COMPANY LAW JUNE 2019

OLD SYLLABUS
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1. Comment on the following statements:

(a) A company is an artificial juristic person. It does not have citizenship, residence and
domicile.

A Company has a corporate personality, so its bears its own Name, Acts under Separate Name,
has a Seal of its own and its Assets are separate and distinct from those of its members.
Therefore, it is capable of owning property, incurring debts, borrowing money, having a bank
account, employing people, entering into contracts and suing or being sued in the same manner
as an Individual.

Although, a company is regarded as a legal person (though artificial), it is not a citizen either
under the Constitution of India or the Citizenship Act, 1955. This is also the conclusion of the
special bench of the Supreme Court in STC. v. Commercial Tax Officer.

It is established through judicial decisions that a company cannot be a citizen, yet it has
nationality, domicile and residence.

A joint stock company resides where its place of incorporation is, where the meetings of the
whole company or those who represent it are held and where its governing body meets in bodily
presence for the purposes of the company and exercises the powers conferred upon it by statue
and by the articles of the association. [Tulika v. Parry & Co.]

Residence is an important connecting factor between a company and the governing legal system.
It is on this basis that a liability of a company to pay income-tax is determined. Though the place
of incorporation is considered as the primary evidence of a company, it is by no means the
conclusive test. So, an alternative test is applied to bring a company within the purview of a legal
system in which it operates business and earns a fabulous income.

(b) A holder of a Global Depository Receipt is a member of the company.

It is clarified by the Ministry of Corporate Affairs, vide Circular No.1/2009 No.17/67/2009 CL-V
dated 16/6/2009 that:

(a) As per section 2(55) (i) & (ii) of the Companies Act, 2013, a person is a member of the
company, (i) who is a subscriber to the Memorandum or (ii) whose name has been entered in the
register of members. Since, holder of Global Depository Receipts is neither the subscriber to the
Memorandum nor a holder of the shares, his name cannot be entered in the Register of
Members. Therefore, a holder of Global Depository Receipts cannot be called a member of the
company.

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(b) As per section 2(55) (i) & (ii) of the Companies Act, 2013, a person holding a share capital of
the company and whose name is entered as beneficial owner in the records of the depository, is
deemed to be a member of the company. Since the Overseas Depository Bank as referred in the
‗Scheme‘ is neither the Depository as defined in the Companies Act, 1956 and the Depository
Act, 1996 nor holding the share capital, therefore, it cannot be deemed to be a member of the
company.

(c) A holder of Global Depository Receipts may become a member of the company only on
transfer/ redemption of the GDR into underlying equity shares after following the procedure
provided in the ―Scheme‖/ provisions of the Companies Act.

(d) Since the underlying shares are allotted in the name of Overseas Depository Bank, the name
of such Overseas Depository Bank is to be entered in the Register of Members of the issuing
company. However, until transfer/redemption of such GDR‘s into underlying shares, Overseas
Depository Bank cannot b considered a nominee of the holder of GDR.

(c) Directors can be removed only by passing a special resolution.

As per Section 169 of Companies Act 2013,

A company may, by ordinary resolution, remove a director, not being a director appointed by the
Tribunal under section 242, before the expiry of the period of his office after giving him a
reasonable opportunity of being heard:

Provided that an independent director re-appointed for second term under sub-section (10) of
section 149 shall be removed by the company only by passing a special resolution and after
giving him a reasonable opportunity of being heard

A special notice shall be required of any resolution, to remove a director under this section, or to
appoint somebody in place of a director so removed, at the meeting at which he is removed.

On receipt of notice of a resolution to remove a director under this section, the company shall
forthwith send a copy thereof to the director concerned, and the director, whether or not he is a
member of the company, shall be entitled to be heard on the resolution at the meeting.

Hence, the statement is wrong. Directors can be removed by Ordinary Resolution also.

(d) Establishment of Vigil Mechanism and Sexual Harassment Complaints Committee is

mandatory only for listed companies. (5 marks each)

(1) Every listed company and the companies belonging to the following class or classes shall
establish a vigil mechanism for their directors and employees to report genuine concerns or
grievances:

(1) The companies which accept deposits from the public;

(2) The companies which have borrowed money from banks and public financial institutions in
excess of ` 50 crore.

The companies which are required to constitute an audit committee shall oversee the vigil
mechanism through the committee and if any of the members of the committee have a conflict
of interest in a given case, they should recuse themselves and the others on the committee
would deal with the matter on hand.

Hence, the statement is wrong, as unlisted companies as specified above are also required to
establish Vigil Mechanism.

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 Attempt all parts of either Q. No. 2 or Q. No. 2A

2. Distinguish between the following:

(a) Alternation of Share Capital and Reduction of Share Capital.

Points Alternation of Share Capital Reduction of Share Capital

Meaning Alternation of share capital is governed Reduction of share capital is
by the provisions of Section 64 of the governed by the provisions of
Companies Act, 2013. Section 66 of the Companies Act,
2013
Resolution Alteration of share capital is required Reduction of share capital is
to be done by ordinary resolution. required to be done by special
resolution.
Tribunal Alternation of share capital is not Reduction of share capital is to be
Confirmation required to be confirmed by the confirmed by the Tribunal.
Tribunal
Examples Alternation of share capital may be Reduction of share capital may be
done in the following manner: done in the following manner:
(1) Increasing its nominal capital by (1) Extinguishing or reducing the
issuing new shares. liability of members in respect of
(2) Consolidating and dividing all or the capital not paid up.
any of its share capital into shares of (2) Writing-off or cancelling any
large denomination. paid up capital which is in excess
(3) Converting fully paid up shares of the needs of the company.
into stock or vice versa (3) Paying off any paid up share
(4) Sub-dividing its shares into shares capital which is in excess of the
of smaller amount. needs of the company.
(5) Cancelling shares which have not
been taken up and diminishing the
amount of share capital by the amount
of the shares so cancelled.

(b) CIN and DIN.

CIN Number or Company CIN No. is a unique identification number assigned by Registrar of
Companies (ROC) functioning in various states under Ministry of Corporate Affairs (MCA), Govt.
of India. After formation of a company, concerned ROC issues a certificate containing its unique
Corporate Identification Number (CIN No. or CIN Code) along with its approved name. Every
company must quote this unique Company CIN No. whenever a correspondence or data forms
submitted to MCA, particularly in audits and reports.

Every individual, who is to be appointed as director of a company shall make an application

electronically in Form DIR-3 (Application for allotment of Director Identification Number) to the
Central Government for the allotment of a Director Identification Number (DIN) along with such
fees as may be prescribed.

The Central Government shall provide an electronic system to facilitate submission of

application for the allotment of DIN through the portal on the website of the Ministry of
Corporate Affairs.

The Director Identification Number so allotted under these rules is valid for the life-time of the
applicant and shall not be allotted to any other person.

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 (c) Minority Shareholders and Dissenting Shareholders.

In corporate world, all democratic decisions and management of a company are made with the
majority rule which is deemed to be fair and justified. The majority rule of decision making, quite
often than not overlooks the views of minority shareholders. A minority shareholder is a person
in a company who does not enjoy much power in the management of the company and their
interests are disregarded.

Minority Shareholders are those shareholders who are not in control of the company. They are
other than Majority Shareholder or other than promoters or promoter groups. Companies Act
has provided provisions to safeguard minority from Majority Shareholders. In case of Merger or
Amalgamation, the acquirer has to purchase shares of Minority Shareholders also. Some
Minority Shareholders agree to sell their shares to Acquirer but some Minority Shareholders do
not agree to the merger or amalgamation, such minority shareholders are called as dissenting
shareholders.

Minority Shareholders has also been given the power to apply to Tribunal for prevention of
oppression & Mismanagement. in case of a company having share capital, not less than 100
members or not less than 1/10th of total number of members, whichever is less or any member
or members holding not less than 1/10th of issued share capital have the right to apply to NCLT
in case of oppression and mismanagement. In case of companies not having share capital, not
less than 1/5th of total number of members have the right to apply.

(d) Pre-fill in e-forms and Pre-scrutiny in e-forms. (4 marks each)

Pre-fill is functionality in an e-Form that is used for filling automatically, the requisite data from
the system without repeatedly entering the same. For example, by entering the CIN of the
company, the name and registered office address of the company shall automatically be pre-filled
by the system without any fresh entry.

Pre-scrutiny is a functionality that is used for checking whether certain core aspects are properly
filled in the e- Form. The user has to login on MCA portal to perform the pre-scrutiny of e-form.
The necessary attachments and digital signatures should be affixed before submitting the e-
Form for pre-scrutiny. The difference between check form and pre-scrutiny is that the Check
form is done by internal features of the form which ensure that all the mandatory and required
field are filled up and attachment are made to the e-from, while Pre-Scrutiny is a complete legal
and technical scrutiny of an e-form done by the MCA portal before accepting the form.

OR (Alternate question to Q. No. 2)

2A.

(i) ABC Ltd. is a non-listed public company with a paid-up share capital of ` 50 crore. It has
deposits of ` 10 crore. Its turnover in the last financial year was ` 101 crore. It has 800
equity shareholders and 500 deposit holders. Does it mandatorily require to have:
(a) A Nomination & Remuneration Committee
(b) Stakeholders Relationship Committee?

(a) As per Section 178 of Companies Act 2013, The following companies are required to
constitute a nomination Committee:
1. Every listed Public Companies, or
2. Unlisted public companies having;
(a) Paid up capital of ` 10 Crores or more;
(b) Turnover of ` 100 Crores or more;
(c) Aggregate, outstanding loans or borrowings or debentures or deposits exceeding ` 50 Crores
or more.

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The calculation of above paid – up share capital or turnover or outstanding loans etc. shall be
based on the last audited Financial Statements.

Applying the above provisions, it is clear that Paid up capital exceeds 10 Crores & Turnover also
exceeds 100 Crores and hence, ABC Ltd has to mandatorily constitute the Nomination &
Remuneration Committee.

(b) A company has to constitute a ―Stakeholders Relationship Committee‖ where such company
has more than 1000 shareholders, debenture – holders, deposit – holders and any other security
holders at any time during a financial year. From the language it is not clear whether the limit of
1000 is for each category of stakeholders or cumulative limit. Considering the intent of law &
basic administration it can be inferred that this limit should be cumulative as the name its
suggests Stakeholders which is a cumulative term. The name Shareholders, debenture holders,
deposit holders are just used to infer persons which are included in the term stakholders.

Applying the above provisions, total stakeholders are 1300 (800+500) which exceeds 1000 and
hence, ABC Ltd is mandatorily required to constitute Stakeholders Relationship Committee.

(ii) A was appointed as the Managing Director of OPQ Ltd. for a period of 4 years on his 66th
birthday on 1st June, 2016. A Board Resolution was passed to extend his term of office by
another five years and the same was approved by the members in the AGM of the company
held on 21st May, 2019, by an ordinary resolution. Is the re-appointment of A as M.D. valid?

As per Section 196 of Companies Act 2013, A company shall not appoint or re – appoint any
person as its MD, WTD or Manager for a term exceeding 5 years at a time and no reappointment
shall be made earlier than one year before the expiry of his term.

A MD, WTD or manager shall be appointed and the terms and conditions of such appointment
and remuneration payable should also be approved by the Board Meeting.

The approval from shareholders is required in next general meeting and by CG in case any
variances in the terms & conditions as specified in Part 1 of Schedule V.

Applying the above provisions, it is clear that company cannot re-appoint the managing director
for one year after the expiry of his current term. Hence, the appointment is in violation of
companies act & hence, Void.

(iii) EFG Pvt. Ltd. is a holding company of HIJ Ltd. and KLM Ltd. which are its subsidiary
companies. Is the company required to prepare a consolidated financial statement
(including the details of the Subsidiary Cos.) and lay it before the AGM of the company?

As per Section 129(3) of Companies Act 2013, Where a company has one or more subsidiaries or
associate companies, it shall, in addition to financial statements provided under sub-section (2),
prepare a consolidated financial statement of the company and of all the subsidiaries and
associate companies in the same form and manner as that of its own and in accordance with
applicable accounting standards, which shall also be laid before the annual general meeting of
the company along with the laying of its financial statement under sub-section (2)
Provided that the company shall also attach along with its financial statement, a separate
statement containing the salient features of the financial statement of its subsidiary or
subsidiaries and associate company or companies in such form as may be prescribed.
This Section is applicable to both Private as well as Public Companies.
Applying the above provisions it is clear that EFG Pvt Ltd will be required to prepare
consolidated financial statements and lay it before AGM of Company.
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(iv) RST Ltd.’s annual general meeting should have been held on 30th Sept., 2018. However, as
the accounts for the year 2017-18 were not ready, the AGM could not be held. In order to
avoid legal action against himself and the company what are the compliances required to
be met by the Company Secretary under Section 92 of the Companies Act, 2013? (4 marks
each)

As per Section 92 of Companies Act 2013, Every company shall file with the Registrar a copy of
the annual return, within sixty days from the date on which the annual general meeting is held or
where no annual general meeting is held in any year within sixty days from the date on which
the annual general meeting should have been held together with the statement specifying the
reasons for not holding the annual general meeting.

Every company shall place a copy of annual return on the website of company, if any, and the
web link of such annual return shall be disclosed in board report.

An extract of the annual return in such form as may be prescribed shall form part of the Board’s
report.

If any company fails to file its annual return under sub-section (4), before the expiry of the
period specified therein, such company and its every officer who is in default shall be liable to a
penalty of fifty thousand rupees and in case of continuing failure, with further penalty of one
hundred rupees for each day during which such failure continues, subject to a maximum of five
lakh rupees;

From the above provisions, it is clear that Company has to file the Annual return as per the
above time limit. Copy of Annual return has to be placed on website. Extract of Annual return to
be included in Board‘s report.

Attempt all parts of either Q. No. 3 or Q. No. 3A

3.
(a) Y, the M.D. of UVW Ltd. deposited a cheque of ` 5 crore drawn in favour of the company, in
his personal account. The bank credited the said amount in Y’s personal account. The
company filed a suit against the bank for recovery of the money wrongly credited to Y’s
personal account. Will the company succeed?

As per Section 2(54) of companies act 2013,

"managing director" means a director who, by virtue of the articles of a company or an agreement
with the company or a resolution passed in its general meeting, or by its Board of Directors, is
entrusted with substantial powers of management of the affairs of the company and includes a
director occupying the position of managing director, by whatever name called.

Explanation.—For the purposes of this clause, the power to do administrative acts of a routine
nature when so authorised by the Board such as the power to affix the common seal of the
company to any document or to draw and endorse any cheque on the account of the company in
any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or
to direct registration of transfer of any share, shall not be deemed to be included within the
substantial powers of management;

From the above provisions it is clear that, Managing Director is not authorized to collect the
company‘s money in his personal bank account. As the cheque is in favour of Company, it
should have been deposited in the account of company.

The banker is under fault as the bank has credited the amount of cheque which in the name of
company in the MD‘s personal account. It‘s the bank‘s duty to credit the amount in the account
of the person in whose favour it is drawn. As such MD is also not authorized to collect the
amount.

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Hence, the company can recover the amount from the bank.

(b) A company has just received applications for shares in response to a public issue, which
has been fully subscribed. How would you ensure that the shares are validly allotted?

Following points should be checked for valid allotment of shares:

(i) The allotment should be made by the Board of Directors of the Company.
(ii) The allotment of shares must be made within a reasonable time.
(iii) The allotment should be absolute and unconditional: Securities must be allotted on same
terms on which they were applied for and as they are stated in the application for securities.
Allotment of securities subject to certain conditions is also not valid. Similarly, if the number of
securities allotted is less than those applied for, it cannot be termed as absolute allotment.
(iv) The allotment must be communicated to all the allottees.
(v) The allotment shall only be made against application.
(vi) Allotment should not be in contravention of any other law.

Whenever a company having a share capital makes any allotment of securities, it shall file with
the Registrar a return of allotment in Form PAS – 3.

(c) An Inter-State Co-operative Society was incorporated on 1st June, 2019, as a producer
company.
The producer company proposes to have 18 directors on its Board of directors. Further, a
member of the company wants to transfer a part of his shares to a person who is not a
producer. Advise the company.

(i) Appointment of 18 directors: According to Section 581O of the Companies Act, 1956, every
producer company shall have at least 5 directors and not more than 15 directors. The proviso to
the Section states that in the case of the Inter-State Co-operative Society incorporated as a
producer company, such company may have more than 15 directors for a period of one year
from the date of its incorporation as a producer company.

Thus, in the instant case, an Inter-State Co-operative Society which was incorporated on 1st
June, 2019 as a producer company can appoint 18 directors on its Board for a period of one year
after incorporation.

(ii) Transferability of shares (Section 581ZD): According to the said provisions,

(1) The shares of a member of a producer company shall not be transferable except as otherwise
provided in sub-sections (2) to (4),
(2) A member of a producer company may, after obtaining the previous approval of the Board,
transfer the whole or part of his shares along with any special rights, to an active member at par
value.
(3) Every member within three months of his becoming a member, of Producer Company,
nominate, as specified in articles, a person to whom his shares in the producer company shall
vest in the event of his death.
(4) The nominee shall, on the death of the member, become entitled to all the rights in the shares
of the producer company and the Board of that Company shall transfer the shares of the
deceased member to his nominee:

Provided that in a case where such nominee is not a producer, the Board shall direct the
surrender of shares together with special rights, if any, to the producer company at par value or
such other value as may be determined by the Board.

(d) When may a company be given a “dormant” status? (4 marks each)

As per Section 455(1) of Companies Act, Where a company is formed and registered under this
Act for:

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 a future projector
 to hold an asset or intellectual property and
 has no significant accounting transaction,

Such a company or an inactive company may make an application to the Registrar in such
manner as may be prescribed for obtaining the status of a dormant company.

―significant accounting transaction‖ means any transaction other than—

(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfill the requirements of this Act or any other law;
(c) allotment of shares to fulfill the requirements of this Act; and
(d) Payments for maintenance of its office and records.

OR (Alternate question to Q. No. 3)

3A.

(i) A subscriber to the shares of a company, wherein the shares were only partly called up,
paid all the money due on the shares held by him in advance. Later, the shareholder
claimed interest on the money advanced by him and also voting rights in respect of the
advance money paid. Is his claim justified? (4 marks)

As per Table F of Schedule I to Companies Act 2013, The Board—

(a) may, if it thinks fit, receive from any member willing to advance the same, all or any part
of the monies uncalled and unpaid upon any shares held by him; and

(b)upon all or any of the monies so advanced, may (until the same would, but for such
advance, become presently payable) pay interest at such rate not exceeding, unless the
company in general meeting shall otherwise direct, twelve per cent. Per annum, as may be
agreed upon between the Board and the member paying the sum in advance;

Hence, The claim of Subscriber for interest is justified. Company can pay interest as specified
in the articles of company.

Voting Rights are given to shareholders only in proportion to paid up share capital as per
Section 47 of Companies act 2013. As Calls in Advance is not a part of paid up share capital,
no voting rights can be given on such part. Hence, Subscriber‘s claim for voting rights on call
in advance is not justified.

(ii) The promoters of a company engaged in the formation of a software company approach
you as a Company Secretary in practice to advise them about the details of declaration
required to be made by:
(a) the professional involved in the formation of the company and
(b) subscribers to the Memorandum of Association while filing documents for
incorporation of a company.
Advise them. (4 marks)

Details of Declaration required to be made is as under:

a) Professional who can be Advocate, CA, CS or Cost Accountant. (INC 8)
I, …………………………………………………….A ………………………………………………………….in
India who is engaged in the formation of the company.
Declare that all the requirements of Companies Act, 2013 and the rules made there under
relation to registration of the company under the Act and matters precedent or incidental there
to have been complied with.

b) Subscribers

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I …………………., being the subscriber to the memorandum / named as first director in the
articles, of the above named proposed company, hereby solemnly declare and affirm that:

I have not been convicted of any offence in connection with the promotion, formation or
management of any company during the preceding five years; and

I have not been found guilty of any fraud or misfeasance or of any breach of duty to any
company under this Act or any previous company law during the preceding five years; and

All the documents filed with the Registrar for registration of the company contain information
that is correct and complete and true to the best of my knowledge and belief.

(iii) A limited liability partnership was formed by B, a resident individual with 2 more body
corporates as its partners. The Registrar refused registration.
Is the Registrar justified in so doing? Explain with reference to the relevant legal
provisions? (4 marks)

Every LLP shall be required to have atleast two Designated Partners who shall be individuals and
at least one of the Designated Partner shall be a resident of India.

In case of a LLP in which all the partners are bodies corporate or in which one or more partners
are individuals and bodies corporate, at least two individuals who are partners of such LLP or
nominees of such bodies corporate shall act as designated partners.

In the instant case, there is one resident individual & 2 more body corporates as its partners.
Applying the above provisions of LLP Act, 2008 it is clear that conditions of membership have
been complied with. Question is silent whether the body corporates have declared the nominee
or not. But assuming they have declared nominee, membership conditions have been complied
with as there are at least two designated partners & one partner is resident.

Hence, Registrar‘s refusal of registration is not valid.

(iv) Under what circumstances can the National Company Law Tribunal order winding-up of
a company? (4 marks)

A company may, on a petition under section 272, be wound up by the Tribunal,—

(Circumstances)

(a) if the company is unable to pay its debts;

(b) if the company has, by special resolution, resolved that the company be wound up by the
Tribunal;

(c) if the company has acted against the interests of the sovereignty and integrity of India, the
security of the State, friendly relations with foreign States, public order, decency or morality;

(d) if the Tribunal has ordered the winding up of the company under Chapter XIX;

(e) if on an application made by the Registrar or any other person authorised by the Central
Government by notification under this Act, the Tribunal is of the opinion that the affairs of
the company have been conducted in a fraudulent manner or the company was formed for
fraudulent and unlawful purpose or the persons concerned in the formation or management
of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith
and that it is proper that the company be wound up;

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 (f) if the company has made a default in filing with the Registrar its financial statements or
annual returns for immediately preceding five consecutive financial years; or

(g) if the Tribunal is of the opinion that it is just and equitable that the company should be
wound up.

4.
(a) XYZ Ltd. has a paid-up capital of ` 50 crore and free reserves of ` 30 crore. It provided a
guarantee for repayment of a loan of ` 40 crore borrowed by its wholly owned subsidiary
company. It did not pass any resolution for the same in the general meeting. Is the
guarantee valid?
Answer with reference to the relevant legal provisions. (4 marks)

As per Section 186 of Companies Act 2013,

No Company shall, directly or indirectly:
(a) Give any loan to any person or other body corporate;
(b) Give any guarantee or provide security in connection with a loan to any other body corporate
or person; and
(c) Acquire, by way of subscription, purchase or otherwise, the securities of any other body
corporate,
Exceeding 60% of its paid – up share capital, free reserves and securities premium
account or
100% of its free reserves and securities premium account, whichever is more
Unless the same is previously authorized by a special resolution passed in a general meeting.

However, this section is not applicable in the following case:

When a loan or guarantee is given or where a security has been provided by a company to its
wholly owned subsidiary or a joint venture company, or acquisition is made by a holding
company, by way of subscription, purchase, the securities of its wholly owned subsidiary
company.

In the instant case as Guarantee is provided to its wholly owned subsidiary, this section is not
applicable & limit prescribed for Approval from shareholders is not applicable and no
shareholder‘s approval in general meeting required. Hence, the guarantee is valid.

(b) The prospectus issued by a company contained a false statement that B a very well-known
successful businessman was on its Board of directors. C acting upon this statement applied
to the company for its shares. D who did not rely upon this statement but on the basis of
other information about the company given in the prospectus applied for its shares.
C and D were allotted shares by the company E was a subscriber to the Memorandum of
Association of the company.
F bought the shares through the stock exchange later on.
Each of them wants to know whether they can seek remedies for mis-statement in the
prospectus.
Advise them. (4 marks)

As per Section 35 of Companies Act, Where any person subscribes for securities on the basis of
misleading statements or inclusion or omission of any matter in the prospectus resulting in any
loss or damages, then the company and every person who has authorized the issue of such
prospectus or a director, promoter and the other, whosoever is liable shall have to compensate
every person who has sustained such loss or damage.

The right to claim compensation for any loss or damage sustained by reason of any untrue
statement in a prospectus is available only to a person who has ―subscribed‖ for securities on
the faith of the prospectus containing untrue statement.

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A subsequent purchaser of shares in the open market has no remedy against the company or
the directors or promoters.
It has been held in Peek v. Gurney, subsequent transferee are not eligible for any claim against the
company.

Rights of the persons mentioned in the question is as under:

Mr. C shall be eligible to claim damages as he has purchased on the basis of prospectus & also
relied upon the misstatement.

Mr. D shall not be entitled to claim damages as though he has bought through prospectus but
he never relied on the misstatement.

Mr. E being a subscriber to memorandum did not subscribed through prospectus hence, he is
also not entitled to claim any damages.

Mr. F bought the shares through stock exchange after the issue got completed. Hence, he is also
not entitled to claim any damages as he did not relied on the misstatement & did not buy shares
on the basis of prospectus.

(c) You have joined as a compliance officer of a company on 1st June, 2019. You realize that a
charge which was created on 15th Feb., 2019 has not yet been registered. What immediate
steps would you take to avoid legal action due to non-compliance? (4 marks)

As per Section 77 of Companies act 2013, Every company is responsible to create a charge
within or outside India on its property or assets by registering the particulars of the charge duly
signed by the company and the charge-holder. The company is responsible to register the charge
within 30 days from the date of its creation.

Provided that the Registrar may, on an application by the company, allow such registration to be
made in case of charges created on or after the commencement of the Companies (Amendment)
Ordinance, 2018, within a period of sixty days of such creation, on payment of such additional
fees as may be prescribed:

Provided further that if the registration is not made within the period specified:
The Registrar may, on an application, allow such registration to be made within a further period
of sixty days after payment of such advalorem fees as may be prescribed;

If the instant case, Charge registration is delayed for more than 60 days but less than 120 days.
Hence, Company shall immediately apply to Registration for Extension of time by paying
applicable additional fees on advalorem basis and protect the company from contravention of
non-registration of charge.

(d) 1000 shares of a company are presently held jointly by A, B and C their names appearing in
the share certificates in this order. The joint shareholders want a transposition of the names
in the order C, B and A. Can it be effected?

Explain the procedure.

Will your answer be different if the changes were required to be made only in respect of 500
shares? (4 marks)

 In the case of joint-shareholders, one or more of them may require the company to alter or
rearrange the serial order of their names in the register of members of the company.

 In this process, there will be need for effecting consequential changes in the share certificates
issued to them.

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 If the company provides in its articles that the senior-most among the joint-holders will be
recognized for all purposes like service of notice, a copy of balance sheet, profit and loss
account, voting at a meeting etc., the request of transposition may be duly considered and
approved by the Board or other authorized officer of the company. Since no transfer of any
interest in the shares take place on such transposition, the question of insisting on filling
transfer deed with the company, may not arise.

 Transposition does not also require stamp duty.

 The Stock Exchange Division of the Department of Economic Affairs has clarified that there is
no need of execution of transfer deed for transposition of names if the request for change in
the order of names was made in writing, by all the joint-holders. If transposition is required
in respect of a part of the holding, execution of transfer deed will be required.
5.
(a) Explain the provisions contained in the Cos. Act, 2013 and the Companies (Acceptance of
Deposits) Rules, 2014, which are primarily aimed at protecting the interests of the
depositors.

Following are the provisions contained in the companies act 2013 to protect the interest of
depositors:
 Shareholder‘s approval is required to accept deposits
 Company is required to Issue a circular to its members including therein a statement
showing the financial position of the company, the credit rating obtained, the total number
of depositors and the amount due towards deposits in respect of any previous deposits
accepted by the company and such other particulars in such form and in such manner as
prescribed;
 Every eligible company intending to invite deposits shall issue a circular in the form of an
advertisement.
 filing a copy of the circular along with such statement with the Registrar within thirty days
before the date of issue of the circular;
 depositing, on or before the 30th day of April each year, such sum which shall not be less
than 20% of the amount of its deposits maturing during the following financial year and
kept in a schedule bank in a separate bank account to be called deposit repayment reserve
account;
 Providing security, if any for the due repayment of the amount of deposit or the interest
thereon including the creation of such charge on the property or assets of the company. In
case when a company does not secure the deposits or secures such deposits partially,
then, the deposits shall be termed as ‗‗unsecured deposits‘‘ and shall be so quoted in every
circular, form, advertisement or in any document related to invitation or acceptance of
deposits.

Penal Provisions:
If company contravenes Section 73 or Section 76 or fails to repay the deposit or part thereof or
interest due thereon within the time or time allowed by Tribunal then:

1. The Company shall be liable to pay in addition to the deposits & its interest thereon, also
liable to pay ` 1 Crore or twice the amount of deposit accepted by the company, whichever is
lower but which may extend to ` 10 Crores.

2. Every officer of the Company who is in default shall be punishable with imprisonment which
may extend to 7 years and with the fine between ` 25 Lakhs and ` 2 Crores or with both.

Provided that if it is proved that the officer of the company who is in default, has contravened
such provisions knowingly or willfully with the intention to deceive the company or its
shareholders or depositors or creditors or tax authorities, he shall be liable for action under
section 447.
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If any company contravenes any provisions of Companies (Acceptance of Deposit) Rules, 2014 for
which no punishment is provided in the Act, then the company and every officer in default shall
be punishable with fine which may extend to ` 5000/- and in case contravention is continuing
one, with a further fine which may extend upto ` 500/- per day for every day after the first day
during which the default continues. [Rule 21]

(b) Under what circumstances may the National Company Law Tribunal (NCLT) order an
investigation of a company under S. 213 of the Cos. Act, 2013?

What is the security, if any, required to be provided by the applicants towards the cost and
expenses of such investigation? Is it refundable? (8 marks each)

As per Section 213 of Companies Act 2013,

The Tribunal may,—

(a) on an application made by—
(i) not less than one hundred members or members holding not less than one-tenth of the total
voting power, in the case of a company having a share capital; or

(ii) not less than one-fifth of the persons on the company‘s register of members, in the case of a
company having no share capital, and supported by such evidence as may be necessary for the
purpose of showing that the applicants have good reasons for seeking an order for conducting an
investigation into the affairs of the company; or

(b) on an application made to it by any other person or otherwise, if it is satisfied that there are
circumstances suggesting that—

(i)the business of the company is being conducted with intent to defraud its creditors, members
or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner
oppressive to any of its members or that the company was formed for any fraudulent or unlawful
purpose;

(ii) persons concerned in the formation of the company or the management of its affairs have in
connection therewith been guilty of fraud, misfeasance or other misconduct towards the
company or towards any of its members; or

(iii) the members of the company have not been given all the information with respect to its
affairs which they might reasonably expect, including information relating to the calculation of
the commission payable to a managing or other director, or the manager, of the company, order,
after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of
the company ought to be investigated by an inspector or inspectors appointed by the Central
Government and where such an order is passed, the Central Government shall appoint one or
more competent persons as inspectors to investigate into the affairs of the company in respect of
such matters and to report thereupon to it in such manner as the Central Government may
direct:

As per Section 214 of Companies Act 2013, Where an investigation is ordered by the Central
Government in pursuance of clause (b) of sub-section (1) of section 210, or in pursuance of an
order made by the Tribunal under section 213, the Central Government may before appointing
an inspector under subsection (3) of section 210 or clause (b) of section 213, require the
applicant to give such security not exceeding twenty-five thousand rupees as may be prescribed,
as it may think fit, for payment of the costs and expenses of the investigation and such security
shall be refunded to the applicant if the investigation results in prosecution.

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6.
(a) Explain the terms “IFSC” and “specified IFSC private company”.

IFSC stands for ―INTERNATIONAL FINANCIAL SERVICES CENTRES‖. An IFSC caters to

customers outside the jurisdiction of the domestic economy. Such centres deal with flows of
finance, financial products and services across borders. Some examples of Global Financial
Centres are London, New York and Singapore.

Services offered by IFSC(s):-

1. Fundraising services for individuals, corporations and governments
2. Asset management and global portfolio diversification undertaken by pension funds,
insurance companies and mutual funds
3. Wealth management
4. Global tax management and cross-border tax liability optimisation, which provides a business
opportunity for financial intermediaries, accountants and law firms.
5. Global and regional corporate treasury management operations that involve fundraising,
liquidity investment and management and asset liability matching
6. Risk management operations such as insurance and reinsurance
7. Merger and acquisition activities among transnational corporations

Specified IFSC Private Company - a private company which is licensed to operate by the Reserve
Bank of India or the Securities and Exchange Board of India or the Insurance Regulatory and
Development Authority of India from the International Financial Services Centre located in an
approved multi services Special Economic Zone set-up under the Special Economic Zones Act,
2005 (28 of 2005) read with the Special Economic Zones Rules, 2006 (hereinafter referred to as
―Specified IFSC private company‖)

(b) A person holds 90% of the issued shares of a company. He wants to acquire the balance
10% of the shares from the existing shareholders. As a Company Secretary in practice,
advise him.

The question is not clear as to whether the company is a private company or a public company.
For the sake of convenience we are assuming it to be a private company. A private company
must have at least 2 members at all time. If person who already holds 90%, acquires remaining
10%, then the number of members will be reduced from 2 to 1.

As per Section 3A of Companies Act 2013, if at any time the number of members of a company is
reduced, in the case of a public company, below seven, in the case of a private company, below
two, and the company carries on business for more than six months while the number of
members is so reduced, every person who is a member of the company during the time that it so
carries on business after those six months and is cognizant of the fact that it is carrying on
business with less than seven members or two members, as the case may be, shall be severally
liable for the payment of the whole debts of the company contracted during that time, and may
be severally sued therefor.

Hence, to avoid such a situation, it is advisable that person shall buy the shares in the name of
any other person normally his relatives.

(c) A company has appointed you as a scrutinizer in respect of a resolution required to be

passed through a postal ballot. Describe your functions as a scrutinizer.

The scrutiniser may be a Company Secretary in Practice, a Chartered Accountant in Practice, a

Cost Accountant in Practice, an Advocate or any other person of repute who is not in the
employment of the company and, who can in the opinion of the Board, scrutinise the postal
ballot process in a fair and transparent manner.

The scrutiniser shall however not be an officer or employee of the company.

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Following are the functions of a Scrutinizer:
(i) The scrutiniser so appointed may take assistance of a person who is not in employment of
the company and who is well-versed with the e-voting system. Prior Consent to act as a
scrutiniser shall be obtained from the scrutiniser and placed before the Board for noting.
(ii) The scrutinizer shall submit his report as soon as possible after the last date of receipt of
Postal Ballots;
(iii) The scrutinizer will be willing to be appointed and he is available at the Registered Office
of the company for the purpose of ascertaining the requisite majority
(iv) The scrutinizer shall maintain a register to record the consent or otherwise received,
including electronic media, mentioning the particulars of name, address, folio number,
number of shares, nominal value of shares, whether the shares have voting, differential
voting or non-voting rights and the Scrutinizer shall also maintain record for postal ballot
which are received in defaced or mutilated form.

(d) You have been appointed as a Debenture Trustee in respect of debentures issued by a
company. How would you protect the interests of its debentureholders? (4 marks each)

Debenture Trustee normally does the following to protect the interest of debenture holders:
(a) Satisfy himself that the letter of offer does not contain any matter which is inconsistent with
the terms of the issue of debentures or with the trust deed;
(b) Satisfy himself that the covenants in the trust deed are not prejudicial to the interest of the
debenture holders;
(c) Call for periodical status or performance reports from the company;
(d) Communicate promptly to the debenture holders defaults with regard to payment of interest
or redemption of debentures and action taken by the trustee;

(e) Appoint a nominee director on the Board of the company in the event of –
(i) Two consecutive defaults in payment of interest to the debenture holders; or
(ii) Default in creation of security for debentures; or
(iii) Default in redemption of debentures.

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