1. Advise Asiatic Government Security Life Assurance Co. Ltd. whether
it can seek injunctions against the new Asiatic insurance co.ltd. which was
subsequently formed, restraining it from having in its name the word ‘Asiatic’
on the ground that it has caused confusion and can deceive the public [Hint. yes, it an seek injunction against the new Asiatic incurrence co.ltd.
the two companies are in incurrence business, the impression may be created
that both of them are interrelated and the word ‘Asiatic’is quit an imaginary
word and does not mean anything. Mere addition of the word ‘new is not likely
to give an other wish impression .see s.20]
2. the object clause of the
memorandum of a company empowers it to carry on distillery business and any
other business that is allied to it. The company want to alter its memorandum
so as to include the cinema business in its objects clause. Advise the company.
[Hint. The company can make the proposed alteration if under the existing
circumstances the cinema business may conveniently or advantageously only be
combined with its existing business. Diversification is not prohibited. See
s.17(1).1
3. A company is engaged in jute
business. The members unanimously pass a resolution to start business in
rubber. The proposed alteration in the objects clause is submitted to the
Company Law Board for its approval. Advise the Board if the same could be
approved or not. [Hint. It should give the approval. The new business is not
inconsistent with the existing business. See s.17(1).]
4. A document on which a company borrowed a sum
of money was executed by the managing director, who was the chief functionary
of the company and to comply with the requirements of the articles the
signature of two other directors were forged. Can the company be allowed to
deny liability under this document? [Hint. No, the company will not be allowed
to deny liability on the document in question. A company may be held liable for
fraudulent acts if its officers acting under their ostensible authority on its
behalf. Though it is a case of forgery and therefore the transaction is void ab initio for want of consent and
therefore the lender could not have taken advantage of the doctrine of Indoor
management. However, a company cannot defeat a fide bona creditor 's claim for recovery of the money on the
ground of fraud of its own officers.]
5. The articles of a company
provided that the shares of a member who became bankrupt would be offered for
sale to other shareholders at a certain price. Is the provision binding on the
shareholders? [Hint. Yes, the
provision would be binding on the shareholders. Articles is a contract between
the members and the company. See also
Boreland Trustee a. Steel Bors & Co. Ltd.]
6. The shareholders at an annual
general meeting passed a resolution for the payment of dividend at a rate higher than that recommended
by the Board of Directors. Examine the validity of the resolution. [Hint. The resolution is not valid. The
shareholders declare the dividend at rate recommended by the Board. However, they
can reduce the rate but cannot increase it.]
7. A company issued a prospectus
advertising that the company has a great potential with "turnover of a
million bags of cement in a year. It is discovered later that while the company
has the installed capacity of one million bags, it had never produced more than
6 lack bags of cement in a year. A buyer of shares seeks remedy against the
misleading statement. Would be succeed? [Hint. Yes, he would be succeed.]
8. A limited company is formed with
its articles stating that one Mr. Srivastava Shall be the solicitor for the
company and that he shall not be removed except on the grounds of misconduct.
Can the company remove Mr. Srivatava from the position even though he is not guilty of
misconduct? [Hint. Yes, the company
can remove him .See EIey v. Posive
Government Security Life Assurance Co.]
9. A company, in which the
directors hold majority of the shares, altered its articles so as to give power
to directors to require any shareholder, who competed with the company's
business, to transfer his shares, at their full value, to any nominee of the
directors. S had some shares in the company. Is S bound by the alteration? [Hint. Yes, S shall be bound by the
alteration. The alternation is in the general interest of the company.]
10. The plaintiffs contracted with a director of the
defendant company and gave him a cheque under the contract. The director could
have been authorized under the company’s article, but was not in fact so
authorized. The plaintiff had not seen the article. The director
misappropriated the cheque and the plaintiff sued the company is the liable? [Hint. The company shall not be held
liable. The plaintiff could not rely on the rule of indoor management because
he did not know the existence of the director. A principal can be held liable
for the frauds of his power of the extent they are committed within the scope
of the authority conferred upon him .see
Rama corporation v. proved tin and general Investment Company.]
11. In a prospectus issued by a
company, the Managing Director stated that the company had paid dividend every
year during 1921-27 ,which was a fact. However, the company had sustained
losses during the relevant period and had paid dividends out of secret reserves
accumulated in the part. Examine the consequence of the observation made by the
Managing director- [Hint. A allot tee of shares can terminate the contract and
claim return of price and damages. see
Rex v,. Keystant.]
12 . In a private limited company
it is discovered that there are, in fact, 54 members. On an enquiry. It is
ascertained that 6 of such member have been employees of the company in the
recent past and the they acquired their shares while they were still employees
of the company. Is it necessary to convert the company into a public limited
company? [Hint. There is no need for conversion. Employee member and
ex-employee member are excluded from the number of 50- the maximum member of a
private company. See s.3(1) (iii).]
13. Two joint Hindu families carry
on together a business as joint owners. The first family consists of 3 brothers
and their respective sons, being 12 in number. The second family consists of
the father, 4 major sons and 2 minor sons. Is the business illegal? [Hint. The business is not illegal.
Minors are not to be counted. There are only 20 major persons the maximum
number of an association for carrying on a non banking business without being
incorporated s.11.]
14. a public limited company has
only seven share holder, all the shares being paid-up full. All the shares of
one such share holders are sold by a court in an auction and purchased by
another share holders. the company continues to carry on its business
thereafter. Discuss the liabilities of the shareholders of the company.[Hint. The shareholders who had the
knowledge that the membership has gone down below the minimum number would be
personally liable for all debts contracted after the expiry of 6 months from
the date membership is so reduced. See ss.12 and 45.]
15. All the seven signature on a
memorandum of association were forged by one person and a certificate of
incorporation was obtained. Is the certificate of in corporation valid?
16. X and Co. Ltd. intended to buy
a rubber estate in Peru. Its prospectus contained extracts from an experts
report giving the number of rubber tries in the estate. The report was
inaccurate. will any shareholder buying the shares of the company on The basis
of the above representation have any remedy against the company? Can The person
authorizing the issue of the prospectus escape from their liability? [Hint.
Yes’ all the shareholder shall have the right to claim compensation from the
company for any loss the he might have sustained for issue of prospectus shall
not succeed shares. But, his claim against those responsible for issue of prospectus
shall not succeed since they made the statement on the basis of the report of
an expert whom they believed to be competent. However, the expert can be proceeded
against. Sees.62(27).]
17. A prospectus issued by a
company contained a promise of subscription of a substantial amount by some
persons so as to induce the public to subscribe. The plaintiff who was allotted
L0 shares alleges material misrepresentation. Decide. [Hint. Those responsible for making such a statement in the
prospectus shall be held liable. See Ss.62, 63, 68 and 69 of the companies Act,
1956.]
18. R has placed a sum of Rs 1,000
in fixed deposit with M.P Sugar Mills Ltd. In spite of several reminders, the
company has not repaid the deposit. Advise
R.
19. A company
issued a prospectus containing material misstatements of facts. Relying on the
prospectus Mr. Gullible purchased shares from the market. Would the company be
liable in damages to him? Can he rescind the contract?
20. The capital of X Ltd. is Rs 50
lakhs, consisting of equity share capital of Rs 40 lakhs and redeemable
preference share capital of Rs 10 lakhs. The preference share capital is to be
redeemed before 31't December 1998. The company is running in losses and its
accumulated losses aggregated to Rs 15 lakhs. The company wants to borrow Rs 20
lakh from Financial Institution to improve its working and also to redeem the
preference share capital. Advise. [Hint.
Refer to s.80. The preference shares can be redeemed out of only two sources
and no other. The borrowing from financial institution for redemption of
preference shares is not provided for. The amount may, however, be borrowed for
improving its working capital.]
21. A shareholder approached a
director and sold him shares in the company. The director had known at the time
of the contract that negotiations were on foot for the purchase by an outsider
of all the shares of the company at a higher figure. The shareholder sued to
rescind the contract. Advise him. [Hint. He would not succeed; there is no
fraud on the part of the director.]
22. A public limited company with a
paid up capital of Rs 50,00,000 equity shares of Rs 10 each wants to reduce its
capital to Rs 10,00,000 by converting the equity shares of Rs 10 each to Rs 2
each. Is it possible to do so? If so, explain the provisions of the companies
Act in thus regard.
23. A buys from B 400 shares in a
company on the faith of a share certificate issued by the company. A tenders to
the company a transfer deed duly executed together with B's share certificate.
The company discovers that the certificate in the name of B has been
fraudulently obtained and refuses to register the transfer. Advise A. [Hint. A
has a right to be registered as a shareholder or receive Compensation from the
company as a share certificate works as an estoppels against the company.]
24. 40 out
of 100 members of a Company submitted a requisition for holding of an extraordinary
general meeting in order to remove managing director from office. On the
failure of the company to call the meeting, the requisitionists themselves called
the meeting at the registered office of the company. On the appointed day, they
could not hold the meeting at the registered office, as it was kept under lock and
key by the managing director himself. The members held the meeting elsewhere
and adopted a resolution removing the managing director from office. Is the resolution
valid? [Hint. The resolution is
valid. See s.169. Also it was held in
R.Chettiar v. M. Chettair that where a meeting is called by the requisitionists
and the registered office is not made available to them, the meeting may be
held anywhere else.]
25. A company served a notice of a
general meeting upon its members. The notice stated that a resolution to
increase the share capital of the company would be considered at such meeting.
A shareholder complains that the amount of the proposed increase was not
specified in the notice. Is the notice valid? [Hint. The given notice is not a valid notice under s.173, since the
details on the item to be considered are lacking. The information about the
amount is a material fact with reference to the proposed increase of share
capital.]
26. A meeting was properly convened
and was subsequently adjourned by the chairman. No fresh notice is given for
the adjourned meeting which is held subsequently. State whether the adjourned
meeting is valid. [Hint. The adjourned
meeting in question is valid as per s.174.]
27. One general meeting was called
by a company in December, 1997 ' This meeting was adjourned to March, 1998 and
then held. Subsequent meeting was held in February, 7999.Is the company liable
for any irregularity? [Hint. Unless permission of the Register has been
obtained for extension of time which may be granted upto a period of 3 months
under certain special circumstances, the company shall be convicted under
5.766. The meeting held in March 1998 is actually the meeting of December 1997.
The next meeting is held in February 1999' Thus the meeting for 1998 has been
missed. And in every calendar year, there is to be a meeting.]
28. The secretary of a company,
while sending out to members of the company notice of a special resolution to
be proposed at the annual general meeting inadvertently omitted to send notice
to one member. The resolution was passed at the meeting. Discuss whether the
resolution is valid or not. [Hint.
The resolution is valid since the omission to send the notice is not
intentional, but only inadvertent. Sees.172(32).]
29. A company is entitled to
commence business from May, 1994. Which is the earliest date on which the
company may hold its statutory meeting? [ Hint. June 1994. See s.165.]
30. The directors of a company
borrow Rs 50,000 from A on a transaction which is ultra vires the company. Discuss the rights of A against the
company and its directors. [Hint. A
can hold directors personally liable. The company can be held liable only if
*re money has been used to pay ultra vires debts of the company or in case any
assets have been purchased for the company, these maybe attached.]
31. In conducting the affairs of a
company, the directors are found guilty of delay, bungling and faulty planning,
which have resulted in losses and fall in prices of the shares of the company.
Members holding 1/ 10,t of the voting power In the company apply to the Central
Government for investigation on the ground that the circumstances establish
fraud on the part of the directors. Is the appointment of an inspector
justified under the circumstances? [Hint.
Yes, the appointment is justified. See s.235.]
32. The Board of directors of a
public company met on three times in the previous year, the fourth meeting
though called, but not held for want of quorum on two occasions successively.
Discuss whether any provisions of the Companies Act have been contravened. [Hint. There is no contravention. See
Ss. 285 and 288(2).]
33. X Co. Ltd. wants to make a
contract with a partnership. Four of the five directors of the company are
partners of such partnership. How can the contract be executed? [Hint. Then contract may be executed by
the general body of share holders by passing an ordinary resolution to that
effect. Also see s,299.1
34. X holds shares and directorship
in a number of companies. X is proposed to be as a director of a company seamed
Asian Ltd. State the requirements of law necessary to be complied with by him
before and after be joins the Board of Asian Ltd. [Hint. (i) X should resign one
of the directorships, if he is already a director of more than 20 companies.
(ii) He should give his consent in writing (s.26Q before joining the board of
Asian Ltd. (iii) He should file his consent with the Registrar of Companies
within 30 days of the date of joining. (iv) He should disclose the nature and
extent of his interest in other companies (s.299). (v) He should acquire the qualification
shares, if any prescribed by the Articles of Asian Ltd. in case he does not own
the same already.]
35. Under the Articles, the
directors of a company had power to borrow up to Rs 1,00,000 without the
consent of the general meeting. The directors themselves lent Rs 2 lakhs to the
company without such consent and took debentures. Answer the following
questions. (i) Is the company liable for Rs 2 lakhs? (ii) If not, for what amount,
if any, is the company liable? [Hint.
As the directors had knowledge of the irregularity, the company could not be
held liable for anything more than the amount allowed to be borrowed under the
Articles. Thus the company can be held liable only for Rs 1 lakh. This case
comes under the exception to the Doctrine of indoor Management.]
36. X,Y and Z are three
shareholders in a company representing three distinct groups of shareholders.
At one stage, when the company needs additional funds and therefore seeks to
issue fresh shares, Z maintains that the new shares be issued to the existing shareholder
proportionately. X and Y manage to get majority shareholders to pass a special
resolution to the effect that the shares shall directly offered to the public.
Can Z seek a remedy on the ground of oppression of minority? [Hint. No, there is no remedy available
to him as provisions of s.81 have not been contravened.]
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