A Blog for Management Students - Company Law

1.  Company Law

 English to Hindi

 

 Unit I & II 

Introduction to Company Law

Characteristics of Company:- 

Types of Companies:- 

I . On the basis of Incorporation :-
      (1) Chartered Companies:- companies set up as a result of a royal charter granted by king or queen of a country are known as Chartered companies. Example:- East India Company, the bank of England etc.

(2) Statutory company:- Companies set up by special act of parliament or state legislatures are called statutory company.
Example:- Reserve Bank of India, Life Insurance Corporation of India, Unit Trust of India etc.

(3) Registered companies:- companies registered under the Indian Companies Act 1956 or under any of the previous Companies Acts are called registered companies.

II.  On the basis of liability:-

(1) Companies with limited liability:- It is the company where the liability of the shareholders remains Limited to the nominal value of the shares held by them.

(2) Unlimited companies :- Here the liability of its members is unlimited. In other words, their liability extends to their private properties also. Unlimited companies are almost non existence these days.

III. On the basis of number of members:-

(1) Private company :- A company which has a minimum paid up capital of Rs. 100000 or such higher paid up capital as may be prescribed and by its articles
(a) Restricts the right to transfer  its shares
(b) Limits the number of it's member to 50

(2) Public Company :- A public company means a company which

(a) Has a minimum paid up capital of Rs. 5 Lakh or such a higher paid up capital as may be prescribed
(b) Which is not a private company 

Introduction to Promoter & it's Functions :- 

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UNIT III

The Memorandum of Association:- The Memorandum of association is the fundamentals document or Charter of a Company.

It is the most important document of a company; Containing the following six clauses, as explained below:

(1) Name Clause:- This clause gives the name of a company. In case of a public company, the name should end with the word 'Limited'; and in case of a private company, the name should end with the words 'Private Limited'.

A Company's name should not resemble the name of any existing company.

(2) Domicile Clause:- This Clause gives the name of the state in which the registered office of the company will be situated. It determines the domicile and nationality of the company.

It is not necessary to give complete address of the registered office in the Memorandum; but the address should be communicated to the Registrar of companies, within 30 days of the registration of the company.

(3) Object Clause:- This clause contains:

      (a) The main object of the company.

      (b) Other objects, which the company  may pursue.

This clause, is perhaps, the most significant clause of the Memorandum. It defines and confines the scope of activities of the company; and explains to the members the range of activities for which the capital of the company will be employed.

(4) Liability clause:- This Clause states that the liability of the members of the company is limited to the nominal value of  shares held by them.

(5) Capital Clause:- This clause states the amount of shares capital with which company is to be registered; and its division into shares of a fixed amount.

(6) Association Clause:- Under this clause, at least seven persons in case of a public company and at least two persons in case of a Private Company (Called Signatories to the Memorandum) must sign a declaration that-

    (a) They are desirous of being formed into a company; and

         (b)Undertake to take the number of shares, to their names.

 

The Article of Association :-  The Articles of Association prescribe the rules for internal management of a company. Companies generally have their own Articles of Association. However, those companies which do not have Articles of Association of their own, may adopt the model set of articles in Table A of the companies Act, 1956.

The Articles of Association generally contain provisions relating to the following matters:

(i) The amount of Share Capital and different classes of shares

(ii) Rights of each class of Shareholders

(iii) Procedure for allotment of shares

(iv) Rules regarding calls on shares

(v) Procedure for issuing shares certificates

(vi) Procedure for transfer of shares

(vii) Procedure for forfeiture of shares

(viii) Procedure for conducting meetings.

(ix) Duties and powers of directors

(x) Procedure for appointment, removal and remuneration of directors

(xi) Procedure for declaration and payment of dividends

(xii) Procedure regarding winding-up of the company

(xiii) Rules regarding use of common seal of the company.

(xiv) Borrowing powers of the company , etc.

Prospectus :-

Prospectus means any document described or issued as prospectus and includes any notice, circular advertisement or any other communication, inviting offers from the public for the subscription or purchase of any shares in Adventures of, body corporate, inviting deposits from the public other than deposits invited by a banking company or a financial institution approved by the Federal government whether described as prospectus or otherwise.

Company prospectus is related by company to inform the public and investors of the various securities that are available. 

These documents describe about mutual funds from a bonds common stocks and other forms of investments offered by a company. 

A prospectus is generally accompanied by a basic performance and financial information about the company.

Companies are required to issue prospectus

》listed company who intends to offer shares or debentures of the company to the public.

》Every private company whose she is to be a private company and converts into a public company and intends to offer shares or debentures of the company to the public.

Requirements of a prospectus:-  a document would be considered as prospectus only if it meets the following requirements:-

(a) it should be in writing

(b) issued by or on behalf of a body corporate

(c) it should be issued to public

(d) it should contain invitation to public for making deposits or for the subscription of shares in or debentures of a body corporate.

Contents of Prospectus:-

1. The contents of the Memorandum with the particulars of signatories and number of shares subscribed by them.

2. The number and value of shares.

3. Description of business to be undertaken and its prospectus.

4. Any provision in the articles relating to remuneration of directors and chief executives.

5. Particulars of the present and proposed directors 

6. The amount of minimum subscription.

7. The date and time of the opening and closing of the subscription list.

8. The amount of preliminary expenses.

9. The number, description and amount of share capital issued within the two preceding years along with the amount of premium or discount, if any.

10. Name of the underwriters, if any along with opinion of directors as to financial soundness of underwriters. 

11. The name and address of auditors and legal advisors.

12. Particulars of capitalization of any reserves or profits if any.

13. The right of voting at meeting's of the company.

14. The amount payable on application for each share.

Types of Prospectus:- 

1. Shelf Prospectus:- Prospectus is normally issued by financial institution or bank for one or more issues of the securities or class of securities mentioned in the prospectus.

2. Deemed Prospectus – Deemed prospectus has mentioned under Companies Act, 2013 Section 25 (1). When a company allows or agrees to allot any securities of the company, the document is considered as a deemed prospectus via which the offer is made to investors. Any document which offers the sale of securities to the public is deemed to be a prospectus by implication of law.

3. Red Herring Prospectus – Red herring prospectus does not contain all information about the prices of securities offered and the number of securities to be issued. According to the act, the firm should issue this prospectus to the registrar at least three days  before the opening of the offer and subscription list.

4. Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient features of the prospectus as specified by SEBI. This type of prospectus includes all the information in brief, which gives a summary to the investor to make further decisions. A company cannot issue an application form for the purchase of securities unless an abridged prospectus accompanies such a form.

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Unit IV

 Share:-  A share in a company is one of the units into which the total share capital of a company is divided. In simple words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company.

A share is issued by a company or can be purchased from the stock market.

Types of shares:-

(a) Equity Shares

(b) Preference Shares

 (a) Equity Shares:- These shares are the most commonly traded shares, and they give you a vote in company matters. they earn a dividend as long as the company is earning money, and this dividend directly corresponds to the profit made by the company. High profits mean high dividend for you.

Ordinary shares have no special rights or restrictions. They have the highest risk, they also have the potential to bring the biggest financial gains.

(b) Preference Shares:- Preference shares are those shares which carry following preferential rights.A Preferential right in respect of a fixed dividend which may be a fixed amount or a fixed rate.

A preferential right to repayment of capital in the event of company's winding up.

👉 Features of Equity Shares:- The equity shares or ordinary shares are those shares on which the dividend is paid after the dividend on fixed rate has been paid on preference shares. The features of equity shareholders are as follows:-

(1) Voting Rights

(2) Participation in Management

(3) Traded in Stock market

(4) Do not have preferential rights

(5) Do not get fixed dividend

(6) Equity shareholder are the real owner of the company

(7) At the time of liquidation, capital on equity is paid after preference shares have been paid back in full.

👉 Features of Preference Shares:- Preference shares are those shares which carry with them preferential rights for their holders,  I.e., preferential right as to fixed rate rate of dividend & as to repayment of capital at the time of winding-up of the company. 

The main features of preferential shares are as follows:- 

1. Preferential rights.

2. They get fixed dividend 

3. They do not have voting rights

4. They can't participate in management 

Share Capital:- Share capital is the money a company raises by issuing common or preferred stock. The amount of share capital or equity financing a company has to change it's public offerings.

Preference share types:- preference shares are of the following types:

(a) Cumulative or Non-Cummulative preference Shares:- 

Cumulative preference shares give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution.

In case the dividend which are not paid in any year are accumulated and are paid out when the profits are available.

A Non-Cumulative or simple preference shares give right to fixed percentage dividend of profit of each year.

In case No dividend is declared in any year because of absence of profit, holders of preference shares holders get nothing nor can they claim unpaid dividend in the subsequent years.

 (b) Participating preference shares and non participating preference shares:- 

Preference shares are entitled to a preferential dividend at a fixed rate with the right to participate further in the profits either along with or after the payment of certain rate of dividend on equity shares.

A Non participative preference shares is one which does not have such rights to participate in the profits of the company after the dividend and capital have been paid to the preference shareholders.

(c) Redeemable or irredeemable preference shares:- The shares which can be redeemed after a fixed period of time or after giving prescribed notice, as this is desired by the company are known as readable preference shares.

Irredeemable preference shares are those shares which cannot be redeemable during the lifetime of the business.

Transfer of Shares:- 

Transmission of Shares:- While transfer of shares relates to a voluntary act of the shareholder, transmission is brought about by operation of Law.

The word 'transmission' means devolution of title to shares otherwise than by transfer for example devolution by death, succession, inheritance, bankruptcy, marriage etc.

Transmission b operation of law is not is not a transfer within the meaning of the Companies Act. Transmission refers to such cases wherein a person acquire an interest in property in property (shares) by operation of law.

Some of the examples of transmission would be rights as a result of insolvency or lunacy of the of the shareholder. A situation for transmission would also arise when shares are purchased in a sale effected by court.

In case of transmission, the board of directors of a company has to accept the fact and register the transmission in the records of the company. while in the case of transfer, the board of directors do enjoy certain amount of discretion. In fact, till recently, even in the case of listed companies directors used to enjoy wide discretionary powers in respect of acceptance / rejection of transfers.

* Provision related to transmission of shares:- 

(1) Person eligible to apply for transmission:- The survivors in case of joint holding can get the shares transmitted  in their names by production of the death certificate of the deceased holder of shares.

In other words in case of joint holding, the survivor or survivors shall only be entitled for registration and the legal hire of the deceased member shall have no right or claims.

(2) Shares transfer does not required for transmission:- Execution of transfer does not required in case of transmission accompanied with relevant documents would be enough for valid transmission request.   

(3) Documents required for transmission of shares:- In case of transmission of shares by operation of law. It is not necessary to execute and submit transfer deed.

A Simple application to the company by a legal representative along with the following necessary evidences is sufficient:- 

      (a) Certified copy of death certificate 

      (b) Succession Certificate

      (c) Probate

      (d) Specimen signature of the successor

(4) Liability on shares shall continue:- In the case of a transmission of shares, shares continue to be subject to the original liabilities; and if these was any lien on the shares for any sums due, the lien would subsist, not with standing the devaluation of the shares.

(5) Payment of consideration or stamp duty not required:- Since the transmission is by operation of law, payment of consideration or payment of stamp duty would not be required on instruments for transmission.

Unit  V & VI 

Director:- Section 2(13) states that "Director includes any person occupying the position of a director by whatever name called." Thus, any person who occupies the position of a director or performs the functions of a director may be called a director.

Supreme court of India defines, "A person who guides policy and superintends the working of the company is a director.                                      - Section 252(3) 

Few facts about director

(i) Director is a person or one of the person who occupies the position of director. 

(ii) There are at-least three directors in  a public company and two in a private company.

(iii) Only individual can be the directors. No body corporate , association or firm can be appointed as director of a company. 

(iv) The ultimate control and management of the affairs of the company vests in the Board of directors.

(v) The directors collectively are referred as 'Board of director' or 'Board'.

(vi) Subject to any regulation in the articles, subscriber of the memorandum shall be deemed to be director of the company until the director are duly appointed.

Duties of Director:- 

Duties of directors may be classified under two heads:- 

(A) Duties under the Companies Act or

(B) General duties

(A) Duties under the Companies Act or statutory duties:-

(i) To act in accordance with articles

(ii) To ensure full and correct disclosure in prospectus

(iii) Signing the prospectus

(iv) To deliver prospectus to registrar before issue

(v) To keep deposited applications money in a scheduled bank

(vi) To file return of allotment

(vii) Delivery of share certificate

(viii) To pay the amount on share taken

(ix) To sign and file annual return

(x) To prepare and send copy of statutory report

(xi) To recommend dividend and pay

(xii) To prepare and attached director's report

(xiii) To call Annual General Meeting

(xiv) To help investigation of affairs of the company

(xv) To take qualification shares

(xvi) To call board meetings

(xvii) To disclose interest in contract

(xviii) To disclose particulars of office held

(B) general duties:- 

(i) Duty of good faith 

(ii) To act with care and diligence 

(iii) Duty not to delegate powers 

(iv) To ensure proper use of Money 

(v) Not to use corporate personality for personal interest

(vi) Not to pay dividend out of capital

(vii) Not to make Ex-gratia payments

Managing Director:- 

It is a common practice that the board of directors appoints one of its members to manage the affairs of the company as a whole time officer and calls him the Managing Director.

He access the chief executive. he occupies the position of dual authority and responsibility. as a director, he attends the board meetings and as a manager, he performs a managerial functions.

》 the Managing Director must be an individual

》 he must be a member of the board of directors;

》 he is entrusted with the substantial power of Management

》 He shall exercises his powers subject to the superintendence control and direction of its board of directors.

Powers and Duties of Managing Director:- Managing Director is entrusted with the substantial power of company management subject to the superintendence control and directions of the board of director.

But he is not entrusted to do administrative acts of a routine nature such as a followings:- 

(i) to affix the common seal of the company to any document

(ii) to draw and endorse any check on account of the company in any book.

(iii) to draw and endorse any negotiable instrument

(iv) to sign any certificate of Shares.

(v) to direct registration of transfer of any share.

Powers, duties and responsibilities of managing director may be stated as follows:

(a) As a members of the board of director he participates in formulating the objectives and policy making functions of the boards.

(b) to execute policies laid down by the board of directors 

(c)  he is the liaison officer between the board of directors and the rest of the organisation

(d) to interpret and communicate policies of the company to subordinate employees

(e) to appoint high officials of the company

(f) to plan the development and expansion of business.

(g) to organise meetings with the departmental heads

(h) to promote high moral among the employees of company by creating a sense of belonging.

(i) to maintain our harmonious relationship between line and staff managers

 (j) To administer production and sales activities of the company

Disqualification of a Director:- Director of a director : Section 274 (1) reads as under:

A person shall not be capable of being appointed director of a company, if the director is

(a) Of unsound mind by a court of competent jurisdiction and the finding is in force;

(b) An un discharged insolvent;

(c) Has applied to be adjudication as an insolvent and his application is pending;

(d) Has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence;

(e) Has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment  of the call; 

(f) An order disqualifying him for appointment as director has been passed by a court in pursuance of section 203 and is in force, unless the leave of the court has been obtained for his appointment in pursuance of that section; 

(g) Such person is already a director of a public company which- 

       (i) Has not filed the annual accounts and annual returns for any continuous three financial year commencing on and after the first day of April, 1999;

       (ii) Has failed to repay its deposits or interest thereon on due date or redeem its  debentures on due date or pay dividend and such failure continues for one year or more.

Debentures: A debenture is a document which shows on the face of it, that a company has borrowed a certain sum of money from the holder thereof upon certain terms and conditions.

The company act states that are debenture, includes deventure stocks and bonds and any other securities of a company aware that constituting a charge on the Assets of the company or not.

Characteristics:- 

(i) Each debenture is numbered.

(ii) Each contains a printed statement of the terms and conditions

(iii) A Debenture usually creates of floating charge on the Assets of the companies

(iv) A debenture ensure may create a fixed charge instead of floating charge

(v) No debenture holder is to have any voting rights in a company meetings

(vi) Full particulars regarding the issue of debentures in series must be sent to the registrar

Rights and remedies of debenture holders:-  

If the company fails to pay interest on  Principal on the due date or fails to comply with any of the terms and conditions under which the Debentures was issued, that debenture holder Can adopt any of the following remedial measures.

(i) He may file a suit for the recovery of money

(ii) He may file any application for the appointment of receiver by the court

(iii) He made himself a pointer receiver if the terms of the debentures and titled him to do so

(iv) The Trustee may sell the property is charged

(v) He may apply to the code for the foreclosure of the company right to reading the properties charged for the payment of the money

(vii) He may present petition for the winding up of the company.

Filling Up of Vacancy In the Office of a Managing Director 

If the office of a Managing Director is vacated, such vacancy has to be filled within the next 6 months through a board resolution. [Section 203(4) of the Act, 2013]

Appointment of Managing Director 

1. Restriction – A company shall not appoint a Managing Director and a Manager at the same time.

2. Period of appointment – A Managing Director can be appointed for a maximum term of 5 years.

3. Disqualifications for an appointment – No company shall appoint or continue the employment of any person as Managing Director who:

• is below 21 years of age or has reached 70 years of age;
• is an undischarged insolvent or has at any time been adjudged as an insolvent;
• has suspended payment to his creditors or makes or has made a composition with them at any given time;
• has at any time been convicted of an offence by a court and sentenced for a period exceeding 6 months.

However, a person can be appointed as Managing Director even after he has attained the age of 70 years on the passing of a special resolution wherein the explanatory statement annexed to the notice for such motion shall specify the justification for appointing such a person. In cases where the passing of such resolution fails, but the votes cast in favour of the motion exceed the votes cast against the motion, the board may apply to the Central Government for consideration of such appointment. If on being satisfied that such appointment would be beneficial to the company,  the Central Government may approve the same, and the appointment of such person may be made. (Section 196 of the Act, 2013)

4. Conditions to be fulfilled for appointment of Managing Director without the approval of Central Government –

The following additional conditions are required to be fulfilled:

• The person has not been sentenced to imprisonment for any term, or a fine exceeding 1000  rupees for conviction under any of the Acts prescribed in the aforementioned Schedule.
• The person has not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
• The person is a resident of India. (Schedule V of the Act, 2013)

Procedure for appointment of managing director:- The procedure for appointing of a managing director are as follows:-

3. Decide on the person to be employed as Managing Director based on recommendations of the Nomination and Remuneration Committee, wherever applicable, after ensuring that he is not disqualified as per provisions of Sections 164, 196, 203, Schedule V or any other applicable provisions of the Act, 2013;
4. Approve the draft agreement to be signed and executed by and between the company and the proposed Managing Director;
5. Fix time, date and venue for holding a general meeting of the company;
6. Approve notice of the general meeting along with the explanatory statement; and
7. Authorize Company Secretary to issue a notice of the general meeting on the Board’s behalf.
8. Hold a general meeting and obtain approval of shareholders for appointment of Managing Director by means of a resolution.
9. Suppose the appointment of the Managing Director is not as per the provisions of Schedule V. In that case, the company shall obtain approval of the Central Government by filing an application as per Section 201 of the Act, 2013. The following conditions are required to be complied with in order to obtain Central Government’s approval:

• The company shall give general notice to the members of the company detailing the nature of the application to be made. 
• The notice has to be published in a newspaper in the principal language of the district and in an English newspaper circulating in the district where the company’s registered office is situated.
• The copies of the aforesaid notices along with a certificate by the company signifying due publication thereof shall be attached to the application.

10. The application shall be filed electronically in E-Form MR-2 along with the prescribed fees within a period of 90 days from the date of such appointment.

11.Execute the agreement with the Managing Director as approved by the Board.

12.Make appropriate entries in the register of directors and other records and registers of the company.

File the following documents with the Registrar of Companies: 

a. 1. Company shall file the return of appointment of Manager in Form MR-1 with ROC within 60 days of such appointment along with the following documents:-

• Certified true copy of the Shareholders’ resolution along with explanatory statement
• Copy of letter of consent to act as Manager.
• Letter of Appointment.
• Details of Interest in any other entity.
• Any other relevant document.

2. Copy of board resolution
3. Copy of shareholders resolution
4. Copy of letter consent to act as managing director 
5. Copy of approval of Central Government, if applicable
6. Copy of certificate by Nomination and Remuneration Committee, wherever applicable

b. Form DIR-12 pertaining to particulars of appointment of Managing Director within 30 days of appointment thereof.
c. Form MGT-14 It is pertinent to note that, if the appointment of the Managing Director is not approved in the general meeting of the company, any act done by him prior to receipt of such approval shall not be held invalid.

Whole-time Director:- 

“Whole-time Director” has been defined to include a director in the whole-time employment of the company. The definition of ‘whole-time director’ is an inclusive definition. A whole-time director refers to a director who has been in employment of the company on a fulltime basis and is also entitled to receive remuneration. Section 269 of the Companies Act, 1956 contained the definition of the term “whole-time director” appended as an explanation to section 269 which corresponds to the definition under this Act. 

As per Section 2(94) of the Act, 2013, “Whole-Time Director” includes a director in the whole-time employment of the company. This definition is inclusive and refers to a director who has been in employment with the company on a full-time basis and is entitled to receive remuneration.

Position of a whole-time director:-  The position of a whole-time director is a position of significance under the Act. A whole-time director is considered and recognised as a ‘key managerial personnel’ in clause (51) of section 2 of the Act. Further, he is an officer in default (as defined in clause (60) of section 2) for any violation or noncompliance of the provisions of Act.

Companies are required to appoint a whole-time director 

Section 203 of the Companies Act, 2013 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that:

• Every listed company; and 
• Every other public company having a paid-up share capital of rupees 10 crores or more

shall appoint a Managing Director, or Chief Executive Officer or Manager and in their absence, a Whole-Time Director as a whole-time Key Managerial Personnel.

Appointment of Whole-Time Director:

The conditions for the appointment of a Whole-Time Director are similar to that of the Managing Director as provided hereinbefore as the same is governed by Section 196 read with Schedule V of the Companies Act, 2013.

Resignation by Whole-Time Director :

As per Section 203(4) of the Companies Act, 2013, such vacancy has to be filled within a period of the next 6 months by means of a board resolution.

Unit VII

Company Meeting:- In common parlance, the word meeting means an act of coming face to face, coming in company or coming together. A meeting therefore, can be defined as a lawful association, or assembly of two or more persons by previous notice for transacting some business. The meeting must be validly summoned and convened. Such gatherings of the members of companies are known as company meetings.

 

Essentials of Company Meetings:- The essential requirements of a company meeting can be summed up as follows:

1. Two or More Persons: To constitute a valid meeting, there must be two or more persons. However, the articles of association may provide for a larger number of persons to constitute a valid quorum.

2. Lawful Assembly: The gathering must be for conducting a lawful business. An unlawful assembly shall not be a meeting in the eye of law.

3. Previous Notice: Previous notice is a condition precedent for a valid meeting. A meeting, which is purely accidental and not summoned after a due notice, is not at all a valid meeting in the eye of law.

4. To Transact a Business: The purpose of the meeting is to transact a business. If the meeting has no definite object or summoned without any predetermined object, it is not a valid meeting. Some business should be transacted in the meeting but no decision need be arrived in such meeting.

 

Kinds of Company Meetings:-

The meetings of a company can be broadly classified into four kinds.

1. Meetings of the Shareholders.
2. Meetings of the Board of Directors and their Committees.
3. Meetings of the Debenture Holders.
4. Meetings of the Creditors.

 

1. Meeting of the Share Holders:-

The meetings of the shareholders can be further classified into four kinds namely,

1.      Statutory Meeting,

2.      Annual General Meeting, 

3.      Extraordinary General Meeting, and

4.      Class Meeting.

The chart given below gives a classification of company meetings.

 

1. Statutory Meeting:- This is the first meeting of the shareholders conducted after the commencement of the business of a public company. Companies Act provides that every public company limited by shares or limited by guarantee and having a share capital should hold a meeting of the shareholders within 6 months but not earlier than one month from the date of commencement of business of the company.

Usually, the statutory meeting is the first general meeting of the company. It is conducted only once in the lifetime of the company. A private company or a public company having no share capital need not conduct a statutory meeting.

 

2. Annual General Meeting:- The Annual General Meeting is one of the important meetings of a company. It is usually held once in a year. AGM should be conducted by both private and public ltd companies whether limited by shares or by guarantee; having or not having a share capital. As the name suggests, the meeting is to be held annually to transact the ordinary business of the company.

3. Extra-ordinary General Meetings (EOGM):- Statutory Meeting and Annual General Meetings are called the ordinary meetings of a company. All other general meetings other than these two are called Extraordinary General Meetings. As the very name suggests, these meetings are convened to deal with all the extraordinary matters, which fall outside the usual business of the Annual General Meetings.

EOGMs are generally called for transacting some urgent or special business, which cannot be postponed till the next Annual General Meeting. Every business transacted at these meetings is called Special Business.

Persons Authorized to Convene the Meeting

The following persons are authorized to convene an extraordinary general meeting.

1.      The Board of Directors.

2.      The Requisition.

3.      The National Company Law Tribunal.

4.      Any Director or any two Members.

 

4. Class Meetings:- Class meetings are those meetings, which are held by the shareholders of a particular class of shares e.g. preference shareholders or debenture holders.

Class meetings are generally conducted when it is proposed to alter, vary or affect the rights of a particular class of shareholders. Thus, for effecting such changes it is necessary that a separate meeting of the holders of those shares is to be held and the matter is to be approved at the meeting by a special resolution.

For example, for cancelling the arrears of dividends on cumulative preference shares, it is necessary to call for a meeting of such shareholders and pass a resolution as required by Companies Act. In case of such a class meeting, the holders of other class of shares have no right to attend and vote.

2. Meetings of the Directors:- Meetings of directors are called Board Meetings. These are the most important as well as the most frequently held meetings of the company. It is only at these meetings that all important matters relating to the company and its policies are discussed and decided upon.

Since the administration of the company lies in the hands of the Board, it should meet frequently for the proper conduct of the business of the company. The Companies Act therefore gives wide discretion to the directors to frame rules and regulations regarding the holding and conduct of Board meetings.

The directors of most companies frame rules concerning how, where and when they shall meet and how their meetings would be regulated. These rules are commonly known as Standing Orders.

3. Meetings of Debenture Holders:- The debenture holders of a particular class conduct these meeting. They are generally conducted when the company wants to vary the terms of security or to modify their rights or to vary the rate of interest payable etc. Rules and Regulations regarding the holding of the meetings of the debenture holders are either entered in the Trust Deed or endorsed on the Debenture Bond so that they are binding upon the holders of debentures and upon the company.

4. Meetings of the Creditors:- Strictly speaking, these are not meetings of a company. They are held when the company proposes to make a scheme of arrangements with its creditors. Companies like individuals may sometimes find it necessary to compromise or make some arrangements with their creditors, In these circumstances, a meeting of the creditors is necessary.

 Unit V ( Remaining Part)

Mortgage:- The mortgage can be defined as the transfer of interest, in a particular immovable asset such as building, plant & machinery, etc. in order to secure payment of the funds borrowed or to be borrowed, an existing or future debt from the bank or financial institution, that results in the rise of pecuniary liability.

It is something in which special interest in the property mortgaged, is transferred by the mortgagor in favor of the mortgagee, so as to assure the payment of money advanced. The ownership of the property remains with the mortgagor (borrower/transferor), but the possession is transferred to the mortgagee (lender/transferee). When the mortgagor does not make payment in time, the mortgagee can sell the asset, after giving a notice to the mortgagor.

A mortgage is a ‘legal agreement by which a bank or similar organisation lends you money to buy a house, etc. and you pay the money back over a particular number of years; the sum of money that you borrow’.

Section 58 (a) of the Transfer of Property Act, 1882, defines mortgages as ‘the transfer of an interest in specific immovable property for the purpose of securing the payment of money by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability’.

 

Simple mortgage:-  In this mortgage type, you keep an immovable property as a house as security in order to get a loan. The bank or lender retains all rights to sell off the property if you can’t repay.

Usufructuary mortgage:- In this type of mortgage loan, the lender is transferred the immovable property without creating a personal liability on you, the borrower. 

English mortgage:- In this type, the borrower has to shoulder a personal liability. The mortgaged property is transferred on the condition that you can recover the property after successful repayment.

Mortgage by conditional sale:- In this type, the borrower sells off the property with the legal terms that the sale becomes effective if he or she cannot repay the loan. However, if the repayment is successful, the sale becomes void. 

Mortgage by title deed deposit:- In this type, you deposit the property’s title deed as security and mortgage against the loan.

Anomalous mortgage:- Any mortgage that does not come within the divisions above fall under Anomalous mortgage. Mortgage loans generally include all of the following: 

1.     Home loan

2.     Loan against residential property

3.     Loan against commercial property

4.     Land purchase loan

5.     Lease rental discounting

6.     Loan to buy another commercial property

Charge:- By the term ‘charge’ we mean, a right created by the borrower on the property to secure the repayment of debt (principal and interest thereon), in favor of the lender i.e. bank or financial institution, which has advanced funds to the company. In a charge, there are two parties, i.e. creator of the charge (borrower) and the charge-holder (lender). It can take place in two ways, i.e. by the act of the parties concerned or by the operation of law.

When a charge is created over securities, the title is transferred from the borrower to the lender, who has the right to take possession of the asset and realize the debt through legal course. The charge on various assets is created according to their nature, such as:

There are two types of charges:-

1. Fixed Charge: The charge which is created on ascertainable assets, i.e. the assets which do not change their form like land and building, plant and machinery, etc. is known as fixed charge.
2. Floating Charge: When the charge is created over unascertainable assets, i.e. the assets which change its form like debtors, stock, etc. is called floating charge.

New updates on 30 March 2022

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Unit VIII 

Companies Law – Majority Rule and Minority Rights

Majority and minority define who has the power to rule. The structure of democracy is as such, where the majority has the supremacy. In the corporate world, also the rule and decisions of the majority seem to be fair and justifiable. The power of the majority has greater importance in the company, and the court tries to avoid interfering with the affairs of the internal administration of the shareholders. With the superiority of the majority, there is always inferiority among the minority, which shows an unbalance in the company. The Companies Act, 2013 reduces the inferiority of the minority. This article details the rules of the majority and also the rights of the minority in a company.

 

Powers of Board of Directors

The Companies Act distributes the power between the board of directors and the shareholders. The board and the shareholders exercise their powers through meetings in a democratic way. The meetings include the meetings of the board of directors and the general meetings. The shareholders entrust certain powers on the board of directors, which is through the Memorandum of Association (MoA) and Articles of Association (AoA). The board of directors have all the powers and can to do all the things and acts just the same as the company exercises its powers. But the Act restricts the board of directors from the powers that only the shareholders can do in the general meetings.

Majority Powers

Majority Rule

According to section 47 of the companies act, 2013, holding any equity shares shall have a proper to vote in respect of such capital on every decision placed before the company. Member’s proper to vote is recognized because the proper of assets and the shareholder can also workout it as he thinks in shape consistent with his interest and preference. A special resolution requires a majority of 3/4th of these votes at the meeting. consequently, wherein the act or the articles require a unique resolution for any cause, a 3/4th majority is important and a simple majority isn’t sufficient. The resolution of a majority of shareholders handed at a duly convened and held general meeting, upon any question with which the business enterprise is legally competent to deal, is binding upon the minority and consequently upon the company.

A company stands as an artificial entity. The directors run it but they act according to the wish of the majority. The directors accept the resolution passed by the majority of the members. Unless it is not within the powers of the company. The majority members have the power to rule and also have the supremacy in the company. But there is a limitation in their powers. The following are two limitations:

 

Limitations:- 

• The powers of the majority of the members are subject to the MoA and AoA of the company. A company cannot authorise or ratify any act legally outside the memorandum. This will be regarded as the ultra vires of the company.
• The resolution made by the majority should not be inconsistent relating to The Companies Act or any statutes. It should also not commit fraud on the minority by removing their rights.

Principle of Non-Interference :- The general rule states that during a difference among the members, the majority decides the issue. If the majority crushes the rights of the minority shareholders, then the company law will protect it. However, if the majority exercises its powers in the matters of a company’s internal administration, then the courts will not interfere to protect the rights of the majority.

 

Foss Versus Harbottle :- Foss v. Harbottle lays down the basics of the non-interference principle. The reasons for the rule is that, if there is a complaint on a certain thing which the majority has to do if there is something done irregularly which the majority has to do regularly or if there is something done illegally which the majority has to do legally, then there is no use to have a litigation over such thing. As in the end, there will be a meeting where the majority will fulfil their wishes and make decisions.

 

Benefit and Justification:- The benefit and the justification of the decision of the case are:

• Recognises the country’s legal personality
• Emphasises the necessity of the majority making the decisions
• Avoid the multiplicity of suits

 

Exceptions to the Rule:-  The rule is not absolute for the majority; the minority also have certain protections. The Non-interference principle does not apply to the following:

Ultra Virus Act:- An individual shareholder can take action if they find that the majority has done an illegal act or ultra virus act. The individual shareholder has the power to restrain the company. This is possible by the injunction or the order of the court.

Fraud on Minority:- If the majority commits fraud on the minority, then the minority can take necessary action. If the definition of fraud on the minority is unclear, then the court will decide on the case according to the facts.

 

RIGHTS OF MINORITY SHAREHOLDERS AS PER COMPANIES ACT 2013:

Definitions: Small Shareholder: a shareholder who is holding shares of nominal value of INR 20,000 or such other sum as may be prescribed.

Minority Shareholder: Equity holder of a firm who does not have the voting control of the firm, by virtue of his or her below fifty percent ownership of the firm's equity capital.

Objectives:-

•  The objective of the policy is to protect the rights of the minority shareholders and keep them updated about their rights from time to time.
•  To check that the Shareholder Relationship Committee is redressing the grievance of the minority shareholders.

 

Rights of Minority Shareholders:

1. Right to appoint a director- Small shareholders, upon notice of not less than 1/10th of the total number of such shareholders or 1000 shareholders, have a small shareholder director elected.

2. Right in decision making and such director appointed shall be considered as independent director.

3. Oppression and mismanagement- Right to apply to tribunal by the minority shareholders, when management or control of the company is being conducted in a manner prejudicial to the interests of the class or company.

4. Rights with respect to reconstruction and amalgamation- Purchase of shares of dissenting shareholders at a determined value by the registered valuer. The minority have been given a right to make an offer to the majority shareholders to buy the shares of minority shareholders. The transferor company shall be the agent for making payments to minority shareholders.

5. Class action suit: Class action suit may be filed by the minority shareholders as per the provisions of Companies Act, 2013.

 

Steps taken by company to protect the rights of minority shareholders:

 

• Ø  Provision of PIGGY BACKING- When a majority shareholder sells their shares, a minority shareholder has the right to be included in the deal. This is called "piggybacking." It protects your investment should the company be sold. Piggybacking requires that any party considering the purchase of the business be able to buy 100 percent of the outstanding shares.
• Ø   Provision of compulsory dividends to the minority shareholders.

 

 

Quorum:- The Companies Act, 2013 (hereinafter referred to as the Act) requires that a company established under the Act has to hold General meetings as well as Board meetings periodically. To ensure that the companies follow this regulation and that such meetings are held properly, it requires a quorum to be met for it to be deemed as a valid meeting.

A ‘Quorum’ in simple words means the minimum number of members that have to be present in a meeting. Under the Act, the quorum for a General Meeting, a Board Meeting and an Extraordinary General Meeting is enumerated within its provisions.

Quorum required for a General Meeting: Section 103 of the Act states the quorum required for a General Meeting. Under this Section, unless the Articles of Association of the company provide for a larger quorum, the minimum quorum must be: 

 

For Public Companies:-

Ø  Five  members to be present if as on the date of the meeting being held, the number of members in the company does not exceed one thousand.

Ø   Fifteen members to be present if as on the date of the meeting there are more that one thousand members but less than five thousand members.

Ø  Thirty members to be present if as on the date of the meeting there are more than five thousand members.

For Private Companies:- In the case of a private company regardless of the number of members, two members must be present for the quorum to be met for a meeting.

Update on 02 April

Unit V Remaining Part

Borrowing Powers:- Every trading company has an implied power to borrow, as borrowing is implied in the object for which it is incorporated.

A Trading company can exercise this power even if it is not included in the Memorandum. However non-trading company has no implied power to borrow and such power can be taken by it implied power to borrow by including a clause to that effect in the memorandum.

The Board of Director may borrow money by passing a resolution passed at the meetings for the Board. The board may delegate its borrowings powers to a committee of Directors. Such a resolution should specifically mention the aggregate amount upto which the money can be borrowed by the committee, the Managing director, Manager or any other principle officer of the company on such conditions as it may prescribe [Sec 292 (1)(c)].

(a)  The Money’s borrowed together with the money’s already borrowed by the company (Excluding loans obtained from bank i.e., Working Capital) shall not exceed the aggregate of the paid up capital and the free reserves. [Sec. 293 (1)(d)]

(b)      It may be noted that a company may borrow in excess of its paid up capital and free reserves if it is so consented and authorized by the shareholders at a general meeting. 

(c)      Transactions, which are not borrowing, temporary loans obtained from the company’s banker in the ordinary course of business.

(d)     Hire purchase and leasing transactions. 

(e)      Purchase of machinery on deferred payment.