document which is controlled through
beyond the control of memorandum
Articles.
7- Necessity It is originally framed by It is not required by
every company. public company limited
by shares because Table
A applies there.
8- Alteration Memorandum rarely Articles can be
altered by ;the permission converted by the special
of Central Law resolution passed in the
Board/Company Law meeting of the
Board. company.
9- Compliance of Memorandum is made Articles of Association is
Provisions according to provisions of framed with help of
Company law. Memorandum &
Company law.
10- Ultra Vires Any act done ultra vires Any act which is intra
are absolutely void. vires of memorandum
and company law but
ultra vires Articles of
Association may be
legal.
11- Ratification If any act is ultra vires of If any act is ultra vires
44
memorandum, then it will of Articles of

be null and void. Such act Association, may be
cannot be ratified. made intra vires by the
special resolution
passed.
12- Basis of Relations It is concerned with Articles, defines
relations between relations between
company and outsiders. company and its
members.
13- Remedy with Where the acts are beyond If acts are done without
Outsiders the memorandum, there is following of the Article,
no remedy for outsiders the outsiders can
against the company. enforce rights against
the company.
14- Explanation Memorandum does not But articles can be used
explain Articles. to describe as
supplement of the
memorandum but in no
case it can be extended
the scope of
memorandum.

CHAPTER-4
Prospectus
Q.1. Discuss the consequences of omission, misrepresentation and fraud in

connection with prospectus of a company. Explain the circumstances
under which a director may be relieved from the liability.
Ans.: Meaning of Misstatement or Untrue Statement : It is a false statement. It
means any statement which may confuse or which may have a wrong
impression in the minds of the public about facts of the issue. A general
recommendation even if it is true highly coloured, cannot be a false
statement. A statement that something is a expected or it has been done,
when it is not so in real, will be a mis-statement of the fact. If there is
omission of a material fact from a prospectus, it may also be deemed to be
untrue. Hence, a prospectus should honestly be framed and should not
contain any in complete statement or any ambiguous statement. Hence, a
prospectus containing false, misleading, ambiguous or fraudulent
statement of material facts may be termed as a misleading prospectus e.g.
the case of Rex vs. Kylsant : A prospectus was issued in 1928 with a
statement that the company has regularly been paying dividend ranging
from 5% to 8%. The truth was that the company had been incurring
substantial trading losses during the seven years preceding the date of
prospectus. The court held that the prospectus was false, not because of
what is stated but because of what was not contained in it.
It must be observed that there must be misrepresentation of facts and not
of law, to be called a misleading prospectus, e.g. if the prospectus of the
company states that the shares of company will be issued at half of their
normal rates but it is not the real statement, the prospectus may not be
held misleading because it is only a misrepresentation of law because
46
section 79 does not allow a company to issue its shares at a discount

exceeding 10%.
According to Section 65, a prospectus shall also be deemed to have untrue
statement if omission of any matter from it is calculated to mislead to
those who act on the faith of the prospectus. Therefore, if the statement in
prospectus is untrue and mislead those who act on the faith of the
prospectus, is misstatement and untrue.
Remedies or Consequences of Misleading Statement of a Prospectus :
Following are the remedies to a person against the company for the
misrepresentation or misstatement in the prospectus.
(1) Remedies against the Company
(2) Remedies against the Directors, Promoters etc.
(3) Remedies against the Experts
(1) Remedies against the Company : The company is held liable for
every misstatement in its prospectus to any person who on the faith
of it subscribes for shares in the company. The aggrieved parties
have following remedies against the company.
(A) Rescission of the Contract
(B) Damages for Deceit
(A) Rescission of the Contract for Misrepresentation/Untrue
Statement : Recession means avoiding the contract and
entitles the allottee to immediate removal of his name from
the register of members and repayment of the amount paid
on the shares with interest. But the contract can be
rescinded subject to satisfaction of the following conditions :
(i) The prospectus must contain a false statement or
misrepresentation, whether fraudulent or innocent.
Untrue statement is defined in section 65 of the
company law if it is in misleading form and context as
well as if it is misleading due to omission and untrue
statement.
(ii) The statement which induced the allottee to subscribe

for the shares must relate to fact and not law, an
expression of opinion or expectations.
(iii) The false statement must be material to the contract to
take shares (Peek v. Gurmy (1073)]
(iv) The shareholder must have relied on the statement in
the prospectus.
(v) The omission of material fact must be misleading
before the recession is granted.
(vi) The proceedings for the recession must be started by
the allottee within a reasonable period of time and
before the company goes on liquidation.
(B) Loss of Right of Rescission : The subscriber looses his right
to rescind the contract in the following circumstances :
(i) If he does not start the proceedings within a
reasonable time after knowing the misrepresentation.
(ii) If he confirms his contract, either expressly or
impliedly after becoming aware of the false statement.
If a subscriber attends any of the meetings of the
company, accepts any payment of dividend by the
company, pays any call money on his shares or tries
to sell his shares, it will betaken his affirmation of the
contract by his acts and in all such cases he will not be
allowed to rescind the contract.
(iii) If a company goes on liquidation before he starts the
proceedings to rescind the contract.
(iv) If the company proves that he is a man of such caliber
and such experience that he is not likely to be mislead
by the misstatement in the prospectus.
(C) Right to claim damages for fraud : If a person has purchased
any shares or debentures of a company induced by a
misstatement, in the prospectus of the company, he does not
48
enjoy only the right of rescission of contract but also to

recover the damages for such statement.
But to avail this remedy the subscriber must prove the
following:
(i) That the statements made fraudulently and not
innocently, if a fraudulently statement was made
innocently, only the right of rescission of contract is
available for the subscriber.
(ii) That he has actually been deceived by the
misstatement. It is to remember that the right to claim
any damages can be exercised only after the recession
of contract has been allowed by the court. It makes it
clear that if the right to rescind a contract is lost, right
to claim the damages will be lost automatically.
It is to be remembered in this context that the right to
claim damages for fraud is an elective right. First the
allottee must rescind the contract and secondly then
he can claim for damages.
(2) Remedies against the Directors, Promoters etc. : Every Director,
promoter and every other person who authorized the issue of
prospectus, which contains untrue or misleading statement is liable
to compensate to every such persons who subscribed the securities
of the company on the faith of such prospectus.
The liability of such persons may be classified into two groups :
(A) Civil Liability
(B) Criminal Liability
(A) Civil Liability : Every director and promoter and others
who authorized to issue prospectus, the allottee has the right
to get remedies because there is misleading and untrue
statement in the prospectus. They have the following
remedies.
(i) Damages for Misstatement : According to Section
62(1) every aggrieved party being a subscriber may sue director, promoter
etc for the payment of loss or damages caused by him due to misstatement in
the prospectus. He can claim for damages within three years from the date
of the allotment of shares.
Defenses available to Directors etc : If the director, promoter and others may be
exempted to pay damages or compensation if he proves any of the following
:
(a) That he had withdrawn the consent to become director or before the issue
of prospectus or the prospectus was issued without his consent.
(b) The prospectus was issued without his knowledge or consent and on
becoming aware, he forthwith gave public notice to that effect.
(c) Unaware about the misstatement made in
prospectus, when came to know he withdrew his consent by a public notice
before allotment of shares or debentures.
(d) Reasonable ground for belief : If the director understands that ;he had
reasonable ground to believe and did upto the time of allotment that the
statement was true, I have no doubt at that time.
(e) Statement by expert : The director will not be held liable if he says that the
misstatement is correct to the best of my knowledge ;because it is based on
reasonable ground and expert was competent to make it and he had given
his consent and had not withdrawn that consent before registration of
prospectus.
(f) A copy or extract of official document : According to section 62(2) if the
director proves that the statement given in the prospectus is a copy of or
extract from an official document or is based on the statement made by an
official person.
(ii) Damages for Omission : Every ;matter of the prospectus must be
according to specified schedule II, even though if certain things are omitted,
then the subscriber gets the right of an action for damages to subscriber for
shares, who actually suffered the loss thereby.
Under the following cases a subscriber will not be liable for omission of any
matter from the prospectus :
(a) If he proves that he had no knowledge of the matter not disclosed.
50
(b) If he proves that non-disclosure arose from an honest mistake of fact

on his part,
(c)If the non-compliance was immaterial in the opinion of the court.
(d) If in the eye of the court, the person sued ought to be executed for non
compliance under section 56 (4).
(iii) Damages under General Law : If a subscriber is defrauded by
inducement by the prospectus of the company. The subscriber took the
shares and was defrauded by it and substantial loss due to fraud, the
subscriber can claim for damages.
The remedy can be given under the following
conditions :
(a) Where the aggrieved subscriber has lost the right of rescission of
contract as against the company due to laches or negligence.
(b) The company became liquidated, the directors will not be held liable
for loss if it is proved that they honestly believed the statement to be true
[Derry v. Peek, 1889)
(B) Criminal Liability : The criminal liability of the Directors will be as
follows (according to Section63(1) as amended in 2000)]
(i) Criminal Liability for Misstatement in Prospectus : If a prospectus
contains any untrue statement every person authorizing the issue of
prospectus shall be punishable with an imprisonment for a term which may
be upto 2 years or with fine may be upto Rs.50,000 or with both.
But a Director may be free from liability under the
following terms :
(a) The statement was immaterial.
(b) He had reasonable ground to believe and did upto the time of issue of
the prospectus he believed that the statement was true.
(ii) Criminal Liability for Inducing Persons to Invest Money : According
to Section 68(Amended Act 2000), sometimes a person fraudulently either
by knowingly or recklessly making any statement, promise or forecast which
is false deceptive and misleading or dishonestly concealed material facts and
propelled or induced or attempts to induce another person to enter into or to
offer to enter into the contract as follows :
(a) An agreement for acquiring, disposing of subscribing for, or

underwriting shares/debentures.
(b) An agreement to secure a profit to any of the parties from the benefit of
shares/debentures or by references to flectuations in the value of
shares/debentures.
If the above position is found by any such agreement, he shall be punishable
with imprisonment for a term, may be upto 5 years or with fine which may
be extended to Rs. one lakh or with both.
(3) Remedies against Experts : According to Section 58 if an expert
gives his consent to issue prospectus containing untrue statement made by
him, shall be made liable to all the subscriber because he bought the shares
due to induced by the false statement in the prospectus. They believed and
after deceived. The subscriber is entitled to claim the following from the
expert :
(i) Damages under the General Law
(ii) Damages under Section 62
But the expert has no criminal liability for his untrue statement because he is not
deemed to be a person who has authorized to issue of a prospectus [ See
63(2)].
Defenses available to an Expert : He may be escaped from his
liability if he proves :
(i) That having given his consent, he withdrew it in writing before delivery
of a copy of the prospectus for registration.
(ii) That after delivery of prospectus for registration but before allotment of
shares, he became aware of the untrue statement and withdrew his consent
in writing and gave a reasonable public notice of the withdrawal of his
consent and reasons thereof.
(iii) That he was competent to make the statement in question and believed it
on reasonable ground that it was true.

52
CHAPTER-5
Directors : Position, Appointment and

Removal
Q.1. How the Directors of a company appointed? What restrictions have

been imposed by the Company Act in respect of appointment of
Directors?
Ans.: Section 253 of the Indian Companies Act, 1956 states that only an
individual can be appointed as a Director in a company. It follows that a
partnership firm or an incorporated body cannot work as a Director. The
Indian Companies Act provided the following provisions regarding the
appointment of Directors :
The modes/methods of appointment of directors: The directors may be
appointed by the following ways.
(1) Appointment of First Directors
(2) Appointment by the Member/Company
(3) Appointment by Board of Directors
(4) Appointment by the Third Parties
(5) Appointment by Proportional Representation
(6) Appointment by the Central Government
(1) Appointment of First Directors : The first directors are appointed
by the promoters of the company. They are appointed by the
subscribers of the memorandum. If the articles do not provide for
the appointment of first directors and table A is excluded, the
signatories of the memorandum must be deemed to be first
directors of the companys articles. According to section 254, such
directors shall act as director till the directors are duly appointed at
the first general meeting after incorporation of the company
(2) Appointment at the General Meeting of the Members of the
Company : According to Section 255, atleast two third of the total
number of directors of a public company or of a private company
must be appointed by the company in general meeting. So far as
public company or private company, which is a subsided of a
public company, atleast two thirds of the total number are called
Rotational Directors and shall be appointed ;by the shareholders in
general meeting. Only 1/3 directors out of the total number of
directors hold permanent directorship.
(3) Appointment of the Directors by the Board of Directors : Board of
director of a company may appoint directors of the following
nature :
(i) Additional Director : According to Section 262, if the articles
so permit, Board of directors may appoint additional
directors subject to maximum number of fixed in the articles
of the company who shall hold office only upto the date of
next Annual General Meeting.
(ii) Casual Vacancies : Section 262(i) empowers Board of
;directors that a casual vacancy occurring amongst the
directors may be filled up by the Board of directors itself
unless the articles provide a different procedure but the
persons so appointed shall hold office only upto the time his
predecessors would ;have continued.
(iii) Alternative Directors : According to Section 313, if it is
permitted ;by the articles of the company or by the
companys resolution at the general meeting may appoint an
alternative director. Such an alternative director has to act
for the original director during his absence for a period of
more than three months from the State in which the
meetings of the company are held. The alternative director
can continue as director only for the period for which the
original Director was eligible Further, on the return of the
54
original director, the alternative director may vacate the

office of the directorship.
(4) Appointment of the Directors by the Third Party : Sometimes the
articles give a right to financial corporation, debenture holders and
banking companies which have lent money to the company to
nominate directors on the board of the company with a view to
ensuring that the funds advanced by them are used by the
company for the purpose for which they were borrowed. The
number of directors so nominated should not exceed one third of
the total strength of the board and they are not to retire by rotation.
(5) Appointment by Proportional Representation : Normally
directors are appointed on a straight vote of the members of the
company. But section 265 of the act allows a public company or a
private company which is subsidiary of a public company to
provide in its articles for the appointment of not less than 2/3
majority of the total number of directors by the Principle of
proportional representation either by a single transferable note or
according to the principle of cumulative voting or otherwise. If the
company decides to appoint directors, under this method, the
director may be appointed for a period of three years at a time.
(6) Appointment made by the Central Government : According to
Section 408, the Central Government may appoint such number of
directors when the company law board decides that it is necessary
to safeguard the interests of the company or its shareholders or the
public if :
(i) Not less than 100 members of the company apply to
company law board to make such an appointment.
(ii) Member holding not less than one tenth of the total voting
power to make an application to the company law board for
making such an appointment.
(iii) On its initiative.
(iv) The directors appointed by the government may or may not
be the shareholders of the company. They are appointed to
prevent the oppression of the minority of the shareholders
or to prevent mismanagement of the company or in the

public interest. They are appointed for a maximum period
of three years. They are not required to hold qualification
shares and are not liable to retire by rotation but they may be
removed by the central government at any time and other
persons may be appointed by it in their place. Considered
for the purpose of reckoning 2/3 rd or any other proposition
of the total number of directors of company [Section 408(3)].
Restrictions on Appointment of Directors : According to section 253 of
the companies Act lays down that a person cannot be appointed a Director
by the articles or named as director in the prospectus or statement in lieu
of prospectus unless before registration of articles, publication of the
prospectus or filing of the statement in lieu of prospectus, he has :
(a) Given his consent in writing to act as director and his consent has
been duly filed with the registrar.
(b) (i) Signed the memorandum for his qualification shares.
(ii) Taken his qualification shares and paid or agreed to pay for
them.
(iii) Signed and filed with the registrar an undertaking to take
and pay qualification shares.
(iv) Made and filed with the registrar an affidavit stating that his
qualification shares are registered in his name.
The above restrictions do not apply to :
(i) A company without share capital.
(ii) A private company.
(iii) A private company now converted into a public company.
(iv) A company which has issued prospectus after the expiry of one
year from the date on which it was entitled to commence business.
Q.2. Describe the statutory provisions relating to a Manager and clearly

distinguish between a Managing Director and a Manager.
Ans.: The Statutory provisions relating to Manager are as follows :
56
(i) Every public company having a paid up share capital of rupees five
crore or more shall have a Managing Director or a whole time
Director or Manager (Section269(2 )].
(ii) According to Section269 (2), if the conditions specified in schedule
XIII are fulfilled, the Managing or Whole time director or Manager
in a public company can be appointed/reappointed without the
approval of Central Government. A return in the prescribed form
No.25C is however required to be filed within 90 days of
appointment.
(iii) If the conditions specified in schedule XIII are not complied with an
application seeking approval to the appointment must be made to
the Central Government/reappointment [(Section269 (2)(3)].
(iv) The Central Govt. may grant approval for a period lesser than the
period for which the proposal has been made.
(v) If the appointment or reappointment is not sanctioned or approved
by the central government, the appointee shall vacate office
immediately on communication of the decision by the Cent ral
Government otherwise he shall be punishable with fine upto
Rs.5000 for every day during which he fails to vacate such office.
(vi) In addition to the above where the central Government on
information received is prima facie of the opinion that any
appointment made without its approval has been made in
contravention of the requirements of schedule XIII, the Central
govt. may refer the matter to the company Law Board for decision.
The company Law Board after giving reasonable opportunity of
hearing to the company and the appointee may make an order
declaring whether contravention of the requirements of schedule
XIII has or has not taken place. If the company Law Board comes
to the conclusion that such contravention has occurred, the
appointment shall be deemed to have come to an end on the date of
such declaration and the person so appointed shall be addition to
being liable to pay a fine of one lakh rupees refund to the company
the entire amount of salaries and perquisites etc received by him.
However, all the acts of Managerial/personnel whose appointment
is invalidated will be deemed to be valid. It is stated

(Section269(7)(8)(9)(10) and 12]
(vii) No change can be made in the context of
appointment/reappointment of Managing Director or a whole time
director without the approval of the central government or
schedule XIII of companys act.
(viii) The remuneration payable to M.D. or whole time director cannot be
more than 5% of the net profits of that financial year. If there is
more than one M.D or whole time Director in a company, the
maximum limit fixed at 10 per cent of the annual net profit
explained in Section 309 (3) These limits are, however, subject to
the overall ceiling of total management remuneration of 11 per cent
of annual net profits of the company.
(ix) At a time the maximum term of appointment can be five years.
Reappointment is possible but it may be made within the last two
years of his present terms only mentioned in Section317.
(x) No person can act as a M.D of more than two companies at a time
including both public and private. Out of these two atleast one is a
public company.
(xi) No person can be appointed a Managing Director or whole time
Director who :
(a) Is an undischarged insolvent.
(b) Suspends or has at any time suspended payment to his
creditors or makes or has made a composition with them.
(c) Is/has been convicted by the court of an offence involving
moral turpitude.
Distinguish between Manager and Managing Director : They are
distinguished as follows :
(i) Compulsion of being Director and Managing Director : A
Manager may be a director or may not be a director of the company
but a Managing Director must be a director of the company.
58
(ii) Rights or Scope of Authority : M.D is entrusted with substantial

powers of Management whereas a Manager has the Management of
whole or substantially a whole of the affairs of a company.
(iii) Number : There may be more than one Managing Directors in a
company but in case of a company only one manager is required.
(iv) Appointment : MD may be appointed either by agreement with the
company or by a resolution of the Board or general meeting or
under memorandum or Articles of the company. Manager is
usually appointed under a contract of service by the Board of
Directors.
(v) Cessation of Office : A person as M.D when ceases to be a director
is automatically ceases to be the M.D contrary to it a manager
remain manager after ceasing to be director.
(vi) Employee : M.D. may be an employee or not, it depends on the
terms of employment On the other hand, Manager is an employee
of the company.
(vii) Disqualification : Some disqualifications of M.D. are for whole life
whereas the disqualification of Manager are only of five years and
even the central government may waive these disqualifications.
(viii) Membership of the Board : MD is the member of the Board of
Directors whereas manager is not the member of Board of
Directors.
(ix) Relationship : MD is a co-director of the other directors of the
company. Managers in relation of employee with directors.
(x) Practice : Usually MD is appointed in a company whereas Manager
is rarely appointed in a company.
(xi) Qualification Shares : According to the Articles of Association, an
M.D. must have qualification shares. But a manager on the other
hand need not require qualification shares because he is not a
director.
(xii) Remuneration : The maximum remuneration payable to a person
holding the office of a Manager cannot exceed 5% of the annual net
profits of the company . Contrary to it if the company has more
than one M.D, the total remuneration payable to all of them should
not exceed 10% of the total net profits of the company.
(xiii) Control : A manager functions under the control and direction of
the board while a Managing Director functions under the control
and supervision of the board.

60
CHAPTER-6
Company Secretary
Q.1. Explain the legal position of the Secretary of a Company. OR While the
directors are the brains of the company, the secretary is its ears, eyes and
hands. He is responsible in plenty, but he is only an agent and cannot
act for the company without authority from the directors. Discuss this
point.
Ans.: It is the period of globalization, liberalization, privatization, technological
and informational changes every where, though new organisations are
emerging in the form of multi national corporations. Though company is
an artificial, invisible, intangible and exists only in the contemplation of
law. It is managed by very professional and competent Manager, because
company is owned by shareholders and Management and company is
separate. Therefore, it is very necessary that company should run
according to company law and other laws applicable accordingly. The
person who is responsible to see all this is called the Company Secretary.
According to Oxford Dictionary, A Secretary is one whose office is to
write for another, especially one who is liable to conduct correspondence
to keep records and to transact various other businesses for another
person or for a society, corporation or a public body.. Section 2(45) of
Indian Companies (amendment) Act 1974 Secretary means any
individual possessing the qualifications appointed to perform the duties
which may be performed by a Secretary under this act and any other
ministerial or Administration duties. According to Section 2(1) of the
Company Secretaries Act, company Secretary means a person who is a
member of the Institute of Company Secretaries of India In brief a
company Secretary is an individual who is a member of Institute of
company secretaries of India. Besides, any individual who is possessing
the other prescribed qualifications and appointed to perform the duties
which may be performed by a Secretary under the companies act and any
other ministerial or administrative duties.
Legal Position of a Company Secretary : What is the status of a Company
Secretary, is very difficult and complicated because the company is silent
about the legal position of Secretary. If we look at the rights and duties of
C.S, we can state that a Secretary is a representative officer, agent, advisor
of the company, as well as the servant of the company. Secretary is in
constant relationship between directors and shareholders. The legal
position of C.S. is as follows :
(1) Secretary as an Agent : The Secretary is an agent of the company.
As an agent, he must conduct the businesses with reasonable
amount of care and intelligence. As a principal, the company is
liable for all the works done by its Secretaries, provided such works
are within the limit of his authority and are done in a bonafide
manner in the interests of the company. If the Secretary has made
any secret profit, he shall be made liable to account for any such
profits. But Secretary is ;an agent in the company in the capacity of
a servant. He can do anything whatever is told to him. Hence, he
may enter into contract with the consent or authority of the
directors. He may exercise such powers as the board of directors
delegate him. He has only ostensible authority. It is stated by
various authorities to do so on behalf of the directors and company.
He is certainly authorized to sign contracts connected with
administrative side of the companys affairs such as employing
staff, ordering vehicles and so forth. All such acts are within
ostensible authority of Secretary as an agent.
(2) Secretary as an Officer : According to Section2(30) of the Indian
Company Act, Company Secretary is an officer of the company. He
is not managerial person. Lord Denning held that he has extensive
duties and responsibilities. Justice solmon says Secretary is the
Chief Administrative Officer of the company. He is also held liable
when he is on default in following cases.
(i) He is liable to sign and file various forms and returns and
maintaining statutory books. If he fails to do so, he is liable
to penalties.
62
(ii) He is liable for liaisoning work, link between company and

third parties. He is liable to supervise all ministerial and
Administrative work in the capacity as an executive officer.
He also advises the board in relation to the statutory
provision.
(iii) He may be subjected to misfeasance proceedings at all time
of winding up if he has misutilised or retained any money or
property of the company or has been guilty of breach of
trust.
(iv) C.S. is liable to be punished if he falsifies the books of the
company, misstatement in balance sheet or any reports or
returns or certificates filed to the registrar.
(v) C.S is liable for statutory obligations under the provisions of
various acts such as MRTP Act, FERA Act, Income Tax Act,
Salestax and Indian stamps duty act and other labour laws.
(3) As a Professional person or as representative of the Company: A
C.S. is recognized as professional person by I.C.S.I (Institute of
Company Secretaries of India). He is entitled to represent the
company in case of the tribunal, Income Tax and Central Excise
authorities have recognized as a practicing Secretary for attestation
of documents.
4) As a Managerial Person : A company Secretary is not a managerial
person. He is subordinate of a Manager actually. He is
subordinate officer. His remuneration is not taken into account for
as managerial personnel under Section198. The act does not
prevent his managerial power if provided he will become more
powerful. If there are more than two or three directors, then one of
them may be appointed as company secretary if he is possessing
required qualification of C.S.
(5) As a Person in Fiduciary Position : The Company Secretary stands
in fiduciary position towards a company. He is liable to company
if earns secret profits. Company and Secretary stand in trust and
fiduciary position.
(6) Secretary as a Departmental Officer : He is the officer of

Ministerial staff. He manages the meetings of share holders and
directors. He directs and controls the Accounts Department,
distribution, Sales and correspondence department. However, it
should be noted that he only supervises these departments. He
cannot participate directly.
(7) Secretary as the Servant of the Company : A Secretary is basically
a servant of a company. He is to perform his duties in accordance
with instructions given to him by the directors of the company.
According to justice Isher, A secretary is a mere servant, his
position is that he is to do what he is told and no person can
assume that he has authority to represent anything at all. It
reminds that a secretary is a servant of his company because he
simply follows the orders given to him by his directors. He cannot
do any thing on his own. He cannot register a transfer of shares.
(8) A Secretary as an Advisor : A secretary is also the advisor of the
company because if the directors are the brains of the company, the
secretary is its ear, eyes and hands. Therefore, it is concluded that
Secretary of a company is the very important person. He serves the
company as any officer, as a servant, as an agent and as an advisor
Q.2. Explain the role or importance of Company Secretary.

Ans.: The role of Company Secretary is increasing day by day due to
globalization, legal and government intervention in the affairs of business.
He is in key position in the company organization, having a link among
Board of Directors, Managers, Shareholders, outsiders and registrar of the
company. Hence, Bucknell truly stated the position of company
secretary is like that a hub in the cycle wheel.
The role and importance may be explained from the following statement :
(i) While directors are brain of a company, Secretary is the
companys ears, eyes and hands.
(ii) Secretary as a servant as well as a guide to Directors.
(iii) Secretary, the mouth-piece of Directors.
64
The importance and role of Company Secretary can be explained in the

following manner :
(1) Directors are the brains, Secretary is ears, eyes and hands :
Company is an artificial, intangible and invisible having no soul or
brain. It works through board of directors
and they get work done through various officers, Secretary is
among them. His role is pivotal. Head Fausset, and Wilson
explained While the directors are the brain of the company, the
Secretary is its ears, eyes and hands. This statement can be
explained as follows :
(i) Directors are the brain of the Company : Due to artificial,
intangible and leg al creature, it has no body, no soul, no
brain and no conscious. But the company acts through
directors. They are the brains of the company. They
formulate its plans, policies, procedures and strategies, the
work in a judicious way for profits and well being of the
company. Directors work like brain which is very sensitive
and responsive for the success and growth.
(ii) Secretary, the ears of the Company : The ears helps in
listening proper information, instructions and guidance and
transmit these to the brain and then decision is taken. In the
same manner, Secretary analyses the internal and external
environment. He hears views, complaints, suggestions and
criticism from the office staff and employers and external
parties. He then tells to the management. That is why
Secretary performs the functions of ears.
(iii) Secretary, the eyes of the Company : Like eyes sees and find
out the merits and demerits of a particular person and
things. In the same manner, Company Secretary observes,
sees working system of the company and find out any
drawback. After watching and observing, the brain has no
doubt about the working system. Hence, a Secretary
perfectly fits in the role of the company
(iv) Secretary, the hands of the Company : Hands help in
performing work. In the same way whatever plans policies,
procedures and programmes are instructed by the directors

(like a brain), the Secretary implements these accordingly to
requirement of the time. He prepares the reports, returns,
statements et. In compliance with ;the legal requirements.
He maintains books, statutory books, registers and
documents. He also ensures properly compliance of other
legal documents such as income tax, excise, labour stamp
duty, MRTP laws. He also writes to the government on
behalf of the company and directors in doing every
important activity of the company.
(2) Secretary, as servant as well as guide to Directors : It is stated by
Lord Esher that a Secretary is mere servant. He is to do what he is
told. He is like an employee of the company. His remuneration is
not like a managers remuneration. But his position has become
more dignified. He guides directors on important and typical
matters of law and practice. He also helps in formulation of plans
and policies. He also guides relating to issue, allotment, transfer
and transmission of shares, issue of right or bonus shares,
declaration of dividend etc. Hence, he is not only a servant but also
provides worthy guidance.
(3) Secretary is also the mouth piece of Directors : He usually
represents the company. He issues explanation to the press in
general and shareholders in particular. He also makes press release
regarding the achievements, progress and working of the company.
He is also concerned with the image of the company. He nurtures
or exploits every opportunity to directors to the shareholders as
well as to the public at large. Hence, we conclude that the
Company Secretary is like a mouth piece of the company.
Whatever he tells it is assumed told by the management of the
company.

66
B.Com.(Part II) EXAMINATION ,2012

(New Scheme)
(10+2+3 Pattern)
BUSINESS ADMINISTRATION
(Company Law and Secretarial Practice)
First Paper
Time allowed: Three hours
Maximum marks :100
Answers of all the question( objective as well as descriptive) are to be given in

the main answer book only. Answers of objective type questions must be given
in sequential order. Similarly all the parts of one question.Of descriptive part
should be answered at one place in the answer book. One complete question
should not be answered at different places in the answer book.
No supplementary answer book will be given to any candidate. Hence the
candidates should write their answers precisely
OBJECTIVE PART-I
Maximum marks:40
Answer of Questin No. 1 (i) to (x) should not exceed 20 words. Each question
carries 2 marks. Answer of Question No 2(i) to (v) should not exceed 50 words.
Each questions carries 4 marks.
1. (i) Define Company.
(ii) What is Preliminary Contract?
(i) What is offer for sale?
(ii) What is Reserve Capital?
(iii) What do you mean by Memorandum of Association?
(iv) Define a Company Director.
(v) What is meant by Quorum of the meeting?
(vi) Who can call company meeting?
(vii) State the time limit for calling a statutory meeting.
(viii) What is winding up of a company?
2. (i) Write any four important differences between Article Association

and Memorandum of Association.
(ii) State main distinction between Equity and Preference Shares.
(iii) What do you mean by Constructive Notice?
(i) Distinguish between Winding up and Dissolution of a company.
(ii) What is Preference Share ?
DESCRIPTIVE PART-II
Maximum marks :60
Attempt three questions, selecting one question from each Section. Each
question carries 20 marks
Section-A
3. A company is an artificial person created by law, having a
separate legal entity with a perpetual succession and a common seal.
Discuss this statement and explain the characteristics of a company.
Or
4. What do you understand by Prospectus of a Company ?
What particulars are given in a company Prospectus? Explain in detail.
Section-B
5. What are the powers of directos ? Write briefly their duties
and liabilities.
Or
6. Write the circumstances under which a company can
compulsory be wind up by a court and also state the consequences of such
a winding up order.
Section-C
7. While the directors are the brain of the Company, the
secretary is the ears, eyes, hands and mouth. Explain . Discuss the
position of company secretary in the light of the above statement.
Or
68
8. What is statutory meeting ? What are the duties of company

secretary regarding statutory meeting?
B. Com (Part-II) Examination, 2011

(10+2+3 Patterns) (Faculty of Commerce)
(BUSINESS ADMINISTRATION)
Company Law and Secretarial Practice
Time: One Hour Max. Marks: 40
OBJECTIVES PART- I
Atte mpt All Questions
1. Answer each of the following questions in not more than 20 words. Each question
carries two marks.
(i) What is Perpetual Succession in relation to Joint Stock Companies?
(ii) What is meant by a Holding Company?
(iii) Who can be a Promoter?
(iv) Which companies are compulsorily required to frame Articles of
Association?
(v) What is share warrant?
(vi) What is contract relating to Directors Interest?
(vii) State maximum limit of managerial remuneration.
(viii) Who is a liquidator?
(ix) What is meant by company director?

(x) Define minutes.
carries four marks.
(i) Give any four points of difference between private and public company.
(ii) Write meaning of Constructive Notice.
(iii) Distinguish between the transfer and transmission of shares.
(iv) Distinguish between the ordinary and special resolution.
(v) What are the contents of Memorandum of Association?
70
DESCRIP TIVE PART- II

Time: Two Hours Max. Marks: 60
Attempt three questions in all, Selection at least one question from each Section. All
questions carry equal marks of 20 each. Each question has internal choice in the form of
either/or.
Section A
3. Define a Private Company. Describe legal privileges and concessions or
exemptions enjoyed by a Private Company.
or
Who are members of a company? Distinguish between a member and a
shareholder.
Section B
4. What are the provisions of Company Act, 1956 regarding prevention of oppression
and mismanagement?
or
What do you understand by voluntary winding up? Describe the circumstances and
effects of voluntary winding up of a company.
Section C
5. Define Company Secretary. Discuss the rights and duties of a Company Secretary..
or
What is annual general meeting? Why it is called? What business is transacted at
the annual general meeting?

OBJECTIVES PART- I
carries two marks.
(i) Define company
(ii) Why a private company cannot issue prospectus?
(iii) Define Share Capital.
(iv) What is offer for sale?
(v) What is balance ticket?
(vi) What is extraordinary general meeting?
(vii) What is transmission of shares?
(viii) How many members of company may apply to the Central Government of
investigation a company?
(ix) What do you mean by Memorandum of Association?
(x) Write the period of notice of company meeting.
carries four marks.
(i) What do you mean by Lifting or Piercing the Corporate Veil?
(ii) Write any four important differences between Articles of Association and
memorandum of Association.
(iii) What is Agenda of the meeting?
(iv) State main distinction between equity and preference share.
(v) Distinguish between ordinary and special resolution.
72

either/or.
Section A
3. Write short notes on the following:
(i) Various stages of incorporation of company.
(ii) Distinguish between Private and Public Limited Company.
or
What do you understand by prospectus of a company? What particulars are given
in company prospectus?
Section B
4. Explain the provision of companies Act with regard to the managerial
remuneration.
or
What do you understand by winding up of a company? Describe briefly the
different modes of winding up.
Section C
5. "While the directors are the brains of the company, the Secretary is the ears, eyes,
hands and mouth". Explain. Discuss the position of company Secretary in the light
of the above statement.
or
What is statutory meeting? What are the duties of company Secretary regarding
statutory meeting?

OBJECTIVES PART- I
carries two marks.
(i) Define Government Company.
(ii) What is Preliminary Contract?
(iii) What do you mean by Corporate Veil?
(iv) What is Reserve Capital?
(v) Can a Director be appointed as secretary in a company?
(vi) What is Blank transfer?
(vii) Define a Company Director.
(viii) What is meant by 'Quorum' of the meeting?
(ix) State the time for calling a statutory meeting.
(x) What is winding up of a Company?
carries four marks.
(i) State the various stages of formation of a Company.
(ii) What do you mean by constructive Notice?
(iii) Distinguish between winding up and dissolution of a company.
(iv) What is "shelf' prospectus?
(v) When can any person constitute the quorum of company meeting?
74

either/or.
Section-A
3. "A company is an artificial person created by law, having a separate legal entity
with a perpetual succession and a common seal". Discuss this statement and
explain the characteristics of a company.
or
"Memorandum of Association is an unalterable charter of a company". Discuss in
detail. State difference between memorandum of Association a nd Articles of
Association.
Section- B
4. What are the power of directors? Write briefly their duties and liabilities.
or
Write the circumstances under which a company can compulsorily be wound up
by a court and also state the consequences of such a winding up order.
Section-C
5. Write notes on:
(i) Position of a company secretary in company
(ii) Minutes of meeting
or
What is Annual General Meeting? Describe the duties of Company Secretary
regarding Annual General Meeting.

OBJECTIVES PART- I
carries two marks.
i. Define company.
ii. What is company limited by guarantee?
iii. What is memorandum of association?
iv. Write types of shares.
v. Define Director of a company.
vi. What is minimum number of Director in a private company?
vii. What is Inspection Committee?
viii. What is winding up of a company?
ix. Who can call company meeting?
x. Write types of resolution.
carries four marks.
i. What do you mean by private company?
ii. Write clauses of Memorandum of Association.
iii. Why a private company cannot issue prospectus?
iv. What is preference share?
v. What do you mean by statutory meeting?
76

either/or.
Section-A
3. What do you mean by a company promoter? Discuss fully his rights, duties and
liabilities.
or
What is prospectus? What are the consequences of misstatement of fraudulent
statement in prospect?
Section-B
4. What is prospectus? What are the consequences of misstatement or fraudulent

statement in prospectus?
or
What do you understand by winding up of a company? Describe briefly the
different modes of winding up.
Section-C
5. "While the Directors are the brains of the company, the Secretary is its ears, eyes
and heads", explain this statement and state the importance of a company
secretary.
or
Describe the requisites of a valid company meeting.

OBJECTIVES PART- I
carries two marks.
i. What is debenture?
ii. What do you mean by a 'holding company'?
iii. Write meaning of minimum subscription.
iv. What is bonus share?
v. What is a share warrant?
vi. Who is proxy?
vii. How many directorships can be held by an individual?
viii. What do you mean by surrender of share?
ix. What do you mean by interim dividend?
x. What do you mean by minutes?
carries four marks.
i. "Company is an artificial person." Comment.
ii. Distinguish between member and share holder of company.
iii. What is the difference between charge and mortgage?
iv. When is a company required to file a statement in lieu of prospectus?
v. What do you mean by oppressing behaviour by management?
78

either/or.
Section-A
3. What is the meaning of a company? What is the difference between a Private
Company and Public Company?
or
Distinguish between Memorandum of Association and Articles of Association of
a company. Describe the procedure of altering of Articles of Association.
Section-B
4. How are Directors appointed? What restrictions have been placed by the Indian
Companies Act on the appointment of Directors?
or
In what circumstances a court can wind tip a company? State the legal provision
in respect of compulsory winding up.
Section-C
5. Describe in brief and Secretarial practice regarding the forfeiture and reissue of
forfeited shares.
or
Define dividend. Describe the duties of a company Secretary regarding the
payment of dividend.

OBJECTIVES PART- I
1. Answer each of the following questions in not more tha n 20 words. Each question
carries two marks.
i. Write maximum numbers of members in a Private Company.
ii. What is Government Company?
iii. What do you mean by Promoter?
iv. What id doctrine of "Ultra Virus?
v. What do you mean by "Shelf Prospectus".
vi. Write the meaning of minimum subscription.
vii. What is the minimum number of directors in a company?
viii. Who can apply to the Tribunal for compulsory winding up of a company.
ix. What is dividend?
x. What is the agenda of the meeting?
2. Answer each of the following questions in not more than 50 words. Each
question carries four marks.
i. State main distinctions between memorandum and Articles of Association.
ii. Write a note no 'Sweat Equity Share'.
iii. State any four ways of termination of membership in a company.
iv. Describe the provision regarding donations to political parties. By a
company.
v. Distinguish between ordinary and special resolution.
80
DESCRIPTIVE PART- II
either/or.
Section-A
3. "A company is an artificial person created by law having a separate entity with a
perpetual succession and a common seal". Discuss the above statement of explain
the characteristics of a company.
or
What is prospectus? Is the issue of a prospectus obligatory for a public company?
Discuss the consequences of misstatement in a prospectus.
Section-B
4. What is meant by Company Director? Explain the positions of Directors. State the
conditions under which a person is disqualified from being appointed as a
Director.
or
Explain the difference between members and creditors' voluntary winding up of a
company. Give the provision of law regarding creditors voluntary winding up.
Section-C
5. "While the Director are the brains of the company, the Secretary is the ears, eyes
and hands". Explain. Discuss the positions and importance of a Company
Secretary in the light of the above statement.
or
What do you know about appointment of Chairman of a company meeting? State
briefly his duties and powers.

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Biyani's Think Tank

Concept based notes

Company Law & Secretarial

Concept & Copyright :

First Edition: 2009

Leaser Type Setted by :

Biyani College Printing Department

Any further improvement in the contents of the book by making corrections,

I look forward to receiving valuable suggestions from professors of various

S. No. Name of Topic

2. Meaning and Nature of a Company

3. Memorandum of Association and Articles of Association

5. Directors : Position, Appointment and Removal

7. Unsolved paper 2011 to 2006

Q.1 Define Company under Company Law.

Q.2 What is Body Corporate?

Q.3 What do you mean by holding company?

Q.4 What is a Government Company?

Q.5 Define Foreign companies.

Q.6 What is one man company?

Q.7 Who is a promoter?

Q.8 What is commencement of business certificate?

Q.9 What is Ultra Vires?

Q.10 How doctrine of Constructive notice is opposed to the doctrine of

Q.11 What is abridged prospectus?

Q.12 What is Statement in lieu of prospectus? Explain the varying conditions

Q.13 Define a Director?

Q.14 How many directorships can be held by an individual?

Q.15 Define Company Secretary?

Q.16 What is stock of a company?

Q.17 What is Debenture?

Q.18 What is allotment of share?

Q.19 What do you mean by member of a company?

Q.20 Can a minor become member of a company?

Q.21 What is qualification share?

Q.22 What do you mean by Director?

Q.23 What is the maximum number of directorship can be held by an

Q.24 What is share warrant?

Q.25 What is Share Certificate?

Q.26 What is irregular allotment?

(i) Without receiving the minimum subscription under section 69 or

Q.27 How much donation may be contributed by a company to the national

Q.28 What is the maximum limit of managerial remuneration in a company?

Q.30 What is meant by 'Manager' under Companies Act, 1956?

Q.31 What do you mean by Managing Director?

Q.32 What do you mean by oppression?

Q.33 What do you mean by winding up of a company?

Q.34 What are the various modes of winding up?

ii) Voluntary winding up. This may be of two types:

Q.35 Which party may apply for winding up?

Q.36 When winding up process commences?

Q.37 What is mismanagement?

Q.39 What is creditors' voluntary winding up?

Q.40 What is renunciation of allotment?

Q.41 What is splitting of allotment?

Q.42 What is meant by calls on shares?

Q.43 What is calls in arrears?

Q.44 Does shareholder making payment of calls in advance entitle to any

Q.45 What is surrender of shares?

Q.46 What is meant by forfeiture of shares?