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GNDU Question Paper-2021
Bachelor of Business Administration
BBA 5
th
Semester
COMPANY LAW
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. "A company is a legal person distinct from its members taken individually or
collectively." Are there any circumstances in which the law would disregard the legal
personality of a company? Discuss.
2. What do you understand by the memorandum of association ? What is its purpose?
Discuss.
SECTION-B
3. Define Articles of Association. Discuss its major role.
4. What is a Prospectus? Discuss major types of Prospectus.
SECTION-C
5. State the provisions of Companies Act, 2013 regarding appointment of a Director.
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6. What is Share Capital? How it can be altered? Discuss.
SECTION-D
7. Describe the legal procedure of winding up by the court. Discuss.
8. What are the requisities of a valid general meeting? Discuss.
GNDU Question Paper-2021
Bachelor of Business Administration
BBA 5
th
Semester
COMPANY LAW
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. "A company is a legal person distinct from its members taken individually or
collectively." Are there any circumstances in which the law would disregard the legal
personality of a company? Discuss.
2. What do you understand by the memorandum of association ? What is its purpose?
Discuss.
SECTION-B
3. Define Articles of Association. Discuss its major role.
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4. What is a Prospectus? Discuss major types of Prospectus.
SECTION-C
5. State the provisions of Companies Act, 2013 regarding appointment of a Director.
6. What is Share Capital? How it can be altered? Discuss.
SECTION-D
7. Describe the legal procedure of winding up by the court. Discuss.
8. What are the requisities of a valid general meeting? Discuss.
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GNDU Answer Paper-2021
Bachelor of Business Administration
BBA 5
th
Semester
COMPANY LAW
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. "A company is a legal person distinct from its members taken individually or
collectively." Are there any circumstances in which the law would disregard the legal
personality of a company? Discuss.
Ans: Act One: The Birth of a Legal Person
When a company is incorporated, the law breathes life into it — not in the way a human is
born, but through a certificate of incorporation. From that moment, it becomes a separate
legal entity. It can own property, enter into contracts, sue and be sued, and its debts are its
own.
This principle was famously cemented in the English case of Salomon v. Salomon & Co. Ltd.
(1897), where the House of Lords declared that even if one person owns almost all the
shares, the company is still distinct from that person.
Think of it like this: the company is a mask, and behind it are the shareholders and directors.
Normally, the law respects the mask — it doesn’t peek behind it to see who’s pulling the
strings.
Act Two: When the Mask Slips — Lifting the Corporate Veil
But what if the mask is being used for mischief? What if the company is just a puppet, and
the puppeteers are using it to cheat, evade the law, or harm others?
In such cases, courts may “lift” or “pierce” the corporate veil — meaning they look past the
company’s separate personality to hold the real actors personally responsible.
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This is not done lightly. The separate legal personality is a cornerstone of company law, but
it is a privilege, not a licence to commit wrongdoing.
Act Three: Circumstances Where the Veil is Lifted
Let’s turn these legal principles into a series of vivid scenes, each showing when the law
says, “Enough — we need to see who’s really behind this company.”
1. Enemy Character of the Company
Scene: Imagine wartime. A company is registered in India, but all its controlling shareholders
are citizens of an enemy country. On paper, it’s “Indian,” but in reality, it’s serving enemy
interests.
Case in point: Daimler Co. Ltd. v. Continental Tyre & Rubber Co. Ltd. — The court looked
behind the company to see who controlled it, and if they were enemies, the company could
be treated as such.
Why? Because a company has no mind of its own — its “character” comes from the people
who control it.
2. Evasion of Taxes
Scene: A wealthy businessman sets up multiple shell companies to funnel profits and avoid
paying taxes. The companies exist only on paper, with no real business.
Case in point: Sir Dinshaw Maneckjee Petit, Re — The court saw through the façade and
taxed the man directly.
Why? The corporate form cannot be used as a tax-dodging cloak.
3. Avoidance of Legal Obligations
Scene: An employer owes workers a statutory bonus. To avoid paying, he forms a new
company and transfers profits there, claiming the original company has no surplus.
Case in point: Workmen Employed in Associated Rubber Industries Ltd. v. Associated Rubber
Industries Ltd. — The Supreme Court pierced the veil to ensure workers got their due.
Why? The law will not allow incorporation to be used as a device to escape welfare
legislation.
4. Fraud or Improper Conduct
Scene: A company is formed solely to defraud creditors or commit illegal acts.
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Principle: If the company is a mere sham or cloak for fraud, courts will disregard its separate
personality3.
5. Agency or Trust Situations
Scene: A company is acting purely as an agent for its shareholders, with no independent
will.
Principle: If the company is just a conduit, the acts of the company are treated as the acts of
the principal — the shareholders.
6. Determining Residence or Nationality
Scene: For tax or regulatory purposes, the court may need to know where the company
“resides” — which depends on where its central management and control are located.
Principle: The veil is lifted to find the real seat of power.
7. Group Enterprises and Holding-Subsidiary Relations
• Scene: A parent company uses a subsidiary to avoid liabilities or hide profits.
• Principle: If the subsidiary is just an alter ego of the parent, the law may treat them
as one.
Act Four: Statutory Provisions for Lifting the Veil
Apart from judicial decisions, certain laws in India expressly allow the veil to be lifted:
• Section 7(7) of the Companies Act, 2013 — If incorporation is obtained through false
information, those responsible can be held personally liable.
• Section 251 — In case of fraudulent application for striking off a company’s name.
• Tax laws — To prevent evasion.
• Foreign Exchange laws — To determine beneficial ownership.
Act Five: The Balancing Act
Courts are careful — they don’t lift the veil for every minor irregularity. The doctrine of
separate legal personality encourages entrepreneurship and protects investors. But when
that protection is abused, justice demands that the real actors be exposed.
It’s a bit like a referee in a game: most of the time, they let the players play. But if someone
hides a weapon under their jersey, the referee will stop the game and call them out.
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Summary Table — When the Veil is Lifted
Ground
Example Case
Reason
Enemy character
Daimler Co. Ltd. v. Continental
Tyre
To protect national interest in
wartime
Tax evasion
Sir Dinshaw Maneckjee Petit,
Re
Prevent misuse for avoiding taxes
Avoiding legal
obligations
Associated Rubber Industries
Case
Enforce welfare laws
Fraud
Various cases
Prevent injustice
Agency
—
Company is mere agent of
members
Residence/nationality
—
Determine control location
Group enterprises
—
Prevent misuse of subsidiaries
Closing Scene
Picture a courtroom. The judge looks at the company before him — a neat stack of
incorporation papers, balance sheets, and contracts. But he knows that sometimes, the
truth isn’t in the paperwork; it’s in the hands pulling the strings behind it.
When the corporate mask is worn with honesty, the law respects it. But when it’s used to
deceive, the law has the power — and the duty — to lift it, revealing the real face beneath.
That’s the story of when a “legal person” stops being a shield and becomes a window to the
truth.
2. What do you understand by the memorandum of association ? What is its purpose?
Discuss.
Ans: The Company’s Birth Certificate and Constitution in One
Think of the Memorandum of Association (MOA) as a mix between a birth certificate and a
constitution for a company. It’s the official declaration to the world:
• Who we are
• Where we live
• Why we exist
• What we can and cannot do
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Under Section 2(56) of the Companies Act, 2013, the MOA is defined as the original
memorandum of a company as framed at incorporation, and it includes any alterations
made over time in accordance with the law.
Without it, a company simply cannot be registered. It’s one of the mandatory documents
filed with the Registrar of Companies (ROC) at the time of incorporation.
🏛 Why It Exists — The Purpose of the MOA
The MOA serves two big purposes:
1. For Outsiders — It’s a public document anyone can inspect to know the company’s
identity, objectives, and powers. If you’re a creditor, investor, or even a curious
competitor, the MOA tells you exactly what the company is legally allowed to do.
2. For Insiders — It’s a guiding framework for the company’s directors and members. It
sets boundaries so they don’t stray into activities the company wasn’t created for.
In short, it’s both a shield (protecting members from unlimited liability by defining the
company’s scope) and a compass (pointing the company toward its intended purpose).
The Six Clauses — The DNA of the Company
Every MOA is built around six essential clauses. Let’s walk through them like chapters in the
company’s origin story:
1. Name Clause
This is the company’s official name — its identity in the business world.
• If it’s a public company, it must end with “Limited”.
• If it’s a private company, it must end with “Private Limited”.
• Section 8 companies (non-profits) may omit these endings.
The name must be unique and not deceptively similar to an existing company.
2. Registered Office Clause
This states the state in which the company’s registered office is located.
• It determines the jurisdiction of the ROC.
• The exact address can be notified later, but the state must be fixed in the MOA.
3. Object Clause
Arguably the most important clause — it defines the company’s objectives.
• Main Objects: The primary purpose for which the company is formed.
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• Incidental/Ancillary Objects: Activities necessary to achieve the main objects.
• Other Objects: Any additional lawful activities the company may undertake.
Why so important? Because of the doctrine of ultra vires — if the company acts beyond its
stated objects, those acts are void and unenforceable.
4. Liability Clause
This specifies the liability of members:
• Limited by shares — Members’ liability is limited to the unpaid amount on their
shares.
• Limited by guarantee — Members agree to contribute a fixed sum if the company is
wound up.
• Unlimited — Members have unlimited liability (rare in practice).
5. Capital Clause
States the company’s authorised share capital and its division into shares of fixed value.
Example: ₹10,00,000 divided into 1,00,000 shares of ₹10 each.
6. Association (or Subscription) Clause
This is where the original subscribers declare their intention to form the company and agree
to take up a certain number of shares.
• Must be signed by at least 2 members for a private company and 7 members for a
public company.
Why the MOA Matters So Much
Let’s put it in real-world terms:
Imagine you’re lending money to a company. You’d want to know:
• Is this company even authorised to carry out the business it’s in?
• Who are its members?
• How much capital does it have?
The MOA answers all of this. It’s a public guarantee of the company’s scope and structure.
For directors, it’s a legal fence — step outside it, and you risk personal liability. For
shareholders, it’s a promise that their investment is tied to specific, declared purposes.
Changing the MOA — Not So Simple
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Because the MOA is so fundamental, altering it isn’t like editing a casual document. Changes
require:
• Special Resolution by shareholders.
• In some cases, approval from the Central Government or the ROC.
For example:
• Changing the name clause needs ROC approval.
• Changing the registered office from one state to another needs approval from the
Regional Director.
• Altering the object clause may require passing a special resolution and filing it with
the ROC.
Landmark Case — Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875)
This case cemented the doctrine of ultra vires. The company’s MOA authorised it to make
railway carriages, but it entered into a contract to finance railway construction. The court
held the contract void because it was beyond the company’s stated objects.
Lesson: The MOA is not just a formality — it’s a legal boundary.
🗝 Key Takeaways
Aspect
Why It Matters
Legal Identity
Defines the company’s existence and scope.
Public Document
Anyone can inspect it to know the company’s powers.
Investor Protection
Ensures funds are used for declared purposes.
Operational Guide
Directs directors and officers in decision-making.
Legal Boundary
Prevents ultra vires acts.
Closing Scene
Picture the founders again, signing the MOA. Each signature is more than ink on paper — it’s
a pledge, a legal birth, and a public announcement rolled into one. From that moment, the
company steps into the world with a clear name, a home, a purpose, and defined limits.
The MOA is not just a bureaucratic requirement; it’s the soul of the company captured in
legal language — a document that tells the world, “This is who we are, this is why we exist,
and this is how we will walk our path.”
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SECTION-B
3. Define Articles of Association. Discuss its major role.
Ans: Definition — The Company’s Internal Rulebook
Under Section 2(5) of the Companies Act, 2013, the Articles of Association (AOA) are
defined as the document that contains the rules and regulations for the internal
management of a company.
If the Memorandum of Association (MOA) is the company’s charter — its external identity
and scope — then the AOA is its constitution for day-to-day governance. It lays down how
decisions are made, how powers are exercised, and how members, directors, and officers
interact.
Once registered with the Registrar of Companies (ROC), the AOA becomes a binding
contract between:
• The company and its members
• The members and the company
• The members inter se (among themselves)
🏛 Why the AOA Exists — Its Core Purpose
Think of the AOA as the “operating manual” for the company. Its purposes include:
1. Defining Internal Governance — It sets out the framework for meetings, voting
rights, appointment of directors, and issue/transfer of shares.
2. Ensuring Smooth Functioning — By having clear rules, it prevents confusion and
disputes.
3. Protecting Members’ Rights — It spells out rights like dividend entitlement, share
transfer procedures, and decision-making participation.
4. Providing Flexibility — Unlike the MOA, which is rigid, the AOA can be altered more
easily to adapt to changing needs (subject to legal limits).
What’s Inside the AOA — Key Contents
While the exact contents vary from company to company, a typical AOA includes:
• Share Capital & Variation of Rights — Types of shares, rights attached, and how they
can be changed.
• Lien on Shares — Company’s right over shares for unpaid calls.
• Calls on Shares — How and when shareholders must pay remaining amounts on
their shares.
• Transfer & Transmission of Shares — Rules for selling or inheriting shares.
• Forfeiture of Shares — When and how shares can be taken back for non-payment.
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• Alteration of Capital — Increasing, consolidating, or subdividing share capital.
• General Meetings — How often they’re held, notice periods, quorum, and voting
procedures.
• Board of Directors — Appointment, powers, duties, and meetings.
• Dividends & Reserves — How profits are distributed and reserves created.
• Accounts & Audit — Maintenance of books and appointment of auditors.
• Winding Up — Procedure if the company closes down.
AOA vs MOA — The Two Pillars
Aspect
MOA
AOA
Purpose
Defines the company’s scope &
relationship with outsiders
Governs internal management
Alteration
Very rigid; requires special procedures
& approvals
Easier to alter via special
resolution
Content
Name, registered office, objects,
liability, capital, subscription
Rules on shares, meetings,
directors, dividends, etc.
Binding
Effect
Binds company with outsiders (within
scope)
Binds company & members
internally
Legal Role & Significance
The AOA isn’t just a set of guidelines — it has legal force:
1. Binding Contract — Under Section 10 of the Companies Act, the AOA binds the
company and its members as if each had signed it.
2. Doctrine of Constructive Notice — Outsiders are presumed to know the contents of
the AOA since it’s a public document.
3. Doctrine of Indoor Management — Outsiders can assume internal rules in the AOA
have been followed, unless they know otherwise.
4. Enforceability — Members can enforce rights given in the AOA (e.g., voting rights,
dividend claims).
Major Roles of the AOA in Practice
Let’s bring this to life with a few “scenes” from a company’s journey:
Scene 1: The Share Transfer Dispute
Two shareholders disagree over whether one can sell shares to an outsider. The AOA’s
transfer clause decides the matter — perhaps giving existing members the “right of first
refusal.”
Role: Prevents disputes by having pre-agreed rules.
Scene 2: Declaring Dividends
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The company has made a profit. How much to distribute? Who decides? The AOA lays down
the process — usually the board recommends, and members approve in a general meeting.
• Role: Ensures fairness and compliance with law.
Scene 3: Boardroom Deadlock
Two directors disagree on a major decision. The AOA specifies voting procedures, quorum,
and even the chairperson’s casting vote.
• Role: Keeps governance functional even in conflict.
Scene 4: Expansion Plans
The company wants to issue new shares to raise capital. The AOA explains how — rights
issue, private placement, or otherwise — and the approvals needed.
• Role: Provides a lawful roadmap for growth.
🛠 Altering the AOA
Because businesses evolve, the AOA can be altered by passing a special resolution (75%
majority) at a general meeting, subject to:
• Compliance with the Companies Act
• Not contradicting the MOA
• Not increasing liability of members without consent
• Approval from authorities in certain cases (e.g., conversion from public to private
company)
Landmark Case — Eley v. Positive Government Security Life Assurance Co. (1876)
In this case, the AOA stated that a particular person would be the company’s solicitor for
life. When the company stopped employing him, he sued. The court held he couldn’t
enforce this as an outsider — the AOA binds only members in their capacity as members,
not outsiders.
Lesson: The AOA is powerful, but its enforceability has limits.
🗝 Key Takeaways for Exams
• Definition: Internal rulebook of the company, binding on members and the
company.
• Purpose: Smooth governance, clarity, protection of rights.
• Contents: Share rules, meetings, directors, dividends, accounts, winding up.
• Role: Prevents disputes, ensures lawful operations, adapts to change.
• Alteration: By special resolution, within legal limits.
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Closing Scene
Picture the company as a ship. The MOA is the map showing where it can sail. The AOA is
the captain’s manual — detailing how to steer, when to adjust sails, how to resolve crew
disputes, and how to share the treasure. Without it, the ship might drift into chaos. With it,
every member knows their role, every decision has a process, and the voyage stays on
course.
That’s the magic of the Articles of Association — quietly ensuring that the grand vision of
the company doesn’t just exist on paper, but works in the real world, day after day.
4. What is a Prospectus? Discuss major types of Prospectus.
Ans: Definition — The Company’s Invitation Card to Investors
Under Section 2(70) of the Companies Act, 2013, a prospectus is any document — including
a notice, circular, or advertisement — that invites the public to subscribe for or purchase
securities (like shares or debentures) of a company.
It’s not just a marketing flyer — it’s a legal document with strict rules about what it must
contain, because it’s the basis on which people decide whether to invest their hard-earned
money.
Think of it as:
• An invitation — “Come, invest in us.”
• A disclosure — “Here’s everything you need to know before you decide.”
• A safeguard — ensuring transparency so investors aren’t misled.
🏛 Purpose of a Prospectus
The prospectus serves several important purposes:
1. Informing Investors — It gives potential investors a clear picture of the company’s
business, financial health, risks, and the purpose of raising funds.
2. Legal Compliance — It fulfils the statutory requirement before a public company can
offer securities to the public.
3. Building Trust — By disclosing accurate and complete information, it builds investor
confidence.
4. Preventing Fraud — Misstatements in a prospectus can lead to civil and criminal
liability for those responsible.
Mandatory Contents of a Prospectus
The Companies Act specifies what must be included, such as:
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• Company name and registered office address
• Details of directors, promoters, and key managerial personnel
• Nature of business and objectives of the issue
• Type and number of securities offered, and their price
• Terms of payment and allotment
• Past financial statements and auditor’s reports
• Risk factors and pending legal proceedings
• Statement of minimum subscription required
This ensures that investors have full, fair, and factual information before making a decision.
Major Types of Prospectus
Just as there are different kinds of invitations depending on the event, there are different
types of prospectus depending on the nature of the securities offer. Let’s walk through them
like chapters in a story.
1. Regular (or Full) Prospectus
Scene: A company is going public for the first time through an Initial Public Offering (IPO). It
prepares a detailed document with every bit of required information — from its history and
business model to financial statements and risk disclosures.
Purpose:
• Used when a public company invites the general public to subscribe to its securities.
• Contains complete details as per Section 26 of the Companies Act, 2013.
Example: A tech startup launching its IPO to raise ₹500 crore for expansion.
2. Red Herring Prospectus (RHP)
Scene: Imagine a movie trailer — it gives you the plot, the characters, and the excitement,
but not the exact ending. Similarly, a Red Herring Prospectus contains all the details about
the company and the offer except the final price of the securities or the number of shares
being offered.
Purpose:
• Used mainly in book-building issues where the price is determined after gauging
investor demand.
• Filed with the Registrar before the public offer, but updated later with final details.
Example: A large manufacturing company planning an IPO but leaving the price band open
until investor bids come in.
3. Shelf Prospectus
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Scene: A company knows it will need to raise funds multiple times over the next year — like
a theatre planning several shows in a season. Instead of printing a new brochure for each
show, it prepares one master brochure and uses it for all.
Purpose:
• Allows certain companies (like public financial institutions or banks) to issue
securities in tranches without issuing a fresh prospectus each time.
• Valid for up to one year from the first offer.
Example: A government financial institution issuing bonds in three instalments over 12
months.
4. Abridged Prospectus
Scene: Not everyone wants to read a 200-page document. An abridged prospectus is like a
summary leaflet — short, clear, and containing only the key information.
Purpose:
• Must be attached to every application form for purchasing securities.
• Gives essential details so investors can make a quick, informed decision.
Example: A two-page summary highlighting the company’s business, financials, and risk
factors, handed out with share application forms.
5. Deemed Prospectus
Scene: Sometimes, a company doesn’t directly invite the public to buy its shares — instead,
it allots them to an intermediary (like an issuing house), which then sells them to the public.
If the company is involved in preparing the offer document, that document is treated as if it
were a prospectus.
Purpose:
• Prevents companies from bypassing disclosure requirements by using third parties.
• Covered under Section 25 of the Companies Act, 2013.
Example: A real estate company allots shares to a merchant bank, which then offers them
to the public — the offer document is a deemed prospectus.
Legal Importance and Liabilities
Issuing a prospectus is not just a formality — it’s a legal commitment. If it contains untrue
statements or omits material facts:
• Civil Liability: Investors can claim compensation for losses.
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• Criminal Liability: Fines and imprisonment for those responsible.
This is why companies follow the “Golden Rule”: The prospectus must contain full, true, and
accurate disclosure — nothing more, nothing less.
🗝 Quick Comparison Table
Type
Key Feature
When Used
Regular Prospectus
Full details of offer
IPOs, FPOs
Red Herring
Prospectus
All details except price/quantity
Book-building issues
Shelf Prospectus
One prospectus for multiple offers
Financial institutions,
banks
Abridged Prospectus
Summary version
Attached to application
forms
Deemed Prospectus
Offer via intermediary treated as
prospectus
Indirect public offers
Closing Scene
Picture an investor sitting at their desk, flipping through a prospectus. Every page answers a
question in their mind — What does this company do? Who runs it? How healthy are its
finances? What risks am I taking? By the time they finish, they feel confident enough to
decide whether to invest.
That’s the power of a prospectus — it’s not just ink on paper, but a bridge of trust between
a company and the public. It’s the company saying, “Here’s our story, our numbers, our risks
— now decide if you want to be part of our journey.”
SECTION-C
5. State the provisions of Companies Act, 2013 regarding appointment of a Director.
Ans: Let’s step into the boardroom of a brand-new company, where the table is polished,
the chairs are waiting, and the air is buzzing with anticipation. The company has been
incorporated, the Memorandum and Articles are in place, but there’s one big question
hanging in the air:
“Who will steer this ship?”
That’s where the appointment of directors comes in — and the Companies Act, 2013 lays
down a clear, detailed script for how this casting is done.
Directors — The Lead Actors in the Company’s Story
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Under Section 2(34) of the Companies Act, 2013, a director is any person appointed to the
Board of a company. They are the ones who direct, control, and manage the company’s
affairs.
They’re not employees in the usual sense — they are the mind and will of the company. As
the famous saying goes, “A company can only act through its directors.”
🏛 Minimum and Maximum Number of Directors (Section 149)
The law first sets the stage by deciding how many directors a company must have:
• Public Company → Minimum 3 directors
• Private Company → Minimum 2 directors
• One Person Company (OPC) → Minimum 1 director
Maximum: 15 directors.
• Can appoint more than 15 only by passing a special resolution in a general meeting.
Special Requirement: At least one director must have stayed in India for a total of 182 days
or more in the previous calendar year.
Eligibility and Disqualifications (Section 152 & 164)
Before anyone can take the director’s chair, they must:
• Be an individual (no company or firm can be a director).
• Have a Director Identification Number (DIN) under Section 153/154.
• Give a written consent to act as a director, filed with the Registrar within 30 days.
Disqualifications include:
• Being of unsound mind (declared by a competent court).
• Being an undischarged insolvent.
• Conviction for certain offences (imprisonment ≥ 6 months, with specific time limits).
• Non-payment of calls on shares for over 6 months.
• Disqualification by a court or tribunal.
Who Appoints the First Directors?
• If the Articles of Association name the first directors → those named take office.
• If the Articles are silent → the subscribers to the Memorandum (who are
individuals) are deemed to be the first directors until directors are duly appointed.
• In an OPC → the sole member is deemed to be the first director until they appoint
someone else.
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🗳 Appointment of Subsequent Directors (Section 152)
Unless the Act provides otherwise, every director is appointed by the company in a general
meeting.
Key points:
1. Individual Voting (Section 162) — Each director must be appointed by a separate
resolution, unless the meeting unanimously agrees otherwise.
2. Consent & Declaration — The proposed director must provide their DIN and declare
they are not disqualified.
3. Filing with ROC — The company must file the appointment details with the Registrar
within the prescribed time.
Retirement by Rotation (Section 152(6)) — For Public Companies
To keep the Board dynamic and accountable:
• Two-thirds of the total number of directors in a public company must be those
whose term is liable to retirement by rotation.
• One-third of these rotational directors retire at each Annual General Meeting
(AGM).
• Retiring directors can be reappointed, or someone else can be elected in their place.
Special Modes of Appointment
The Act also provides for other ways directors can be appointed:
1. By Proportional Representation (Section 163)
• The Articles may allow directors to be appointed in proportion to votes received,
ensuring minority shareholders get representation.
2. By the Board
• Additional Directors (Section 161(1)) — Appointed between AGMs, hold office until
the next AGM.
• Casual Vacancy (Section 161(4)) — If a director appointed in a general meeting
leaves before term end, the Board can fill the vacancy until the next AGM.
• Alternate Director (Section 161(2)) — Appointed when an existing director is absent
from India for ≥ 3 months.
3. By the Tribunal (Section 242)
• In cases of oppression or mismanagement, the Tribunal may appoint directors to
safeguard the company’s interests.
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4. Nominee Directors
• Appointed by financial institutions, banks, or the government under specific
agreements or laws.
Independent Directors (Section 149) — For Listed Public Companies
• At least one-third of the Board must be independent directors.
• They must meet strict criteria of independence — no material relationship with the
company, its promoters, or management.
• Appointed for up to two consecutive terms of 5 years each.
🛡 Why These Provisions Matter
The appointment process isn’t just bureaucracy — it’s about:
• Transparency — Shareholders know who is running the company.
• Accountability — Directors can be replaced if they fail to perform.
• Representation — Minority shareholders and lenders can have a voice.
• Continuity — Retirement by rotation ensures fresh perspectives without losing all
experience at once.
Quick Reference Table
Provision
Section
Key Point
Minimum/Max Directors
149
Public: 3, Private: 2, OPC: 1; Max 15 (more via special
resolution)
First Directors
152
Named in Articles or subscribers to MOA
Appointment in GM
152
By separate resolution, with consent & DIN
Retirement by Rotation
152(6)
1/3rd retire at each AGM
Proportional
Representation
163
Minority representation possible
Additional Director
161(1)
Till next AGM
Alternate Director
161(2)
If original absent ≥ 3 months
Casual Vacancy
161(4)
Till next AGM
Independent Directors
149
1/3rd of Board in listed public companies
Closing Scene
Picture the AGM hall: shareholders seated, ballots ready, the company secretary reading out
names. Each appointment is more than a formality — it’s a vote of trust, a choice of who will
navigate the company through calm seas and storms alike.
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The Companies Act, 2013 doesn’t just tell us how to appoint directors — it ensures that the
process is fair, transparent, and designed to keep the company’s compass pointing toward
good governance.
6. What is Share Capital? How it can be altered? Discuss.
Ans: Let’s picture the scene. A group of entrepreneurs has just registered their dream
company. The office is still smelling of fresh paint, the logo is proudly displayed, and the first
big question on the table is:
“Where will the money come from to make all this happen?”
That’s where Share Capital enters the story — the financial lifeblood that gives the company
the muscle to act on its ambitions.
What is Share Capital?
In simple terms, share capital is the total amount of money a company raises by issuing
shares to its shareholders. Each share represents a unit of ownership, and the money paid
for these shares becomes part of the company’s permanent capital.
Under the Companies Act, 2013, share capital refers to the capital raised by a company
through the issue of shares, and it is mentioned in the capital clause of the Memorandum of
Association (MOA).
Think of it like this: if a company is a car, share capital is the fuel in its tank — without it, the
journey can’t even begin.
Types of Share Capital
Before we talk about altering it, let’s understand its main forms:
1. Authorised (Nominal) Capital
o The maximum amount of share capital a company is allowed to raise, as
stated in its MOA.
o It’s like the upper limit on your credit card — you can’t go beyond it without
formal approval.
2. Issued Capital
o The portion of authorised capital that the company actually offers to
investors.
3. Subscribed Capital
o The part of issued capital that investors agree to buy.
4. Paid-up Capital
o The amount actually received from shareholders for the shares they
subscribed to.
5. Called-up Capital
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o The portion of subscribed capital that the company has asked shareholders to
pay so far.
🏛 Why Alter Share Capital?
Businesses are living, breathing entities. They grow, shrink, restructure, or pivot — and their
capital structure often needs to change to match these realities.
Some common reasons include:
• Raising more funds for expansion.
• Consolidating shares to improve market perception.
• Splitting shares to make them more affordable.
• Cancelling unissued shares to streamline the capital structure.
Legal Basis — Section 61 of the Companies Act, 2013
A company limited by shares can alter its share capital if authorised by its Articles of
Association (AOA). If the AOA doesn’t allow it, the company must first amend the Articles.
Once authorised, alteration can be done by passing an ordinary resolution in a general
meeting, except in certain cases where a special resolution is required.
Ways to Alter Share Capital
Section 61 outlines five main methods:
1. Increase in Authorised Share Capital
Scene: The company’s growth plans require more funds than its current authorised limit
allows.
• The capital clause in the MOA is amended to reflect the higher limit.
• Requires shareholder approval in a general meeting.
• Example: Increasing authorised capital from ₹10 lakh to ₹50 lakh to issue more
shares for a new factory.
2. Consolidation of Shares
Scene: A company has too many small-value shares, making administration cumbersome.
• Multiple shares of smaller denominations are combined into shares of larger
denominations.
• Example: 1,00,000 shares of ₹1 each consolidated into 10,000 shares of ₹10 each.
• If consolidation changes voting percentages, approval from the Tribunal may be
needed.
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3. Subdivision of Shares
Scene: A company wants to make its shares more affordable to small investors.
• Shares of larger denominations are split into smaller ones.
• Example: 10,000 shares of ₹100 each split into 1,00,000 shares of ₹10 each.
• This increases the number of shares but not the total capital.
4. Conversion of Shares into Stock and Vice Versa
Scene: The company wants more flexibility in transferring ownership.
• Fully paid-up shares can be converted into stock, which can then be divided into
fractions.
• Stock can also be reconverted into fully paid-up shares.
5. Cancellation of Unissued Shares
Scene: The company has authorised capital it no longer needs.
• Unissued shares can be cancelled, reducing the authorised capital.
• This is not considered a reduction of share capital under the Act.
🛠 Procedure for Alteration of Share Capital
Let’s walk through the steps like a mini play:
Act 1 — Check the Articles
• Ensure the AOA authorises alteration. If not, amend it first via special resolution.
Act 2 — Board Meeting
• Directors approve the proposal and call a general meeting.
Act 3 — General Meeting
• Pass the required resolution (ordinary or special, depending on the change).
Act 4 — File with ROC
• Submit Form SH-7 to the Registrar within 30 days, along with the altered MOA and
resolution.
Act 5 — Update Records
• Make necessary changes in the company’s statutory registers and share certificates.
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Example to Bring It Alive
Imagine Sunrise Beverages Ltd. started with an authorised capital of ₹20 lakh, divided into 2
lakh shares of ₹10 each. Business booms, and they want to launch a new product line. They
decide to:
1. Increase authorised capital to ₹50 lakh.
2. Subdivide shares from ₹10 to ₹5 each to attract more small investors.
They follow the procedure, file the forms, and soon have the funds and shareholder base to
fuel their expansion.
Why This Matters
Altering share capital is not just a legal formality — it’s a strategic tool. Done right, it can:
• Unlock growth opportunities.
• Improve liquidity of shares.
• Optimise ownership structure.
• Align the company’s financial capacity with its ambitions.
Quick Recap Table
Method
Purpose
Impact
Increase in Authorised Capital
Raise more funds
Higher capital ceiling
Consolidation
Reduce number of shares
Larger denomination shares
Subdivision
Make shares affordable
More shares, smaller value
Conversion to Stock
Flexibility in transfer
Shares become stock
Cancellation
Remove unused capital
Lower authorised capital
Closing Scene
Picture the company as a tree. Share capital is the trunk — strong, central, and supporting
all growth. Alteration is like pruning, grafting, or adding new branches. Sometimes you trim
for efficiency, sometimes you expand for more fruit, but every change shapes the tree’s
future.
Handled with care, altering share capital keeps the company healthy, adaptable, and ready
to reach for the sky.
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SECTION-D
7. Describe the legal procedure of winding up by the court. Discuss.
Ans: Let’s imagine a company as a grand old ship that has sailed for many years. It has
weathered storms, carried valuable cargo, and seen bustling activity on its decks. But now,
for one reason or another, the ship can no longer sail. The law says it must be brought back
to port, its cargo unloaded, debts settled, and finally, the ship dismantled.
That careful, step-by-step process of bringing the company’s life to an end is what we call
winding up by the court — or more accurately under the Companies Act, 2013, winding up
by the Tribunal.
What Does “Winding Up” Mean?
Winding up is the legal process of closing a company’s affairs:
• Selling its assets
• Paying off creditors
• Distributing any surplus to shareholders
• Formally dissolving the company’s legal existence
Once winding up is complete, the company is like a ship broken down into parts — it no
longer exists as a legal entity.
🏛 Legal Basis — Sections 270 to 303 of the Companies Act, 2013
The Act recognises two main types of winding up:
1. By the Tribunal (compulsory winding up)
2. Voluntary winding up (now largely under the Insolvency and Bankruptcy Code,
2016)
Here, we focus on winding up by the Tribunal — the modern equivalent of “winding up by
the court.”
Grounds for Winding Up by the Tribunal (Section 271)
The Tribunal (NCLT) may order winding up if:
1. Special Resolution — The company itself resolves (by special resolution) that it
should be wound up by the Tribunal.
2. Acts Against National Interest — If the company has acted against the sovereignty,
integrity, or security of India, friendly relations with foreign states, public order,
decency, or morality.
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3. Fraudulent Conduct — If the company’s affairs have been conducted fraudulently, or
it was formed for a fraudulent or unlawful purpose.
4. Default in Filing Financial Statements — Failure to file financial statements or
annual returns with the Registrar for the last five consecutive financial years.
5. Just and Equitable — If the Tribunal believes it is just and equitable to wind up the
company (e.g., deadlock in management, loss of substratum, oppression of minority
shareholders).
Who Can File the Petition? (Section 272)
A winding-up petition can be presented by:
• The company itself
• Any creditor(s)
• Any contributory (shareholder)
• The Registrar of Companies
• Any person authorised by the Central Government
• In certain cases, the Central or State Government
The Procedure — Step by Step
Let’s walk through the process as if we’re watching a courtroom drama unfold.
1. Filing the Petition
The story begins when an eligible party files a petition to the NCLT in the prescribed form,
stating the grounds for winding up.
• Must be accompanied by a statement of affairs — a detailed snapshot of the
company’s assets, liabilities, creditors, and other key facts.
2. Admission and Notice
The Tribunal examines the petition:
• If it finds the petition in order, it issues a notice to the company and other concerned
parties.
• The company gets an opportunity to present its side — perhaps to oppose the
winding up or to suggest alternatives.
3. Hearing the Petition
At the hearing, the Tribunal listens to arguments from both sides:
• Creditors may argue that debts remain unpaid.
• The company may argue it is solvent or that disputes can be resolved without
winding up.
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4. Tribunal’s Order
If satisfied that a ground under Section 271 exists, the Tribunal may:
• Pass an order for winding up
• Appoint an Official Liquidator to take charge of the process
5. Appointment of Official Liquidator (Section 275)
The Official Liquidator becomes the captain of the final voyage:
• Takes custody of all company property, books, and records
• Prepares a list of assets and liabilities
• Protects and preserves the company’s assets
6. Public Notice and Creditors’ Claims
The liquidator issues a public notice inviting creditors to submit their claims within a
specified time.
• Claims are verified and admitted or rejected.
7. Realisation of Assets
The liquidator sells the company’s assets — land, buildings, machinery, stock — converting
them into cash.
8. Settlement of Liabilities
The proceeds are used to pay:
1. Costs of liquidation
2. Secured creditors
3. Workmen’s dues
4. Unsecured creditors
5. Any surplus to shareholders (in proportion to their shareholding)
9. Final Report and Dissolution
Once all affairs are settled, the liquidator submits a final report to the Tribunal.
• If satisfied, the Tribunal passes an order of dissolution.
• A copy is sent to the ROC, and the company’s name is struck off the register.
Key Legal Safeguards
• Transparency: The liquidator must maintain proper accounts and submit periodic
reports.
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• Fairness: Creditors are paid in a legally prescribed order of priority.
• Oversight: The Tribunal supervises the entire process to prevent abuse.
Quick Recap Table
Stage
What Happens
Petition Filed
By eligible party with statement of affairs
Notice Issued
Tribunal notifies company & stakeholders
Hearing
Arguments for and against winding up
Order
Tribunal orders winding up & appoints liquidator
Liquidator Acts
Takes control, invites claims, sells assets
Settlement
Pays creditors in order of priority
Dissolution
Tribunal orders final closure
Why This Process Matters
Winding up by the Tribunal is not just about closing a company — it’s about:
• Protecting creditors from loss
• Ensuring fair distribution of assets
• Preventing fraudulent or harmful companies from continuing
• Bringing legal closure to a corporate entity’s life
Closing Scene
Picture the final day: the liquidator’s report is on the Tribunal’s desk. The judge reads it,
nods, and signs the dissolution order. Outside, the company’s nameplate is taken down for
the last time. Employees have moved on, creditors have been paid, and the chapter is
closed.
The ship has been brought safely to port, its journey ended with dignity and order — exactly
as the law intended.
8. What are the requisities of a valid general meeting? Discuss.
Ans: Let’s imagine a company as a vibrant little town. The shareholders are its citizens, the
Board of Directors are the town’s council, and the general meeting is like the town hall
gathering where everyone comes together to make big decisions.
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But here’s the catch — just like a town hall meeting must follow certain rules to be valid, a
company’s general meeting must meet specific requisites under the Companies Act, 2013. If
these aren’t followed, it’s like holding a meeting in the wrong place, at the wrong time, with
the wrong people — whatever decisions are made could be struck down as invalid.
Let’s walk through these requisites as if we’re attending such a meeting from start to finish.
🏛 1. Proper Authority to Convene the Meeting
Our story begins with who has the right to call the meeting.
• For a general meeting, the Board of Directors is the proper authority.
• In some cases, members holding a prescribed percentage of shares can requisition
an Extraordinary General Meeting (EGM).
• If the Board fails to act, the requisitionists themselves or the Tribunal can call the
meeting.
Why it matters: Imagine if a random employee sent out invites for a town hall — chaos
would follow. The law ensures only the right authority can set the meeting in motion.
2. Proper Notice of the Meeting
Once the decision to hold a meeting is made, the next step is to invite the citizens — in our
case, the shareholders.
• Section 101 of the Companies Act requires at least 21 clear days’ notice (excluding
the day of sending and the day of the meeting).
• The notice must be in writing and sent to:
o Every member entitled to vote
o Directors
o Auditors of the company
• It must specify:
o Date, time, and venue of the meeting
o Type of meeting (AGM, EGM)
o Agenda — the business to be transacted
• Shorter notice is allowed if:
o For an AGM: consent of all members entitled to vote
o For other meetings: consent of members holding 95% of voting power
Why it matters: Without proper notice, members can claim they were denied their right to
participate — and the meeting’s decisions could be void.
3. Quorum — The Minimum Attendance
The day arrives. The hall is ready. But can the meeting start if only two people show up?
Section 103 sets the quorum for a public company:
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• Up to 1,000 members → 5 members personally present
• 1,001 to 5,000 members → 15 members personally present
• More than 5,000 members → 30 members personally present
For private companies, the quorum is usually 2 members, unless the Articles provide
otherwise.
If quorum is not present within 30 minutes:
• Meeting is adjourned to the same day next week (same time and place)
• At the adjourned meeting, any number of members present constitutes quorum
Why it matters: Quorum ensures that decisions are made with adequate representation,
not by a tiny, unrepresentative group.
4. Chairman of the Meeting
Every gathering needs someone to keep order — in our town hall, that’s the mayor; in a
company meeting, it’s the Chairman.
• Usually appointed as per the Articles of Association.
• If not specified, members elect one from among themselves.
• The Chairman’s role:
o Maintain order and fairness
o Ensure only agenda items are discussed
o Give members a fair chance to speak
o Declare results of voting
Why it matters: Without a neutral and authoritative figure, meetings can descend into
disorder or bias.
5. Agenda — The Business to be Transacted
The agenda is like the meeting’s map — it tells everyone where the discussion is headed.
• Ordinary Business (usually at AGMs):
o Approval of financial statements
o Declaration of dividends
o Appointment/reappointment of directors
o Appointment/ratification of auditors
• Special Business: Anything else — requires a special resolution with explanatory
statement under Section 102.
Why it matters: Members must know in advance what will be discussed so they can prepare
and decide whether to attend.
🗳 6. Proper Conduct of the Meeting
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Once the meeting starts, the law expects it to be conducted in a fair and orderly manner:
• Only business mentioned in the notice can be transacted.
• Members speak in turn; the Chairman can regulate discussion.
• Voting can be by show of hands, poll, or electronic means, as per the Act and
Articles.
• Proxies (where allowed) can attend and vote on behalf of members.
Why it matters: This ensures transparency and prevents surprise decisions.
🖊 7. Minutes of the Meeting
After the meeting, the story isn’t over — there must be a written record.
• Section 118 requires minutes to be prepared, signed, and kept in books within 30
days of the meeting.
• Minutes must contain a fair and correct summary of proceedings.
• They serve as legal evidence of what was decided.
Why it matters: Minutes are the official memory of the company — without them, proving
what happened becomes difficult.
Summary Table — Requisites of a Valid General Meeting
Requisite
Key Legal Reference
Purpose
Proper authority to convene
Sec. 100, 102
Ensures legitimacy of call
Proper notice
Sec. 101, 102
Gives members fair chance to attend
Quorum
Sec. 103
Adequate representation
Chairman
Sec. 104
Orderly conduct
Agenda
Sec. 102
Transparency of business
Proper conduct
Sec. 107–110
Fair decision-making
Minutes
Sec. 118
Legal record
Why These Requisites Matter
A general meeting is the supreme decision-making body of a company. If any of these
requisites are missing:
• Resolutions passed can be challenged in court.
• The company’s governance reputation suffers.
• Shareholder trust erodes.
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Following them isn’t just about legal compliance — it’s about fairness, transparency, and
good corporate citizenship.
Closing Scene
Picture the end of our town hall meeting: the Chairman thanks everyone, the decisions are
recorded, and the townspeople leave knowing their voices were heard. In the same way, a
valid general meeting leaves shareholders confident that the company is being run with
integrity and in accordance with the law.
That’s the beauty of these requisites — they turn a simple gathering into a legally binding,
democratically run decision-making forum that keeps the company’s ship sailing smoothly.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
