CS Executive Programme Module - I€¦ · dormant companies in such form as may be prescribed. According to section 455(4), in case of a company which has not filed financial statements

SolvedScanner AppendixCS Executive Programme Module - I

(New Syllabus)(Solution of December - 2015)

Paper - 1: Company Law

Chapter - 1: Introduction

2015 - Dec [1] (a), (d)

(a) A company being a body corporate, can sue and be sued in its ownname. To sue, means to institute legal proceedings against (a person)or to bring a suit in a Court of law. All legal proceedings against thecompany are to be instituted in its name. Similarly, the company maybring an action against anyone in its own name. A company’s right tosue arises when some loss is caused to the company, i.e. to the propertyor the personality of the company. Hence, the company is entitled to suefor damages in libel or slander as the case may be [Floating ServicesLtd. vs. MV San Fransceco Dipaloa (2004) 52 SCL 762 (Guj)]. Acompany, as a person distinct from its members, may even sue one ofits own members.

(d) An incorporated company never dies, except when it is wound- up as perlaw. A company, being a separate legal person is unaffected by deathor departure of any member and it remains the same entity, despite totalchange in the membership. A company’s life is determined by the termsof its Memorandum of Association. It may be perpetual, or it maycontinue for a specified time to carry on a task or object as laid down inthe Memorandum of Association. Perpetual succession, therefore,means that the membership of a company may keep changing from timeto time, but that shall not affect its continuity.

Solved Scanner Appendix CSEP M - I Paper - 1 (New Syllabus) 2

The membership of an incorporated company may change eitherbecause one shareholder has sold/transferred his shares to another orhis shares devolve on his legal representatives on his death or heceases to be a member under some other provisions of the CompaniesAct. Thus, perpetual succession denotes the ability of a company tomaintain its existence by the succession of new individuals who step intothe shoes of those who cease to be members of the company. ProfessorL.C.B. Gower rightly mentions, “Members may come and go, but thecompany can go on forever. During the war all the members of oneprivate company, while in general meeting, were killed by a bomb, butthe company survived — not even a hydrogen bomb could havedestroyed it”.

2015 - Dec [2] (a)

Limited Liability Partnership (LLP) and Company:1. LLP is an alternative form of corporate business, not being a company,

that gives the benefits of limited liability of a company and the flexibilityof a partnership. LLP is covered under the Limited Liability PartnershipAct, 2008 while term “Body Corporate” as defined under section 2(11) ofCompanies Act, 2013 includes a Company incorporated outside Indiabut does not include:(i) a co-operative society registered under any law relating to co-

operative societies; and(ii) any other body corporate (not being a company as defined in this

Act), which the Central Government may, by notification, specify inthis behalf.

2. A body corporate may be a company incorporated by one person asOne Person Company. LLP can’t be incorporated by one person.

3. A LLP may be a body corporate but the vice-versa may not be true.4. LLP will have lesser compliance requirements as compared to a

company.

2015 - Dec [2A] (Or) (i)

Lifting of Corporate Veil under Judicial Interpretation: Ever since thedecision in Salomon vs. Salomon & Co. Ltd., (1897) A.C. 22, normally Courtsare reluctant or at least very cautious to lift the veil of corporate personalityto see the real persons behind it. Nevertheless, Courts have found itnecessary to disregard the separate personality of a company in thefollowing situations:

(a) Where the corporate veil has been used for commission of fraud or

improper conduct. In such a situation, Courts have lifted the veil

and looked at the realities of the situation:

In Jones vs. Lipman, (1962) I. W.L.R. 832: A agreed to sell certain landto B. Pending completion of formalities of the said deal, A sold andtransferred the land to a company which he had incorporated with anominal capital of £100 and of which he and a clerk were the onlyshareholders and directors. This was done in order to escape a decreefor specific performance in a suit brought by B. The Court held that thecompany was the creature of A and a mask to avoid recognition and thatin the eyes of equity A must complete the contract, since he had the fullcontrol of the limited company in which the property was vested, andwas in a position to cause the contract in question to be fulfilled.

(b) Where the conduct conflicts with public policy, courts lifted the

corporate veil for protecting the public policy.

In Connors Bros. v. Connors (1940) 4 All E.R. 179: The principle wasapplied against the managing director who made use of his positioncontrary to public policy. In this case, the House of Lords determined thecharacter of the company as "enemy” company, since the persons whowere de facto in control of its affairs, were residents of Germany, whichwas at war with England at that time. The alien company was notallowed to proceed with the action, as that would have meant givingmoney to the enemy, which was considered as monstrous and against“public policy”.

Chapter - 2: Types of Companies

2015 - Dec [2A] (Or) (iii)

Government Companies: Section 2(45) defines a “Government Company”as any company in which not less than fifty one per cent. of the paid-upshare capital is held by the Central Government, or by any StateGovernment or Governments, or partly by the Central Government and partlyby one or more State Governments, and includes a company which is asubsidiary company of such a Government Company.Notwithstanding all the pervasive control of the Government, theGovernment company is neither a Government department nor aGovernment establishment [Hindustan Steel Works Construction Co. Ltd. vs.State of Kerala (1998) 2 CLJ 383].Since employees of Government companies are not Government servants,they have no legal right to claim that the Government should pay their salaryor that the additional expenditure incurred on account of revision of their payscales should be met by the Government. It is the responsibility of thecompany to pay them the salaries [A.K. Bindal vs. Union of India (2003) 114Com Cases 590 (SC)].In the given case, yes the said company be called a Government Companyand employs of Government Companies are not Government servants. Theyhave no right to claim their salary from the Government of India.

2015 - Dec [3] (a), (c)

(a) (i) A representative of foreign company in India was merely receivingorders from customers, it was held that it was not a place of business.(P.J. Jhonson vs. Astrofiel Amadorn).

(ii) Yes, the statement is correct a company incorporated outside Indiaheld its Board and general meeting in India.

(c) As per section 455 (1), where a company is formed and registered underthis Act for a future project or to hold an asset or intellectual property andhas no significant accounting transaction, such a company or an inactivecompany may make an application to the Registrar in such manner asmay be prescribed for obtaining the status of a dormant company.

As per section 455(2), the Registrar on consideration of the applicationshall allow the status of a dormant company to the applicant and issuea certificate in such form as may be prescribed to that effect.Section 455(3), provides that the Registrar shall maintain a register ofdormant companies in such form as may be prescribed.According to section 455(4), in case of a company which has not filedfinancial statements or annual returns for two financial yearsconsecutively, the Registrar shall issue a notice to that company andenter the name of such company in the register maintained for dormantcompanies.Further, a dormant company shall have such minimum number ofdirectors, file such documents and pay such annual fee as may beprescribed to the Registrar to retain its dormant status in the register andmay become an active company on an application made in this behalfaccompanied by such documents and fee as may be prescribed.[Section 455(5)].

Privileges of a Dormant Company: The privileges and exemptionsenjoyed by a dormant company or its advantages over other companiesare as follows:

Section Nature of Exemptions/Privileges

2 (40) The financial statement, with respect to a dormant company,may not include the cash flow statement;

173 (5) It is required to hold at least one meeting of the Board ofDirectors in each half of a calendar year and the gap betweenthe two meetings should not be less than ninety days.

Chapter - 4: Memorandum of Association and Articles of Association

2015 - Dec [2] (c)

Memorandum of Association Articles of Association

1. It is the Charter of the Companywhich define its objects andpowers

They are the regulation for theinternal management of the companyand are subsidiary to thememorandum.

2. The memorandum is supremedocument of the company.

While the Articles are subordinate tothe memorandum.

3. Every company must have itsown-memorandum.

A company limited by shares neednot have Articles of its own. In such acase Table A applies.

4. The Memorandum define therelationship between thecompany and the outsiders.

While Articles define the relationshipbetween the company and itsmembers.

5. Any act of the company which isultra vires the memorandum iswholly void and cannot beratified even by the whole bodyof shareholders.

Any act of the company which is ultravires the Articles (but is intra-viresthe memorandum) can be confirmedby shareholders.

2015 - Dec [3A] (Or) (ii), (iii)

(ii) Doctrine of Ultra Vires: In the case of a company whatever is notstated in the memorandum as the objects or powers is prohibited bythe doctrine of ultra vires . As a result, an act which is ultra vires isvoid, and does not bind the company. Neither the company nor thecontracting party can sue on it. Also, as stated earlier, the companycannot make it valid, even if every member assents to it.

The general rule is that an act which is ultra vires the company isincapable of ratification. An act which is intra vires the company butoutside the authority of the directors may be ratified by the companyin proper form [Rajendra Nath Dutta vs. Shilendra Nath Mukherjee,

(1982) 52 Com Cases 293 (Cal.)].The rule is meant to protect shareholders and the creditors of the

company. If the act is ultra vires (beyond the powers of) the directorsonly, the shareholders can ratify it. If it is ultra vires the articles ofassociation, the company can alter its articles in the proper way.

The doctrine of ultra vires was first enunciated by the House ofLords in a classic case, Ashbury Railway Carriage and Iron Co. Ltd.vs. Riche, (1878) L.R. 7 H.L. 653.

The memorandum of the company in the said case defined itsobjects thus,: “The objects for which the company is established areto make and sell, or lend or hire, railway plants............ to carry on thebusiness of mechanical engineers and general contractors...........”.The company entered into a contract with M/s. Riche, a firm of railwaycontractors to finance the construction of a railway line in Belgium. Onsubsequent repudiation of this contract by the company on the groundof its being ultra vires, Riche brought a case for damages on theground of breach of contract, as according to him the words “generalcontractors” in the objects clause gave power to the company to enterinto such a contract and, therefore, it was within the powers of thecompany. More so because the contract was ratified by a majority ofshareholders. The House of Lords held that the contract was ultravires the company and, therefore, null and void. The term “generalcontractor” was interpreted to indicate as the making generally of suchcontracts as are connected with the business of mechanical engineers.The Court/Tribunal held that if every shareholder of the company hadbeen in the room and had said, “That is a contract which we desire tomake, which we authorise the directors to make”, still it would be ultravires. The shareholders cannot ratify such a contract, as the contractwas ultra vires the objects clause, which by Act of Parliament, theywere prohibited from doing. In the given case, the prominent Ltd. willnot succeed.

(iii) The change of Registered office from one State to another: Thechange of registered office from one State to another State involvesalteration of memorandum, and the change can be effected by aspecial resolution of the company which must be confirmed by theCentral Government on an application made to it [Section 13(4)].According to Section 13(1), a company may, by special resolution andafter complying with the procedure specified alter the provisions of itsmemorandum.

The Central Government shall dispose of the application undersub-section (4) within a period of sixty days and before passing itsorder may satisfy itself that the alteration has the consent of thecreditors, debentureholders and other persons concerned with thecompany or that a sufficient provision has been made by the companyeither for the due discharge of all its debts and obligations or thatadequate security has been provided for such discharge. [Section13(5)].A company shall, in relation to any alteration of its memoranduminvolving change of registered office from one State to another, filewith the Registrar the special resolution passed by it in MGT 14[Section 13(6)].

Chapter - 6: Concept of Capital and Financing of Companies

2015 - Dec [2] (b)

S. No. Preference Share Capital Equity Share Capital1 Preference shares are entitled to

a fixed rate of dividend.The rate of dividend on equityshares depends upon theamount of profit available andthe funds requirements of thecompany for future expansionetc.

2 Dividend on the preferenceshares is paid in preference tothe equity shares.

The dividend on equityshares is paid only after thepreference dividend has beenpaid.

3 In case of winding-up, preferenceshare holder get preference overequity share holders with regardto the payment of capital.

In case of winding-up, equityshare holder get payment ofcapital after the payment ofcap i ta l to preferenceshareholders.

4 Dividend on preference sharemay be cumulative.

The dividend on equityshares is paid only after thepreference dividend has beenpaid and it is not cumulative.

5 No, bonus shares/right sharesare issued to preference shareholders.

A company may issue rightsshares or bonus shares to thecompany’s existing equityshareholders.

6 Redeemable preference sharesmay be redeemed by thecompany.

Equity shares cannot beredeemed except under ascheme involving reduction ofcapital or buy back of its ownshares.

8 Voting right of a preferenceshareholders on a poll shall be inproportion to his share in thepaid-up preference share capitalof the company.

Voting right of an equityshareholders on a poll shallbe in proportion to his sharein the paid-up equity sharecapital of the company.

2015 - Dec [4] (a)(i) Yes, in accordance with the Provision of Section 52(2) of the Act, the

securities premium can be utilised for issue of bonus shares tomembers.

(ii) The security premium amount can not be utilised for payment ofdividend.

Chapter - 7: Alteration of Share Capital

2015 - Dec [1] (b)Reduction of capital means reduction of issued, subscribed and paid-upcapital of the company. The share capital of a company may be reducedu/s 100 only if the articles of the company authorize so. If there is no suchclause in the articles, the articles must be amended by a special resolutionfor giving the power of reducing the share capital.

As per Section 100 of the Companies Act, 1956 Subject to confirmation bythe Court, a company limited by shares or a company limited by guarantee

and having a share capital may, if authorized by its articles, by special

resolution, reduce its share capital in any way and in particular and withoutprejudice to the generality of the forgoing power, may:1. Reduce or extinguish the liability on any of its shares in respect of share

capital not paid up e.g., where the shares are of ` 100 each with ` 75

paid-up reduce them to ` 75 fully paid-up shares and thus, relieve the

shareholders from liability on the uncalled capital of ` 25 per share;2. Either with or without extinguishing or reducing liability on any of its

shares, cancels any paid up share capital which is lost, or isunrepresented by available assets or

3. Either with or without extinguishing or reducing liability on any of itsshares, pay of any paid-up share capital which is in excess of the wants

of the company where the shares are fully paid-up, reduce them to ` 75

each and pay back, ` 25 per share.

2015 - Dec [4] (b)

Buy back of Securities(Section 68)

Sources:According to Section 68(1) of the Companies Act, 2013 a company maypurchase its own shares or other specified securities (hereinafter referred toas “buy-back”) out of:

(i) its free reserves; or(ii) the securities premium account; or(iii) the proceeds of any shares or other specified securities.

The primary requirement is that the articles of association of the companyshould authorise buy-back. In case, such a provision is not available, it wouldbe necessary to alter the articles of association to authorise buy-back.Buy-back can be made with the approval of the Board of directors at a boardmeeting and/or by a special resolution passed by shareholders in a generalmeeting, depending on the quantum of buy-back. In case of a listedcompany, approval of shareholders shall be obtained only by postal ballot.

Quantum (Section 68(2)) (a) Board of directors can approve buy-back up to 10% of the total paid-up

equity capital and free reserves of the company and such buy-back hasto be authorized by the board by means of a resolution passed at themeeting.

(b) Shareholders by a special resolution can approve buy-back up to 25%of the total paid-up capital and free reserves of the company. In respectof any financial year, the shareholders can approve by special resolutionupto 25% of total equity capital in that year.

In the given case, the Board of Director’s can approve buy-back up to 10%of total paid-up capital and free reserves of the company.In case of Pious Ltd. The position is as under:

`Paid-up equity share capital ` 5 crore

General reserves ` 5 crore

Total 10 crores10% of paid-up equity share capital and free reserves = 1 crore

Thus, the Board of Director can buy-back its shares is to extent of ̀ 1 crore. As in the given situation, the Board of Directors can not buy-back more than10% of paid-up equity share capital and free reserves.

Chapter - 8: Private Placement and Prospectus

2015 - Dec [2] (d)

Red-Herring Prospectus:

"Red Herring Prospectus" means a prospectus which does not include

complete particulars of the quantum or price of the securities included

therein.:Section 32 of the Act deals with Red Herring Prospectus. It provides that:1. As per this section, a company proposing to make an offer of securities

may issue a red herring prospectus prior to the issue of a prospectus.2. A company proposing to issue a red herring prospectus shall file it with

the Registrar at least three days prior to the opening of the subscriptionlist and the offer.

3. A red herring prospectus shall carry the same obligations as areapplicable to a prospectus. Any variation between the red herringprospectus and a prospectus shall be highlighted as variations in theprospectus.

4. Upon the closing of the offer of securities, the prospectus stating thereinthe total capital raised, whether by way of debt or share capital, and theclosing price of the securities and any other details as are not includedin the red herring prospectus shall be filed with the Registrar and theSecurities and Exchange Board.

“Abridged Prospectus” means a memorandum containing such salientfeatures of a prospectus as may be specified by the Securities andExchange Board by making regulations in this behalf. [Section 2(1)]Section 33 states that no form of application can be issued for the purchaseof any securities of a company unless it is accompanied by an abridgedprospectus. There are, however, four exceptions to this rule: (a) where theoffer is made in connection with the bona fide invitation to a person to enterinto an underwriting agreement with respect to such securities;(b) where the securities are not offered to the public;(c) where the offer is made only to the existing members or debenture

holders of the company with or without a right to renounce;(d) where the shares or debentures offered are in all respects uniform with

shares or debentures already issued and quoted on a recognised stockexchange.

A copy of the prospectus shall be furnished to a person on a request beingmade by him before the closing of the subscription list and the offer. If acompany makes any default in complying with the provisions of this section,it shall be liable to a penalty of fifty thousand rupees for each default.

Chapter - 10: Creation and Registration of Charges

2015 - Dec [4] (c)

Fixed or Specific Charge: A charge is called fixed or specific when it iscreated to cover assets which are ascertained and definite or are capable ofbeing ascertained and defined, at the time of creating the charge e.g., land,building, or plant and machinery. A fixed charge, therefore, is a security interms of certain specific property, and the company gives up its right todispose off that property until the charge is satisfied.

Floating Charge: A floating charge, as a type of security, is peculiar tocompanies as borrowers. A floating charge is not attached to any definiteproperty but covers property of a fluctuating type e.g., stock-in-trade and isthus necessarily equitable. A floating charge is a charge on a class of assetspresent and future which in the ordinary course of business is changing fromtime to time and leaves the company free to deal with the property as it seesfit until the holders of charge take steps to enforce their security.Crystallisation of Floating Charge: A floating charge attaches to thecompany’s property generally and remains dormant till it crystallizes orbecomes fixed. The company has a right to carry on its business with thehelp of assets over which a floating charge has been created till thehappening of some event which determines this right. A floating chargecrystallises and the security becomes fixed in the following cases:(a) when the company goes into liquidation;(b) when the company ceases to carry on its business;(c) when the creditors or the debenture holders take steps to enforce their

security e.g. by appointing receiver to take possession of the propertycharged;

(d) on the happening of the event specified in the deed.In the aforesaid circumstances, the floating charge is said to becomefixed or to have crystallised. Until the charge crystallises or attaches orbecomes fixed, the company can deal with the property so charged inany manner it likes.

Chapter - 11: Allotment of Securities and Issue of Certificates2015 - Dec [1] (c)Forfeiture of Shares: Forfeiture may be termed as penalty for violation ofterms of contract. Forfeiture of shares means taking back of shares by thecompany from the shareholders. If the shareholder makes default in paymentof calls on shares, then the company can use the option of forfeiting theshares. For a valid forfeiture, satisfaction of following conditions isnecessary:1. Articles of Association must authorise the forfeiture of shares:

Where power is given in the articles, it must be exercised in accordancewith the regulation regarding notice, procedure and manner statedtherein; otherwise the forfeiture will be void. The power of forfeiture must

be exercised bona fide and in the interest of the company. It should notbe collusive or fraudulent. If Articles authorise, the forfeiture shall includeforfeiture of all dividends declared in respect of the forfeited shares andsuch dividend is not actually paid before the forfeiture of the shares.

2. Resolution for Forfeiture: Article 30 of the Table F provides that if thedefaulting shareholder does not pay the amount within the specified timeas required by the notice, the directors may pass a resolution forfeitingthe shares.

3. Proper Notice: Before the shares of a member are forfeited, a propernotice to that effect must have been served. Regulation 29 of Table Fprovides that a notice shall name a further day (not less than 14 daysfrom the date of service of the notice) on or before which the paymentis to be made.

4. Power of forfeiture must be exercised bona fide and for the benefit

of the company: The power to forfeit be exercised bona fide and for the

benefit of the company. The power must be used in order to coercereluctant shareholders into paying their calls.

Chapter - 13: Transfer and Transmission of Securities

2015 - Dec [4] (d)

Transfer of Shares to a Minor: In India, a minor is not competent to enterinto any contract, as under Section 11 of the Indian Contract Act, 1872, aperson who has attained the age of majority is only competent to contract.Since, a minor cannot enter into a contract or agreement except through aguardian and since as per Section 153, no notice can be taken of the factthat the guardian holds a share in trust for a minor, it follows that his namecannot be entered in the Register of Members and therefore, he cannotbecome a member of a company. There is, however, no objection in law tothe guardian of a minor entering into a contract on behalf of a minor, byvirtue of the statutory right conferred on the guardian of a minor underSection 8 read with Section 4 to 6 of the Hindu Minority and GuardianshipAct, 1956. Since Section 56 of the Companies Act, 2013 enables executionof transfer deed by or on behalf of the transferor or the transferee, thetransfer deed can be executed by a minor through his natural guardian astransferee, and the contract so entered into by a minor through his natural

guardian is a binding and valid contract under Section 8 of the Hindu Minorityand Guardianship Act, 1956.

Chapter - 14: Institution of Directors

2015 - Dec [5] (a), (b)

(a) Appointment of Directors in causal vacancy- Section 161 (4):If any vacancy is caused by death or resignation of a director appointedby the shareholders in General meeting, before expiry of his term, theBoard of directors can appoint a director to fill up such vacancy. Theappointed director shall hold office only up to the term of the director inwhose place he is appointed.In the given problem, Bright Ltd. appointed Sumit to fill the casualvacancy. Vacancy of a director is caused by the death of Mohan afterthree months of his joining the company as a director the Board desiresto appoint Sumit in place of Mohan under the provision of Section 161of the Companies Act, 2013.

(b) Appointment of Alternate Director- Section 161 (2): Section 161(2) of the Act allowed the followings:(i) The Board of Directors of a company must be authorised by its

articles or by a resolution passed by the company in general meetingfor appointment of alternate director.

(ii) The person in whose place the Alternate Director is being appointedshould be absent for a period of not less than 3 months from India.

(iii) The person to be appointed as the Alternate Director shall be theperson other than the person holding any alternate directorship forany other Director in the Company.

(iv) If it is proposed to appoint an Alternate Director to an IndependentDirector, it must be ensured that the proposed appointee alsosatisfies the criteria for Independent Directors.

(v) An alternate director shall not hold office for a period longer than thatpermissible to the director in whose place he has been appointedand shall vacate the office if and when the director in whose place hehas been appointed returns to India.

(vi) If the term of office of the original director is determined before he soreturns to India, any provision for the automatic re- appointment ofretiring directors in default of another appointment shall apply to theoriginal, and not to the alternate director.

In the given case, yes the Board of Directors appoints peter (as an AdditionalDirector) for the entire period of Johnson’s leave.

Chapter - 15: Independent Directors2015 - Dec [5] (d)

(i) Section 149(4), provides that every listed public company shall haveat least one-third of the total number of directors as independentdirectors and the Central Government may prescribe the minimumnumber of independent directors in case of any class or classes ofpublic companies.Rule 4 0f Companies (Appointment and Qualification of Directors)rules 2014, provides that the following class or classes of companiesshall have at least two directors as independent directors:

• the Public Companies having paid-up share capital of ten crorerupees or more; or

• the Public Companies having turnover of one hundred crorerupees or more; or

• the Public Companies which have, in aggregate, outstandingloans, debentures and deposits, exceeding fifty crore rupees.

(ii) Tenure of Independent Director: Section 149(10) provides thatsubject to the provisions of section 152(Appointment of Directors), anindependent director shall hold office for a term up to five consecutiveyears on the Board of a company, but shall be eligible forreappointment on passing of a special resolution by the company anddisclosure of such appointment in the Board's report.Section 149(11) states that without contravening the section 149(10),no independent director shall hold office for more than two consecutiveterms, but such independent director shall be eligible for appointmentafter the expiration of three years of ceasing to become anindependent director.

Proviso to Section 149(11) that an independent director shall not,during the said period of three years, be appointed in or be associatedwith the company in any other capacity, either directly or indirectly.

Chapter - 16: Board and its Powers

2015 - Dec [2A] (Or) (ii) As in the given situation, the Board of Director of Joy ltd. may be advised asper secretarial standards -1 issued by ICSI to pass the item of business leftuntransacted at previous Board meeting which was extreme importance forthe growth of company through convening meeting by electronic mean’s i.e.by making video conferencing or any other audio-visual means.

2015 - Dec [3] (b) As per Sec. 181 of Companies Act, 2013, without the prior consent of theshareholders in general meeting the Board shall not contribute to charitableand other funds not directly relating to the business of the company or thewelfare of its employees, if the amounts contributed in a financial year willexceed 5% of average net profits during 3 immediately preceding financialyears. Present Case:The average net profits during 3 immediately preceding financial yearscomes to ` 30,00,00,000 viz., 1/3rd of (` 10,00,00,000 + ` 12,00,00,000 +` 8,00,00,000). 5% of ̀ 30,00,00,000 comes to ̀ 1,50,00,000. Therefore, theBoard can make contributions to charitable funds upto ` 1,50,00,000 duringthe financial year 31st March, 2015 without seeking any approval in generalmeeting. For amount more than ` 1,50,00,000 it has to seek prior approvalof company.

2015 - Dec [3A] (Or) (i)

No, the contention of the shareholders shall not be tenable. Any

arrangement between a company and its director in respect of acquisition of

assets for consideration other than cash shall require prior approval by a

resolution in general meeting and if the director or connected person is a

director of its holding company, approval is required to be obtained by

passing a resolution in general meeting of the holding company. [Section

2015 - Dec [5] (c)

(i) Yes it is mandatory for a listed company to constitute such

committees. The Board of directors of following companies shall

constitute Nomination and Remuneration Committee of the Board :

(a) Every listed Companies; or

(b) The following class of companies:

(i) all public companies with a paid-up capital of ten crore

rupees or more;

(ii) all public companies having turnover of one hundred crore

rupees or more;

(iii) all public companies, having in aggregate, outstanding

loans or borrowings or debentures or deposits exceeding

fifty crore rupees or more.

(ii) The committee shall consist of three or more non-executive directors

out of which not less than one-half shall be independent directors. The

chairperson of the company may be appointed as member, but shall

not chair such committee. The Committee shall identify the person

qualified to become directors and may be appointed in senior

management and recommend their appointment and removal and also

carry out evaluation of every director. The Committee shall formulate

the criteria, for determining qualifications, positive attributes and

independence of a director and recommend to the Board the policy

relating to remuneration for directors, KMPs and other employees.

Chapter - 17: Appointment and Remuneration of Key Management

Personnel

2015 - Dec [6] (a), (b), (c)

(a) Section 204 of the Companies Act, 2013 mandates every listed company

and such other class of prescribed companies to annex a Secretarial

Audit Report, given by a company secretary in practice with its Board’s

report.

● The Central Government through rules has prescribed such other

class of companies as under:

• every public company having a paid-up share capital of fifty

crore rupees or more; or

• every public company having a turnover of two hundred fifty

crore rupees or more.

● It shall be the duty of the company to give all assistance and

facilities to the company secretary in practice, for auditing the

secretarial and related records of the company.

● Secretarial Audit is an independent, objective assurance intended

to add value and improve an organisation’s operations. It helps to

accomplish the organisation’s objectives by bringing a systematic,

disciplined approach to evaluate and improve effectiveness of risk

management, control, and governance processes.

No, the secretarial audit is not mandatory to all companies.

(b) Appointment of Key Managerial Personnel:

Section 203 of the Companies Act, 2013 read with Rule 8 mandates the

appointment of Key Managerial Personnel and makes it obligatory for a

listed company and every other public company having a paid-up share

capital of rupees ten crores or more, to appoint following whole-time key

managerial personnel:

(i) Managing Director, or Chief Executive Officer or manager and in

their absence, a whole-time director;

(ii) Company Secretary; and

(iii) Chief Financial Officer.

Rule 8A, Appointment of Company Secretaries in companies notcovered under rule 8—A company other than a company covered underrule 8 which has a paid-up share capital of five crore rupees or moreshall have a whole-time company secretary. Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the termsand conditions of the appointment including the remuneration.

A whole-time key managerial personnel shall not hold office in morethan one company except in its subsidiary company at the same time.However, he can hold such other directorship with the permission of theBoard.

A whole-time key managerial personnel holding office in more thanone company at the same time, shall, within a period of six months fromsuch commencement, choose one company, in which he wishes tocontinue to hold the office of key managerial personnel.

If the office of any whole-time key managerial personnel is vacated,the resulting vacancy shall be filled-up by the Board at a meeting of theBoard within a period of six months from the date of such vacancy.

(c) Where in any financial year during the tenure of the managerial person,a company has no profits or its profits are inadequate, it may payremuneration to a managerial person, by way of salary, dearnessallowance, perquisites and any other allowance, not exceeding ceilinglimit calculated on the scale as given in Schedule V of the CompaniesAct, 2013 which is as follows:

Where the effective capital is Limit of yearly remunerationpayable shall not exceed

(i) Negative or less than 5 crores ` 30 lakhs(ii) 5 crores and above but less

than 100 crores` 42 lakhs

(iii) 100 crores and above but lessthan 250 crores

` 60 lakhs

(iv) 250 crores and above ` 60 lakhs plus 0.01% of theeffective capital in excess of ` 250crores:

Provided that the above limits shall be doubled if the resolution passed bythe shareholders is a special resolution.Present case: In the given case, the effective capital of the company is as

under:

Paid-up equity share capital = ` 10 crore

Securities premium account = ` 20 crore

Profit and loss (loss) = ` 10 crore

Total effective capital ` 20 crore

In the given case, the effective capital of the company is ` 20 crore. As per

the Scale given in the Schedule V, monthly remuneration payable should not

exceed ` 3.5 lakh.

Chapter - 21: Accounts and Audit

2015 - Dec [3] (d)

(i) Resignation of Auditor: Section 140 (2), 140 (3)and Rule 8: The

auditor who has resigned from the company shall file a statement in

Form ADT-3 indicating the reasons and other facts as may be relevant

with regard to his resignation as follows:

● In case of other than Government Company, the auditor shall

within 30 days from the date of resignation, file such statement to

the company and the registrar.

● In case of Government Company or government controlled

company, auditor shall within 30 days from the resignation, file

such statement to the company and the Registrar and also file the

statement with the Comptroller and Auditor General of India

(CAG).

(ii) The provisions for filling of casual vacancy in the office of auditor are

as follows:

(a) The Board of the company shall have power to fill the casual

vacancy in the office of auditor within 30 days in any case

except where:

● the casual vacancy occurred due to resignation of the auditor, or

● the company accounts are not subject to audit by an auditor

appointed by the Comptroller and Auditor- General of India.

2015 - Dec [3A] (Or) (iv)● Financial statement of the company including consolidated financial

statements, if applicable, should be approved by the Board of Directors,before such statements are signed.

● Financial statement should be signed on behalf of the board by atleast:• chairperson of company, duly authorised board, or• two directors of whom one should be the managing director, and• chief executive officer, if he is director, chief financial officer and

company secretary, if any in the company.● One person company's financial statements shall be signed by only one

director.

● Such sign is required for submission of financial statements to theauditor for his report.

● Auditors report is required to be attached to every financial statement.● Board report shall be attached to the statements laid before the

company in general meeting.

Chapter - 27: Merger, De-merger, Amalgamation, Compromise andArrangements - An Overview2015 - Dec [2A] (Or) (iv) As in the given case, R ltd. holds 75% of Paid-up share capital of Trust ltd.So R ltd. is treated as Holding company & Trust ltd. is its subsidiarycompany.The Resolution passed at Board Meeting & at general meeting of T ltd. forholding 10% paid-up share capital of R ltd. is void because as per Section19(1) of Companies Act, 2013, no company shall hold. share in its holdingcompany & it is also provided that no Holding Co. shall allot or transfer itsshare to any of its subsidiary company .Therefore object of certain member regarding holding of share by T ltd. in Rltd. is correct or it is violation of Provision of Section 19 (1) of Companies Act,2013. Chapter - 32: Winding up - Concept and Modes

2015 - Dec [6] (d)

Petition by Registrar: The Registrar shall be entitled to present a petition

for winding up-under sub- section (1) on any of the grounds specified in

sub-section (1) of section 271, except on the grounds specified in clause (b),

clause (d) or clause (g) of that sub-section.

Accordingly the registrar can present a petition on the following grounds:1. if the company is unable to pay its debts;2. if the company has acted against the interests of the sovereignty and

integrity of India, the security of the State, friendly relations with foreignStates, public order, decency or morality;

3. if on an application made by the Registrar or any other personauthorised by the Central Government by notification under this Act, theTribunal is of the opinion that the affairs of the company have beenconducted in a fraudulent manner or the company was formed forfraudulent 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 properthat the company be wound-up;

4. if the company has made a default in filing with the Registrar its financialstatements or annual returns for immediately preceding five consecutivefinancial years;The Registrar shall not present a petition on the ground that thecompany is unable to pay its debts unless it appears to him either fromthe financial condition of the company as disclosed in its balance sheetor from the report of an inspector appointed under section 210 that thecompany is unable to pay its debts:The Registrar shall obtain the previous sanction of the CentralGovernment to the presentation of a petition: The Central Governmentshall not accord its sanction unless the company has been given areasonable opportunity of making representations.

Shuchita Prakashan (P) Ltd.25/19, L.I.C. Colony, Tagore Town,

Allahabad - 211002Visit us : www.shuchita.com

FOR NOTES

CS Executive Programme Module - I€¦ · dormant companies in such form as may be prescribed. According to section 455(4), in case of a company which has not filed financial statements

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