CHAPTER-I INTRODUCTION

WHAT IS A COMPANY The word company has no strictly technical or legal meaning. It may be described to imply an association of persons for some common object or objects. The purposes for which people may associate themselves are multifarious and include economic as well as non-economic objectives. The word company in simple terms, may be described to mean a voluntary association of persons who have come together for carrying on some business and sharing the profit there from. Indian Law provides two main types of organisations for such associations: Partnership and company. Although the word Company is colloquially applied to both, the Statute regards companies and company law as distinct from partnership and partnership laws. Partnership law is codified in the Partnership Act, 1932 and is based on the law of agency, each partner becoming an agent of the other(s), and it, therefore, affords a suitable framework for an association of a small body of persons having trust and confidence in each other. A more complicated form of association with a large and fluctuating membership, requires a more elaborate organisation, which ideally should confer corporate personality on the association, that is, should recognise that it constitutes a distinct legal person, subject to legal duties and entitled to legal rights separate from those of its members. This can be obtained easily and cheaply by registering an association as a company under the Companies Act, 1956. It should be noted that the Companies Act, 1956 even allows a company to be formed and registered for the promotion of commerce, art, science, sports, religion or charity, i.e., for non-economic purposes. DEFINITION OF A COMPANY Section 3(1)(i) of the Companies Act, 1956 merely states that A company means a company formed and registered under this Act or an existing company as defined in section 3(1)(ii).

Section 3(1)(ii) lays down that An existing company means a company formed and registered under any of the previous Company Law.1 DEFINITION BY DIFFERENT AUTHORITIES: A corporation is an artificial being, invisible, intangible, existing only in contemplation of the law. Being a mere creation of law, it possesses only the properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. Chief Justice Marshall A company is an artificial person created by law, having separate entity, with a perpetual succession and common law. Prof. Haney2 The above definitions clearly bring out the meaning of a company in terms of its features. A company to which the Companies Act applies comes into existence only when it is registered under the Act. On registration, a company becomes a body corporate, i.e., it acquires a legal personality of its own, separate and distinct from its members. A registered company is therefore created by law and law alone can regulate, modify or dissolve it. CHARACTERISTICS OF A COMPANY: A company registered under the Companies Act, 1956 has the following features: 1

Separate legal entity Incorporated body Artificial legal person Perpetual succession Limited liability Common seal

Companies Act, 1956 Company Law and Practice, A.K Majumdar and Dr. G.K Kapoor

Right to own property Right to sue Flexibility Right to enter into contracts Flexibility of investments Separation of control from the ownership

KINDS OF COMPANY: The following kinds of companies can be incorporated under the Act: A private company limited by shares A public company limited by shares A company limited by guarantee with or without share capital which can be a public company or a private company An unlimited company having a share capital A company formed under section 25 of Companies Act, 1956, which can be a public company or a private company INCORPORATION OF A COMPANY: A company is incorporated when the Registrar of Companies (ROC) so certifies under his hand [Sec 34(1) of Companies Act, 1956]. In the case of a limited company, he will further certify that the company is limited. Upon incorporation, a company becomes a legal person and not a mere aggregate of the shareholders. The date of registration of a company is the date mentioned in the certificate of incorporation and not that on which the signature of the Registrar was written. Therefore, the date mentioned in the certificate is the first day of the companys corporate existence.

MANAGEMENT OF COMPANY: The members of a company are those persons who collectively constitute the company. A member is not necessarily a shareholder, for an unlimited company or a company limited by guarantee may exist either with or without share capital. The word member includes a deceased member so long as his name is on the register of members. The members of a company have certain corporate rights, which can be exercised by the members collectively by means of democratic process, usually by majority unless otherwise stipulated. Corporate rights are the rights, which each member has agreed to be exercised by majority at general meetings. This involves the principles of submission by all members to the will of the majority, provided that the will is exercised in accordance with the law and the Memorandum and Articles of Association of the company and exercise control over the management of the company. Thus, the shareholders have full right to participate in the management of the company and keep a check and balance on the directors. These powers are exercised at the forum called General Meeting. in order to provide annual review of the working and management of the company, an annual general meeting has been made mandatory for every company, while more such meetings can be called as and when necessary. The shareholders have wide powers of management including the powers of appointment and removal of directors and auditors and review and approval of annual accounts. These powers are exercised at the general meeting. A general meeting is an assembly of shareholders for transacting some lawful business. There must be at least two members to constitute a meeting in case of a private limited company and five persons in case of a public limited company. An individual member or shareholder, irrespective of his shareholding cannot bind the company by his individual act. As the company management is vested in the Board of Directors of the company, its functioning is also directed through the meetings.

CHAPTER-II
RESOLUTIONS DEFINITION OF RESOLUTION: The term resolution has not been defined in the Companies Act, 1956. A resolution is a motion after it has been agreed to by the meeting and is entered on the records of proceedings or minutes of the meeting. When something is proposed or a proposition is formally made at a meeting, it is called a motion. A motion need not be adopted as it is. It may undergo amendments and change, when discussed by the members. A motion when adopted becomes a resolution. A resolution, therefore, is the decision of the persons present at the meeting either personally or by proxy, which is arrived at after due deliberations. Resolutions constitute the source from which action follows and they must be legally valid. A valid resolution can be passed only at a meeting which has been duly convened and duly constituted with the requisite quorum. After the motion is proposed and seconded it is put to the meeting by members or the chairman. The persons present and entitled to vote, excluding the proxies, cast their votes by show of hands for or against the motion. If the requisite number of persons vote in favour of the motion, it becomes a resolution. A resolution is a written motion adopted by a deliberative body. The substance of the resolution can be anything that can normally be proposed as a motion. The resolution is often used to express the bodys approval or disapproval of something which they cannot otherwise vote on. Thus the resolution can be defined as: A formal expression by a meeting; agreed to by a vote; Settlement: something settled or resolved; the outcome of decision making; A decision to do something or to behave in a certain manner. An expression of opinion or intention by a meeting.3

Osborn s Concise Law Dictionary, 7th edition, 1983, page 290

It is defined as the formal expression of opinion by legislative body or public meeting.4 Thus, company resolutions may be defined as decisions of company meetings at which the proposals relating thereto are placed. A resolution passes through three stages:It originates as motion, i.e., a proposal submitted to the meeting. The motion when approved by the meeting becomes a resolution. The resolution when entered in the minutes of the book becomes a minute.

NEEDS AND OBLIGATION OF RESOLUTIONS: The business of a meeting is conducted in the form of resolution proposed and the decision taken and formalised in the form of a resolution passed become binding on the company and its members or the Board of Directors, as the case may be. Once a resolution is placed before the general meeting it cannot be withdrawn without the approval of members. The resolutions are the result of collective decision making which is not a new concept, but are in vogue since ages. He need for passing resolutions arises from the fact that the company is a separate legal entity distinct from its members. The separate existence of the company will exist even though an individual may practically hold all the shares. It, therefore, follows that where members constitute a company, a company is not just a group of members. However, a company is though a juristic person, it cannot take decisions as an individual, a natural person. The decisions are taken and the powers of a company are exercised by4

The members,

The Redler s Digest Great Encyclopaedic Dictionary, 2nd edition, Volume 2, page 750.

The Board of Directors

By passing Resolutions. VALIDITY OF RESOLUTION: A resolution is said to be valid if it shows that:A decision was taken by a body authorised to take such decisions The body comprised of the individuals, who are the legal part of the said body. The power was exercised by the body with the due authority available t o the body. The decision was taken with consensus of individuals comprised in the said body. The decision so taken was recorded and is verifiable.

The resolutions are record of decisions taken in a meeting. This is not only circumscribed by statutory requirement, but is the evidence of good company practice, which encompasses beyond the law. It is a condition precedent to the validity of any resolution that the resolution is cast in terms which comply with the Act and that it does not attempt to do something in a way which departs from the substance what is therein laid down. If a resolution attempts to do anything, which is in contravention of the provisions of the Companies Act, 1956 or the memorandum or the articles of association of the company or is in excess of power of the company, it shall be deemed to be void. However, irregularity in resolution can be rectified by passing of subsequent resolution, which is validly passed. KINDS OF MEETINGS: Company meetings may be of the following kinds:1. Meetings of the members of a company Statutory meetings (Sec 165) Annual General Meetings (Sec 166) Extra-ordinary General Meetings (Sec 169) Class meetings (Sec 170)

2. Meetings of Board of Directors (Sec 285) 3. Meetings of the Committees of Directors 4. Meetings of Debenture holders (Sec 170) 5. Other meetings:Meetings of shareholders and/ or creditors etc, convened by Court for amalgamation, compromise or arrangement. Meetings of creditors and Contributories convened for winding up.

STATUTORY MEETING

1.Object 1.1 The statutory meeting is the first meeting of the shareholders of a public company after the company has been allowed to commence business. Its object is to acquaint the members with, and provide them an opportunity of discussion on various matters arising out of the promotion and formation of the company. 1. When and by whom to be called 1.2 Section 165 requires every company limited by shares and every company limited by guarantee and having a share capital to hold a statutory meeting of the members of the company within a period of not less than one month and not more than six months from the date on which the company becomes entitled to commence business. It is the responsibility of the Board of Directors to convene and hold the statutory meeting, No statutory meeting need be held by a private company. 1.2-1 Private Company becoming public company by virtue of section 43A The Department of Company Affairs has given the following clarifications in respect of a private company becoming a public company by virtue of section 43A: The provisions of sections 149 and 165 relating to the certificate of commencement of business and the statutory meeting would not be applicable to a private company which has converted itself into a public company. 1.2-2 A Private Company deemed as Public Company-Companies (Amendment) Act, 2000 The Companies (Amendment) Act, 200 has modified the definition of a public company [Section 3(1) (iv)]. As per new definition Public Company means a company whicha) Is not a private company; b) Has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as many be prescribed; c) Is a private company which is a subsidiary of a company which is not a private company? From (c) above, a private company which is a subsidiary of a public company will become a public company from the day on which it becomes such a subsidiary and it will have to comply with all the provisions of the Companies Act, as are applicable to a public company

Time, day, date and place of meeting 1.2-3 Variations from annual general meeting it may be noted that unlike annual general meeting, the Act does not make any provision for holding statutory meeting during business hours, of on a day that is not a public holiday, of at the registered office, or at some other place within the same city, town or village limits in which the registered office of the company is situate. But, it is a general meeting as declared in section 165(1) and therefore the provisions of general meeting under the Act apply. 1.3 Notice (Clear 21 days notice) Twenty-one clear days notice of a statutory meeting must be given to every member of the company. This means that the day of dispatching the notice and the date of holding the meeting should be excluded for counting the period of 21 days, allowing for the 48 hours under section 53(2)(i), if sent by post. The notice convening the statutory meeting must specifically state that the meeting is to be the statutory meeting. The notice should also state the place, date and time of the meeting.

S. Gopalaswami Gounder vs K. Krishnaswami Gounder (Interim Liquidator Of The Pollachi Vellala Union Mills Company Limited, In Liquidation) on 5/8/1940 Citation: (1940) 2 MLJ 594.

Case law: The case is an appeal that disputes on a misefeance of a summon that was made by liquidator of the Pollachi Vellala Union Mills Company, Limited.the liquidator alleged appellant, the manager of the same comapany to have wrongfully misappropriated two sums of 3,488 and rs 700 and demanded for a compensation of the same by taking to the advantage of his arguement. the provisions of section 235 of the indian companies act. Further the liquidator also asked for an order to be passed that would require the appellant to submit and surrender all books, papers, documents and correspondence relating to the company which were still in his possession The learned judge did not comply completely to the arguments of the liquidator, the learned judge held that the appellant need not pay the alleged amount of rs 3,488 ans summons were withdrawn as far as the rs 700 was concerned by the liquidator and in the light of arguments put forward with respect of the restoration of all books,papers,documents and correspondence

relating to the company, it was said that the appellant had wrongfully retained the following documents 1) The inventory or stock book; (2) the directors' circulation book; (3) the shareholders' circulation book; and (4) the share transfer application register. The learned Judge found that the first two of these books were with the appellant, but that the remaining two were not with him. Accordingly he passed an order directing the appellant to deliver over to the liquidator the inventory book and the directors' circulation book. This order was not complied with and the learned Judge then called upon the appellant to show cause why he should not be committed for contempt of Court. In the meantime the appellant filed this appeal and as the result the contempt proceedings have been stayed.

Case four: Bai Chanchal vs Laxmi Dying And Co. Ltd. on 25/3/1907 citations: (1907) 9 BOMLR 825 Bench: L Jenkins, K.C.I.E., Beaman JUDGMENT Lawrence Jenkins, C.J. This is a suit brought by the Lakshmi Dying, Printing, Bleaching and Manufacturing Company Limited and it is expressed to be so brought by its liquidator Hiralal Chhotalal. Apparently there was no defence to the suit on its merits. But it is said that as the suit is for the recovery of calls in a liquidation, it had been instituted in a wrong Court and that it is also defective as only one liquidator has taken part in the suit.and many other such issues were raised regarding suit calls and after looking into the varions provisions of the the indian companies act such as section 130,185 etc

,the answer to that was found in Section 165, which appears to plainly to point to the power to institute a suit in respect of calls. We are only concerned here with the suit in respect of calls. In Maganlal Vahalji Liquidator of the Shakti Lakshmi Labhalc Friendly Society Limited v. Maganlal Garbar and others, Civil Application under Extraordinary Jurisdiction, No. 317 of 1905, the purpose of the suit was not for enforcing calls, but to establish certain rights and we cannot in the circumstances regard that case as a decision governing this. The learned Judges do not seem to have regarded it as a suit to which pro-visions of Section 165 were applicable in as much as they do not mention it.

STATUTORY REPORT

1.4 Statutory report to be sent 21 days before meeting The Directors are required to send at least 21 days before the meeting a report called a statutory report to the members of the company. In practice the report is sent along with the notice convening the statutory meeting. In case the report is sent later on than required, it will be treated as having been duly forwarded if it is agreed to by all the members entitled to attend and vote at the meeting and the statutory report is required to be drawn up. Certification of report Statutory report should be certified as correct by at least two Directors, one of whom must be a Managing Director. The auditors of the company must then certify the report to be correct insofar as it relates to the shares allotted by the company; cash received in respect thereof and the receipts and payments of the company. 1.5 Contents of statutory report Section 165(3) prescribes the contents Statutory report shall state the following: (a) The total number of shares allotted, distinguishing shares allotted as fully or partly paid up otherwise than in cash, and stating in the case of shares partly paid up, the extent to which they are so paid up, and in either case, the consideration for which they have been allotted; (b) The total amount of cash received by the company in respect of all the shares allotted, distinguished as aforesaid; (c) An abstract of the receipts of the company and of the payments made thereout, up to a date within seven days of the date of the report, exhibiting under distinctive headings the receipts of the company from shares and debentures and other sources, the payments made thereout, and particulars concerning the balance remaining in hand, and an account or estimate of the preliminary expenses of the company, showing separately any commission or discount paid or to be paid on the issue or sale of shares or debentures; (d) The names, addresses and occupations of the directors of the company and of its auditors; and also, if there be any manager, and secretary; and the changes, if any which have occurred in such names, addresses and occupations since the date of the incorporation of the company; (e) the particulars of any contract which, or the modification or the proposed modification of which, is to be submitted to the meeting for its approval, together in the latter case with the particulars of the modification or proposed modification;

(f) the extent, if any, to which each under-writing contract, has not been carried out, and the reasons therefore;
2

[(g) the arrears, if any, due on calls from every director and from the manager; and]

[(h) the particulars of any commission or brokerage paid or to be paid in connection with the issue or sale of shares or debentures to any director or to the manager.] (4) The statutory report shall be certified as correct by not less than two directors of the company one of whom shall be a managing director, where there is one. After the statutory report has been certified as aforesaid, the auditors of the company shall, insofar as the report relates to the shares allotted by the company, the cash received in respect of such shares and the receipts and payments of the company 4 [***] certify it as correct.

(5) The Board shall cause a copy of the statutory report certified as is required by this section to be delivered to the Registrar for registration forthwith, after copies thereof have been sent to the members of the company. (6) The Board shall cause a list showing the names, addresses and occupations of the members of the company, and the number of shares held by them respectively, to be produced at the commencement of the statutory meeting, and to remain open and accessible to any member of the company during the continuance of the meeting. (7) The members of the company present at the meeting shall be at liberty to discuss any matter relating to the formation of the company or arising out of the statutory report, whether previous notice has been given or not; but no resolution may be passed of which notice has not been given in accordance with the provisions of this Act. (8) The meeting may adjourn from time to time, and at any adjourned meeting any resolution of which notice has been given in accordance with the provisions of this Act, whether before or after the former meeting, may be passed; and the adjourned meeting shall have the same powers as an original meeting. (9) If default is made in complying with the provisions of this section, every director or other officer of the company who is in default shall be punishable with fine which may extend to 5[five thousand rupees]. (10) This section shall not apply to a private company.

PROCEEDINGS AT THE MEETING

Who can attend and what may be discussed? 1.6 Only those who have been allotted shares can attend the statutory meeting and are allowed to discuss any matter relating to the formation of the company or arising out of the statutory report, whether previous notice has been given or not. But no resolution for which notice has not been given can be passed [section 165(7)]. Adjournment possible The meeting, however, may adjourn from time-to-time and a resolution many be passed at any such adjourned meeting if due notice thereof has been given in the meantime. The adjourned meeting shall have the same powers as the original meeting, for the adjourned meeting is nothing but continuation of the original meeting [section 165(8)]. It may, however, be noted that the Chairman has no power to adjourn the statutory meting except with the consent of the meeting. It is the majority of members present in the meeting which can validly resolve upon an adjournment, irrespective of any powers conferred by the Articles upon the Chairman. List of shareholders At the commencements of meeting the Board of Directors must produce a list showing the names, addresses, and occupations of members of the company and the member of shares held by each of them. This list must remain open and accessible to all the members throughout the meeting.

CONSEQUENCES OF NON-COMPLIANCE
Penalty 1.7 In the event of any default in complying with the provisions relating to the statutory meeting and the statutory report, every Director of other officer of the company who is in default shall be liable to a fine up to Rs. 5,000. Default 1.8 In case of default in filing the statutory report or in holding the meeting, the company may be wound up under section 433(b).