13.5.3 (Time and Place of despatch and receipt of electronic record )

(1) Except as otherwise agreed to between the originator and the addressee, the despatch of an electronic record occurs when it enters a computer resource outside the control of the originator.

            (2) Except as otherwise agreed between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows –

                        (a) if the addressee has designated a computer resource for the purpose  of receiving electronic records: (i) receipt occurs at the time when the  electronic record enters the designated computer resource; or (ii) if the  electronic record is sent to a computer resource of the addressee that is not the       designated computer resource, receipt occurs at the time when the electronic     record is retrieved by the addressee;

                        (b) if the addressee has not designated a computer resource along with specified timings, if an1u., receipt occurs when the electronic record enters the computer resource of the addressee.

            (3) Except as otherwise agreed to between the originator and the addressee, an electronic record is deemed to the despatched at the place where the originator has his place of business, and is deemed to be received at the place where the addressee has his place of business.

            (4) The provisions as given in (2) above shall apply notwithstanding that the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received under (3).

(5) For the purposes of this section, (a) if the originator or the addressee has more than one place of business, the principal place of business shall be the place of business, (b) if the originator or the addressee does not have a place of business, his usual place of residence shall be deemed to be the place of business; (c) "usual place of residence", in relation to a body corporate, means the place where it is registered.

13.5.2 (Acknowledgement of Receipt)

Where the originator has not agreed with the addressee that the acknowledgement of receipt of electronic record be given in a particular form or by a particular method, an acknowledgement may be given by (a) any communication by the addressee, automated or otherwise; or (b) any conduct of the addressee, sufficient to indicate to the originator that the electronic record has been received.

Further, where the originator has stipulated that the electronic record shall be binding only on receipt of an acknowledgement of such electronic record by him, then unless acknowledgement has been so received, the electronic record shall be deemed to have been never sent by the originator.

However, where the originator has not stipulated that the electronic record shall be binding only on receipt of such acknowledgement, and the acknowledgement has not been received by the originator within the time specified or agreed o1, if no time has been specified or agreed to within a reasonable time, then the originator may give notice to the addressee stating that no acknowledgement has been received by him and specifying a reasonable time by which the acknowledgement must be received by him and if no acknowledgement is received within the aforesaid time limit he may, after giving notice to the addressee, treat the electronic record as though it has never been sent.

13.5.1 (ATTRIBUTION, ACKNOWLEDCEMENT AND DESPATCH OF ELECTRONIC RECORDS)

Section 11 to 13 provide matters concerning attribution, acknowledgement and despatch of electronic records.

Attribution of electronic records (s. 11). An electronic record shall be attributed to the originator (a) if it was sent by the originator himself; (b) by a person who had the authority  to act on behalf of the originator in respect of that electronic record; or © by an information system programmed by or on behalf of the the originator to operate automatically.

13.4.7 (Power to make rules by Central Government in respect of digital signature )

The Central Government may, for the purpose of this Act, by rules, prescribe – (a) the type of digital signature; (b) the manner and format in which the digital signature shall be affixed; (c) the manner or procedure which facilitates certification of the person affixing the digital signature; (d) control processes and procedure to ensure adequate integrity, security and confidentiality of electronic records or payment; and (e) any other matter which is necessary to give legal effect to digital signatures.

13.4.6 (No right conferred to insist that document should be accepted in electronic form)

The provision of s. 6 – 8 do not confer a right upon any person to insist that any Minister or Department of the Central Government or the State Government or any authority or body established by or under any law or controlled or founded by the Central or State Government preserve any document in the form of electronic records or effect monetary transaction in the electronic form.

13.4.5 (Publications of rule, regulation, etc., in Electronic Gazette )

Where any law provides that any rule, regulation, order, bye-law, notification or any other manner shall be published in the official Gazette, then, such requirement shall be deemed to have been satisfied in such rule, etc., is published in the Official Gazette or Electronic Gazette.

However, where any rule, etc., is published in the Official Gazette or Electronic Gazette, then the d be deemed to be the date of the Gazette which was first published in any form.

13.4.4 (Retention of electronic records )

Where any law provides that documents, records or information shall be retained for any specific period then, that requirement shall be deemed to have been satisfied if such documents, etc., are retained in the electronic form, if - (a) the information contained therein remains accessible so as to be usable for a subsequent reference, (b) the electronic record is retained in the format in which it was originally generated, sent or received or in a format which can be demonstrated to represent accurately the information originally generated, sent or received; (c) the details which will facilitate the identification of the origin, destination, date and time of despatch or receipt of such electronic record are available in the electronic record.

However the clause (c) does not apply to any information which is automatically generated solely for the purpose of enabling an electronic record to be dispatched or received. Further this section is not applicable to any law that expressly provides for the retention of documents, records or information in the form of electronic records.

13.4.3 (Use of electronic record and digital signatures in Government and its agencies )

Where any law provides for the following:

            (a) the filing of any form, application or any other document with any office, authority, body or agency owned or controlled by the appropriate Government in a particular manner;

            (b) the issue or grant of any licence, permit, sanction or approval by whatever name called in a particular manner;

            (c) the receipt or payment of money in a particular manner.

Then, such requirement shall be deemed to have been satisfied if such filing, issue, grant, receipt or payment as the case may be, is effected by means of such electronic form as maybe prescribed by the appropriate Government.

Accordingly the appropriate Government may, by rules, prescribe (a) the manner and format in which such electronic records shall be filed, created or issued; (b) the manner or method of payment of any fee or charges for filing, creation or issue any electronic record.

13.4.2 (Legal recognition of digital signatures)

Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person then, notwithstanding anything contained is such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of digital signature affixed in such manner as may be prescribed by the Central Government.

The expression "signed" as used above shall, with reference to a person, means affixing of his handwritten signature or any mark on any document and the expression "signature" shall be construed accordingly

13.4.1 (ELECTRONIC COVERNANCE)

In this part we shall explain sections 4 to 16.

Legal Recognition of electronic records (s. 4) . Where any law provides that information or any other matter shall be in writing or in the type, written or printed form, then notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is (a) rendered or made available in an electronic form; and (b) accessible so as to be usable for a subsequent reference.

13.3.4(DIGITAL SIGNATURE)

Section 3 provides as follows:

            (1) Any subscriber may authenticate an electronic record by affixing his digital signature.

            (2) The authentication of the electronic record shall be effected by the use of asymmetric crypto system and hash function which envelop and transform the initial electronic record into another electronic record.

            The "hash function" means an algorithm mapping or translation of one sequence of bits into another, generally smaller set known as "hash result" such that an electronic record yields the same hash result every time the algorithm is executed with the same electronic record as its input making it computationally infeasible (a) to derive or reconstruct the original electronic record from the hash result produced by the algorithm; (b) that two electronic records can produce the same hash result using the algorithm.

            (3) Any person by the use of a public key of the subscriber can verify the electronic record.

            (4) The private key and the public key are unique to the subscriber and constitute a functioning key pair.

13.1.3 (DEFINITIONS)

Section 2 defines the various expressions occurring in the Act. These are given below.

            (a) “access” with its grammatical variations and cognate expressions means gaining entry into, instructing or communicating with the logical, arithmetical, or memory function resources of a computer, computer system or computer network.

            (b) "addressee" means a person who is intended by the originator to receive the electronic record but does not include any intermediary.

            (c) "adjudicating officer" means adjudicating officer appointed under s. 46 (1).

            (d) "affixing digital signature" with its grammatical variations and cognate expressions means adoption of any methodology or procedure by a

Person for the purpose of authenticating an electronic record by means of digital

signature.

            (e) "appropriate government" means as respects any matter –

                        (i) enumerated in List II of the seventh schedule to the Constitution;

                        (ii) relating to any State law enacted under List III of the Seventh   Schedule to the Constitution;

            (iii) the state Government and in any other case, the Central Government.

            (f) "asymmetric crypto system" means a system of a secure key pair  consisting of a private key for creating a digital signature and a public key to verify the digital signature.

            (g) "Certifying Authority", means a person who has been granted a licence to

issue a Digital Signature Certificate under s. 24.

            (h) " certification practice statement" means a statement issued by a Certifying Authority to specify the practices that the Certifying Authority employs in issuing Digital Signature Certificates,

            (j) “computer” means any electronic magnetic, optical or other high-speed data processing device or system which performs logical, arithmetic, and memory functions by manipulations of electronic, magnetic or optical impulses, and includes all input, output, proceedings, storage, computer software, or communication facilities which are connected or related to the computer in a computer system or computer network.

            (I) "computer network" means the interconnection of one or more computers through-

            (i) the use of satellite, microwave, terrestrial line or other communication media; and

            (ii) terminals or a complex consisting of two or more interconnected  computers whether or not the interconnection is continuously maintained.

            (k) "computer resource" means computer, computer system, computer network, data, computer database or software.

            (l) “computer system” 'means a device including input and output support devices and excluding t programmable and capable of being used in conjunction with external files, which contain computer programmes, electronic instructions, input data, and output data, that performs logic, arithmetic, data storage and retrieval, communication control and other functions.

            (m) “Controller” means the Controller of Certifying Authorities appointed under s.77(1).

            (n) "Cyber Appellate Tribunal" means the Cyber Regulations Appellate Tribunal established under s. 48.

            (o) “data” means a representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalized manner, and is intended to be processed, is being processed or has been processed in a computer system or computer network, and may be in any form (including computer printouts, magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of the computer.

            (p) "digital signature" means authentication of any electronic record by a

subscriber by means of an electronic method or procedure in accordance with the

provision of s. 3.

            (q) "Digital Signature Certificate" means a Digital Signature Certificate issued under s. 35(4)

            (r) "electronic form" with reference to information means any information generated, sent, received or stored in media, magnetic, optical, computer memory

or similar device.

            (s) "electronic record" means data, record or data generated image or sound

stored, received or sent in an electronic form.

            (t) "function" in relation to a computer, includes logic, control, arithmetical

process, deletion, storage and retrieval and communication or telecommunication

from or within a computer;

            (u) "information" includes data, text, images, sound, codes computer programmes, software and databases.

            (v) "intermediary" with respect to any particular electronic message means any person who on behalf of another person receives, stores or transmits that message

or provides any service with respect to that message.

            (w) "key pair" in an asymmetric crypto system, means a private key and its

mathematically related public key, which are so related that the public key can

verify a digital signature created by the private key,

            (x) "law" includes any Act of Parliament or of a State Legislature, Ordinances

promulgated by the President or a Governor, as the case may be, Regulations

made by the President under article 240, Bills enacted as President's Act under

sub-clause (a) of clause (1) of article 357 of the Constitution and includes rules,

regulations, bye-laws and order's issued or made thereunder.

            (y) "licence" means a licence granted to a Certifying Authority under s. 24.

            (z) "originator" means a person who sends, generates, store or transmits any

electronic message or causes any electronic message to be sent, generated, stored

or transmitted to any other person but does not include an intermediary.

            (za) "prescribed" means prescribed by rules made under this Act;

            (zb) "private key" means the key of a used pair used to create a digital signature.

            (zc) "public key" means the key of a key pair used to verify digital signature and listed in the Digital Signature Certificate.

            (zd) "secure system" means computer hardware, software and procedure that-

                        (a) are reasonably secure from intrusion and misuse;

                        (b) provide a reasonable level of reliability and correct operation;

                        (c) are reasonably suited to performing the intended functions; and

                        (d) adhere to generally accepted security procedures.

            (ze) " security procedure" means the security procedure prescribed under s . 1,6by the Central Government.

            (zf) "subscriber” means a person in whose name the Digital Signature Certificate is issued.

            (zg) "Verify" in relation to a digital signature, electronic record or public key, with its grammatical variations and cognate expressions means to determine whether-

                        (a) the initial electronic record was affixed with the digital signature by the use of private key corresponding to the public key of the subscriber;

                        (b) the initial electronic record is retained intact or has been altered  since such electronic record was so affixed with the digital signature.

13.1.2 (Commencement, and application)

It extends to the whole of India and save as otherwise provided in this Act, it applies to any offence or contravention thereunder committed outside India by any person.

This Act is not applicable to the following:

            (i) a negotiable instrument as defined in s. 13 of the Negotiable Instruments Act,1881;

            (ii) a power-of-attorney as defined in s. 1A of the power of Attorney Act,1882;

            (iii) a trust as defined in s. 3 of the Indian Trust Act, 1882;

            (iv) a will as defined in s. 2(h) of the Indian succession Act, rg2sincluding any other testamentary disposition by whatever name called;

            (v) any contract for the sale or conveyance of immovable property or any interest in such property;

            (vi) any such class of documents or transactions as maybe notified by the Central Government in the Official Gazette.

The President of India gave his assent to the Act on June 9, 2000.

13.1.1(SCOPE OF THE ACT)

Objectives of the Act. The objectives of the Act as reflected in the preamble to the Act are:

            (i) to provide legal recognition for data interchange and other means of to as "electronic commerce", which involves the use of alternative to paper-based methods of communication and storage

            (ii) to facilitate electronic filing of documents with the government agencies;

            (iii) to facilitate electronic storage of data in place of paper-based methods of storage of data.

            (iv) to amend the Indian Penal code, the Indian Evidence Act,1872, the Banker Book Evidence Act, 1891, and the Reserve Bank of India Act, 1934, and,

            (v) to provide for matters connected therewith or incidental thereto.

The General Assembly of the United Nations passed a resolution adopting the Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade Law. The said resolution on recommended inter alia that the States gives favourable consideration to the said Model Law when they enact or revise their laws, in view of the need for uniformly of the law applicable to alternatives to paper-based methods of communication and storage of information. The Information Technology Act 2000 has been passed to give effect to the said resolution and to promote efficient delivery of Government services by means of reliable electronic records.

12.19.3 (Self-test Questions)

Meaning and Nature of a Comp any

1. Define a company.

2. What are the characteristics of a company?

3. (a) state the principles of law laid down in saromon v. saloman & co.(b) what are the statutory exceptions to the decision in Salomon’s case?

4. "The legal personality of a company is distinct and different from its members individually and collectively." Comment and point out the circumstances when the separate of a company is disregarded by the courts.

5. what do you understand by the concept of corporate personality? Under what circumstances is lifting of corporate veil possible?

6. Distinguish between a public limited company and private limited company.

7. what are the provisions of the Companies Act, 1956 for the conversion of (i) a private company into a public company; and (ii) a public company into a private company.

8. Explain clearly the meaning of lifting of the corporate veil of a company. Under what circumstances may the courts lift the veil of a company.

9. Explain the meaning of 'perpetual succession' and a 'common seal, in the case of a company.

10. Enumerate the circumstances under which a company may be allowed to

dispense with the word 'Limited' from its name.

11' Explain (i) a company limited by guarantee (ii) a one-man company and (iii) an association not for profit.

12. M/hat is your legal opinion on: "There are five members in a public company.”

13. IA/hen does a private company become a public company?

14. Write a short note on holding company and its subsidiary.

15. what are government companies? what are the special provisions in the

companies Act pertaining to this class of companies?

16. write short notes o1 the following: (i) minimum members of a company.

(ii) maximum members of a company.

17. Write a short note on 'Public Financial Institutions’.

Formation of a Company

1. Write a short note on certificate of incorporation.

2. Write a short note on commencement of business.

3. who is a promoter?

4. State the usual steps to be taken in the formation of a company under the companies Act, 1956.

5. Write a note on duties and liabilities of promoters.

6. Is a contract made before incorporation of a proposed company binding on It?

            7. Write a short note on 'consequences of incorporation of a company'.

8. Can a company be incorporated under the Companies Act without the words 'Limited' and / or 'Private Limited' as the case may be? if so explain.

Memorandum of Association

1. Define memorandum of association. What does it contain?

2. How are alterations made in a memorandum of association?

3, What are the clauses to be stated in the memorandum of association?

4. Explain the procedure for change of a registered office of a company from one state to another.

5. Discuss the provisions of the Companies Act with regard to alterations of objects of the company.

Articles of Association

1. Define articles of association.

2. Can articles of association be altered?

3. State the relation of a memorandum of association with the articles of association.

4. Explain the doctrine of ultra vires in the context of joint stock companies.

5. What do you understand by constructive notice of the memorandum and articles of association of a limited company?

6. Explain and illustrate the rule known as the Doctrine of indoor Management. What are the exceptions to this rule?

7. Explain the rule laid down in the Royal British Bank v . Turguand and state the exceptions to the rule.

8. Explain the interrelationship of Doctrine of Constructive Notice with the Doctrine  of  Indoor Management. State the exceptions, if any, to the Doctrine of indoor management.

9. Under what circumstance the doctrine of 'Indoor Management' is not applicable.

10. State the limitations on the powers of a company to alter its articles of association.

Prospectus

1. what is a prospectus? Who are liable for misstatements in a prospectus? Explain the extent of civil and criminal liability for such misstatements.

2. Write a short note on statement in lieu of prospectus.

3. What is a prospectus? How does it differ from a statement in lieu of prospectus?

4. State the restrictions and limitations on inviting and accepting deposits by companies.

5. (a) what is a misstatement in a prospectus? (b) V/hat is the defenses available to a director for any misstatement in a prospectus

6. (a) Explain the term brokerage under the Companies Act, 1956. (b) State the conditions which are to be fulfilled for the payment of underwriting commission under the Companies Act,1956.

7. Discuss the remedies available to an allot tee who had applied for shares on the faith of a false prospectus.

8, Mention cases in which a prospectus is not required to be issued by a public company.

9. In what way does the companies Act, 1956 regulate the acceptance of public deposits by the public companies?

10. Explain the provisions of the Companies Act regarding acceptance of depose By companies.

Share s and Share Capital

1. Define 'share' and 'stock' and distinguish between the two.

2. Write a short notes on the following: (i) Issue of shares at premium (ii) Issue of shares at discount.

3. Describe the procedure for alteration of share capital.

4. Distinguish between 'Reserve capital' and 'Capital reserve'.

5. Describe the procedure for reduction of share capital.

6. Write short notes on: (i) Right shares (ii) Bonus shares

7. A company limited by shares intends to buy some of its own shares. Advise.

8. How and subject to what conditions can loan and debentures be converted into shares.

9. Explain the provisions regarding the increase of the subscribed capital by a public company by allotment of further shares.

            10. Explain the right of preemption when further capital is issued.

            11. Can company purchase its own shares? Explain the provisions of the Companies Act, in this regard.

Allotment of Shares

1. Distinguish between share certificate and share warrant.

Membership

1. How is membership of a company acquired?

2. Can the following be members of a company? (i) a minor; (ii) a registered partnership firm; (iii) an unregistered partnership; (iv) a woman.

3. Distinguish between a member and a shareholder.

4. How does one cease to be a member of a company?

5. State the provisions of the Companies Act, 7956 relating to maintenance of the register of members and index of members of a company.

6. Write short notes on: (i) Annual Return (ii) Reissue of forfeited shares.

7. Distinguish between forfeiture and surrender of shares.

8. Explain the different ways through which a person may become member of a company.

Transfer and Transmission of Shares

1. The Articles of association of a public limited company empower the Board of Directors to refuse registration of transfer of its shares without assigning any reasons. Is it valid? Explain the provisions regarding refusal to tran'sfer shares.

2. Explain the circumstances under which a public limited company may refuse to register the transfer of shares.

3. Write a short note on transmission of shares.

4. Distinguish between transfer and transmission of shares.

Borrowings (Including Debentures) and Registration of Charges

1. What are the legal requirements which a company must comply with while borrowing?

2. What is ultra vires borrowing? What remedies are available to a lender if a company resorts to ultra vres borrowing.

3. What are the restrictions imposed on the borrowing powers of the Board of Directors?

4. What is a debenture? What are the different kinds of debentures that may be issued by a company?

5. Distinguish between share and debenture.

6. A Ltd Co. wants to issue debentures of Rs 50 lakhs with an option to debenture holders to convert 50% debentures into equity after two years. Advise the company.

7. What are the remedies available to debenture holders for the realisation of their security.

8. What is a floating charge?

9. Explain the circumstances in which a 'floating charge' becomes fixed.

10. Distinguish between floating and fixed charge.

11. What charges are registered under the Companies Act,1956?

12. What is the effect of non-registration of a registrable charge?

13. All investments made by a company must be held by it in its own name. Are there any exceptions to this rule.

General Meetings and Proceedings

1. What are the different kinds of general meetings of a company?

2. Define statutory meeting of a public company.

3. Give the contents of a statutory report.

4. Summarise the provisions as regards annual general meeting.

5. What are the provisions of the Companies Act, 1955 in respect of an extraordinary general meeting to be held on requisition?

6. Define extraordinary general meeting.

7. Write a short note on the powers of Company Law Board to call meetings.

8. Write short notes on: (i) Notice of a meeting (ii) Proxy (iii) Voting by poll (iv) Resolutions (v) Explanatory statement (vi) Quorum

9. Discuss the requisites of a valid meeting.

10. Discuss the provisions of the Companies Act, 1956 relating to resolution requiring special notice mentioning the matters for which special notice is required.

11. Explain the procedure for ascertaining the sense of general meeting of a company.

Account, Audit and Dividends

1. What books of account is a company incorporated under the Companies Act, 1956 bound to maintain?

2. Give the provisions of the Companies Act, 1956 relating to the preparation authentication, circulation, adoption and filing of the annual accounts of a company.

3. How is an auditor appointed? What are the matters to be stated in his report?

4. Write a short note on qualifications and disqualification of auditors.

5. State briefly the provisions of the Companies Act, 1956 relating to the appointment of the first auditor of a company.

6. State the law relating to appointment and remuneration of auditors.

7. Write notes on (i) special audit and (ii) cost audit. Discuss the powers and duties of auditors with reference to leading cases.

8. (a) What is dividend? (b) What are the conditions to be fulfilled before a company may declare and pay dividend? (c) To whom should such a dividend be paid.

9. Discuss the provisions of the Companies Act, 1956 relating to payment of dividends on shares.

10. What changes have been introduced by the Companies (Amendment) Act, 1999 in provisions relating to audit and accounts.

11. Write a short note on: (i) Invest of, Education and Protection Fund (ii) National advisory committee on Accounting standards.

Inspection and Investigation

1. Discuss the powers of the Central Government for Investigation and Inspection.

2. Distinguish between Inspection and Investigation.

3. When may the Central Government order investigation into the affairs of a company?

4. Enumerate the powers of the inspectors appointed by the Central Government to investigate into the affairs of the company.

5. Describe the manner in which the Central Government may dispose of an inspectors' report.

Management of Company

1. Are company directors trustees or agents of the company? Explain your answer with reasons.

2. How is a director (i) appointed and (ii) removed from office?

3. What are the disqualifications of a person for appointment as the director of a company?

4. Can a director resign from his office?

5. Who can be a director? State the modes of appointment of directors?

6. “The Companies Act does not lay down any academic or shareholding qualifications for a director”. Examine the statement critically.

7. state in relation to a public company: (i) Ia/hen additional directors can be appointed and for what period? (ii) when an alternate director can be appointed and for what period? (iii) How the office of a director is filled in case of a casual vacancy and for what period?

8. When can Board of Directors appoint directors?

9. State the circumstances under which a director would vacate office.

10. (a) can the directors delegate their powers? (b) Describe the provisions as regards qualifications of directors.

11. Total strength of the Board of Directors of a company is ten. How many directors are liable to retire by rotation at the next annual general meeting?

12. When can directors be appointed by the principle of proportional representation under s. 265? (a) What do you understand by an office or place of profit held by a director in a company? (b) What restriction have been imposed in respect of holding an office or place of profit by director. (c) Whether these restricts apply if a director of a private company is appointed as managing director of the company on a monthly salary of Rs 10,000.

13. Discuss the rights of members of a company to remove a director before the expiry of his tenure?

14. State the requirements of the Companies Act with respect to contracts in which particular directors are interested.

15. How many meetings of a Board of Directors of a company must be held in a year and at what intervals?

16. Define Managing Director and state the statutory provisions regarding his appointment and remuneration.

17. What are the powers of directors that cannot be exercised without the approval of members given in a general meeting?

18. Distinguish between managing director and whole-time director.

19. Discuss the-powers of the central Government to remove the managerial personnel on a reference made to the Company Law Board.

20. Can a director be paid compensation for loss of office?

21. What are the provisions of the Companies Act relating to the powers of the board of directors of a company, the manner of exercise of such powers and the restrictions on such powers?

22. What are the duties of directors of a company?

23. Discuss the liabilities of directors.

24. Write short notes on: (i) alternate director (ii) managerial remuneration.

Inter-Corporate Loans and Investments

1. What are the conditions imposed by s.372 A as regards investments of a company.

2. Discuss the provisions relating to inter-corporate loans and investments.

3. 'All investments made by a company must be held lay it in its own name' Discuss.

4. Discuss the law and state the procedure relating to inter-corporate loans.

Prevention of Oppression and Mismanagement

1. Explain the true scope of the rule in Foss v. Harbottle on the majority rule and minority rights state the exception to the rule.

2. "lt is an elementary principle of law relating to joint stock companies that the court will not interfere with the internal management of companies acting within their powers and in fact has no jurisdiction to do so". Elucidate.

3. State the provisions of the Companies Act on prevention of oppression and mismanagement.

4. Explain the remedies available to a member of a company against oppression and mismanagement.

5. What are the basic features of the principle of 'majority rule' and 'minority right' in a company?

6. State the powers of the Court and the Central Government of prevent oppression and mismanagement.

7. (a) What are the powers of the Company Law Board to prevent oppression and mismanagement? (b) Under what circumstances can these powers be exercised? (c) Who can apply to Company Law Board for relief in case of oppression and mismanagement.

8. Explain the powers of the Central Government to appoint directors on the Board of a company to prevent oppression and mismanagement.

Compromise and Arrangement

            1. Explain the meaning of 'compromise'. What procedure must be followed by a company to give effect to a compromises when such a company is a going concern.

            2. Explain the term 'compromise', 'arrangement', 'reconstruction' and 'amalgamation'.

            3. Who can apply to court for compromise or arrangement?

            4. Who is a dissenting shareholder in case of 'amalgamation' of companies? What are the provisions with regard to the acquisition of shares of dissenting shareholders?

            5. Summarise the provisions of s.395 relating to takeover of a company by acquisition of its shares.

            6. Write a short note on 'amalgamation in public interest'.

Winding up of Companies

            1. What is winding up?

            2. Discuss the circumstances in which a company may be wound up by the court.

            3. Explain the circumstances in which a company may be wound up by the court on the ground that the company is unable to pay debts.

            4. What are the circumstances in which a company may be wound up on the ground that it is just and equitable to wind up a company.

            5. State the grounds on which the registrar of companies may present a petition for winding up of a company.

            6. What is the effect of a winding up order passed by the court?

            7. Define the term 'contributory'. Discuss the liability of members of a company in the event of its being wound up.

            8. state the liabilities of contributories as present and past members.

            9. Explain the procedure to wind up a company voluntarily.

            10. what powers of the court to order winding up subject to its supervision? 14/hat are the consequence r of such an order?

            11. What are the powers of the official liquidator?

            12. Il/hat is a defunct company? what procedure is followed to dissolve it?

            13. What is the difference between winding up and dissolution?

            14. state the different modes by which a company maybe dissolved.

            15. Can a company dissolved be revived?

12.19.2 (Practical Problems)

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.]

12.19.1 (GAININC PRACTICAL EXPERIENCE)

Objective-type Questions

1. State whether the following statements are true or false:(i) There are five Members in a public company. (ii) every public company shall have at least three directors.(iii) The promoter is neither an agent nor a trustee for the company he promotes (iv) articles of association need not be filed by a private company at the time of incorporation (v) A company can be registered under the name and style of U.N.O & Co. Ltd (vi)  a public limited company requires minimum seven member. (vii) registration of a privet company is not necessary. (viii) the certificate of incorporation is conclusive but something more is required in the case of a public company before it can commence business. (ix) A public company can commence its business without a certificate to commence business. (x) the memorandum is the fundamental charter defining the objects and limiting the powers of a company' (xi) The memorandum of a company defines as well as confines its power. (xii) no company can finance the purchase of its own shares. (xiii) A company can buy its own shares (xiv) under certain circumstances a company can buy back its own shares or finance their purchase. (xv) A shares certificate is conclusive evidence of its holder’s title to shares. (xvi) A stock is always fully paid up. (xvii) Shares are allotted by a company before its subscription is declared open. (xviii) persons who get shares due to transmission have no right to cast vote .(xix) the board of directors of a public company cannot borrow in excess of the paid up capital and free reserves of the company.(xx) A company can issue debentures with voting right.

(xxi) A company must hold its first annual general meeting within a period of not more then eighteen month from the date of its incorporation.(xxii) A company can approach a court for permission to extend time for holding its annual general meeting. (xxiii) there can be shorter notice then ‘clear 21 days’ in case of the annual general meeting (xxiv) A statutory meetings of a company is held every year. (xxv) A company need not transfer any amount to reserve so long as its dividend is restricted to 10% or below. (xxvi) A firm, can be appointed as a company secretary. (xxvii) A person of 68 can be appointment director of a company (xxviii) A person can be a director of 21 companies. (xxix) A person can be director in 25 public limited companies. (xxx) Managing director need not be the director of the company (xxxi) A company can make contribution to political parties under the companies Act.(xxxii) The position of a director is one of trust. (xxxiii) A private company requires at least three directors. (xxxiv) A private company may Pay any amount of remuneration to its manager. (xxxv) Messers. J.B €t Sons are appointed

director of Patni & Co. Ltd.

             2. In each set of statements, only one is correct. Write the correct statement:

      (A) (i) The statutory meeting of a company is held within 6 months of the certificate to commence business. (ii) No company can make political contribution. (iii) A public company can give loans to its directors only up to 30 per cent.

      (b) (i) A company can reduce its share capital by passing a resolution and with the sanction of company Law board. (ii) the first director of a company are appointed at its statutory meeting . (iii) A person applying for shares in a company in a fictitious name is liable to be punished with imprisonment.

      (c) (i) A public company can never be converted into a private company. (ii) Allotment of shares before the opening of the subscription lists is void. (iii) A public company can have two or more managing directors

12.18.10 (Dissolution of Companies)

A company is said to be dissolved when it ceases to exist as a corporate entity for all practical Purposes but it is not the extinction of the company. The company is kept, after dissolution, in ‘suspended animation' for 2 years. The dissolution of a company may be declared by the court, under s.559, within a period of two years from the date of dissolution. Thus, within a period of 2 years from the date of dissolution, the company can be revived by the court by declaring the dissolution void. The court will do so at the application by the liquidator of the company or by any other person who appears to the court to be interested in this [s.559 (1)]. It will be the duty of the applicant to file a copy of the above order of the court, with the Registrar, within 30 days after the making of the order [s.559 (2)].

Modes of Dissolution. Dissolution of a company may be brought about in any of

the following three ways:

(1) In case of defunct companies - By removal of its name from the Register of Companies(s. 560).If the Registrar has reason to believe that a company is not carrying on business, he is empowered to adopt the procedure prescribed by s.560 and strike out the company's name from the register as being 'defunct'. This may be done whether the company is a going concern or in liquidation.

(2) In pursuance of amalgamation or reconstruction. By order of the court without winding up, i.e., where a reconstruction or amalgamation is being carried under s.394(b)(iv),

(3) In pursuance of the winding up of the company.

Dissolution of defunct companies (s.560). A defunct company means a company which has never commenced business or which is not carrying on business. Section 560 lays down the procedure for the dissolution of defunct companies, without resorting to the winding up machinery. The procedure is as follows:

1. where the Registrar has reasonable cause to believe that a company is not carrying on business or is not in operation, he shall send to the company by post a letter inquiring whether the company is carrying on business or is in operation.

2. If the Registrar does not within one month of sending the letter receive any answer thereto, he shall, within 14 days after expiry of the month, send to the company by post a registered letter referring to the first letter and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Official Gazette, with a view to striking the name of the company off the Register.

3. If the Registrar either receives an answer from the company to the effect that it is not carrying on business or is not in operation, or does not within one month after sending the second letter receive any answer, he may publish in the Official Gazette and send to the company by registered post a notice tha!, at the expiration of 3 months from the date of that notice, the name of the company, unless cause is shown the contrary, be struck off the register and the company will be dissolved. The dissolution of the company in the above stated manner, shall not, however, Affect: (a) the liability, if any, of every director, manager or other officer who was exercising any power of management and of every member of the company. In other words, such persons shall be liable as if the company had not been dissolved; and ft) the power of the court to wind up a company.

Restoration of the name of the company. If a company or any member or any creditor feels aggrieved by the removal of the company's name from the Register of companies, the court may, on an application by the aggrieved party, any time within 20 years from the publication in the Official Gazette of the notice of striking off the name of the company, order that the name of the company should be restored in the Register. Power of the court to order for restoration of company's name is discretionary and will be given when the court is satisfied that: (1) after restoration, the company will be in a position to carry on its business; or (2) at the time of striking off, the company was carrying on business or was in operation; or (3) it is just and equitable that the company's name be restored.

The court may also, on passing such an order, give such directions and make such provisions as seem just for placing the company and all other persons in the same position, as nearly as may be, as if the name of the company had not been struck off.

A certified copy of the court's order must be delivered to the Registrar and upon such delivery the company shall be deemed to have continued in existence as if its name had not been struck off.

Dissolution in pursuance of amalgamation [s.394(7)]. The court may, either by the order sanctioning the compromise or arrangement or by a subsequent orde1, make provision for the dissolution, without winding up, of the company whose undertaking, property or liabilities, either wholly or in part, under the scheme of amalgamation or construction, is transferred to another company.

But no such order shall be made by the court unless the official liquidators has, on scrutiny of the books and papers of the company, made report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. The court can, however, within 2 years declare the dissolution void (already explained).

Dissolution in pursuance of winding up. The corporate existence of a company continues through winding up till it is dissolved. It may be dissolved as follows:

(A) ln case of compulsory winding up (s.48L). The Court will make an order dissolving a company if: (i) the affairs of the company have been completely wound up (i.e. assets collected and liabilities paid as far as practicable); or (ii) the liquidator cannot proceed with the winding up for want of funds and assets or for any other reasons whatever; or (iii) it is just and reasonable in the circumstance of the case that an order of dissolution of the company should be made. on making of the order of the dissolution, the company shall be dissolved from the date of the order (s.48 (1). The official liquidator shall file a copy of the order of dissolution within 30 days of making of the order (s.497).

(B) In case of members' voluntary winding up (s.497): As soon as the official Liquidator, after scrutinizing the books, accounts and papers of the company, make a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest, then from the date of the submission of the report to the court, the company shall be been deemed to be dissolved. where the liquidator reports that the affairs have not So conducted, the court shall direct him to make further investigation and submit His second report to the court and may order that the company Shall stand dissolved From a date specified in that order [s.497(b)].

(C) ln case of creditors voluntary winding up (s.509). same as above[s.509(6)].The Court can, however, declare the dissolution on void within 2years.

When a company has been dissolved according to the due process of law, except when such dissolution, is under s.560, on the expiry of 5 years from the date of dissolution of the company, the name of the company should be struck off the Register of Companies after. noting against its name that it has been dissolved' Thus in case of defunct companies, dissolution and extinction takes place at the same time but in other cases extinction follows 5 years  after.