12.11.(10 Point of Order)

A point of order deals with the conduct or procedure of

the meeting. There are four bases upon which points of order can be called:

  (a)  Incorrect procedure. It implies that some member is contravening the rules of the meeting, e.g., speaking far longer than the time allowed, proposing an amendment incorrectly, speaking out of turn and so on.

  (b)  Irrelevancy. When the speaker is speaking outside the scope of the notice then it is known as irrelevancy.

  (c)  Unparliamentary language. It is bad languages, such as personal abuse. Also it implies something derogatory to the association, place or person.

  (d)  Transgressing the rules of the organisation. The procedure laid down in the standing orders of the organisation should be followed. If that is not followed, a point of order can be raised.

The chairman has to give his ruling or decision on a point of order at once. His

ruling on any matter of procedure is final.

12.11.9 (Motions, Resolutions and Amendments)

Decisions of a company are taken by resolution of its members, passed at their meetings. Also, the Board of Directors takes certain decisions at its meeting by passing certain resolutions after due deliberations.

The term 'mortion' indicates a proposition made at a meeting by any member. Such a motion may be passed without any change or modification. But if some members feel that the motion in the form proposed needs some change or modification, they may move an amendment. A motion when passed with or without amendment is called a resolution.

A motion should always be in writing and before it is brought before the meeting, the necessary notice must be given. A person proposing a motion is called the mover and the motion should be signed by him.

An amendment is proposed alteration or modification in the terms or wording of the motion which is yet to be considered by the meeting. An amendment to a motion may - (i) add some new words to the motion, or (ii) replace some words of the motion by some other words, or (iii) drop some words from the motion, or (iv) change the place or position of words or certain phrases in the motion.

An amendment to be valid should comply with the following rules: (a) The amendment should always be worded in the affirmative and should be put in writing. (b) It should be seconded. (c) It should not be a counter proposal. (d) If the amendment is carried, the chairman should incorporate the same in the main motion. (e) When the amended motion is put to the meeting, it becomes a substantive motion and when passed, it becomes a resolution. (f) An amendment cannot be withdrawn without the permission of the meeting.

Then these are formal motions. They are also known as 'procedural' or' dilatory' motions as they are concerned with the procedure at a meeting and are meant for the purpose of interrupting the proceedings. Formal motions are in addition to the amendments which interrupts the proceedings of the meeting. They take precedence over all other motions and need not be in writing. Also they do not require any notice. A member may move such a motion during the proceedings of the meetings. For example, a motion may be moved by a member with the object of either: (i) dropping any item on the agenda; (ii) adjourning the meeting; (iii) applying closure to the meeting; (iv) adjourning the debate on a motion.

Once the motion has been put to the members and they have voted in favour of it,

it becomes a resolution. In the case of a company, there are three kinds of resolutions:

(i) ordinary resolution; (ii) special resolution; (iii) resolution requiring special notice.

Ordinary resolution [s.189(1)]. When a motion is passed by simple majority of the members voting at a general meeting, it is said to have been passed by an ordinary resolution. In other words, votes in favour of the resolution are more than 50 per cent. still in other words, a resolution shall be an ordinary resolution where the votes cast in favour of the resolution are more than the votes cast against the resolution. According to s.189(1), "A resolution shall be an ordinary resolution when at a general meeting of which the notice required under the Act has been duly given, the votes cast (whether on show  of hands, or on poll, as the case may be),in favour of the resolution (including the casting vote, if any, of the chairman) by members who, being entitled to do so, vote in person or where proxies are allowed, by proxy, exceed the votes, if any, cast against the resolution by members so entitled and voting."

All matters which are not required either by the Act or the company’ s articles to be done by a special resolution can be done by means of an ordinary resolution. Some of the cases in which only ordinary resolution is required. are: alteration of authorised capital, declaration of dividend, appointment of auditors, election of directors.

Special resolution [s.189 (2)]. A resolution is a special resolution in regard to which: (a) the intention to propose the resolution as a special resolution has been specifically mentioned in the notice calling the general meeting; (b) 21 days notice has been duly given for calling the meeting; (c) the number of votes cast in favour of the resolution is three times the number cast against it.

Some of the cases in which a special resolution is necessary: alteration of objects clause; change of registered office from one State to another; alteration of the Articles; changes in the name of the company; reduction of share capital.

Resolution requiring special notice (s.190). Some resolutions require special notice. The object of special notice is to give the members sufficient time to consider the proposed resolution and also to give the Board of directors an opportunity to indicate views, on the resolution if it is not proposed by them but by some other shareholders. Under this, a notice of intention to move the resolution should be given to the company not less than 14 days before the date of the meeting at which it is proposed to be moved. The company in turn must immediately give notice by advertisement in a newspaper or in any other mode allowed by the Articles, but not less than seven days before the meeting. Some of the cases in which a special notice is necessary are: appointing an auditor, a a person other than a retiring auditor; moving a resolution that a retiring auditor will not be re-appointed; removing a director before his term expires.

Section 192 requires that a printed or a type written copy of each special resolution should be sent to the Registrar within 30 days thereof.

Passing of resolutions by postal ballot (s. 1924). The companies (Amendment) Act,2000 has inserted a new section containing following provisions for passing of resolution by postal ballot:

            (i)  A listed company may and in the case of resolution relating to such business as the central Government may, by notification, declare to be conducted only by postal ballot, shall get any resolution passed by means of a postal  ballot, instead of transacting the business in general meeting of the company

            (ii)  Where a company decides to pass any resolution by resorting to postal ballot, it shall send a notice to all the shareholders, along with a draft resolution explaining the reasons therefore and requesting them to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of posting of the letter.

            (iii)  The notice shall be sent by registered post acknowledgement due, or by any other method as may be prescribed by the Central Government in this behalf and shall include with the notice, a postage pre-paid envelope for facilitating the communication of the assent or dissent of the shareholder to the resolution within the said period.

            (iv)  If a resolution is assented to by a requiste majority of the  shareholders by means of postal ballot, it shall be deemed lo have been duly passed at a general meeting convered in that behalf.

            (v)   If a shareholder sends under (2) above his assent or dissent in writing on a postal ballot and thereafter any person fraudulently defaces or destroys the ballot paper or declaration of identify of the shareholder, such person shall be punishable with imprisonment for a term which may extend to 6 months or with fine or with both.

            (vi) If a default is made in complying with provisions in  (1)to(4),the company

and every officer of the company, who is in default shall be punishable with fine

which may extend to Rs 50,000 in respect of each default.

Circulation of members’ resolution (s. 188). When some members of  a company want (i) to propose a resolution at the company’s next AGM; or (ii) desire to circulate to members any statement with respect to the matter referred to in any proposed resolution or any business to be dealt with at any general meeting, the Act allows them to use the administrative machinery of the company for the purpose.

If the requisite number of members make arequisition as aforesaid, the company shall be bound to: (i) give a notice of the resolution to be moved at the next AGM; (ii) circulate the statement among the members entitled to notice of any general meeting. However, before the obligation of the company, in respect of the above may arise, the following conditions shall have to be satisfied:

            (1)  The requisition must have been signed by at least: (a) members having 1/20^th is to be at one place of the total voting rights of all the members having the right to vote on on the resolution; or (b) members, numbering 100 (having the right to vote at the resolution) and commanding a paid-up share capital of Rs 1 lakh or more.

            (2)  The requisition must have been deposited at the registered office of the

 company: (a) at least 6 weeks before the meeting in case of a-requisition  requiring notice of a resolution; and (b) at least 2 weeks before the meeting in  cur case of any other requisition.

            (3)  The statement to be circulated does not contain more than 1000 words.

            (4)  The requisitionists must have deposited with the company a sum reasonably sufficient to meet the expense of the requisition.

Exceptions. Section 188 authorises a company not to circulate a resolution or statement of the requisition in the following cases: (a) The CLB, on the application of the company or any other aggrieved party, is satisfied that the rights so conferred are being abused to secure needless publicity for defamatory matters. (b) The Board of Directors of a banking company considers that the circulation of the statement would injure the interests of the company.

Registration of certain resolution and agreements [s.192]. A copy of the resolutions or agreements as enumerated in this section must within 30 days after their passing or making be forwarded to the Registrar of Companies who shall record the same:

12.11.8 (Voting )

(Ascertaining the sense of the house). Unanimity on all matters before a meeting is always not obtained. in the absence of unanimity, the chairman wants to know the wishes of the persons present therein. This is known as ascertaining the sense of the house and for this purpose, he has to put the matter before the house to the members. There are various methods which can be adopted by the chairman to put the matter to vote in order to ascertain the wishes of the members. They are as follows: (i) By acclamation, (ii) By voice vote, (iii) By division, (iv) By show of hands, (v) By ballot and (vi) By poll.

            (i)  By acclamation. When persons present in a meeting indicate their approval or disapproval of the motion by clapping of hands, cheering or applause, it is known

as voting by acclamation. This method is adopted where there is a unanimous approval or disapproval. For example, the motion of thanks to the chair is generally adopted by this method. But this method should not be adopted if there is a sharp difference of opinion among the members on the issue before them

            (ii)  By voice vote. In this case, the Chairman puts the proposition before the meeting and persons who are in favour of the proposition say 'yes' and those who are against it say 'no' . The Chairman hears both the voices 'yes' and 'no' and gives his decision after ascertaining the numbers of 'yes' and 'no'. At this stage, a member who is dissatisfied with the Chairman's decision on the basis of voice vote may demand a vote by show of hands.

            (iii)  By division. Under this method, the Chairman requests the members present in the meeting to divide themselves into two blocks-one in favour of the proposal and another against it. The Chairman, with the help of the Secretary, counts the number of persons in favour and against the proposal and gives his verdict.

            (iv)  By show of hands. Under this method, the Chairman asks all those in favour of the resolution to raise their right hand and when that number is noted, asks all those against to do likewise. The Chairman then declares the result of the voting indicating whether the proposal has been carried or lost.

            (v)  By ballot. Under this method, every person present records his vote on a Ballot paper and deposits it in the ballot box provided for that purpose. The counting of ballots cast for and against the motion reveals the results. This method ensures secrecy in casting votes.

            (vi)  By poll. In company meetings, voting by poll is according to the number of Shares held by a member. The voting by show of hands may not always reflect the opinion of members upon a value basis. Also, there may be a number of proxies who can vote only by poll and not by show of hands.

Rules in respect of voting. As per the provisions of the Act, rules regarding voting May be noted as follows:

            (i)   Every holder of equity shares shall have a right to vote [s.87(1)].

            (ii)  Right of an equity shareholder to vote cannot be prohibited on the ground that he has not held his shares for any specified period before the meeting or on any other ground (s.182).ln Ananthalakshmi v.H.l. & F. Trust, AIRl957 Mad.927, a provision in the articles of a company that only those shareholders would be entitled to vote whose names have been there on the register for two months before the date of the meeting was held to be in contravention of the Act. Section 182, however, does not apply to a private company which is not a subsidiary of a public company.

The only ground on which the right to vote may be excluded is non-payment of calls by a member or other sums due against a member or where the company has exercised the right of lien on his shares (s.181).

            (iii)  A preference shareholder shall have the right to vote only on resolutions

which directly affect the rights attached to his preference shares [s.87(2)].

Where the directors proposed to increase the shares of the company by issue of

further equity shares, by capitalising an amount standing to the credit of the company's reserve account and applying the same in paying-up the new equity shares and distributing the same as fully paid among the equity shareholders, the proposed resolution was held to affect the rights of the preference shareholders and could, therefore, be only carried out with their sanction[Re john Smith's Tadcaster Brewery Co. Ltd. (1952) 2 All ER 7511.

However, rights of preference shareholders are not 'affected' by the issue of additional ordinary shares, though their voting rights are thereby weakened [White v. Bristol Aeroplane Co. Ltd. (1953) I All ER40 (CA)].

            (iv)  Voting rights of a member are not affected by the fact that his shares have

been attached or pledged or a receiver has been appointed [Balkrishnan Gupta v.

Swadeshi Polytex Ltd. (1985) 58 Comp Cas. 5631.

            (v)  Voting to be by show of hands in the first instance. Section 177 provides that at any general meeting, a resolution put to vote shall, unless a poll is demanded under s.179, be decided on a show of hands. A declaration by the chairman that on a show of hands, a resolution has or has not been carried either unanimously or by a particular majority and an entry to that effect in the Minutes Book of the company, shall be conclusive evidence of the fact. No proof of the number or proportion of the votes cast in favour of or against such resolution shall be required (s.178).

Demand for poll: Section 179 provides that before or on declaration of the result of the voting on any resolution on a show of hands, a poll may be ordered to be taken by the Chairman of the meeting of his own motion and shall be ordered to be taken by him on a demand made in that behalf by the person or persons specified below, viz.,

            (a)  in the case of a public company having a share capital, by any member or members present in person or by proxy and holding shares in the company:

(i) which confer a power to vote on the resolution not being less than 1 / 1'0 ^th of the total voting power in respect of the resolution; or (ii) on which an aggregate sum of not less than fifty thousand rupees has been paid-up;

            (b)  in the case of a private company having a share capital, by one member, present in person or by proxy if not more than seven members are personally present and by two members present in person or by proxy, if more than seven members are personally present;

            (c)  in the case of any other company, by any member or members present in

person or by proxy and having not less than l/10^th f the total voting power in

respect of the resolution.

The chairman of the meeting may regulate the manner in which the poll should be taken. He must appoint two scrutinisers to scrutinise the votes given on the poll and to report thereon to him. Then the chairman will declare the result.

Voting by companies and government as members (Ss. 187-187-A). Where a company or a corporation is a member of another company, it may attend the meetings of the other company through a representative. The representative must be appointed by a resolution of the Board of Directors or the other governing body. Where the Central Government or a State Government is a member, the President or the Governor of the State, as the case maybe, has the power to appoint representatives to attend meetings of the company. The person nominated shall hold the position of a proxy

12.11.7 (Quorum for Meeting)

A number of members of any body sufficient to transact business at a meeting is a quorum. Stated differently, a quorum is the minimum number of persons whose presence is necessary for the transaction of business. The quorum for meetings is generally fixed by the Articles of the company, or bye-laws and the rules of the association or society. Any resolution passed without a quorum is invalid. In fact, if no quorum is present, then there is no meeting and the proceedings are invalid.

Section 174 provides that unless otherwise so provided in the Articles, in the case of a public company, the quorum is five members personally present and in the case of a private company, it is two members personally present. If Quorum is not present within ½ hour, the meeting shall be adjourned to the same day next week at the same time and place. The Board may determine some other time, day and place but it should be within the town, city or village of the registered office.

Quorum - certain typical issues

            1. Can a single member present constitutes a valid quorum? A single member

present cannot by himself constitute a valid quorum except where the Act expressly so provides (vide Ss.167 and 186). Thus, where the meeting is convened by CLB

u/s 167 or 186, it may give any directions including a direction that a single member present in person or proxy shall constitute a valid meeting.

            2. Presence of Preference Shareholders - whether to be counted for quorum. If business proposed to be transacted at a general meeting does not include any item or resolution proposed to be passed, which directly affect the rights of the preference shareholders, their presence should not be taken into account for purpose of determining the quorum, but where the subject matter includes any resolution in which the rights of preference shareholders are directly affected, their presence should be taken into account for the purpose of the quorum.

Chairman of the meeting. The chairman is a necessary element of a meeting. His

position is of great importance. His many duties include the following:

            (i) He must act at all times bona fide and in the interest of the company as a

whole.

            (ii) He must ensure that the meeting is properly convened and constituted.

            (iii) He must ensure that the provisions of the Act and the Articles are observed.

            (iv) He should see that the business is taken in the order set out in the agenda, unless subsequently altered by the consent of the meeting.

            (v) He should ensure that the business is within the scope of the meeting.

            (vi) He must preserve order, conduct proceedings properly and take care that the sense of the meeting is ascertained with regard to every question before it.

            (vii) It is his duty to see that the majority do not refuse to hear the minority; but when the views of the minority have been heard, the chairman can with the sanction of a vote of the meeting, declare the discussion closed and put the question to vote.

            (viii) He must not permit any discussion until a motion or proposition is duly proposed and seconded, nor must he permit any irrelevant discussion.

            (ix) He must exercise correctly his powers of adjournment and of demanding a poll.

            (x) He must exercise his casting vote bona fide in the interest of the company. This casting vote is a second vote of the Chairman, to be used only when the voting for and against the motion is equal. It is advisable to use the casting vote to defeat

the motion.

            (xi) The chairman should always stand to address the meeting except in committees and even there it is often desirable.

            (xii) The chairman should follow the appropriate procedure, however, small and friendly the meeting is.

            (xiii) The chairman should ensure that the meeting begins punctually and closes formally.

            (xiv) The chairman should insist that all questions, comments and observations made by any member must be addressed to the chairman and not directly to the speaker or to anyone else in the meeting.

            (xv) The chairman should work in close contact with the secretary.

12.11.6 (Matters Relating to General Meetings)

Notice of the meeting (s.171). Every member of the company is entitled to a notice of every general meeting. A notice of not less than 21 days must be given in writing to every member. However, a shorter notice for AGM will be valid if all members entitled to vote give their consent. In case of other meetings, a shorter notice will be valid if consent is given by members holding at least 95 per cent of the paid-up capital carrying voting rights, or representing at least 95 per cent of the voting power (s.771).

A private company not being a subsidiary of a public company can make its own provisions by its articles and exclude provisions of s.171.

The notice may be given to members either personally, or sending by post to him at his registered address. A notice of a meeting may also be given by advertising the same in a newspaper circulating in the neighbourhood of the registered office of the company.

The secretary should see that proper notice of meeting must be given to all persons who are entitled to receive it. An improper or insufficient notice, as well as absence of notice, may affect the validity of a meeting and render the resolutions passed at the meeting ineffective. Also the notice should make a full and frank disclosure to the members of the fact on which they would be expected to vote.

Agenda of the meeting. The word 'agenda' indicates the business to be transacted at a meeting. It is prepared for all kinds of meetings in order that the meeting may be conducted systematically. The agenda is generally prepared by the secretary in consultation with the chairman. It is drafted in such a manner as to help the chairman to conduct the meeting smoothly. In drafting the agenda, the secretary should bear in mind the following: (i) the agenda should be clear and explicit; (ii) it should be drafted in a summary manner; (iii) all items of routine business should be put down first and the contentious matters later; and (iv) all items of similar nature should be placed in a continuous order.

The foregoing points are important because when a copy of the agenda is sent to a member, he is in a position to form a definite opinion of the subject matter to be discussed at the meeting. while preparing the agenda, care should be taken for the order of the matters to be discussed, as the order of the agenda cannot be altered except with consent of the meeting. sometimes, the agenda is drafted in such a manner that it can serve the purpose of minutes later on. Some space is left opposite each agenda item and the secretary writes it up during the meeting; this practice is very common in the preparation of agenda for Board meetings.

sometimes, companies maintain an Agenda Book, wherein the agenda items are entered. It is placed before the chairman of the meeting and is regarded as the agenda' Those placed before the members or other directors are copies only. Later, the Agenda book becomes a permanent record for future reference.

Proxy (s.176).In the case of a company, every member of a company entitled to attend and vote at a meeting has the right to appoint another person, whether a member or not to attend and vote for him. The term proxy is applied to the person so appointed. Also, it refers to the instrument by which a member of a company appoints another person to attend the meeting and vote on his behalf. However, the proper term for this document is proxy form or proxy paper. The following points about proxies are to be noted: (i) A proxy has no right to speak at the meeting. (ii) A proxy need not be a member of the company. (iii) The instrument appointing a proxy must be in writing and signed by the appointed. (iv) The proxy form must bear the date of the meeting. (v) No company can make it compulsory for any one to lodge proxies earlier than 48 hours before the meeting. (vi) A proxy may be revoked before the person appointed has voted. (vii) A proxy can demand a poll. (viii) A proxy cannot vote against the wishes of his appointer.

Secretarial work as regards proxies. (a) Scrutinise the proxy forms to see whether they comply with the provisions the Act, and the bye-laws and rules of the organisation. (b) Any proxies received after the stipulated time limit must be returned with a note that they cannot be accepted. (c) Any irregularities in proxy forms should be reported to Chairman of the meeting, as he is the final authority to accept or reject them. (d) Each correct proxy form is countersigned by the Secretary. (e) Enter the correct proxy forms in Register of proxies. (f) Return the proxy form to the member together with an Admission card in the name of the proxy.

12.11.5 (Class Meetings)

When it is proposed to alter, vary or affect the rights of particular class of shareholders (e.g., where accumulated dividends on cumulative preference shares is to be cancelled) and it is not possible to obtain the consent in writing, of the holders of ¾^th  of the issued shares of that class, a meeting of the holders of those shares may be called. Such a meeting is commonly known as a 'class meeting'. It should be noted that all resolutions in a class meeting must be passed as special resolutions.

The holders of at least 10 percent of the issued shares of that class who did not consent in favour of the resolution m ay apply to the Court within 21 days to have the resolution cancelled and where such application is made, the resolution shall not have effect unless and until it is confirmed by the Court

12.11.4 (Extra-ordinary Meeting (EGM) )

Clause 47 of Table A (schedule -I) provides that all general meetings other than AGMs shall be called the EGMs. The legal provisions as regards such meetings are:

            1.  EGM is convened for transacting some special or urgent business that may arise in between two AGMs, for instance, change in the objects or shift of registered office or alteration of capital. All business transacted at such meetings is called special business. Therefore, every item on the agenda must be accompanied by an 'Explanatory Statement'.

            2.  An EGM may be called: (i) by the Directors of their own accord; (ii) by the

Directors on requisition; (iii) by the requisitionists themselves; (iv) by the CLB. The

Board of Directors may call a general meeting of the members at any time by giving

not less than 21 days notice. A shorter notice may, however, be held valid if consent

is accorded thereto by members of the company holding 95% or more of the voting rights (s.171). The Board of Directors must convene a general meeting upon request or requisition if the following conditions are satisfied (s.169):

(a)     The requisitionists must be such number of members who, at the date of the deposit of the requisition, are the holders of 1/10 ^th of total voting power. Thus, in case of accompany having share-capital they should hold at least 1/10 ^th of such of the paid-up capital that carries right to vote in regard to that matter. Preference shareholders have voting power only as regards matters Preference shareholders have voting power only as regards matters relating to the preference shareholders. They have no voting right and therefore, no right to requisition in respect of other matters. If the company does not have a share capital, they should at least hold 1/10 ^th of the total voting power of the company in regard to that matter. The requisition must state the objects of the meeting, i.e., it must set out the matters for the consideration of which the meeting is to be called. Further, requisition must have been deposited at the registered office of the company. The requisition must be signed by the requisitionists.In case all the aforesaid conditions are satisfied, the Board of Directors must within 21 days of the receipt of the requisition call the meeting giving at least 21 days notice fixing the meeting within 45 days of the receipt of  the requisition.

Where the resolution proposed is a special resolution then the requirements of
s.189(2) must be complied with, viz., it should be so described and explanatory statement be annexed.

If the Board of Directors does not or fails to call the meeting as aforesaid (i.e., within 21 days fixing the date of the meeting within 45 days of the deposit of a valid requisition), the meeting may be called: by the requisitionists themselves:(a)In case of a company having share capital, by one or more requisitionists as represent: (i) a majority in value of the paid-up share capital held all the requisitionists; or (ii) at least 1/10 ^th the paid-up share capital carrying voting rights in respect of that matter, whichever is less; or (b) in case of a company not having share capital, by one or more requisitionists who represent at least 1/10^th of the total voting power of  the company in regard to the matter of  the requisition.

Where the Articles, in accordance with the provisions of s.180, provided that members who had not paid call on their shares would not be entitled to vote, it was held that they could not, therefore, requisition a meeting, nor vote it and if they did so the proceedings would be invalid [Col. Kuldip singh Chillon v. paragaon Utility Financiers put. Ltd. (1986) 60 Comp.Cas. 1075) P&H].

The requisitioned meeting must be held within 3 months of  the date of the deposit of the requisition. Further, where two or more persons hold any shares or interest in an company jointly, a requisition, or a notice calling a meeting, signed by one or some only of them shall, for the purposes of this section, have the same force and effect as if it had been signed by all of them.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Any reasonable expenses incurred by the requisitionists, as aforesaid, shall be repaid to them by the company and the same shall be recouped from directors at fault.

In Life Insurance Corporation of India v. Escorts Ltd. (1986) 60 Comp. Cas. 548, it was held that every shareholder of the company has the right, subject to compliance with the provisions of the Act, to requisition an EGM. He cannot be restrained from calling the meeting and is not bound to disclose his reasons for resolution proposed.  Section 773(2) only casts a duty on the management to disclose in an explanatory statement all material facts relating to the resolutions proposed.

Meeting by the requisitionists must be held in the same manner as nearly as possible, in which the meetings are to be called by the Board. However, where the registered office is not made available to them for holding the meeting, they may hold the meeting elsewhere [R. Chettair v. M. Chettair (1951) 21 Comp. Cas. 93].

Certain typical points

  1.  The right of members to requisition a meeting is not lost only because a receiver has been appointed in respect of their shares[Balkrishana Gupta v. Swadeshi Polytex Ltd. (1985) 88 Comp. Cas. 553].

  2.  Where requisitioned meeting was called only to interfere with a pending petition u/s 391 and in an attempt to prevent sanction by the Court of a scheme of amalgamation,  the holding of such meeting could be restrained by the Court [Centron Industrial Alliance Ltd. v. P.K. Vakil (1985) 57 comp. Cas. 121].

  3.  An institutional shareholder, say L.LC., has the same rights as every other shareholder to requisition an EGM for the purpose of considering removal of a certain number of directors. The institution cannot be restrained from doing so on the ground that reasons for the proposed removals have not been stated (Life Insurance Corporation of India v. Escorts Ltd. (7986) Tax LR 1826 (SC)].

            4.  Whether preference shareholders can attend a meeting in which no business affecting them is to be conducted and what are their rights in such a meeting. Under s.172(2)(i), notice of every meeting of the company is required to be given to every member of the company. From this it maybe inferred that although there is no express provision to that effect every member of a company is entitled to attend every general meeting. However, it is clear from s.87(2) (a) that the holders of preference shares do not have any right to vote on resolutions placed before the company, which do not directly affect the right attached to the preference shares. Further, in respect of resolutions in regard to which preference shareholders have no right to vote they have also no right to take part in the discussion, even though they have the implied right by virtue of s.172(2) (i) to attend the meeting.

            5.  Can an EGM be held in a State other than the State of the company's registered office? In Bharat Commerce & Industries Ltd. v. R.O.C., it was held, that it may be so held. But the power must be excised bona fide.

Powers of CLB (s.186).If for any reason it is impracticable to call a meeting of the company, other than an AGM, the CLB may direct the calling of the meeting: (a) on its own motion; (b) on an application of any director; (c) on an application of any member entitled to vote at that meeting.

For the aforesaid meeting, the CLB may give directions in respect of the place, date and the manner in which the meeting be held and conducted. It may also give such ancilliary or consequential directions as it thinks expedient, including a direction that one member present in person or proxy shall be deemed to constitute a meeting.

The main principles that should guide CLB as regards ordering a meeting to be called were spelt out in the matter of Ruttonjee & Co. Ltd. - a Calcutta case, as follows:

            1.  The CLB would not ordinarily interfere with the domestic management of a

company which should be conducted in accordance with the articles.

            2.  The discretion granted under s.186 should be used sparingly with caution so that the CLB does not become either a shareholder or director of the company trying to participate in the internal squabbles of the company. The CLB should ordinarily keep itself aloof from participating in quarrels of rival groups of directors or shareholders.

            3.  The word 'impracticable' means impracticable from a reasonable point of view.

            4.  The CLB should take a common sense view of the matter and must act as a prudent man of business.

            5.  Where doubts and controversy as to who are directors arise and rival groups convene their own meetings, the situation may make the meeting impracticable.

            6.  The power should be exercised upon consideration of all the facts and circumstances of the case.

12.11.3 (Annual General Meeting)

(AGM) (Ss.166-168). As the name  signifies, this

is an annual of a company. The provisions  relating to this meeting are summarised as follows:

            (1)  Every company, whether. public or private, having a share capital or not,

limited or unlimited must hold this meeting.

            (2)  The meeting must be held in each calendar year and not more

than fifteen months shall elapse between two meetings. However, the first AGM may be held within eighteen months from the date of its incorporation and if such general meeting is held within that period, it need not hold any such meeting in the year of its incorporation or in the following year. The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar, who may so allow for any special reason

The Company Law Department has expressed the view that the Registrar can grant extension of time, for special reasons, upto a maximum period of 3 months, even if such extension allows the company to hold its AGM beyond the  calendar year. However, the said extension shall be granted only if the application  therefor

is made to the Registrar before the expiry of the period  as per s.166 (1).

            (3)  The meeting must be held (i) on a day which is not a public holiday, (ii) during business hours, (iii) at the registered office of the .company  or at some other place within the city, town or village in  which the registered office is situated. [s.1.66(2)].

            (4)  The business to be transacted (s.123) at such a meeting may comprise  of:

            (i)  Ordinary business which relates to the following matters: (a)  consideration of accounts, balance sheet and the reports of the Board of Directors and  Auditors; (b) declaration of dividend; (c) appointment of directors in the place of those retiring; and (d) appointment of auditors and fixation of their            remuneration.

            (ii) Any business other than ordinary business transacted at the meeting will be deemed to be special business. with regard to all special business, an  Explanatory statement is required to be annexed to the notice.

            (5)  What about a situation where annual accounts are not ready for being placed before the AGM? In case annual accounts are not ready for laying at the appropriate AGM, it is open to the company concerned to adjourn the said AGM to a subsequent date when the annual accounts are expected to be ready for laying. Since consideration of annual accounts is only one of the matters to be dealt with at an AGM, directors are under a statutory obligation to hold the meeting. The  proper course shall be to hold the meeting and then adjourn it to a suitable date for considering the accounts. The adjourned meeting must, however, be held within the maximum time limit allowed under s .166.

            (6)  The combined reading of Ss.166 and 210 requires compliance with the

following: (a) There must be one meeting held in each calendar. year. (b) Not more than 15 months must elapse between one general meeting and another. (c) The period of 15 months may be extended to 18 months by the Registrar. (d) Except in the case of the first AGM, the accounts must relate to a period beginning with the day immediately after the period for which they were submitted and ending with a day which must not precede the day of the meeting by more than 6 months; or 6 months   extension granted by the Registrar, i.e., a maximum period of 9 months.

            (7)  The company must give twenty-one days notice to all the members of the company and the auditor. A shorter notice may be held valid if consent is accorded to by all the members entitled to vote at the meeting (s.171). Such a consent may be given before the meeting is held or after the resolutions are passed. A copy of directors' report on the company's position for the year together with copy of the audited accounts and auditors' report must accompany the notice. Also a proxy form must be attached with the notice, on which it shall be specifically mentioned that a member entitled to vote is entitled to appoint Proxy, and Proxy need not be a member of the company.

The notice must specify the place and the day and hour of the meeting and shall contain a statement of the business to be transacted thereat [s.172(1)].

If the time of holding the meeting and other essential particulars required by the section are not specified in the notice, the meeting will be invalid and all resolutions passed thereat will be of no effect.

The notice must be given to every member, legal representative of a deceased member or assignee of an insolvent member and to auditor or auditors [s.172(2)].

            (8)  If default is made in holding the meeting, the CLB may, on the application of any member of the company, call or direct the calling of the meeting. If the company fails to hold the meeting either originally or when directed to do so by the CLB, then the company and every officer of the company who is default shall be punishable with fine upto Rs 50,000; and in the case of a continuing default, with a further fine of' Rs 2500 per day during the continuance of default (s.168).

Certain typical issues in respect of AGM

            1.  Whether AGM can be called on a public holiday. Section 1.66(2), inter alia, that every AGM shall be called on a day that is not a public holiday. The Department of Company Affairs has opined that it is a mandatory provision.

However, Bank holidays (for purposes of closing) though declared as public holidays under the Negotiable Instruments Act, 1881 shall not be treated as public holidays for the aforesaid purpose. Thus, 31^st March and 30^th Sept. shall not be considered as public holidays.

In the following cases, however, AGM may be held on a public holiday:

            (i) Section 2(38) provides that if any day is declared by the Central Government to be a public holiday after the issue of the notice convening such a meeting, it shall not be deemed to be a public holiday in relation to the meeting.

            (ii)  Where a public company or its subsidiary has by its articles fixed the time of its AGM and the day turns out to be a public holiday [proviso (a) to s.166(2)].

            (iii)  Where a public company or its subsidiary has, by a resolution passed in one AGM fixed the time for its subsequent AGM and the day turns out to be a public

holiday [Proviso (a) to s.166(2)].

            (iv)  A private company which is not a subsidiary of a public company may also [like a public company or its subsidiary under (ii) and (iii) above] by a resolution agreed to all the members thereof fix the time as well as the place of its AGM and the same shall be valid if the day happens to be a public holiday Proviso (b) tos.166(2)].

            (v)  A company to whom a licence is granted under s.25 is exempted from the provisions of s.766(2).

            (vi)  Where the AGM is adjourned because of lack of quorum, it is to be held on the same day in the next week at the same time and place (s.174). In case the day comes to be accidentally a public holiday, it shall not amount to contravention of s.166(2).

            2.  It is not obligatory to advertise notice of meetings h the newspapers. However, as an abundant precaution, the company may advertise in the newspapers to avoid objection from such of the shareholders as reside outside India and who incidentally may not receive the notices served through post.

            3.  Voting rights of members shall be determined as at the date of the meeting and not as they would/have been if the meeting had been held within the prescribed time.

            4.  A meeting beyond statutory time cannot be said to be void or illegal. If the CLB does not extend the date of holding the AGM u/ s 167 , the Directors shall be subjected to increasing penalty but the meeting shall be a valid meeting. Otherwise, the position in law would become impossible

            5.  The Board of Directors has the power to cancel or postpone a meeting convened, though it cannot be exercised except for bona fide and proper reasons,

12.11.2 (statutory Meeting )

Some of the most important legal provisions regarding the statutory meeting are:

            (i)  It is  required to be held only by a public company having a share capital. A private company or a public company registered without share capital is under no obligation to hold such a meeting.

            (ii)  It must be held within a period of not less than one month and not more than six months from the date at which the company is entitled to commence business.

            (iii)  At least 21 days before the day of meeting, a notice of the meeting is to be sent to every member stating it to be a Statutory Meeting.

            (iv)  The Board of Directors should also get a report, called the Statutory Report, sent to each member along with the notice of the meeting. Lf the statutory report is forwarded later, it shall be deemed to have been duly forwarded if it is so agreed to by all the members entitled to attend and vote at the meeting. A copy of the Statutory Report should also be  sent to the Registrar after the same is sent to the members.

The statutory Report contains (a) the total number of shares allotted - fully paid- up and partly paid-up; allotted for cash and for consideration other than cash; (b) the total cash received by the company in respect of all allotments; (c) an abstract of receipts and payments up to a date within seven days of the date of the Report and the balance of cash in hand; (d) any commission or discount paid on the issue of shares or debentures; (e) the names, addresses and occupations of directors, auditors, managers and the secretary of the company; (f) the extent to which any underwriting contract has not been carried out; (g) the arrears due on calls from every director; (h) the particulars of any commission or brokerage paid to any director or manager on the issue of shares and debentures.

The Statutory Report is required to be certified as correct by at least two directors, one of whom shall be the managing director, where there is one. Also, the auditors of the company shall certify that part of the Statutory Report which relates to the shares allotted, each received thereon and the receipts and payments and the balance of cash in hand.

            (v)  The members present at the meeting may discuss any matter relating to the formation of the company or arising out of the statutory report without previous notice having been given.

            (vi)  The meeting may adjourn and the adjourned meeting has the same powers as the original meeting. The adjourned meeting, therefore, may do anything which could have been done by the original meeting.

            (vii)  lf default is made in complying with the provisions of s.165, the following consequences may follow: (a) Every director or other officer of the company who is in default shall be punishable with fine upto Rs 5,000; (b) The Registrar or a contributory may apply to the Court for the winding up of the company [s.439]. However, the Court may, instead of passing an order for winding up, give directions for the holding of the meeting or filing of the Statutory Report.

            (viii)  It should be remembered that this meeting is required to be held only once in the life time of a public company, having a share .capital.

l2.11.1(MEETINGS AND PROCEEDINGS)

Need for Meetings. A company is an artificial person and therefore, cannot act itself. It must act through some human intermediary. The various provisions of law empower shareholders to do certain things. They are specifically reserved for them to be done in company's general meetings. Section 291 empowers the Board of Directors to manage the affairs of the company. In this context meetings of shareholders and of directors becomes necessary. In this Part meetings of shareholders are taken up and later in Part 14, meetings of directors are discussed. The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting; (ii) Annual General Meeting; (iii) Extraordinary General Meeting; and (iv) Clas Meetings.

(12.10.14) lnvestments to be in its Own Name

AII investments made by a company on its own behalf shall be made and held by it in its own name. There are, however, certain exceptions to this rule. These exceptions are as follows:

            1. If any other law, for the time being in force, permits, the investments of the

company may be made and held by it in its own name.

            2.  Where the company has a right to appoint any person or persons as a director or directors of any other body corporate, shares in such other body corporate up to an amount not exceeding the nominal value of the qualification shares may be registered or held by the body corporate jointly in the names of the company itself and of each such person or nominee or in the name of each such director.

            3.  A company may hold any shares in its subsidiary in the name or names of

any nominee or nominees of the company to ensure that the number of members of

any subsidiary is not reduced, where it is a public company, below z and where it

is a private company, below 2.

            4.  If the investments are made by a company, whose principal business consists of the buying and selling of shares or securities, the company may hold its investments in any other name. Securities include stock and debentures.

            5.  A company may deposit with a bank, being the bankers of the company, any shares or securities for the collection of any dividend or interest payable thereon.

            6.  A company may deposit, or transfer to, or hold in the name of, the State Bank of India or a Scheduled Bank, being the bankers of the company, shares or securities, in order to facilitate the transfer thereof. The company can do so only for period of 6 months. If the transfer of such shares or securities does not take place within 6 months, the company shall, as soon as practicable after the expiry of that period of 6 months, have the shares or securities re-transferred to it from the State Bank of India or the Scheduled Bank or, as the case may be, again hold the shares or securities in its own name.

            7.  A company may deposit with, or transfer to, any person any shares or securities, by way of security for the repayment of any loan advanced to the company for the performance of any obligation undertaken by it.

The certificate or letter of allotment relating to the shares or securities in which investments have been made by a company shall, except in cases (4) to (7) referred to above, be in the custody of the company or with the State Bank of India, or a Scheduled Bank, being the bankers of the company.

Where any shares or securities in which investments have been made by a company are not held by it in its own name, the company shall enter in a register maintained by it for the purpose: (a) the nature, value and such other particulars as may be necessary fully to identify the shares or securities in question; and (b) the bank or person in whose name or custody the shares or securities are held. The register shall be open to the inspection of any member or debentureholder of the company. If any inspection of the register is refused, the Company Law Board may, by order, direct an immediate inspection of the register.

If default is made in complying with s.49, the company and every officer of the company who is in default, shall be punishable with fine which may extend to Rs 50,000.

(12.10.13) Miscellaneous Provisions as regards Charges

1. Date of notice of charge (s.126). Where any charge on any property of a company required to be registered under s.125 has been so registered, any person acquiring such property or any part thereof or any share of interest therein shall be deemed to have notice of the charge as from the date of such registration.

            2.  Register of charges to be kept by registrar ( s. 1 30). The Registrar shall with respect to each company cause to be kept a register containing all the charges requiring registration and shall on payment of the prescribed fee, cause to enter in the Register with respect to every such charge the following particulars: (i) the date of its creation; (ii) the amount secured by the charge; (iii) short particulars of the property charged; and (iv) the persons entitled to the charge.

In case of a charge to the benefit of which the holders of a series of debentures are entitled, the particulars to be entered in the Register are: (i) the total amount secured by the whole series; (ii) the dates of the resolutions authorising the issue of the series and the date of the covering deed, if any, by which the security is created or defined; (iii) a general description of the property charged; (iv) the names of the trustee, if any, for the debentureholders; and (v) the amount or rate per cent of the commission or discount; if any, paid to any person subscribing or procuring subscriptions for any debentures of the company (Ss.128 and 129).

The Register so kept shall be open to inspection by any person on payment of a fee

of one rupee for each inspection.

            3. Index to register of charges (s.131). The Registrar shall give a certificate under his hand of the registration of any charge registered with him, stating the amount there by secured. The certificate shall be conclusive evidence that the requirements of the Act as to registration have been complied with.                                                                                                                                                                 

            4. Modification of charges (s.135). Section 135 provides that whenever the terms or conditions, or the extent and operation, of any charge registered are modified, it shall be the duty of the company to send to the Registrar the particulars of such modification within 30 days.

It may be noted that under s.134, a charge can be filed by the company or by any person interested in the charge. However, under s.135, modification of a charge can only be filed by the company.

            5.  What constitutes modification. The term 'modification' includes variation of any of the terms of the agreement including variation of rate of interest which may be by mutual agreement or by operation of law. Even if the rights of a charge holder are assigned to a third party, it will be regarded as a modification. Likewise, partial release of the charge on a particular asset or property, shall amount to modification of the charge.

            6. The memorandum of satisfaction(Ss.138 to l40). On payment or satisfaction of any charge, in full, the company must notify the fact to the Registrar within 30 days from the date of such payment or satisfaction. The Registrar shall, on receipt of such intimation, cause a notice to be sent to the holder of the charge calling upon to show cause within a time specified in such notice (but not exceeding 14 days) as to why payment or satisfaction should not be recorded as intimated to the Registrar. If no cause is shown, the Registrar shall order that a memorandum of satisfaction shall be entered in the Register of Charges.

But if cause is shown, the Registrar shall record a note to that effect in the Register

and shall inform the company that he has done so. The Registrar may also record memorandum of satisfaction even if no intimation has been received by him from the company on getting evidence to his satisfaction that any registered charge has been satisfied in whole or in part.

Where the Registrar enters a memorandum of satisfaction as above, he shall furnish the company with a copy of the memorandum of satisfaction (s.140).

            7.  Rectification of register of  company law board (s.141). The company Law Board is empowered to extend time for the registration of the charge or to order that the omission or misstatement in the Register of Charges be rectified. The persons who may apply to the CLB for such an order are the company or any interested person. The CLB has to be satisfied that the failure to register the charge or the omission or misstatement: (a) was accidental; or (b) was due to inadvertence or some other sufficient cause; or (c) is not of a nature as to prejudice the position of creditors or shareholders of the company; or (d) that on other grounds it is just and equitable to grant relief.

Where the CLB extends the time for the registration of a charge, the order shall not Prejudice any rights acquired in respect of the property concerned before the charge is actually registered.

            8.  Company’s register of charges (s.143). Every company must keep at its registered office a Register of Charges and enter therein all charges specifically affecting property of the company and all floating charges on the undertaking or on any property of the company, giving in each: (a) a short description of the property charged; (b) the amount of the charge; and (c) the names of the persons entitled to charge.

If any officer of the company knowingly omits or willfully  authorises or permits the omission of any of the above entries, he shall be punishable with fine which may extend to Rs 5,000.

(12.10.12) Registration of Charges

Section 125 requires that the following charges must be registered with the Registrar within 30 days after the date of their creation. (i) a charge for the purpose of securing any issue of debentures; (ii) a charge on uncalled share capital of the company; (iii) a charge on any immovable property; (iv) a charge on any book debts of the company; (v) a charge not being a pledge on any movable property of the company; (vi) a floating charge on the undertaking or any property of the company including stock in trade; (vii) a charge on calls made but not paid; (viii) a charge on a ship or any share in a ship; (ix) a charge on good will, or a patent or a licence under a patent, or a trade mark or a licence under a trade mark; or a copyright or a licence under a copyright.

The Registrar may, however, allow the registration of a charge within 30 days next following the expiry of the said period of 30 days on payment of specified additional fee, if the company satisfies the Registrar that it had sufficient cause for not filing the required particulars or instrument, etc., within that period.

It is the duty of the company to send the above particulars to the Registrar but registration may also be effected on the application of the creditor. The creditor may in such a case recover the registration fee from the company (s.134).

Effect of non-registration

            (1)  In case a registrable charge is not registered within the prescribed time, it becomes void (i) against the liquidator; and (ii) any creditor of the company. However, the charge shall not be void against a purchaser of the properties charged [State Bank of India v. Vishwanirayat ( P ) Ltd. (1987) 3 Comp. L.J. 77 7].

            (2)  However, the debt, in respect of which the charge was given remains valid, that is, it can always be recovered as an unsecured debt.

            (3)  Another effect of non-registration of a charge is that the money secured thereby becomes immediately payable.

Besides, company and every officer may be subjected to a penalty upto Rs 500 for every day during which the default continues.

(l2.10.11) Fixed and Floating Charges

Fixed charge is a charge on definite or specific property, i.e., the charge attaches to the property that is identified at the time when the charge is created, e.g., land, heavy machinery, buildings. The essence of fixed charge is that though the possession of the specified asset is with the company but  the legal title belongs to the holders of the charge. The consequence of this charge is that the company cannot dispose of that asset ,  free of charge, without the consent of the holderc of the charge. Even if it is disposed of, the holders of the charge will have the first claim as against the buyer of the property. If company creates a fixed charge on stock in trade, company will not be able to deal in that. This would limit the company's Powers to borrow. Hence a floating charge, is generally, created on assets such as stock- in-trade.

Floating charge, on the other hand, is not attached to definite property, but covers property of a fluctuating type, e.g., stock-in-trade. The characteristics of a floating charge are: (1) It is a charge on a class of assets, present and future; (2) The class of assets charged is one which in the  ordinary course of business, is changing from time to time; (3) Until some steps are taken to enforce the charge, the company may continue to deal with the assets charged in the ordinary course of business.

No particular form of words is necessary to create a floating charge. Any words which show an intention to allow the company to continue to deal with the assets by sale, lease, mortgage, etc., in the course of its business will create a floating charge. The advantage, of such charge is that the company may continue to deal with the property charged.

Whether a charge is a fixed charge or a floating charge will depend upon the words used in the document creating the charge; the essence of floating charge being the freedom of the borrower to use the assets charged, in the ordinary course of its business. It con even create a specific mortgage of the property, already  subject to a floating charge, without the consent of the holders of the charge and the registered mortgagee shall have priority over the change [Wheatley v. sibstone Co. (1885) 29 Ch.D.7151. But a company cannot, however,  create a further floating charge on the same assets to rank in priority to or pari pasv with the existing charge unless such power has been reserved by the company [Re Benjamin Cope & Sons (1974) 1 Ch. 800). Before crystallisation of the floating charge a company may even sell the whole of the undertaking if that is one of the object specified in the memorandum [Re Borax Co. (1901) 1 Ch.326]. Where, however, a specific charge is made expressly subject to floating charge, the former is postponed as from the date when the later is crystallised [Re Robert Stephenson] & Co. Ltd. (1913) 107L.T. 33].

A floating charge can be created only by an incorporated body. It is created by a deed and must be registered with the Registrar of Companies.

Crystallisation of a floating charge. A floating charge crystallises and becomes fixed in the following circumstances: (1) when the company goes into liquidation; or (2) When the company ceases to carry on business; or (3) When the debenture holders take steps to enforce their security, e.g., by appointing a Receiver, etc., on default by the company to pay principal and interest.

Effects of winding up on floating charge. (A) According t o s.123,the debts, which are entitled to a preferential payment in the event of the winding up of a company under s. 530, get priority over the claims of the debenture holders having a floating charge, even though the company is not in the course of winding up. (B) Where company is being wound up, a floating charge on the undertaking or property of the company created within 12 months immediately preceding the commencement of the winding up shall be void unless: 1, The company was solvent immediately after the charge was created; and 2. The amount was paid to the company in cash at the time of or subsequently  to the creation of and in consideration for, the charge together with interest on that amount at the rate of 5% per annum or such other rate as prescribed by the Central Government.

The object of the above provision is to prohibit insolvent companies from creating any floating charge on their assets with a view to secure past debts to the prejudice of unsecured creditors.

(12.10.10) Remedies of Debentureholders

In case of default by the company in repayment, the remedies of a debenture holder vary according to whether he is secured or unsecured.

An unsecured debentureholder is in exactly the same position as a creditor and he

has the same remedies. Thus, (1) he may sue for the principal and interest; or (2) he may present a petition for the winding up of the company and prove his debt as unsecured creditor.

A secured debentureholder has both the above remedies, but in addition he has

the following courses also open to him:

            (I)  Where a trust deed has been executed

            1.  Sale of assets. The power of sale by trustees is one of the express powers usually contained in the debenture or debenture trust deed. If no such power is given, an application may be made to the Court for an order to sell.

            2.  Foreclosure. The trustees may make an application to the Court for an   order of foreclosure, the effect of which is that the borrowers' interest in the     assets charged is completely extinguished and the lender becomes the owner of them. For an action of foreclosure, it is necessary that all debentureholders         of the class concerned join hands [Wallance v. Evershed (1899) 1 Ch. 891].

            3.  Appointment of a receiver. Where there is a trust deed, it often provides that the trustees may appoint a receiver. If no such power is given, application   to appoint one may be made to the Court in a debentureholders' action. On the appointment of a Receiver, the assets become specifically charged in favour of  the debentureholders and the power of the company to deal with them in the  ordinary course of business ceases, although the company continues to exist  until it is wound up.

            (II)  Where no deed has been executed

Debentureholders' action: Where no trust deed had been executed in favour of debentureholders, a debentureholder may, on default in payment of principal or interest, bring an action (called a debentureholders' action) on behalf of himself and other debentureholders of the same class asking for: (i) a declaration that the debentures have a charge on the assets; (ii) an account of what is owed to the debentureholdes; the amount of assets; prior claims, etc; (iii) an order of foreclosure or sale; (iv) the appointment of a Receiver.

If a debentureholder owes a debt to the company which is insolvent, the holder cannot set off his debt against the liability he owes to the company. The rule is that a person who claims a share in a fund must first pay up every thing he owes to the fund before he can claim a share [Re Borwn and Gregory Ltd. (1904) 1 Ch.627].

SEBI has also issued guidelines for disclosure and investor protection pertaining to debentures.