Practical Questions in Corporate & Other Laws

 

 

Sol.: The Company’s existence is not affected by the death of its shareholders, since the Company has separate legal entity. This is clearly established in Salomon Vs. Salomon & Co. Ltd, Lee Vs. Lee Air farming Ltd & Kandoli tea Co. Ltd. cases. Further the Company has having perpetual succession.

 

 

Sol.: In such a situation, Y can continue to carry on the business of the Company but, in accordance with the provisions of Sec.45 of the Act, if the same position continues for more than six months, then y will become personally liable for all the liabilities of the Company contracted after six months from the date he becomes only shareholder.

 

 

Sol.: The remaining six members are  liable for the debts incurred after 6 months of the reduction in the number of members below the statutory minimum specified in Sec. 45 of the Companies Act, 1956 i.e., for debt contracted on 17^th March, 1989.

 

 

Sol.: The problem in question relates to reduction of membership below the statutory minimum. Section 12 of the Companies Act requires a public Company to have a minimum of seven members.  If at any time the membership of a public Company falls below seven and it continues’ for more than six months, then according to Section 45 of the Companies Act, 1956, every such member who was aware of this fact, would be individually (personally) liable for the debts contracted after six months.

Thus, in the above problem the remaining members shall incur personal liability for the debts contracted by the Company:

a.      If they continued to carry on the business of the Company with that reduced membership (i.e., 6) beyond six months period.

b.      Only those members who knew this fact of reduced membership shall be liable, for instance, one of the members who was abroad and thus not aware of these developments, shall not be liable.

c.       The liability shall extend only to the debts contracted after six months from the date of auction of that member’s shares.

 

 

Sol.: As per Section 3(1)(iii), a Company to be registered as a private Company must restrict its membership to 50 only.  But, however, in counting this number of 50 members, employee members and ex-employee members (i.e., those who become members while in the employment of the Company but now having retired still continue to retain membership) are to be excluded.  Thus, in the given case, the Company shall continue to be a private Company.  There is no need for conversion.

 

 

 

The Board of directors of the Company proposes to convert it into a private Company. Advise the Board of directors about the steps to be taken for its conversion into a private Company including reduction in the numbers of members, if necessary.

 

Sol.: A public limited Company may be converted into private limited Company only if the number of members is limited to 50 excluding Sec.3(1)(iii):

a.      Persons who are in the employment of the Company

b.      Persons who became members during the course of their employment & continue to be members even after their employment ceases.

c.       Further if two or more members hold shares in a Company jointly they shall be treated as a single member.

The number of members is only 48 for this purpose as noted below:

 

Hence the Company can be converted into private limited Company.

 

 

Sol.: Holding & Subsidiary Co.’s. According to section 4 of the Companies Act, a Company (Assume S Ltd.) shall be deemed to be a subsidiary of another Company (Assume H Ltd.), if & only if:

1.      Control on BOD. That the H Ltd. controls the composition of Board of directors of S Ltd. Or

2.      Control by ownership.

1. Where S Ltd. is an existing Company in which the preference shareholders are having voting rights, H Ltd. controls more than half of the total voting power of S Ltd. (E + P)
2. Where S Ltd. is a newly formed Company, H Ltd. holds more than half in the nominal value of S Ltd. equity share capital  (Only E) Or

3.      Chain relation. If S Ltd. is a subsidiary of A Ltd. which is subsidiary of H Ltd., then the Company S Ltd. is subsidiary of H Ltd.

Further shares held by any person as a nominee for the Co. shall be treated as being held by the said Co. Thus, the shares held by a subsidiary shall be treated as held by the Holding Co. In this case, the equity share capital of Advance Castings Private Ltd. is 80,00,000 consisting of 8,00,000 Equity shares of 10 each fully paid up. Quality Forgings Pvt. Ltd. and Supreme Engineering Pvt. Ltd. are holding 4,50,000 (3,00,000+1,50,000) Equity shares in Advance Castings Pvt. Ltd. As these two Companies are the subsidiaries of Unique Machineries Pvt. Ltd., it will be treated as holding more than half in nominal value of the Equity share capital of Advance Castings Pvt. Ltd. and hence Advance Castings Pvt. Ltd. is a subsidiary of Unique Machineries Pvt. Ltd.

If Unique Machineries Pvt. Ltd. control the composition of the Board of Directors of Advance Castings Pvt. Ltd., it will also be treated as holding Company by virtue of Sec.4. Hence the answer will not be different.

 

Sol.: Write about Holding & Subsidiary Companies in the above Question.

Further shares held by any person as a nominee for the Company shall be treated as being held by the said Company. Thus, the shares held by a subsidiary shall be treated as held by the holding Company.

Here ABC Private Limited is holding 60,000 shares in XYZ Private Limited and 50,000 shares held by DEF private limited. Therefore, ABC Limited will be deemed to be holding 1,10,000 Equity shares in XYZ Limited i.e. more than half in nominal value of the Equity Share Capital of XYZ Private Ltd. Hence XYZ Private Limited is subsidiary of ABC Private Limited.

The answer will remain the same in the second case but holding-subsidiary relationship is established by virtue of Chain relationship i.e. a subsidiary of one Company’s subsidiary will also be considered as the subsidiary of the second mentioned Company.

 

 

Sol.: In that case, since the number of shareholder’s has crossed 50, the Company will be named as public Company. However the NCLT, on being satisfied that the failure to comply with the conditions laid down by Sec.3 was accidental or un intentional and it is just and equitable to grant relief, may, on the application of the Company or any other person interested and on such conditions as seem to the NCLT reasonable, order that the Company be relieved from such consequences as aforesaid.

 

 

Sol.: False. A private Company becomes a public Co. on acceptance of deposits from public through issue of advertisement. However the private Co. can accept the deposit from its shareholders, directors, from their relatives and even then the private Co. does not become a public Co. (Sec.3)

 

 

Sol.: False. Under section 25, it is not compulsory to dispense with the word Limited or a Private Limited, but it is only an optional at the wish of the Company. Because, the object of registration of a Company u/s 25 is not only to dispense the use of words Limited or Private Limited as a part of its name but to avail the exemption which may be granted to such Companies from the provisions of this Act by the Central Government.

 

Sol.: Yes, Sec.25 of the Companies Act permits a firm to be a member of any association or Company licensed under this section. Infact this is the only one case which permits the partnership firm to become a member of a Company.

 

 

Sol.: True. On revocation of license granted by the Central Government under Sec.25, the association or the Company may continue to carry on the same activities which were being carried on by it prior to such revocation.  The impact of the revocation of license is:

a.      The Company will have to add a word ‘Limited’ or ‘Private Limited’ at the end of its name.

b.      It will cease to enjoy the exemptions granted by the Central Government to such Companies.

 

 

Sol.: Sec.11 of the Companies Act, 1956, provides that no firm, association or Company consisting of more than 20 persons for doing any business (10 in case of banking business) shall be formed unless it is registered as a Company under the Companies Act. An association formed in violation of the above provision of the Companies Act is termed as an illegal association and does not have any legal existence and recognition. However, in computing the aforesaid number of members, viz., 10 in case of a banking business and 20 in case of any other business, minor members of the families constituting the association are not taken into account. Accordingly, in the given problem, the first family consists of 15 members (3 brothers + 12 sons) and the second family that of 5 members (1 father + 4 sons and ignoring 2 minor sons). The total number of the members of the two families constituting the association thus comes to 20. The association is not an illegal Association.

 

 

Sol.: The allotment of shares is valid. Sec.35 of the Companies Act, 1956 provides that a certificate of incorporation issued by the Registrar in respect of any association shall be conclusive evidence of the fact that all the requirements of the Act have been compiled within respect of registration, and that the association is a Company authorised to be registered and duly registered under the Act.

Jubilee cotton mills ltd..

a.      The registrar issued a certificate of incorporation on Jan 8^th but dated it Jan 6^th which was the date he received the documents.

b.      On Jan 6^th, the Company made an allotment of shares to Lewis.

Held, that the certificate was conclusive evidence of incorporation on Jan 6^th and that the allotment was not void on the ground that it was made before the Company was incorporated.

 

 

Sol.: As between outsiders and the Company, Articles do not give any right to outsiders against the Company, even though their names might have been mentioned in the Articles.  An outsider cannot take advantage of the Articles to form a claim thereon against the Company.  Thus, in the given case, Company shall succeed in removing Mr.Srivastava as the solicitor of the Company without incurring any obligations.

 

 

Sol.: The power of the members to effect alteration in the Articles by passing special resolution is limited in as much as the alteration must be bonafide and in the interest of the Company.  In the given case, alteration requires taking over the shares of only those who competed with the Company’s business. Therefore, empowering the directors to take over shares of such members seems to be in the general interest of the Company as a whole and hence shall be valid.  S shall be held bound by the alteration. 

 

 

Sol.: The Companies Act, 1956 permits the promoters of a Company to choose any suitable name for the Company provided the name chosen is not undesirable.

A name may be considered undesirable where it is too similar to the name of an already existing Company.  In the present problem since the two Companies are  in insurance business, it may lead to a natural inference on the part of the public that the two are interrelated because of the word ‘Asiatic’ which is quite an imaginary word and does not mean anything.  Mere addition of the word ‘New’ is not likely to give an otherwise impression.  Therefore, on a suit by Asiatic Government Security Life Insurance Co. Ltd., Court is likely to advise the New Asiatic Insurance Co. Ltd. to change its name.

 

 

Sol.: The facts of the given problem are based on the decided case of Bore land Trustee vs. Steel Bros. & Co. Ltd., in which case, the provisions in the Articles were held to binding on the members.  It was held that ‘Shares having been purchased on these terms and conditions, it is impossible to say that those terms and conditions are not to be observed”. Thus, since Articles constitute a binding contract between the Company and its members, the shareholders shall be held bound by the stated provision in the Articles.

 

 

Sol.: The problem relates to the protection that the outsider may claim against lack of authority on the part of the officers of the Company. The rule commonly known as the Doctrine of Indoor Management was first laid down in the case of The Royal British Bank vs. Turquand. However, it has been held that the rule of indoor management cannot be invoked in favour of a person who had no knowledge of the Articles of the Company.  It is because; in such a case the person cannot assume that the power (of which he has no knowledge) has been exercised.

 

Thus, in the present case, Company shall not be held liable by the Act of the director who has transacted beyond the scope of his authority.  A principal can be held liable for the frauds of his agent only to extent they are committed within the scope of the authority conferred upon him.

 

Sol.: Yes. The Company is liable on the bond.  The outsiders dealing with the Company are entitled to assume that as far as the internal proceedings of the Company are concerned, everything has been regularly done.  They are bound to read the registered document and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the Memorandum or Articles.  (Royal British Bank vs. Turquand). The gist of the rule is that persons dealing with limited liability Companies are not bound to inquire into their indoor management and will not be affected by irregularities of which they had no notice.   The rule is based on public convenience and justice. 

 

 

Sol.: The Certificate of incorporation is conclusive for all purposes.  According to Section 35 of the Companies Act, 1956, a certificate of incorporation given by the Registrar in respect of any association shall be conclusive evidence that all the requirements of this Act have been complied with in respect of registration and matters incidental thereto, and therefore the association will be considered as a company duly registered under this Act.

 

 

Sol.: According to the doctrine of Indoor management, persons dealing with the Company are presumed to have read the registered documents and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more i.e. they need not enquire into the regularity of internal proceedings as required by M&A.

But, this rule cannot be applied to forgery. In the case of forgeries, the Acts done in the name of the Company are void abinitio. A Co. can never be held bound by forgeries committed by its officers.

Ruban Vs. Great Fingual Ltd.:

¡       The plaintiff was the transferee of a share certificate issued by the defendant co. under its seal.                           

¡        The certificate was issued by the Company’s secretary, who affixed the seal and forged the signature of two directors.

¡        The certificate was held to be void.

Hence, it can be concluded that in the instant case, the certificate issued by the secretary by having forged the signatures of the directors and affixed the seal without any authority will not be binding upon the Company.

 

 

Sol.: If a Company is inadvertently registered with a name which in the opinion of the Central Government, is identical with or too nearly resembles, the name by which a Company in existence has been previously registered, the Company registered later (Sec.22):

a.      May change its name, by ordinary resolution and with the previous approval of the Central Government Or

b.      The change Shall also be carried out if a direction is received from the Regional director. When so directed by the Regional director the Company shall, by ordinary resolution and with the previous approval of the Central Government, change its name within a period of 3 months or the extended period.

In the given case ABC (Pvt.) Ltd. can complain to the Regional director to issue suitable directions to the Company incorporated on 10^th June, 1997 for change of its name. In this case, the Company filed a petition on 10.1.1998 within 12 months of date of registration of second Company and so the complaint shall be accepted.

 

 

Sol.: The Company’s registration cannot be void because, under Section 35 of the Act, a certificate of incorporation is a conclusive evidence of the fact that all the statutory requirements of the Act in relation to registration of the Company have been complied with.

 

 

Sol.: No., Sec.13 states that the registered office clause shall contain the name of the State in which the registered office of the Company is situated. Further, it may be noted that the address of the registered office is not stated in the memorandum of association. If this was done, every change there in would require the amendment of the memorandum, which is a difficult procedure. Therefore the address is stated in AOA.

 

 

Sol.: The objection of the State Government is not tenable. In Minerva Mills Ltd. Vs. Government of Maharashtra the court refused to accept the contention of the State on the ground of loss of revenue.

 

 

Sol.: Sec.26 provides that the Companies limited by guarantee, private limited Companies, and unlimited Companies must have their own articles of association, while a public Company limited by shares may or may not have its own articles. Since in this case it is a public company limited by shares it is not necessary to present a copy of articles of association to ROC and in such a case Table A of Schedule I (Model articles) shall be deemed to be the Company’s articles.

 

 

Sol.: Pre-incorporation contracts in general are void and hence not binding on the Company.  However, as per the Specific Relief Act, 1963 the party to the contract can enforce the contract against the Company if: (i) the Company had adopted the same after incorporation; and (ii) the contract is warranted by the terms of incorporation. Thus, unless the Company adopts the contract, the other party cannot enforce the same against the Co. But, promoters can be held liable. 

 

Sol.: A new Company cannot be registered with a name which is quite similar to any other existing Company’s name. But in the opinion of department of Company affairs it is possible if the exiting Company is a defunct Company (Non operational) for a long time.

 

 

Sol.: The promoters remain personally liable on a contract made on behalf of a Company which is not yet in existence. Such a contract is deemed to have been entered into personally by the promoters and they are liable to pay damages for failure to perform the promises made in the Company’s name, even though the contract expressly provided that only the Company shall be answerable for performance.

Further, a Company cannot ratify a contract entered into by the promoters on its behalf before its incorporation. The Company can, if it desires, enter into a new contract, after its incorporation with the other party. The contract may be on the same basis and terms as given in the pre-incorporation contract made by the promoters.

It is, therefore, safer for the promoters Acting on behalf of the Company about to be formed to provide in the contract that: (a) if the Company makes a fresh contract in terms of the pre-incorporation contract, the liability of the promoters shall come to an end; and (b) if the Company does not make a fresh contract within a limited time, either of the parties may rescind the contract.

Thus applying the above principles, the answers to the questions can be:

a.    The promoters in the first case will be liable to the suppliers of furniture. There was no fresh contract entered into with the suppliers by the Company. Therefore, promoters continue to be held liable in this case for the reasons given above.

b.    In the second case obviously the liability of promoters comes to an end provided the fresh contract was entered into on the same terms at that of pre-incorporation contract.

 

 

Sol.: In the event of any mis-statement in a prospectus, the allottees have certain remedies against the Company as well as those responsible for the issue of the prospectus.  Thus, in the present case, the allottee shall have the right to claim compensation from the Company for any loss that he might have sustained in terms of the value of 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, expert can be proceeded against.

 

 

Sol.: A contract made by a public Company after incorporation but before it is entitled to commence business is provisional only, and is not binding on the Company. But as soon as the certificate to commence business is obtained the contract becomes binding on the Company automatically. In this case, X can enforce the contract and recover the price of the furniture from the Company after it obtains the certificate of commencement of business.

 

 

Sol.: If there is a mis-statement of material information in a prospectus and if it has induced any shareholder to purchase shares, he can rescind the contract and claim damages from the Company.  However, to claim relief, privity of contract is necessary.  Thus, whereas ‘A’ could have obtained the aforesaid relief, ‘B’ who has purchased shares from ‘A’ and not from the Company cannot proceed against the Company (Peek Vs. Gurney).

 

 

Sol.: Yes, Amar can sue for compensation of loss. Sec.62 of the Companies Act provides that an allottee is entitled to claim compensation from directors, promoters and any other persons who authorised the issue of the false prospectus, for damages sustained by reason of any untrue statement in it. However, he will have to prove that misrepresentation was of material fact; he Acted on misrepresentation and has suffered damages in consequence.

The following persons are liable to pay compensation for loss or damage sustained by reason of untrue statement included in a prospectus:

a.    Every person who is a director of the Company at the time of issue of prospectus.

b.    Every person who has authorised himself to be named and is named in the prospectus either as a director, or as having agreed to become a director, either immediately or after an interval of time;

c.    Every person who is a promoter of the Company; and

d.    Every person who has authorised the issue of the prospectus.

Mr. Amar having sustained loss because of having believed the facts given in the prospectus issued by F Ltd. to be true, can sue the four categories of persons mentioned above for compensation of his loss. Apart, from above, the allottee may sue the Company for damages for deceit.

 

 

Sol.: In the given case the Allottee of shares would succeed and he can avoid the contract on the grounds of untrue statement included in the prospectus. As per Sec.65 a prospectus shall be deemed to include an untrue statement:

a.      If it contains a statement which is misleading in the form or content.

b.      There is an Omission of any matter.

 

Nothing should be stated as fact which is not so, and no fact should be omitted. Thus it is not necessary that there should be false representation in prospectus, even every word included in it is true, the suppression of material facts may render it fraudulent.

 

 

Sol.: Sec.62 lays down civil liabilities for misstatements in prospectus. It renders every Directors liable for any misstatement in prospectus. Sec.62(2), however, lays down the circumstances under which the director concerned shall not be held liable. One of the plea that the director can take is that he had reasonable ground to believe and did upto the time of allotment of shares or debentures believe that the statement was true. In the instant case the director can absolve himself of the liability if he proves that he had reasonable grounds to believe and did believe that the statement prepared by the promoters was true. The onus of proof is on the director.

 

Sol.: False., Sec.56 of the Act provides that the prospectus must contain matters specified in Part II of that Schedule. The section does not contain any negative provision regarding inclusion of additional information in the prospectus. Any additional information which may useful to the investors i.e. the contents given in Sec.56 are only minimum.

 

 

Sol.: No, the offer Letter issued by Co. B to the shareholders of Co. A cannot be regarded as a prospectus because the offer has been made to specified persons only and no person other than those can avail the offer. The test for determination of the nature of offer is not who receives the offer but who can avail the offer. If offer can be availed only by the person to whom offer has been made, it is not a prospectus.

 

 

Sol.: If no application is made by the shareholders to whom the offer is made under Section 81 of the Companies Act, 1956, the Board of Directors may dispose of the shares in such a manner as they think most beneficial to the Company.  Therefore, unless shares were allotted to directors on terms unfavourable to the Company, the allotment would be valid.

 

 

Sol.: Return of allotment is required to be field only in case of allotment of shares. Allotment means an act of appropriation by the Board of directors of the Company out of previously unappropriated capital of the company to persons who have made application for shares. Since reissue of forfeited shares is not an allotment of shares no return of allotment need to filled.

 

 

Sol.: Every Company going for public issue shall make an application to stock exchange(s) for obtaining the permission for listing of such shares or debentures. The prospectus shall state that application has been made for obtaining listing permission and names of such stock exchange(s). If the permission has not been applied for or having applied for has not been granted by the stock exchange(s) before the expiry of 10 weeks from the date of the closing of the subscriptttion list the allotment made shall become void. [Sec.73(1)]. An appeal may be preferred against the refusal with Securities Appellate Tribunal & in the allotment shall not be void until the dismissal of appeal.

 

Sol.: Reissue can be at any price provided that the total sum paid by the original owner of shares together with the reissue price is not less than the par value. In other words, the discount on re-issue should not exceed the amount forfeited on those shares. The allotment is invalid since the shares have been reissued a price less than the amount remaining unpaid.

 

 

Sol.: Every company going for public issue shall make an application to stock exchange(s) for obtaining the permission for listing of such shares. The prospectus shall state that application has been made for obtaining listing permission and names of such stock exchange(s). If the permission has not been applied for or having applied for has not been granted by the all the stock exchanges before the expiry of 10 weeks from the date of the closing of the subscriptttion list the allotment made shall become void. Therefore allotment is void in this case.

 

 

Sol.: ‘Underwriting’ means ‘Guaranteeing’. It is a contract entered between the Company and underwriters for the purpose - in case the whole or an agreed portion of the shares or debentures are not applied for, then the underwriters will themselves apply for unsubscribed shares or debentures. As a return for the services rendered by them, the underwriters get U/C. It is payable even if the underwriters are not called upon to take any shares.

 

 

Break up of unsecured loans as at 31^st March, 1999 in given below:

 

Compute the limits up to which Dowell Ltd. can accept further deposits from public & shareholders.

 

Sol.: As per Balance Sheet of Dowell Ltd. as at 31.3.99.

                                    [Rs. in lakhs]

 

Sol.: Refer to question rights of members in membership lesson (10^th lesson).

 

 

Sol.: Yes, a person holding preference shares in a Company is a member of that Company Membership in a Company can be obtained, by acquiring shares in it and such shares may be equity or preference. As such, a person holding preference shares shall be deemed to be its member.

 

 

Sol.: As per Section 42, a body corporate cannot be a member of a Company which is its holding Company and any allotment or transfer of shares in a Company to its subsidiary shall be void; except:

a.      Where the subsidiary holds shares in the holding Company in the capacity of a legal representative of a deceased shareholder, or

b.      Where the subsidiary holds shares as trustee, or

c.       Where the subsidiary was a member before the commencement of this Act or it held shares in the holding Company before it become its subsidiary. In these case the subsidiary can continue to hold the shares but, without to vote at meetings of the holding Company.

Since S Limited held shares of H Limited before it become its subsidiary, as per the provisions of Section 42, it is not necessary for S Limited to surrender those shares on its becoming a subsidiary of H Limited. S Limited in this case can continue to hold the shares of H Limited, but S Limited will not have the right to vote at meeting of H Limited in respect of the shares held by it.

 

 

Sol.: Yes; the contention of Shyam is correct. According to Section 41 (2) of the Companies Act, 1956, every person who agrees in writing to become a member of the Company and whose name is entered in its register, shall be a member of the Company. Agreement in writing can be either by way of application for allotment of shares or by transfer/transmission of shares. The subscribers to the memorandum of a Company are deemed to have agreed to become members of the Company and their names shall be entered in register of members on registration of the Company. There is no provision for becoming a member of the Company by oral agreement.

 

 

Sol.: The question is based on Sec.81 of the Companies Act. As per Sec.81 if, at any time after the expiry of 2 years from the formation of the Company or after the expiry of 1 year from the first allotment of shares, which is earlier it is proposed to raise capital by allotment of further shares, it should be offered to the existing equity shareholders of the Company. In the given case applying the provisions and the ruling in the above case, MR Company’s decision not to offer any further shares to DJA Co. Ltd. on the ground that DJA Co. Ltd. already holds a high percentage of shareholding in MR Co. Ltd. is not valid for the reasons that it is against to Sec.81. Therefore Board of MR Company Limited cannot take a decision not to allot shares to DJA Company Limited unless the same is approved by the general meeting by means of special resolution required as under Sec. 81.

 

 

Sol.: Refer to Buy Back provisions (Sec.77A).

 

 

Sol.: Sources of funds: As per Sec.77A, a Company may purchase its own shares/other specified securities (herein after referred to as buy-back) out of:

a.      Its free reserves Or

b.      The securities premium account Or

c.       The proceeds of any shares/other specified securities.

However, buyback of any kind of shares or other specified securities CAN NOT be made out of the proceeds of an earlier issue of the SAME KIND of shares/other specified securities.

Conditions: No Company shall purchase its own shares or other specified securities unless:

a.      A S.R. (special resolution) has been passed in general meeting authorising the buy-back.

b.      BOD. However, a resolution by the B.O.D. (board of directors) is sufficient, instead of a above, if the buy back of shares is LESS THAN OR EQUAL TO 10% of the total paid up capital (equity shares and preference shares) and free reserves. 

Taking into account these two provisions, the questions as asked in the problems can be answered as under:

a.      The Company’s proposal for buy-back is not in order as it has passed only an ordinary resolution and the percentage of 30% buy-back is in violation of the provisions.

b.      The answer to the second question shall also be the same since there also the resolution passed by the Company is an ordinary resolution and not special resolution, through the percentage of buy-back, i.e., 20% is not violative.

 

 

Sol.: False., In general they have voting right only on matters directly relating to rights attached to preference share capital (E.g.: Resolution for winding up of Company, change in dividend rate). (Sec.87)

Exception: But they are entitled to vote on every resolution placed before Company at any meeting, if dividend on such capital in full or in part is remaining unpaid in the case of:

¡        Cumulative preference shares - If dividends are in arrears for two years preceding the date of commencement of the meeting.

¡        Non-cumulative preference shares - If dividends are has not been paid for 2 financial years immediately preceding the meeting or for any 3 years during the period of 6 years ending with the financial year preceding the meeting.

 

 

Sol.: False., Reserve capital is created out of capital of the Company. This is that part of the uncalled capital of the Company which can be called up only in the event of its winding up. A limited Company may, by a special resolution, determine that a portion of its uncalled capital shall be called up in the event of winding up for the purposes of winding up (Sec. 99).

 

Sol.: True. The Act permits for issue and allotment of shares for cash or some consideration other than cash either at part or at discount or at premium but there is no provision for issue and allotment of shares for no consideration. Issue of shares by way of donation would amount to issue of shares for no consideration and is, thus, invalid in law. (Sec.75)

 

 

Sol.: Sec.208 provides for payment of interest to shareholders, if following conditions are satisfied:

a.      The AOA shall authorise such payment Or a S.R. shall be passed authorising such payment.

b.      The permission from the C.G. shall be obtained.

c.       The rate of interest will be determined by C.G. and it shall not exceed 12%.

d.      Before permitting the payment, the C.G. may appoint a person for enquiry.

e.      Time limit: The payment of interest shall be made only for such period as may be determined by the central government.

 

 

Sol.: Forgery does not confer any title. It is because in case of forgery there is not merely an absence of free consent but there is not consent at all. Hence a forged transfer can never confer ownership upon the transferee thereof, however genuine the transAction may appear. Thus, if a transfer is forged and the Company registers the transfer, the true owner can apply to the Company for his name to be placed back in the register. As a forged transfer is a nullity, Mr. A, the original owner continues to be the share-holder and the Company is bound to restore the name of transferor in the register of members. 

A person who presents a transfer of shares for registration by a Company thereby represents that the instrument of transfer is genuine, and if it turns out to be a forgery, the Company is not stopped from denying his title to the shares, even though he did not know that the transfer was forged when he presented it. Consequently, even if the Company issues a share certificate to the person who presents the transfer, and he relies on it, the Company may remove his name from the register of members and he cannot claim damages for wrongful removal. Therefore, B the transferee is not entitled to the shares on the contrary, he is liable to indemnify the Company against the consequences of the damages which may have to be paid by the Company to the true owner of the shares.

According to Sec.84(1) of the Companies Act, a share certificate specifying any shares held by any member is a prima face evidence of the title of the member to such shares of the Company has issued a share certificate to the transferee and he has sold the shares to an innocent purchaser, the Company cannot deny his title, for the certificate stops it from doing so. Therefore the innocent purchaser is entitled to compensation from the Company.

 

Sol.: A forged transfer is a nullity. It does not give the transferee concerned any title to the shares. Since the forgery is an illegality therefore it cannot be a source of a valid transfer of a title. Although the innocent purchaser acting in good faith could validly and reasonably assume that the person named in the certificate as the owner of the shares was really the owner of the shares represented by the certificate. Even then the illegality cannot be converted into legality. Therefore, in this case Company has right to refuse to do the transfer of the shares in the name of the transferee B.

Here, as regards to the liability of A against ‘B’, A does not stand directly responsible according to provisions of Company law as he has already committed forgery which is illegal but A is liable to compensate the Company as he has lodged the forged transfer and the Company has suffered the loss.

As regards to the liability of the Company towards B, the Company shall be liable to compensate to B so far as the Company had issued a certificate to transfer and was, therefore, stopped from denying the liability accruing from its own Act. Further as the Company has refused to register him as a shareholder, Company has to compensate B. However, in this case the interest of the original shareholder will be protected.

 

 

Sol.: Section 84(2) provides that a certificate may be renewed or a duplicate of a certificate may be issued if such certificate:

a.      Is proved to have been lost or destroyed or

b.      Having been defaced or mutilated or torn is surrendered to the Company.

For the term and conditions on which duplicate certificates may be issued, Companies (issue of Share Certificates) Rules.1960 has to be followed. A duplicate share certificate cannot be issued unless:

a.      The consent of the Board is taken.

b.      Payment of fees, if any, not exceeding 2 is made by the shareholder.

c.       Proper evidence and indemnity to the satisfaction of the Company is furnished.

d.      Out of pocket expenses estimated to be incurred by the Company in investigating the evidence, as the Board may think fit, are deposited with the Company.

e.      The fact that the certificate is duplicate should be inscribed with the words “duplicate issued in lieu of share certificate no”.

f.        Mutilated defaced or torn certificates surrendered shall be defaced by a cancellation mark and destroyed after three years with the authority of the Board.

A Company can, however, issue a duplicate share certificate only to a registered shareholder.

 

 

Sol.: No, the share warrant holder is not member of the Company. As per Sec.115 on issue of share warrant the Company shall strike out name of the person from its register of members. As per Sec.41 of the Act, a person can become a member of the Company by agreeing in writing to become the member of the Company and whose name is entered in the Register of Members of the Company.

 

 

Sol.: False., Under Sec.113 every Company is required to deliver (Not ready for delivery) the share certificates within a period of 3 months from the date of allotment and within 2 months from the date on which the certificates are lodged with the Company for transfer.

 

 

Sol.: Under section 113 of the Act, the NCLT has been vested with the powers to extend the duration within which the certificates for debentures are to be delivered by the Company to the debenture holders. The NCLT is not vested with similar powers in respect of share certificates.

 

 

Sol.: A public Company limited by shares, if so authorized by its articles, may, with the previous approval of the Central Government, with respect to any fully paid-up shares, issue under its common seal, a warrant stating that the bearer of the warrant is entitled to the shares therein specified. The words used in the section are “fully paid-up shares”. Under the section, there is no distinction between the equity shares and preference shares and thus, the Company can issue share warrants in respect of fully paid preference shares also. (Sec.114)

 

 

Sol.: A Company may, if so authorised by the articles, accept from any member the whole or a part of the amount remaining unpaid on any shares, although no part of that amount has been called up.

 

Rights & Liabilities of payment of calls in advance:

a.      Voting rights: The shareholders are not entitled to voting rights in respect of the calls so paid in advance by them until the same would become presently payable.

b.      Liability: The shareholder's liability in respect of the call for which the advance call is paid, is extinguished.

c.       Interest: The shareholder is entitled to claim interest on the amount of the call. If there are no profits, interest must be paid out of capital. The rate of interest can be up to as provided in articles of association. Table A provides payment of interest at 6% p.a.

d.      Non refundable: The amount received as calls in advances is not refundable.

e.      Rank before: In the event of winding up, the shareholder must be paid of his amount with interest, if any, before other shareholders are paid off.

 

 

Sol.: Yes. Forfeiture of shares is governed by the provisions of the articles of association of the Company and there should be strict compliance with the procedural formalities in respect of forfeiture of shares.

 

 

Sol.:

1.      When entitled to remedy:

a.      If a Company refuses to register the transfer or transmission of shares or debentures, it shall, within 2 months from the date on which the application for transfer or transmission was delivered to the Company, send notice of such refusal to the applicant, giving reasons for such refusal.

b.      The applicants may appeal to the NCLT against any refusal of the Company to register the transfer or transmission, or against any failure to send notice of its refusal within 2 months.

2.      Time limit for application:

a.      Within 2 months of receipt of notice of refusal or

b.      Where no reply has been received within 4 months of lodging documents for registration.

3.      NCLT Decision. NCLT after the enquiry, direct the Company to accept the transfer/transmission or to rectify its register. NCLT has the power to pass interim orders including suspending the voting rights till the enquiry is complete. It may also direct the Company to pay the damages to the aggrieved person.

4.      The order of NCLT shall be complied within 10 days of the receipt of the order.

5.      Penalty.

a.      Default in complying with the order of NCLT will invite the Company and every officer of the Company who is in default punishable with a fine which may extend to 10,000 and with a further fine which may extend to 1000 per day during which the default continues.  

b.      Default in complying with this section will invite the Company and every officer of the Company who is in default punishable with a fine which may extend to 500 per day during which the default continues.

 

Sol.: Yes. Mr. P can claim rectification of register of members of the Company where shares held by him are forfeited by the Company without serving a proper notice for the same. (Sec.111)

 

Sol. True., when the shares are transferred under the operation of law, either on the death of the shareholder or on his becoming insolvent or when the shareholder is the Co. and such Co. goes into liquidation. For this no transfer deed & payment of stamp duty is required.  (Sec.109)

 

 

Sol.: If transfer is of partly paid up shares and application for transfer is made by transferor transfer not to be registered by the Company, unless Company gives notice of application to the transferee, and transferee makes no objection to the transfer within two weeks from the receipt of notice. Notice deemed to be duly given if despatched by prepaid registered post to the transferee at address given in instrument of transfer. Board of Directors on satisfaction of above steps, recognise the transferee as new holder. (Sec.110)

 

 

Sol.: False., Sec.125 of the Companies gives the list of assets on which charge can be created.

a.      A charge on any immovable property.

b.      A floating charge on the undertaking or any property of the Company including stock in trade.

c.       A charge for the purpose of securing any issue of debentures.

d.      A charge on uncalled share capital of the Company.

e.      A charge on calls made but not paid.

f.        A charge on the book debts of the Company.

g.      A charge on Goodwill, Patent, License.

h.      A charge created outside India comprising property situated outside India.

i.        A charge created in India comprising property outside India.

j.        Purchase of a property in India but already subject to charge.

k.      Purchase of a property situated abroad but already subject to charge.

 

The list given above does not contain “Reserve Capital’ and, thus, no charge can be created on it.

 

 

Sol.: The concept of partial satisfaction of charge is not there. Satisfaction shall be in full only. These amounts to modification of charge and the Company will have to file particulars of modification of charge, for registration. (Sec.135)

 

 

Sol.: False., Charge can be created even on assets which will come into Company’s possession at any future date e.g. future debts, current assets etc. This is called floating charge.

 

Characteristics of a floating charge:

a.      It is a charge on a class of assets of the Company, both present and future. It does not mean only those assets which were in existence when the charge was created.

b.      The class of assets charged is one which in the ordinary course of business, is changing from time to time.

c.       Until some steps are taken to enforce the charge by the creditors, the Company may continue to deal with the assets charged in the ordinary course of business.

d.      The possession of assets charged is not given to the charge (i.e. creditors).

 

 

Sol.: The prescribed particulars of the charge together with the copy of instrument of charge shall be filed with the Registrar within 30 days after the date of the creation of charge. In this case particulars of charge have not been filed within the prescribed period of 30 days.

However, the Registrar is empowered to extend the period of 30 days by another 30 days on payment of such additional fee not exceeding 10 times the amount of fee specified on Schedule X. Taking advantage of this provision, ABC Ltd., should immediately file the particulars of charge with the Registrar and satisfy the Registrar that it had sufficient cause for not filing the particulars of charge within 30 days of creation of charge.

If the charge was created on 12^th Feb., 2001, then the Co. has to apply to the NCLT under Sec.141 and seek extension of time for filing the particulars for registration. The Co. must satisfy the NCLT that the omission was accidental or due to some other sufficient cause or was not of the nature to prejudice creditors, or that it is just and equitable to grant relief on the other grounds. On such satisfaction, the NCLT may extend the term for the registration of charge on such terms and conditions as it may think fit.

 

 

Sol.: According to sec.174 of the Companies Act 1956, if within half an hour from the time appointed for holding a meeting of the Company, a quorum is not present, the meeting shall stand adjourned to the same day in the next week, at the same time and place unless the directors determine otherwise.  No Fresh notice is, therefore, required to hold the adjourned meeting. Besides, no quorum is necessary in the adjourned meeting.  Thus, the adjourned meeting in question is valid.

 

 

Sol.:  The Chairman after ascertaining the sense of the meeting by show of hands, that 6 votes are in favour and 7 are against the resolution, may before declaration of result cast his vote in favour of the resolution and also the casting vote and declare the resolution as passed.

 

 

Sol.: Section 174 of the Companies Act, 1956 stipulates that unless the articles of association of the Company provide for a larger number, two members personally present shall constitute quorum in case of Private Company.  Hence a private Company may provide a larger number for quorum.  The general principle is that if no quorum is present, the meeting and the proceedings are void.  However, there can be situations when quorum becomes immaterial. If all the members are present, it is immaterial that the quorum required is more than the total number of members thus in this case.  Mr. Doubtful cannot successfully challenge the resolution.

 

 

Sol.: In this case quorum for a General meeting is six members to be personally present.  For the purpose of quorum, only those members are counted who are entitled to vote on resolution proposed to be passed in the meeting.  Again, only members present in person and not by proxy, are to be counted.  Hence, proxies whether they are members or not will have to be excluded for the purpose of quorum.

If a Company is a member of another Company, it may authorize a person through resolution to act as its representative at a meeting of the other Company, then such a person shall be deemed to be a member present in person and counted for the purpose of quorum (Section 187).

Where two or more companies appoint a single person as their representative, then each of such company will be counted quorum at a meeting of the latter Company.

Again, section 187 a  provides that the President of India or Governor of State if he is a member of a Company may appoint such person, as he thinks fit, to Act as his representative at any meeting of the Company.  A person so appointed shall be deemed to be a member of such a Company and, thus considered as member personally present.

In view of the above there are only four members personally present, namely, Mr.  G and Mr. L (representing three Companies and thus effectively equal to three members) Mr A and Mr. B  the preference shareholders have been excluded since the agenda being the appointment of Managing Director, their rights cannot be said to be directly affected and therefore, they shall not have any voting rights. Thus it can be said that the requirement of quorum being six, four members personally present shall not constitute a valid quorum.

 

 

Sol.: Each page of the minute book should be signed and in the last page of the record of proceedings of each meeting in the minutes book shall be dated and signed by the Chairman of the said meeting. In the event of death or inability of the chairman, by the director duly authorised for the purpose.  The Company Secretary cannot carry out the said function, although he had been authorised by the Chairman.   

 

 

Sol.: False., Provisions of section 193(1A)(b) provides that the minutes of the proceeding of the general meeting shall be  signed by the chairman of the same meeting within a period of 30 days or in the event of death or inability of the chairman by a Director duly authorized by the Board for the purpose.

 

 

Sol.: Quorum is the minimum number of members of a Co. whose presence is necessary for commencing the meeting. If within half an hour for the time appointed for holding a meeting of the Co., a quorum is not present, the annual general meeting shall stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time and place as determined by the Board. In the present case, as the quorum is not present within 10 minutes of the scheduled time of holding the annual general meeting, the legal position is that the people present will have to wait for another 20 minutes to ascertain whether requisite quorum is present or not, before any decision regarding the conduct of the meeting can be taken.

 

 

Sol.: According to the provisions of Section 166(2) read with Section 171(1) every Annual General Meeting should be called with at least 21 clear days notice and must be held on a day other than a public holiday i.e., it should be held on a working day during business hours. It is clarified 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. In view of the above mentioned provisions, XYZ Ltd. cannot hold the AGM on Sunday, the 30^th June as Sunday is a public holiday.

 

Sol.: The Company is under obligation to accept such requests subject to the condition that the expenses to be incurred by the Company for giving the notice by registered post are deposited by the member with the Company, in advance. (Sec.53) In the given case since Mr. X has not deposited any such amount the Company is under no obligation to accept request.

 

 

Sol.: False., What the Act prohibits is only their exercise of voting but not the attendance of the meeting. Further they have the right to receive the notice of general meeting of the Company and therefore, the right of preference shareholder to attend the general meeting of the Co. is implied.

 

 

Sol.: False., In accordance with the provisions of section 165 only public Companies having share capital or public Companies limited by guarantee and having share capital are required to hold the statutory meeting and, thus, a Company limited  guarantee and having no share capital is not required to hold annual general meeting.

 

 

Sol.: False., In accordance with sub-section (5) of section 165, a copy of the statutory report is required to be filed with the Registrar immediately after having been sent to the shareholders.

 

 

Sol.: False., In accordance with the provisions of section 167 of the Act if a Company fails to hold the annual general meeting it may be ordered to hold the annual general meeting by the Central government on an application made by any member of the Company.

 

 

Sol.: False., Sec.167 provides that the central government while issuing instructions for holding the annual general meeting on a complaint of a member may also issue a direction that even a single member present in the meeting shall constitute a valid quorum. Thus, except where special orders are made by the C.G., single member present in the meeting will not constitute quorum.

 

 

Sol.: False., All ordinary businesses are normally transacted through ordinary resolutions except the appointment of auditor under Sec. 224A where the appointment of auditor is required to be made by passing a special resolution. All special businesses are not compulsorily required to be transacted by special resolution. The kind of resolution depends on the provisions of the Act & Articles of the Co.

 

Sol.: False., 30^th June & 31^st December have been declared as public holiday under the negotiable Instrument Act, 1881 only for the limited purpose of closing of accounts of banks\treasuries etc, and, thus, these two dates shall not be treated as public holiday for the purpose of holding annual general meeting of the Company.

 

 

Sol.: True. In the case of LIC Vs. Escorts Ltd. the Supreme Court has laid down that every shareholders has statutory right to call an extraordinary general meeting and he is not bound to disclose the reason for the resolution proposed to be moved at the general meeting.

 

 

Sol.: True. Sec.174 provides that “If within half  an hour from the time appointed for holding a meting of the Company, a quorum is not present, the meeting, if called, upon the requisition of members, shall stand dissolved”.

 

 

Sol.:  As per Reg.49 of Table A, quorum should be present at the commencement of the meeting and subsequent absence thereof will not invalidate the proceedings. In case of own articles, in the absence of a provision similar to Reg.49, then it is presumed that quorum should be present throughout the meeting.

 

 

Sol.: False., The provisions of the Act provide that the articles of a Company cannot provide more than 48 hours time for lodging the proxy. This even, if articles of Company require proxy to be deposited more than 48 hours before the commencement of the meeting, that shall have effect as if 48 hours time has been provided. However, Companies are free to provide any time less than 48 hours for the same purpose in their articles.

 

 

Sol.: False., Section 177 provides that, at any general meeting, a resolution put to vote of the meeting shall, unless a poll is demanded, be decided on a show of hands. Therefore, the poll is to be taken only when demanded.

 

 

Sol.: True. In accordance with the provisions of section 175 and section 180 of the Act, poll demanded on the question of election of chairman and on a question of adjournment of the meeting shall be taken immediately.

 

 

Sol.:  False, Section 187 provides that the Companies shall be represented in the general meeting of the other Companies through any person duly authorized by a resolution and that the presence of such person in the general meeting shall be considered as personal presence of the body corporate represented by him.

 

 

Sol.: Yes, the meeting can proceed, as scheduled. According to Sec.166 (2) of the Companies Act, 1956 an annual general meeting must be held on a day which is not a public holiday. But if the date of AGM becomes a public holiday after issue of notice - Meeting can be held on such public holiday.

 

 

Sol.: The shareholder contention is right and he is entitled to the notice of the annual general meeting. According to section 172 of the Companies Act, 1956, notice of every general meeting of a Company shall be given to every member of the Company. A preference shareholder is also a member because, under the Companies Act, every shareholder- whether ordinary or preference- is a member. As such, he is entitled to the notice of the meetings. In the given problem, the preference shareholder should have been issued a notice and the contention of the secretary is wrong.

 

 

Sol.: Yes, the person representing one Company under Sec. 187 of the Companies Act, 1956, and also himself as a member shall be counted as two persons for purposes of quorum at general meetings of a Company. This is because of the fact that a person representing a Company Sec. 187 is deemed to be a member of the Company. As he presents himself in two different capacities, he is to be counted as two persons.

 

 

Sol.: No, the chairman cannot declare the meeting closed for want of quorum. In case of a public Company, five members personally present shall be the quorum for a general meeting. But, the Companies Act, if at the adjourned  meeting, a quorum is not present within ½ hour from the time appointed for holding the meeting, the members, present shall be a quorum. This being an adjourned meeting, the members present constitute the quorum and, thus, the chairman cannot declare the meeting closed for want of quorum in this case.

 

 

Sol.: Sec. 187-A of the Companies Act, 1956, provides that a person so appointed is entitled to exercise the same rights and powers as the Governor could exercise. Since a member is entitled to appoint a proxy in his place to attend the meeting of the Company, therefore, a representative of the Governor by virtue of Sec. 187-A of the Companies Act, 1956, is also entitled to appoint a proxy who can attend the meeting on behalf of the representative.

 

 

Sol.: No, the proxy lodged is invalid Sec. 176 of the Companies Act, 1956, provides that an instrument appointing a proxy must be in writing and must be signed by the appointer. In other words, the proxy form must be signed by the member who desires to appoint a proxy. However, where the shares are held jointly by two persons, obviously, such right can be exercised by both of them jointly. As such, in case the shares are held jointly by two or more person, the proxy form must be signed by all of them. Accordingly in the given problem as the proxy has been executed by one of the joint shareholder’s it is invalid.

 

                                                                                                           

Sol.: According to Companies Act a general meeting of a Company may be called by giving not less than 21 days notice in writing. Not less than 21 days means 21 clear days i.e. excluding both the date on which the notice was served and the date of the meeting. In case the notice of the general meeting is sent by post, service notice of the meeting shall be deemed to have been effected at the expiry of 48 hours after it was posted. In the instant case, the notice was short of one day:

 

Therefore, the meeting was invalid and the resolutions passed were invalid. However in case of AGM, where all members entitled to vote consent, the meeting may be held on shorter notice.

 

 

Sol.:

a.      In case of private Companies only one proxy can be appointed (proviso b to 176) and the proxy need not be a member.

b.      By virtue of Section 187, if a Company is a member of another Company, it may appoint a representative to vote. A person authorised by resolution as aforesaid shall be entitled to exercise the same rights and powers (including the right to vote by proxy) on behalf of the body corporate. Therefore the proxy Z is a valid one.

c.       In the case of a Company not having share capital, the right to appoint a proxy is available only if the Articles make a specific provision about the same and therefore appointment is invalid.  The Company would have to pass a special resolution to alter the Articles of Association; when the same is done, this power may be exercised by the members.

 

 

Sol.: As per sec.169 of the Companies Act the members of a Company may also ask for an extraordinary meeting to be held.

Persons entitled to requisition. A requisition for convening an extraordinary general meeting may be made by member(s):

a.      Holding 10% of the paid-up share capital of the Company and having a right to vote at the date of deposit of requisition, on the matter to be discussed Or

b.      Company has no share capital, members having 10% of the voting power of all members having a right to vote at the date of deposit of the requisition, on the matter to be discussed.

Here the total share capital held by the requisitionists amounts to52,500 and exceeds one tenth of the total of5 lakhs as on the date of requisition on 1.2.2000. Bonus and rights shares are at par with ordinary shares and are to be included in arriving at the eligible value. Therefore the requisition is a valid one. Members can call themselves an EGM called requisitionists meeting satisfying the conditions like time limit, number of required members etc.

 

Sol.:

a.      As per the Companies Act, unless the articles otherwise provide a member of a private Company shall not be entitled to appoint more than one proxy to attend on the same occasion. Thus based on the above provisions, J in the given case cannot, appoint more than one proxy on the same occasion. Since the articles of the Company also do not provide for the above, he cannot do so.

b.      Restrictions on voting rights - Section. 181.

¡        The AOA may prohibit any member from excersing the voting rights if any call money is due on such shares on the date of voting.(If such a provision is not available then a member cannot be prevented from exercising his voting right).

¡        A public Company or a dependent Company shall not put any other restriction on voting rights other than given under Sec.181 of the Act.

¡        However, an independent private Company can provide in their AOA further restrictions like only holders of shares for a specified period alone can exercise voting rights.

 

   

Sol.:

a.      A representative of a body corporate appointed under Sec.187 is a member personally ‘present’ for purposes of counting of quorum. If one individual represents three member Companies, his presence be counted as three members being present in person for purpose of quorum.

b.      Joint shareholders.

¡        In the case of joint holders it would be seen prima facie that any one of them may be counted in a quorum.

¡        It should be noted that Act specifically provides that for certain purposes where two or more persons hold any shares jointly, they shall be counted only as one member. (E.g. Under Sec.3(1) (iii) for the purposes of counting the number of members in a private Company).

¡        If the Act does not provide anything to the contrary, it appears that two or more joint holders when personally present can be counted as so many members for the purpose of quorum.

¡        Further, in a case, it has been held that two joint holders are each member and are to be counted towards a quorum as two members personally present.

 

 

Sol.:

a.      Action of the Board of Directors in the given case is not valid in view of the Supreme Court decision in LIC Vs. ESCORTS LTD. Requisitionists are not bound to give reasons for the resolutions proposed to be passed at the meeting.

b.      Sec.169 provides that, in the case of joint shareholders requisition signed by one shareholder is sufficient. The Action of the Board of Directors is not valid.

c.       Provisions of Sec.166(2) of the Companies Act, 1956 apply to AGM. EGM can be held at any place. In the given case Action of the Board of Directors is bonafide and hence it is valid.

d.      In the given case unless the Articles of the Company otherwise provide, the meeting shall stand dissolved, if called upon the requisition of members, in case the quorum is not present with half hour from time appointed for a meeting of the Company.

 

 

Sol.: In this case, the quorum for a general meeting is 9 members personally present according to the provisions in the Articles of Association of the Company. For the purpose of ascertaining quorum, only members present in person and not by proxies, are to be counted. If a Company is a member of another Company, it may authorise a person by a resolution to Act as its representative at a meeting of the latter Company, then such a person shall be deemed to be a member present in person and counted for the purposes of quorum. Where two or more Companies being members of another Company appoint a single person as their representative, then each of such Companies will be counted in quorum. Hence the meeting is attended by 9 members personally consisting of 7 members per­sonally present & 2 member companies and there is proper quorum.

 

Sol.: False., Sec.53 provides that the notice of a meeting shall be deemed to have been served on members at the expiration of 48 hours after the letter containing the same is posted and in case of any other documents to be served on members it shall be deemed to have been delivered at the time at which the letter would be delivered to him in the ordinary course of post.

 

 

Sol.: According to Section 166 of the Companies Act, 1956 every Company shall in each year hold in addition to any other meetings a general meeting as its AGM and shall specify the meeting as such in the notices calling it and not more than 15 months shall elapse between the date of one AGM of a Company and that of the next. The First AGM of the Company must be held within 18 months from the date of incorporation of the Company. If the AGM is held within that period and consequent to which the Company had not held an AGM in the year of incorporation or in the following year there is no violation of the Act. Further the Registrar may extend the time within which any AGM (not being the first AGM) shall be held by a period not exceeding three months.

Thus, applying the above provisions, the questions can be answered as follows:

a.      The Board of Directors decision is not legally justified. Holding of First AGM is a statutory requirement. No Company can be exempted from this.

b.      The course of Action open is that any member should apply to the CG under Section 167 and the CG in turn shall call or direct the calling of a general meeting of the Company with necessary direc­tions and a meeting held according shall be an AGM. The member should approach the CG and seek its assistance to fulfill his demand. Member may, therefore, be advised accordingly.

 

 

Sol.:

a.      As per the Companies Act the minutes of the proceedings of a general meeting must be signed by the chairman of the same meeting within a period of 30 days of the conclusion of such meeting. But in the event of death or inability of that chairman within that period, the minutes of the said general meeting may be signed by a director duly authorised by the Board for the purpose.

b.      As per the Companies Act every annual general meeting of a Co. must be held either at the registered office of the Co. or at some other place within the city, town or village in which the registered office of the Co. is situate. But the proviso to Sec.166(2) permits a Private Co. which is not a subsidiary of a public Co. to fix a place for holding the AGM by a resolution agreed to by all the members. So it is possible to hold the AGM in New Delhi provided it is agreed by all the members by a resolution and the private Company is not subsidiary of a public Company.

 

Sol.:

a.      According to regulation 57 of Table A, in the case of joint holders of shares, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. As such, the seniority shall be determined by the order in which the names stand in the register of members. Unless the Company has modified Regulation 57 of Table A, the proxy appointed by A will have the right to attend and vote in the general meeting. Y, the proxy appointed by B, will have no right to attend and vote in the meeting.

b.      The proxy appointed by A will be valid. The time of its lodgment with the Company is immaterial. Though B has lodged his proxy later, but as given above (Regulation 57 of Table A) it cannot supersede A’s proxy.

c.       After giving a proxy if a member personally attends the meeting and votes thereat, the proxy is automatically cancelled. If B personally attends the meeting, both the Proxies X and Y shall be revoked.

 

 

Sol.: Section 173 of the Companies Act, 1956 requires a Company to annex an explanatory statement to every notice for a meeting of Company, at which some Special Business to be transacted. This explanatory statement is to bring to the notice of the members all material facts relating to each item of special business. Sec­tion 173 further specifies that all business in case of any meeting other than annual general meeting is regarded as special business. Thus, the objection of the share­holders is valid since the details on the item to be considered are lacking. The notice is, therefore, not a valid notice under Section 173 of the Companies Act, 1956.

 

 

Sol.: Section 172(3) of the Companies Act requires that proper notice must be served on all the persons entitled to receive such notice. Deliberate omission to give notice even to a single member entitled to receive notice, shall invalidate the proceedings of the meeting. But, however, it provides that an accidental omission to give notice to a member or if the member does not receive the notice, the meet­ing cannot be held invalid. Thus, in the present case, the resolution shall be valid since the omission is stated to be inadvertent (i.e. uninten­tional).

 

 

Sol.: The contention of the secretary is not correct. The auditor has a statu­tory right under Companies Act to receive all notices of any general meeting of a Company, which any member is entitled to have sent to him. Failure to send notice of general Meeting to the Company’s auditor, whether he is concerned or not with any part of the business to be transacted at the meeting, amounts to a default on the part of the Company. Sec.231 further entitles the auditor of a Company to attend any general meeting of the Company. He cannot participate in the meeting.

 

 

Sol.: Section 176(6) provides that an instrument appointing a proxy, if in any of the forms set out in Schedule IX shall not be questioned on the ground that it fails to comply with any special requirements specified for such instrument by the Articles. The aforesaid provisions are applicable to both public as well as private Companies. Accordingly, Company is guilty of wrongful rejection.

 

 

Sol.:

a.      Sec.165 of the Companies Act, 1956 requires the statutory report to be certified as correct by at least two directors of the Company one of whom must be a managing director, where there is one. Thus, the aforesaid provi­sion of Section 165(4) has not been complied with.

b.      Yes, the Registrar can hold the officers of the Company liable.

 

 

Sol.: According to the Companies Act, 1956, an auditor who is appointed at an annual general meeting holds office from the conclusion of that AGM to the conclusion of the next AGM. In the given case, the auditor was to hold office up to conclusion of the AGM duly convened but which stood adjourned. As the adjourned meeting is merely a continuation of the original meeting, the retiring auditor continues to hold the office till the conclusion of meeting.

 

 

Sol.: In case more than one proxies have been appointed by a member in respect of the same meeting, one which is later in time shall prevail and the earlier one deemed to have been revoked. Thus, in the normal course, the proxy in favour of Mr. A, being later in time, should be upheld as valid. But as per Sec.176. A proxy should be deposited 48 hours before the time of the meeting. In this case, the proxies should have, therefore, been deposited on or before 13.12.1989 (the date of the meeting being 15.12.1989). But, Mr. A deposited the proxy on 15.12.1989. Therefore, proxy in favour of Mr. A has become invalid. Thus, reject­ing the proxy in favour of Mr. B is unsustainable. Proxy in favour of Mr. B is valid since it is deposited in time.

 

 

Sol.: Sec.166 of the Companies Act, 1956 requires a Company to hold its annual general meeting every calendar year. Thus, in the above case the meeting held in March 1995 is actually the meeting of December 1994. Since, the next meeting is held only in February 1996, the meeting of December 1995 has been missed. Under these circumstances, unless permission of the registrar was obtained for extension of time, which may be granted up to a period of 3 months under certain special circumstances, the Company shall be convicted.

 

 

Sol.: As per Section 174(5), if a meeting is adjourned for want of quorum and at the adjourned meeting also quorum is not present within half-an hour from the time appointed for holding the meeting, the members present shall be quorum. Assuming that the given situation, i.e. adjournment of the meeting is caused because of absence of quorum, the above-stated position will prevail. Accordingly, three members who are personally present can validly conduct the meeting. But if adjournment has taken place for any reason other than absence of quorum, the quorum as per Articles or at least five members must be present.

 

 

Sol.: Under Sec.53 of the Companies Act a Company is required to serve notice of meeting on foreign shareholders only if they have left their Indian address. Further, in such cases it would be enough if the notice excluding the explanatory statement is advertised in a newspaper circulating in the neighbourhood of the Registered Office of the Company. However, the fact that the explanatory statement has been sent along with the notice of the meeting should be mentioned in the advertisement. Therefore, ‘M’ attention should be drawn to the notice published in the newspaper.

 

 

Sol.: In case of a special resolution votes cast in favour of the resolution must be atleast three times the votes cast against it. Votes cancelled or votes of members who abstain from voting are not taken into account. In the given case, since the votes cast in favour(20) are more than three times the votes cast against the resolution(5) the decision of the chairman treating the resolution passed is valid.

 

 

Sol.: False. Dividend shall be paid up only on paid up capital. (Sec.93)

 

 

Sol.: True. Section 80A relates to redemption of irredeemable preference shares. Sec.205 of the companies act provides that the Company which fails to comply with the provisions of Sec.80A shall not declared any divided on its equity shares as long as the failure continues.

 

 

Sol.: True. Sec.205 provides that the dividend shall be paid in cash and that issue of fully paid- up Bonus shares is not prohibited by capitalizing the profits or reserves of the Company.

 

 

Sol.: True. As per Sec.207 the dividend payable by the Company to any person can be lawfully adjusted by the Company against any sum due to it from the shareholders.

 

 

Sol.: True. Sec.207 provides that the Company shall not attract any penalty for delay in payment of dividend for any other reasons not due to any default on the part of the company.

 

Sol.: False., Sec.150 of Act requires the following to be entered in Register of Members:

a.      The name and address, and the occupation, if any, of each member;

b.      In the case of a  Company having share capital, the shares held by each member, distinguishing each share by its member and the amount paid or agreed to be considered as paid on those shares;

c.       The date at which each person was entered in the Register as a member; and

d.      The date at which the person ceased to be a member.

The particulars mentioned above are the only particulars of a member which are required to be entered in the Register of Members maintained by the. There is no requirement of entering academic qualification of the members in the Register of Members.

 

 

Sol.: False., Under section 151 every Company in which number of members exceed 50 is required to maintain an alphabetical index of all the members. Private limited Companies, generally, do not have more than 50 members and thus these are not required to maintain an index of members. However, if number of members in private Companies also exceeds fifty, then such Companies will also be required to maintain index of members.

 

 

Sol.: False., Sec.209 provides that the Company shall not be deemed to have maintained proper books of account unless these have been maintained on accrual basis and on double entry system of accounting.

 

Sol.: False., Under Sec.2(17) “financial year” means”, the period in respect of which any profit and loss account of the Company is made up, whether that period is a 12 months or not. Financial year of Company may extend up to 18 months.

 

 

Sol.: True. An association of more than 10 persons carrying on the business of banking Or An association more than 20 persons carrying on any other type of business, not registered under the Companies Act or any other law is an ‘Illegal Association’ (Sec.11). In such a case such association must have to be registered under the Companies Act or any other Indian law.

 

 

Sol.:

a.      1^st Declaration. Sec.187C provides that a person, whose name is entered in the register of members of a Company as the holder of a share in that Company but who does not hold the beneficial interest (called registered holder) in such shares, shall make a declaration to the Company in the prescribed form specifying the name and other particulars of the person who holds the beneficial interest in such share. Such declaration shall be made by the registered holder within 30 days after his name is entered in the register of members.

b.      2^nd Declaration. Similarly a person who holds a beneficial interest in a share of a Company, shall, within 30 days after his becoming such beneficial owner, make a declaration to the Company in the prescribed form specifying the particulars of the person in whose name the shares stand registered.

c.       Penalty. If the registered holder or the beneficial owner fails to make the aforesaid declarations, without any reasonable excuse to do so, he shall be punishable with the fine up to 1000 for every day during which the default continues.

 

 

Sol.: Refer to the previous question.

 

 

Sol.: A company may transfer a higher percentage of profits (i.e., more than 10%) by satisfying the below given conditions:

a.      Minimum rate: The company is to maintain a rate of dividend for the current year equal to the average rate of dividend for the immediately preceding 3 years. In the given case, the average rate of dividend for the previous three years =(15+12+12)/3=13% and higher than the proposed dividend rate of 11%. Hence, the first condition is not satisfied.

b.     Minimum amount: Where bonus shares have also been issued in the financial year in which the dividend is declared or in the 3 years immediately preceding the financial year, a minimum amount of dividend equal to the average amount of dividend declared over the 3 years immediately preceding the financial years is to be maintained. In the given case, there is no bonus issue and this condition is hence not applicable.

c.     However, if the PAT for the current year is lower at least 20% compared to the average PAT for the immediately 2 preceding years, the company will not be required to ensure the maintenance of the average rate/amount of dividend mentioned earlier. In the given case, PAT of the current year is 10 lakhs, which is 37.5% [(16-10)/16] lower than that of the average of the immediately preceding two years 16 lakhs. [(17+15)/2 Years] The Company may take advantage under this exception.

 

End of the C. Law Practical Questions

 

Other laws

 

THE PAYMENT OF BONUS ACT

 

 

 

Sol.: According to Sec.17 of the Payment of Bonus Act, if the employer has paid in any accounting year, Deepawali, Puja or any customary bonus to his employees, the employer is within his rights to deduct the amount of bonus so paid from the amount of bonus payable by him under the Act in respect of that accounting year. Thus, the employer can deduct/adjust the Deepawali bonus already paid against the bonus payable under the Act and the employees shall be entitled to receive only the balance.

 

 

Sol.: The employee in the given case has not worked for all working days in an accounting year. Sec.13 provides for proportionate reduction of bonus in such cases. The employees shall hence be entitled to bonus for 35 working days only as a ratio of the bonus payable for the total working days.

 

 

Sol.: The employee in the given case has not worked for all working days in an accounting year. Sec.13 provides for proportionate reduction of bonus in such cases. (Sec.13) But Sec.13 does not cover a case where an employee was prevented from working by reason of an illegal order of termination. Thus based on the above, the refusal by the employers to pay bonus to X is not valid and he (X) is entitled to get bonus.

 

 

Sol.: As per the act, minimum bonus is payable whether or not the employer has any allocable surplus in the accounting year i.e. even if the employer suffers losses during the accounting year he is bound to pay this. However, exemption can be granted by the central government - Write Sec.36.

 

 

Sol.: As per the act, minimum bonus is payable whether or not the employer has any allocable surplus in the accounting year i.e. even if the employer suffers losses during the accounting year he is bound to pay this (Sec.10). Applying the provisions of as contained in Section 10 the employees shall succeed and they are entitled to be paid minimum bonus at rate 8.33% of the salary or wage earn during the accounting year or100 (Rs. 60 in case of employees below 15 Years of age), whichever is higher.

 

 

Sol.:

a.      Where the salary or wage of an employee exceeds 2,500 per month, the bonus payable to such employee shall be calculated as if his salary or wages were 2,500 per month. In the instant case, Mr. Sharma is drawing a salary of 3,500 per month. For the purpose of bonus his salary shall be taken at 2,500 per month.

b.      The total bonus payable to him in that accounting year shall be 2,500 X 12 X 8.33%. For the purpose of calculating the total working days, leave with salary or wages shall be deemed to the working days of an employee. (Sec.14)

c.       Even if the company suffers losses, the employer has to pay the minimum bonus.

d.      Where an employee was prevented from working by reason of an illegal order of termination,      Sec.13 and 14 do not apply.                     

 

 

Sol.: All amounts payable to an employee by way of bonus shall be paid in cash by his employer, within a period of 8 months from the close of the accounting year. This period of 8 months may be extended upto a maximum of 2 years by the appropriate government, on an application being made by the employer. Since the periods of 8 months have not expired, employees cannot sue the employer.

 

 

Sol.: False. As per the Payment of Bonus Act, 1956, an employee employed on a salary or wage not exceeding3,500 per month is entitled to Bonus.

 

 

Sol.: Sec.8 of the Payment of Bonus Act provides that an employee is entitled to bonus if he has worked in the establishment for not less than 30 days. Since S has worked for more than 30 days in the accounting year, he would be eligible for Bonus for 2003-04.

 

 

Sol.: The payment of bonus act provides that, where an establishment consists of different departments or has branches, all such departments or branches shall be treated as part of the same establishment. Therefore the workmen succeed in getting bonus.

 

 

Sol.: The eligibility of the following categories of employees to bonus are discussed below

            a)         An employee laid off under agreement - Eligible for bonus for the period of so laid off (Sec.14)

      b)   An employee on casual leave - Eligible for bonus for the period of such leaves (Sec.14) as                 

           casual leaves are generally leave with salary.

            c)         Woman employee on Maternity Leave - Eligible if she has been on leave with salary wages.

            If she has been absent i.e. with salary /wages, she is not eligible for that period of absence.

            d)         An employee absent due to temporary disablement eligible only if the temporary disablement

           is caused by accident arising out of and in course of employment 

            e)         An employee prevented to work by order of legal termination is eligible for bonus for that

           period.

 

 

Sol.: The employees are entitled to get minimum bonus even if the company suffered any loss.  As per Sec.10 of Act, Every employer shall bound to pay to every employee a minimum bonus which shall be 8.33% of salary/wages earned by the employee during the accounting year or100 whichever is higher, whether or not the company has allocable surplus.  In case of an employee who has not completed 15 years of age, such min. bonus would be60 or 8.33% of the salary/wages, whichever is higher. In the present problem, Employer is liable to pay minimum bonus to the employee.

 

 

Sol.: As provided in Sec.36 of Payment of Bonus Act, 1965, If the appropriate Government, having regard to the financial position and other relevant circumstances of any establishment is of the opinion that it will not be in public interest to apply, all or any of, the provisions of the Act thereto, it may by notification in the Official Gazette exempt such establishment for such period as may be specified therein and subject to such conditions as it may think fit.

 

Sol.: As per Sec.8 of the Payment of Bonus Act, 1965, An employee is eligible to bonus if he has worked for not less than 30 working days in the company. Further as provided in Sec.14 of the said Act, and employee shall be deemed to have worked on the days on which he has been laid off under agreement or as permitted by the standing order of the company or under the I.D. Act, 1947 or has been absent due to temporary disablement caused by accident arising out of and in course of his employment.

 

          In the given problem, Mr. X has worked for 27 days, temporarily absent for 7 days due to accident arising out of and in the course of employment and laid off for 2 day as per an agreement.  Therefore, the total day’s eligible for bonus = 27+2+7= 36 days and Mr. X is eligible for bonus under the Payment of Bonus Act, 1965.

 

 

Sol.:  Considering Sec.15 of P.B. Act, Given problem can be solved in the following way:

 

           Year                      Avbl Surplus         Amount of                 Set on or        Cumulative

                                         Allocable               bonus                        set off or         set on or set off

                                         as bonus               payable                     Year c/f            

                                          (Rs.)                      (Rs.)                          (Rs.)                  (Rs.) 

           2001-02                 6,35,000                2,50,000                     50,000               2,50,000

           2002-03                 2,20,000                2,50,000(incl.                Nil                  2,20,000

                                                                       Rs.30K for 02-03)   

           2003-04                 3,75,000                2,50,000                    1,25,000             3,45,000

                        (2.2L +1.25L)

 

 

Sol.:Sec.32 of the Payment of Bonus Act, 1965 specially provides employees to whom the provisions of the Act shall not apply.  Considering the said provision, the eligibility of the employees in the given problem are stated below.

                        a.         ......not eligible                                                c. not eligible                                                                         e. not eligible

                        b.         .....not eligible                                                 d. not eligible                                                                          f. not eligible

 

 

Sol.: As per Sec.21 of P.B. Act,

                        (i).   Workers can apply to appropriate government for recovery of amount due to them.

                        (ii).  Sri Mukherjee can move to appropriate government within one year from the date the   

                  money became due to him.

                        (iii). The appropriate government if satisfied that any amount is due to Sri Mukherjee, It shall

                  issue a certificate for that amount to the collector who shall collect the amount as an

                  arrear of land revenue.

 

 

Sol.: As per Sec.14 of P.B. Act, An employee who is willing to work and is prevented from working is therefore eligible to bonus. Sri Sanjib is entitled to bonus for those periods.

 

 

Sol.: As per Sec.18 of P.B. Act, The company can deduct the amount of loss from the bonus payable to Shri Bholanath and it did not violate the provisions of the Act.

 

CO-OPERATIVE SOCIETIES ACT

 

 

Sol.: The society has the right to expel a member who conduct or character is prejudicial to the society. The bye-laws of a society normally provide that a member may be expelled if:

a.      He fails to fulfill his obligations in the matter of dues (the number of month’s arrears being specified).

b.      He becomes a member of another similar society and refuses to withdraw (because each member has the right to inspect the books of the society and may pass information to a rival society of which he is a member).

c.       He is to be proceeded against for debts.

d.      He becomes insolvent.

e.      He engages in such activities as might be contrary to the principles of the society.

f.        He becomes unsound mind.

g.      He is convicted by as criminal court, especially for bribery, forgery, theft or fraud.

h.      He has committed an act that is considered dishonorable by the managing committee.

 

Sol.: In the case of an unlimited Society, a member cannot transfer any shares unless:

a.      He has held such shares for not less than 1 year &

b.      The transfer is made to the society or to a member of the society.

 

Hence, the transfer of shares by S is not valid since he had held these shares only for 10 months.

 

 

Sol.: The membership of a society is governed by the bye-laws of the society and the Co-operative Societies Act, 1912. It is based on the co-operative principles. The bye-laws of the society generally provide provisions for restriction of multiple memberships of a member. This principle based on the concept that each member has the right to inspect the books of the society and may pass information to other societies which may be against the interest of other member Co-operative societies are established for the benefit of the members.  If Mr. Ramamurthy does not withdraw from the membership of the other society he may be expelled form the membership of the society.

 

 

Sol.: As per Sec.33 of Co-operative Societies Act, 1912, No part of the profit of a limited society shall be divided among the member unless one-fourth of the net profit is transferred to a reserve fund. The divisible profit of the past year may also be divided among the members.  Considering the provisions out of net profit of 1,00,000,25,000 being one-fourth of the amount is to be transferred to reserve fund and the balance 75,000 and the past profit of 20,000(total 95,000) may be divided among members subject to the bye-laws of society.

 

 

Sol.: Membership of co-operative society is based on the co-operative principles. Members may withdraw from the membership. When members withdraw their share value may be paid to the member. Further, as provided under Sec.5 of Co-operative Societies Act, 1912, in case of a co-operative society limited by shares no member other than a registered society as member shall shares subject to a maximum of 1/5th of the share capital of the society. From the provision it can be seen that Mr. X can hold upto 20,000 shares. If he takes the shares of the 5 members, his total share would go up to25,000 which is not permissible under the Act.  In the second concept, if a registered society acquires the shares of the 5 members, its shares would be25,000 which does not prohibit the provision of law therefore, can acquire the share subject to the bye-laws of the society.

 

 

Sol.: In terms of the provisions of section 23 and 24 of the Co-operative Societies Act, 1912 a past member shall be liable for the debts of the society for two years from the date when he cased to be a member. In case a member is dead, his legal representative shall be liable for the debts of the society for one year from the date of the death of the member. So,

i)    Mr. Bijay Kumar is liable for the debt since he resigned w.e.f. 01.07.04 and the claim           was made on 26.12.04. It is immaterial to which period it relates.

ii)   If Mr. Bijay Kumar would have resigned w.e.f 01.07.02, he would not have been liable           for the debt which arises in December 04 though it relates to the year 2002.      

iii)       If Mr. Bijay Kumar would have died his legal representatives would have been liable if   the death of Mr. Bijay Kumar would have been within one year from 26.12.04 i.e. Date of claim.

 

 

Sol.: Sec.20 of Co-operative Societies Act, 1912 provides that a registered society can give loan to its members who are individuals. Loan to members who are registered co-operatives requires approval of Registrar. Loan to a member on security of immovable property may be restricted or prohibited by State Government. So,

      i). The society, if it is limited society, can give loan to its members on mortgage of gold.

      ii).The society, if it is an unlimited society, can give loan its members on security of gold  

          (movable property) with approval of the Registrar.

      iii).The society has to see whether there is any restriction or prohibition by the S.G as regards

           to such loan on security of immovable property.  If there is no such restriction or prohibition,

           the society can give the loan.

 

 

Sol.: As per Sec.33 of Co-operative Societies Act, 1912,

i). Society can distribute dividend after transferring 1/4^th of net profits to reserve fund.

ii).The quantum of dividend depends upon the policy of the society and the provisions of             the

    bye-laws. After transferring 1/4^th  of net profits to reserve fund. The society can distribute 

    balance amount as dividend and even out of past years profit.

iii).Undistributed profits of the past years can be paid as dividend if the bye-laws permit.

 

 

Sol.: As per Sec.12 of Co-operative Societies Act, 1912, no member shall exercise his right  to vote unless he has made the payment in respect of membership to the society as per the byelaws of the society. Sec.13 of the Act provides that in case the liability of the member of the society is not limited by shares, he is entitled to one vote only. Where the liability is limited by shares he is entitled to as many votes as may be prescribed in the bye-laws of the society. A registered society if is a member of another society, it  can appoint  any member of the society as proxy to attend and vote at the meeting of the society where it is a member. So,

i).  Mr. Gupta is not entitled to vote as a member at the meeting of the society as he has not

     paid the membership fee.

ii). If the society is a limited liability society, Mr. Gupta can cast as many as votes as bye laws

     of the society permits provided he has paid the membership fee and is entitled          to vote.

iii). Mr. Gupta cannot appoint a proxy to vote at the meeting of the society; only societies which

      are members are entitled to appoint proxies.

 

 

Sol.: As per Sec.20 of Co-operative Societies Act, 1912, the share or interest of any member in the capital of the society will have a charge in respect of any debt due by the member to the society. The society can set off such debt of the member from his share or interest in the society. Sec.21 of Act provides that the share or interest of any member in the capital of the society shall not be liable to attachment claimable by any Official Receiver or  Assignee. So,

i).   The shares of Mr. B.Nayak shall have a charge in society for his debts due to the society.

ii).  The society can set off the debts due from Mr. Nayak from his shares or interest in the

      capital of the society.

iii). The shares or interest(Mr.Nayak) cannot be claimable by any Official Receiver or Assignee.

 

MULTI STATE CO-OPERATIVE SOCIETIES ACT

 

Sol.: As per the provisions of the multi state co-operative society, profits can be used for payment of dividend at a rate not exceeding 12% & donations not more than 5 lakhs. Thus applying the above provisions, the answers to the questions asked are as under:

a.      Declaration of dividend @ 11% on the paid share capital of the society is quite valid as it does not exceed 12%.

b.      The decision to donate 10lakhs out of the society’s Net Profits is not valid since the limit is Rs.5lakhs in a year.

 

Sol.: As per Sec.66 of Multi-State Co-operative Societies Act, 2002,

i). Multi-State Co-operative Society cannot give loan to Mr. P on security of his shares.

ii). Even if relative provides any security, society can’t give loan as his relative is non-member.

iii).If Mr. P would have been a depositor, the society might give him the loan on the security of

     his deposit in the society.

 

 

Sol.: As per Sec.34 of Multi-State Co-operative Societies Act, 2002, Transfer of shares or interest of members in the capital of a multi-State Co-operative Society shall be subject to such conditions as to maximum holding as specified in Sec.33 of the Act. Sec.33 of the Act provides that no member other than those specified in Sec.25 (1) (c)  to (g) shall hold such portion of total share capital of the society not exceeding one-fifth thereof as may be prescribed in the rules or bye-laws of the society. Further as provided in Sec.37 of the Act, the liability of a member shall continue form the date of transfer of the shares till two years from such date. So,

i)          A member can transfer his shares to another.

ii)   An individual member can hold shares as provided in the rules of bye-laws of the society subject to a maximum of one-fifth of the share capital of the society.

iii)       A member who transfers his shares shall be liable for any debts of the society from date of such transfer and continue for a period of two years from such date of transfer.

 

EMPLOYEES PROVIDENT FUND ACT & MISC. PROVISIONS ACT

 

 

 

Sol.: As per Sec.10(2) of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 any amount standing to the credit of a member in the Fund at the time of his death and payable to his nominee shall vest on the nominee and shall be free from any debt or other liability incurred by the deceased or the nominee before death of the member and shall not be liable to attachment by any decree or order of any court. So,

i)          The bank cannot recover its loan dues from the P.F. dues,

ii)         Answer would be same in case the nominee had paid any loan to Mrs. Tsunami before her death.

 

 

Sol.: As per Sec.12 of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, M/s Harsh Ltd. cannot reduce the salary/wages of its employees so that lower contribution will be made by the company to the Fund which will reduce the benefit to the employees under the Scheme.

 

 

Sol.: As per Sec.8A of Employee's Provident Fund and Miscellaneous Provision Act, 1952,

                        i).  M/s Atwal may deduct the employee's contribution from the salary/wages of employees.

                        ii). M/s Atwal may deduct the employee's contribution only from the salary/wages of the       

                employees in one or more installments.

                        iii)  M/s Atwal cannot recover the employer's contribution from the salary/wages of the

                              employees even by entering into any agreement with the employees.

 

 

Sol.: As per Sec.17B of Employees' Provident Fund and Miscellaneous Provisions Act, 1952, Both Manorama Group of industries and giant Group of industries are liable to bear the amount of contribution. However, Giant Group of industries will bear only upto the value of the assets obtained by it.

 

 

Sol.: Based on Sec.7C of aforesaid Act, the P.F. authorities may re-open the case.