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ASSIGNMENT SOLUTIONS GUIDE (2014-2015)

E.C.O.-8
Company Law
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the
Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Auhtors for the help and Guidance
of the student to get an idea of how he/she can answer the Questions of the Assignments. We do not claim 100% Accuracy
of these sample Answers as these are based on the knowledge and cabability of Private Teacher/Tutor. Sample answers
may be seen as the Guide/Help Book for the reference to prepare the answers of the Question given in the assignment. As
these solutions and answers are prepared by the private teacher/tutor so the chances of error or mistake cannot be denied.
Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/
Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer & for uptodate and exact
information, data and solution. Student should must read and refer the official study material provided by the university.

Q. 1. Define a Company. What are its features? Explain under what circumstances a Corporate veil can
be lifted?
Ans. A company means a group of persons associated together for the attainment of common objectives, social
or economic. It represents different kinds of associations, both business and otherwise. The term registered company
means, a company incorporated under the Companies Act 1956. Companies incorporated under the Companies Act
1956 are mostly business companies but they also be formed for promoting art, charity, religion, commerce or any
other useful purpose.
Section 3(1)(i) of the Companies Act 1956 states that a company means a company formed and registered
under the act or an existing company. In broad sense, a company means an association of individuals formed for
some common purpose, [Smith v. Anderson, 1880] but is a voluntary association of persons.
In legal terminology, a company is an artificial person created by a process of law. It has a perpetual succession
and a common seal. Artificial person means no body or soul, but then a company really exists and it is not a
fictitious entity. According to Lord Justice Lindley, an association of many persons to contribute money or moneys
worth to a common stock, and employ it in some common trade or business (i.e., for a common purpose), and who
share the profit or loss (as the case may be) arising therefrom. The common stock so contributed is denoted in
money and is the capital of the company. The persons who contribute it, or to whom it belongs, are members. The
proportion of capital to which each member is entitled in his share. Shares are always transferable although the
right to transfer them is often more or less restricted.
Lord Haney defines company as, a company is an incorporated association which is an artificial person created
by law, having a separate entity, with a perpetual succession and a common seal.
From the above discussion, we can conclude here that a company is, legal entity with perpetual succession
having a common seal which is created by law. The motive behind incorporation of a company is to carry a business
with common interest.
Main Features of A Company
The main features of a company which made it different from other forms of business organisations are as follows:
1. Separate Legal Entity: A company is, in law, regarded as an entity separate from its members. In other
words, it is an artificial, person created by law. Thus, Mohan and Co. Ltd. is an entirely different person from
Mohan even if he holds all the shares in the company. Its property is not the property of Mohan. Similarly, Mohan
is liable for any debt related to the company.
2. Created by Law: A company is an incorporated association which is an artificial person created by law. It
comes into existence when it is registered under the Companies Act. Company is a legal person just as an individual
but with no physical existence.

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3. Limited Liability: The main advantage of doing business under the corporate structure of business organisation
is limited liability of its members. In other words, members of company are only liable upto the extent of their
holding in the company. A company may be a company Limited by (i) shares or (ii) guarantee.
In a company limited by shares, the members liability is limited to the unpaid value of share i.e., amount of
share subscribed by him. e.g. If the face value of a share in a company is Rs. 50 and a member has already paid Rs.
45/share, he can be asked to pay only Rs. 5 per share, not more than that.
In a company limited by guarantee, the liability of a member is limited to the extent of such amount guaranteed
by that member.
4. Perpetual Succession: A company having perpetual succession means the continued existence of the company
irrespective of its member(s). It is assumed that the company is an artificial person, never dies, nor does its life
depend on the life of its members. The existence of company in any manner is not affected by insolvency, mental
disorder or retirement of any member. Members entry and exit does not effect the companys existence (until
dissolved). It continues to exit even if all its human members are dead.
Gower says that even a hydrogen bomb cannot destroy a company. Perpetual succession, therefore, means
that companys existence is not effected by a constant change in its membership. It is created by following a process
of law and hence, can only end by following process accepted by law.
5. Common Seal: Since a company is an artificial person created by law and is different from its member
having separate entity, it must act through its legal agents under seal of the company. Every company has its own
seal which is of great importance. Common seal is an official signature of the company. Any document which does
not bear the common seal of the company is not binding on the company.
In other words, a company is not liable to any such document which does not have the common seal of a
company. All legal formalities of written nature have the common seal of the company which can simply be defined
as official signature of the company.
6. Transferability of Shares: The total capital of a company is divided into parts called shares. These shares of
a public limited company are freely transferable so that no shareholder is permanently or necessarily wedded for a
company. Shareholder has liberty to transfer his to anyone he likes in accordance with the manner provided in the
Articles of Association of the company. In other words, we can say that the share capital of the company is transferable
in nature and the holder is free to transfer it to any person or legal entity following the legalities stated in article of
association of the company.
7. May sue or be sued: A company being a legal entity incorporated by law and having a separate legal
existence, can sue and can be sued in its own name. Because of above set legal status, a company can enter into
legal contracts and therefore, can enforce the contractual right against the other parties which are part of the contract.
The company can be sued by other parties in case of breach of contract.
Lifting The Corporate Veil
Company has separate legal entity and it is independent from its members. In Salomon V. Salomon & Company,
the House of Lords effected these enactments and cemented into English law the twin concepts of corporate entity
and limited liability. In that case, the apex court simply laid down that a company is a distinct legal person entirely
different from the members of that company. However, the courts have not always applied the principal laid down
in Salomon V. Salomon & Co.
In a number of circumstances, the court will pierce the corporate veil or will ignore the corporate veil to reach
the person behind the veil or reveal the true form and character of the concerned company. The rationale behind this
is probably that the law will not allow the corporate form to be misused or for the purposes which is set out in the
statutes. In those circumstances in which the court feels that the corporate form is being misused, it will rip through
the corporate veil and expose its true character and nature disregarding the Solomon principle as laid down by the
House of Lords. On incorporation, a line, veil is drawn between the company and its member. Forming a veil,
company enjoys several benefits.
In case when a company uses the corporate veil for some improper conduct, to protect fraudulent activities or
misleading or misrepresentation of facts, the law discards the corporate veil and take legal step against the company

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and person behind the company treating both of them as same entity. Corporate veil is said to be lifted when the
court ignores the company and relate it directly to the members associated with the company. According to Prof.
Gower, when the law disregards the corporate entity and pays regard instead to the individual member behind the
legal facade, it is known as lifting the veil of corporate personality.
The situation and cases in which corporate veil can be lifted are broadly classified as under:
1. Under express statutory provisions
2. Under judicial interpretations
Under Express Statutory Provisions: Companies Act, 1956 provides some cases in which the directors or
members of the company may be held personally liable. Separate legal entity of company in such cases is maintained,
but the directors or members are held liable along with the company. Such cases are:
(i) Number of members below statutory limit: According to Companies Act. 1956, Section 45, if the number
of members of a company fall under the permitted or statutory limit as stated in the act and the company continues to
run the business for next six months, then the present members of the company will be severally liable to the debts of
the company. Personal liability of the members in this will only commence after six months of continuing business
activity with less number of members and will be only liable to those debts which occur after six months.
(ii) Non-disclosure of the representative capacity: As per the rules when an authorised signatory of a company
or any other person signs or he is authorised to be signed, on behalf of the company,promissory note, hundi or any
cheque, it is incumbent on such person that he must disclose the company name on whose behalf he is acting. In
case of non-disclosure, he is liable for the payment due if the company refuses to pay it.
(iii) Holding and subsidiary company: A company having controlling stakes of another company is said to be
the holding company and the other company is said to its subsidiary. Generally, the subsidiary company is a separate
entity but as per Companies Act. 1956, Section 212, every holding company need to disclose the books of accounts
to its shareholders. So, the Holding and subsidiaries if any are treated as one entity which then disregard the rule
that each subsidiary company has a separate legal entity to its holding company.
(iv) For investigation into affairs of related companies: Companies Act. 1956, Section 239 states that in
case of appointment of an investigator by Central Government for the purpose of investigating the affairs of a
company, he shall also have the power carry on investigation of affairs of subsidiaries of the company. This rule,
thus, lift the incorporation veil.
(v) For investigation of ownership of a company: According to Companies Act. 1956, Section 247, for the
purpose of investigations to know about the membership of a company or to know that who are the persons having
substantial interest in the company, who concern about loss or profit of the company, Central Government may
appoint one or more inspector for the investigation purpose. Hence, it will lift the veil of incorporation to find out
the persons controlling the company.
(vi) Fraudulent Act: In case of winding up of the company, finding of fraudulent activities of company with
intention to mislead its creditors by misrepresentation of facts, the person who is willfully a party in such activities
may be held personally liable to any kind of debts and other liabilities of a company (U/s 542). In such cases, court
may not accept separate legal entity of a company and make the person behind fraud liable to liabilities of the
company. Thus, this case lift the veil of incorporation.
Q. 2. What are Articles of Association? Is it compulsory for the company to register its Articles of
Association? Comment, and discuss the restrictions on alteration of Articles of Association.
Ans. The documents that define a companys constitution, setting out the rules by which the company is internally
governed, an official document governing the running of a company that is placed with the Registrar of Companies.
The Articles of Association constitute a contract between the company and its members, set out the voting rights of
stockholders and the conduct of stockholders and directors meetings, and detail the powers of management of the
company. A Memorandum of Association is a related document. Articles should be printed, divided into numbered
paragraphs. Signatories to the Memorandum of Association must sign the Articles of Association. Companies generally
prepare and file their Articles of Association. Articles of Association are the rules regarding internal management
of a company. Articles must not conflict with the provisions of the Act or any other law for the time being in force.

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These rules are subsidiary to the Memorandum of Association and hence, should not contradict or exceed
anything stated in the Memorandum of Association. A public limited company may adopt Table A which is a model
set of articles given in the Companies Act. Table A is a document containing rules and regulations for the internal
management of a company. If a company adopts Table A, there is no need to prepare separate Articles of Association.
The Articles of Association may be altered by the shareholders passing a special resolution in a general meeting.
Any such change must be notified to the Companies Registry. The changes to the Articles of Association cannot be
made in breach of other company law rules and there are protections against such changes where they increase the
liability of individual shareholders, vary the rights of any class of shareholders or otherwise prejudice minority
shareholders.
Special Resolutions require the votes of 75% of members present in person or by proxy, who are entitled to vote
and do vote. The meeting at which the resolution is proposed must have at least 14 days notice, unless a shorter
period was agreed by majority in number of members holding at least 95% of the shares. Certain matters can only
be decided by special resolution and the articles cannot provide to the contrary.
Normally, every company has its own Articles of Association. But it is not mandatory for public companies.
Under Sec.26, the companies which must have Articles of Association are as follows:
Unlimited companies.
Companies limited by guarantee.
Private company limited by shares.
The Articles of Association constitute the second important document, which must be registered (in case of
certain types of companies) together with the memorandum. All companies, other than public companies limited by
shares, are required to have specific Articles of Association (AoA).
If a public company limited by shares does not have a separate Articles of Association, Table A of the Companies
Act, 1956 applies automatically. Because table A applies by default, there are three possible alternatives to adopt
Articles:
(a) It may adopt table A.
(b) It may set out its own articles and exclude Table A.
(c) It may adopt part of Table A and also set its own Articles.
According to Section 27, the Articles of Association should state:
1. In the case of an unlimited company, the articles shall state the number of members with which the company
is to be registered and, if the company has a share capital, the amount of share capital with which the company is to
be registered.
2. In the case of a Company limited by guarantee, the articles shall state the number of members with which the
company is to be registered.
3. In the case of a private company having a share capital, the articles shall contain provisions relating to the matters
specified in sub-clauses (a), (b) and (c) of clause (iii) of Sub-section (1) of Section 3; and in the case of any other private
company, the articles shall contain provisions relating to the matters specified in the said sub-clauses (b) and (c).
Also, the Articles of Association must be printed, divided into paragraphs and numbered consecutively. The
subscribers sign the companys articles in front of the witness which are ultimately delivering to the registrar. These
witnesses also attest the signatures. Certain statutory clauses (such as those dealing with allotment, transfer, and
forfeiture of shares) must be included; the other (non-obligatory) clauses are chosen by the stockholders to make up
the bylaws of the firm. A court, however, may declare a clause ultra vires if it is deemed unfair, unlawful, or
unreasonable. A copy of the articles is lodged with the appropriate authority such as the registrar of companies.
The Articles of Association of the company when registered bind the company and the members thereof to the
same extent as if it was signed by the company and by each member.
Alteration of Articles
Companies have been given wide powers to alter the Articles of Association under Section 32 of the Companies
Act, 1956. A company can alter any of the provisions of its Articles of Association, subject to provisions of the
Companies Act and subject to the conditions contained in the Memorandum of Association of the company.

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1. Subject to the provisions of this Act and to the conditions contained in its memorandum, a company may, by
special resolution, alter its articles. [Provided that no alteration made in the articles under this sub-section which
has the effect of converting a public company into a private company, shall have effect unless such alteration has
been approved by the Central Government.]
2. Any alteration so made shall, subject to the provisions of this Act, be as valid as if originally contained in
the articles and be subject in like manner to alteration by special resolution.
[(2A) where any alteration such as is referred to in the provisons to Sub-section (1) has been approved by the
Central Government, a printed copy of the articles as altered shall be filed by the company with the Registrar within
one month of the date of receipt of the order of approval.]
Section 31(2) of the Act provides that subject to the provisions of the Act, altered articles will be as valid as if
they were the original articles of company and also provides for their further alteration in a like manner by means of
shareholders special resolution.
The Articles of Association, thus, create a binding contract between the company and members and the members
inter-section and are subject to alteration within the permissible boundaries of the Companies Act and by following
the procedure prescribed there for. Section 31(2) embodies one such boundary beyond which members cannot go
and alter the articles of association to make it remain unaltered. The shareholders can amend Articles of Association
as and when necessary subject to the provisions of the Act and this power to amend article is a perpetual power
which cannot be taken away by having special articles to the contrary.
There are certain limitations within which the alteration of the articles can be carried out:
1. It must not be in conflict with the memorandum of association.
2. Alteration of articles must not be in consistence with the provision of the Companies Act, 1956.
3. It cannot sanction such things which are illegal under any law including Companies Act.
4. Alteration must be made for the benefit of the company. In the case, Allen v Gold Reefs of West Africa Ltd
1900, Articles gave the company a lien on partly paid shares, in respect of all debts and liabilities of the company.
A member dies with unpaid calls due on the shares. Articles were altered so as to give the company lien on the
fully paid shares. HELD: Alteration valid as it was for the genuine protection of the company.
5. The alteration must not increase in any way increase the liability of the existing members to contribute to
the share capital. No alteration in the articles can be made if it has the effect of compelling any member to subscribe
or take more shares.
6. Alteration of articles can be made only by passing the special resolution.
7. Any alteration which has the effect of converting a public company into a private company, such alteration
has been approved by the Central Government (Sec 31).
8. Any contract which results in the breach of contract with the third party cannot be made. Third party can
file a suit for damages for the breach of the contract.
9. The tribunal has no power to amend the Articles of Association even if there is mistake which the tribunal
would rectify in the case of any other contract.
10. Any alteration which discriminate the majority and minority of share, holders, which provides the former
an advantage of which the latter is deprived cannot be made.
According to Sec 40 of the Act:
1. Where an alteration is made in the memorandum or articles of a company, every copy of the memorandum,
articles, agreement or resolution issued after the date of the alteration shall be in accordance with the alteration.
2. If, at any time, the company issues any copies of the memorandum, articles, resolution or agreement, which
are not in accordance with the alteration or alterations made therein before that time, the company, and every officer
of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for each
copy so issued.
Q. 3. Explain the main Clauses of Memorandum of Association and also explain the procedure of making
alteration in the different clauses of Memorandum of Association.

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Ans. Contents of Memorandum [Sec 13]: Contents with respect to Memorandum under Sec 13 of the Companies
Act are:
1. The memorandum of every company shall state:
(a) The name of the company with Limited as the last word of the name in the case of a public limited
company, and with Private Limited as the last words of the name in the case of a private limited company;
(b) the State in which the registered office of the company is to be situated;
(c) The main objects of the company to be pursued by the company on its incorporation and objects incidental
or ancillary to the attainment of the main objects;
(d) Other objects of the company not included in sub-clause (i).
2. The memorandum of a company limited by shares or by guarantee shall also state that the liability of its
members is limited.
3. The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute
to the assets of the company in the event of its being wound up while he is a member or within one year after he
ceases to be a member, for payment of the debts and liabilities of the company, such amount as may be required, not
exceeding a specified amount.
4. In the case of a company having a share capital:
(a) Unless the company is an unlimited company, the memorandum shall also state the amount of share capital
with which the company is to be registered and the division thereof into shares of a fixed amount;
(b) No subscriber of the memorandum shall take less than one share; and
(c) Each subscriber of the memorandum shall write opposite to his name the number of shares he takes.
Following are the six main clauses of the Memorandum of Association:
1. Name Clause
2. Registered Office Clause (Situation Clause)
3. Objects Clause
4. Liability Clause
5. Capital Clause
6. Association Clause (Subscription Clause)
1. Name Clause (Sec 20): This clause contains the name of the company with which the company will be
known, which has already been approved by the Registrar of Companies. The name of the company is mentioned in
the name clause. A public limited company must end with the word Limited and a private limited company must
end with the words Private Limited.
The company cannot have a name which in the opinion of the Central Government is undesirable. A name
which is identical with or nearly resembles the name of another company in existence will not be allowed. A
company cannot use a name which is prohibited under the Names and Emblems (Prevention of Misuse Act, 1950)
or use a name suggestive of connection to government or State patronage. Companies that are formed without the
object of making profits or distribution of dividend to shareholders, such as cultural organisations or charitable
organisations can obtain permission from the government for not adding the word limited to its name.
Publication of Name:
Every company shall paint or affix its name and address of its registered offices outside its every office in
easily legible characters, in language generally used in locality.
Every company shall mention in all, its business letters, in all its letter heads, invoice, orders for money or
goods and in all its notices, share certificates and other publications, the following.
its name,
logo,
address of its registered office,
Every company shall have its name mentioned in all bills of exchange, promissory notes, endorsements,
cheques and letters of credit signed by or on behalf of the company.

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This clause contains the name of the state, in which the registered office of the company is proposed to be situated.
The domicile of the company is important to fix legal and tax related issues. The exact address of the registered office
is not required at this stage but the same must be notified to the Registrar within thirty days of the incorporation of the
company. The state in which the registered office of company is to be situated is mentioned in this clause.
If it is not possible to state the exact location of the registered office, the company must provide the exact
address either on the day on which it commences to carry on its business or within 30 days from the date of
incorporation of the company, whichever is earlier. Notice in Form No. 18 must be given to the Registrar of Companies
within 30 days of the date of incorporation of the company. Similarly, any change in the registered office must also
be intimated in Form No. 18 to the Registrar of Companies within 30 days.
The registered office of the company is the official address of the company where the statutory books and
records must normally be kept. Every company must affix or paint its name and address of its registered office
outside every office or place at which it activities are carried in. The name must be written in one of the local
languages and in English.
3. Objects Clause [Sec. 13(1)]: This is probably the must important clause of the memorandum. It defines the
purpose for which the company is formed. A company is not legally entitled to undertake an activity, which is
beyond the objects stated in this clause. A company is allowed to engage only in those activities that are expressly
stated in the objects clause. The object clause is divided into two sub-clauses, which are:
The Main Objects: The main objects for which the company is formed are listed in this sub-clause. It must be
observed that an act which is either esential or incidental for the attainment of the main objects of the company is
deemed to be valid, although it may not have been stated explicitly in the sub-clause.
Other Objects: Objects not included in the main objects could be stated in this sub-clause. However, if a
company wishes to undertake a business included in this sub-clause, it has to either pass a special resolution or pass
an ordinary resolution and get central governments approval for the same.
2. Registered Office Clause (Sec 146.): The object of the company must not be illegal, immoral or opposed to public
policy. It specifies the activities which a company can carry on and which activities it cannot carry on. This helps the
shareholders and creditors to know the purpose for which the funds of the company will be used. The company cannot
carry on any activity which is not authorised by its Memorandum of Association. This clause must specify:
(i) Main objects of the company to be pursued by the company on its incorporation
(ii) Objects incidental or ancillary to the attainment of the main objects
(iii) Other objects of the company not included in (i) and (ii) above.
In case of the companies other than trading corporations whose objects are not confined to one state, the states
to whose territories the objects of the company extend must be specified.
Doctrine of the Ultra-vires: Any transaction which is outside the scope of the powers specified in the objects
clause of the Memorandum of Association and are not reasonable incidentally or necessary to the attainment of
objects is ultra-vires the company and therefore, void. No rights and liabilities on the part of the company arise out
of such transactions and it is a nullity even if every member agrees to it.
4. Liability Clause [Sec 13(2)]: This clause limits the liability of the members to the amount unpaid on the
shares owned by them.
A declaration that the liability of the members is limited in case of the company limited by the shares or
guarantee must be given. The Memorandum of Association of a company limited by guarantee must also state that
each member undertakes to contribute to the assets of the company such amount not exceeding specified amounts
as may be required in the event of the liquidation of the company.
A declaration that the liability of the members is unlimited in case of the unlimited companies must be given.
The effect of this clause is that in a company limited by shares, no member can be called upon to pay more than the
uncalled amount on his shares. If his shares are already fully paid up, he has no liability towards the company.
5. Capital Clause [Sec 13(4)]: This clause specifies the maximum capital which the company will be authorised
to raise through the issue of shares. The authorised share capital of the proposed company along with its division
into the number of shares having a fixed face value is specified in this clause. For example.

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The amount of share capital with which the company is to be registered divided into shares must be specified
giving details of the number of shares and types of shares. A company cannot issue share capital greater than the
maximum amount of share capital mentioned in this clause without altering the memorandum.
6. Association Clause [Sec 13(4)]: In this clause, the signatories to the Memorandum of Association state their
intention to be associated with the company and also give their consent to purchase qualification shares. According
to the Act (under Sec 12), the Memorandum of Association must be signed by at least seven persons in case of a
public company and by two persons in case of a private company.
A declaration by the persons for subscribing to the Memorandum that they desire to form into a company and
agree to take the shares place against their respective name must be given by the promoters.
Alteration of Different Clauses in the Memorandum
Memorandum of Association is a very important document in the company. It cannot be altered easily.
Memorandum can be altered to change company from public to private and vice versa, requires special resolution
of shareholders. Company can be changed from unlimited company to limited by special resolution, change from
limited to unlimited requires written consent of all the members. The compulsory clauses of the memorandum may
be altered. Name / Objects clause may be altered by special resolution (75% majority).
According to Sec 2(1), alteration includes the making of additions and omissions. Sec 2(7) - a company
cannot change its memorandum except in the circumstances and manner expressly provided in the Act.
The procedures for alteration in Memorandum are as follows:
1. Change of Name: A company may change its name by passing a special resolution and with the written
approval of the Central Government. But if changes include only the deletion or addition of the word private in
case of conversion of a public company or vice versa, it does not require approval of the central government.
Sometimes a company is registered by a name which, in the opinion of the central government, is identical with,
or too nearly resembles, the name of any existing company then it can change its name with ordinary resolution with
the previous approval of Central Government. Change in the name of the company should be communicated to the
Registrar with in 30 days of passing the resolution.
If the Registrar approves that the name which the company has resolved should be its new name, he shall on
payment of the prescribed fee issue a certificate of incorporation of the company under the new name and upon the
issue of such certificate of incorporation, the change of name shall become effective.
2. Change of Registered Office:
(1) A company altering the provisions of Memorandum relating to change of the place of its Registered Office
from one state to another shall make an application to the Central Government within three months from the date of
passing the special resolution.
(2) The company shall, not less than one month before filing any application to the Central Government:
(a) Publish a general notice, at least once, in the state in a daily newspaper published in English and in the
principal language of that state in which the registered office of the company is situated, and circulating in that state
clearly indicating the substance of the application and stating that any person whose interest is likely to be affected
by the proposed alteration of the Memorandum may intimate to the Central Government within twenty-one days of
the date of publication of that notice, the nature of interest and grounds of opposition; and
(b) Serve, by certificate of posting, individual notice(s) to the effect set out in clause (i) above on each debentureholder and creditor for a sum exceeding Rupees Fifteen Lakhs.
(c) A notice together with the copy of the application shall also be served by registered post on the Chief
Secretary to the Government of the State in which the registered office of the applicant company is situated.
(3) The application shall enclose true certified copies of the following documents:
(i) Memorandum of Association and Articles of Association.
(ii) Notice calling for the meeting with explanatory statement.
(iii) Special Resolution sanctioning the alteration by the members.
(iv) Minutes of the meeting.
(v) Copies of the latest audited Balance Sheet and Profit and Loss Account with auditors and directors report.

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(vi) Proof of dispatch and service of notice together with newspaper cutting.
(vii) Proof verifying the list of creditors
(viii) Probable effective date of change of registered office.
(4) The Central Government may call for the comments of the Registrar under whose jurisdiction the companys
Registered Office is situated.
(5) Any person intending to oppose the application shall within twenty-one days from the date of service or
publication of the notice, as the case may be, deliver, or cause to be delivered, or send by registered post, the
objections supported by an affidavit, in original, to the Central Government and shall serve a copy of the objections
on the applicant company at its registered office.
(6) The Central Government may allow the application subject to such conditions as it may deem fit.
(7) The applicant company shall file a copy of the order with both the concerned Registrars and the Registrar from
whose jurisdiction the company is transferred shall first register the same within 30 days from the date of filing.
(8) The Registrar to whose jurisdiction the company is transferred shall register the same within 30 days from the
date of registration cited. Both the Registrars shall make necessary changes in the Register and transfer the records.
(9) The company shall give notice of the address of its new Registered Office to the Registrar under whose
jurisdiction the company is now shifted within 30 days from the effective date.
The alteration may take effect even from a future date which shall not be later than 60 days from the date of the
order of the Central Government, in case the company elects so.
3. Change in the Object: This is the most important clause in memorandum and it has wide implications. Some
provisions have been made to alter this clause. Alteration of this clause requires the approval of the shareholders by a
special resolution and also need confirmation of the Central Government. In the Companies Amendment Act, 1996
Company Law Board, confirmation is not necessary to alter this clause. Alteration in this clause may be required:
To attain its main purpose by new or improved means.
To carry on some new business which may prove to be profitable to the business and also conveniently
combined with the current business.
To carry on business more economically.
To amalgamate with any other company.
To sell or dispose of whole or any part of the undertaking of the company.
The company must file a printed or type written copy of special resolution to the registrar of the companies
within 30 days of passing of the order. The alteration is effective from the date of registration of the alteration.
4. Change in Liability Clause: A company limited by shares or guarantee cannot change its memorandum so
as to impose any additional liability on the members of the company. A member of a company is bound to pay the
nominal value of shares purchased. [Sec 38] All the members must agree in writing to any alteration, which affect
the increase in their liability to contribute to share capital.
5. Change in Capital Clause: A company may increase its capital either authorised or registered according to
the provision laid down in the Sec 94 of the Companies Act, 1956. A company limited by shares can increase its
capital if so authorised by its articles, may alter its memorandum. Reduction of share capital requires special
resolution.
Passing an ordinary resolution is sufficient to make alteration for capital. Alteration in the share capital of the
company must be made by the company in general meeting. Notice of increase in the share capital of the company
and copy of resolution passed must be filed with the registrar within 30 days of passing thereof. The registrar shall
record the increase and make necessary alterations in the memorandum of the company.
When company resolves to alter its memorandum, a copy of the resolution, and the amended memorandum,
must be sent to the Registrar within 15 days, failure to do this is a criminal offence punishable by a fine.
Q. 4. (a) What is a Call on Shares? What are the essentials of a Valid Call?
Ans. Calls on Shares: The applicants are required to pay the application money which should not be less than
5% of the nominal amount of the share. They are not required to pay the full value at the time of application. The
amount should paid in installment, for example, at the time of allotment and some amount is paid in terms of call.

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The term call refers to demand made by a company on its shareholders in pursuance of its articles to pay the
whole or part of the balance remaining unpaid on each share after allotment during the lifetime of the company.
This means that when a demand is made by a company to pay allotment money, it does not come under call. The
demand made for paying the unpaid amount remaining after allotment alone comes under call.
Essentials of a Valid Call: The unpaid money on a share is a debt due from members [Sec 36 (2)]. Thus, when
the call is made the shareholder is under an obligation to pay the amount. The essentials of a valid call are:
1. A call can be made only in pursuance of a Board resolution.
2. The resolution must also specify the time before which the call is to be paid and also the amount of the call.
3. At least 14 days notice must be given for paying the call money.
4. Call can be made at any time during the lifetime of the company and even during the course of winding up.
When call is made during the course of winding up, it is the official liquidator who makes the call.
5. When the call is made, it becomes a debt due from the shareholder. On default to pay the call amount, the
company can enforce payment with interest.
(b) Give the circumstances when person ceases to be a member of a Company.
Ans. The companies act does not specifically states as to who can become a member of a company. This is
subject to the provisions of the memorandum and articles of the company. Sec 11 of the Indian Contract Act, 1872
states that any person who is competent to contract may become a member of a company.
Minor is not competent to become member of the company because an agreement with a minor is void. This can
be understood by the following case law:
An application for shares in a company was made by a father on behalf of his minor daughter. The company
registered the shares in the name of the daughter described as minor. The company went in to liquidation. It was held
that the allotment was void and neither the minor nor the father could be held liable as contributories. [Palaniappa
Mudaliar v. Official Liquidator, Pasupati Bank Ltd.1942]
Termination of Membership: When the name of a person is removed from the register of members of the
company, he ceases to be a member of the company.
1. When a member surrender his shares, where surrender is permitted.
2. In case of death of a member, his share is transmitted to his legal representatives.
3. When the court passes an order for the purchase of shares of a member.
4. If the members shares are forfeited because of non-payment of calls or other reasons. Membership terminates
on forfeiture of shares.
5. When a member is declared insolvent, his shares vest in the official receiver or assignee.
6. Enforcement of lien.
7. When the share warrants are issued in exchange of fully paid shares, his name is removed from the register of
members.
8. When he transfers his shares to another person and transfer of shares is duly signed and registered by the
company.
9. Repudiation of contract: If redeemable preference shares are redeemed.
Q. 5. (a) Write an explanatory note on Quorum.
Ans. Quorum refers to the minimum number of members who must be present at a meeting in order to constitute
a valid meeting. A meeting without the minimum quorum is invalid and decisions taken at such a meeting are not
binding. The articles of a company may provide for a quorum without which a meeting will be construed to be
invalid. Usually, the quorum is fixed by the Articles.
The quorum shall be two members personally present in the case of a private company and five in the case of
public company. The quorum for the Board meeting shall be one-third of the strength (any fraction to be rounded off
to one) or two directors whichever is higher. However, the Articles may provide a larger number.
According to Sec 174(3), if within half an hour from the time appointed for holding a meeting of the company,
a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved. In any other
case, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such other
day and at such other time and place as the Board may determine.

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If at the adjourned meeting also, a quorum is not present within half an hour from the time appointed for
holding the meeting, the members present shall be a quorum.
In case the Company Law Board calls or directs the calling of a meeting of the company, when default is made in
holding an annual general meeting, the Central Government may give directions regarding the quorum including a
direction that even one member of the company present in person, or by proxy will be deemed to constitute a meeting.
Similarly, the Company Law Board may direct a meeting of the company (other than an AGM) to be called and
held where for any reason it is impracticable to call a meeting and direct that even one member present in person or
by proxy will be deemed to constitute a meeting.
(b) Explain the grounds of compulsory winding up of a Company.
Ans. When the winding up of the company is carried out by the order of court, it is said to be compulsory
winding up. Section 433 of the Companies Act states the circumstances in which company may be wound up by
Tribunal.
Grounds for Compulsory Winding up or Winding up by the Tribunal/Court
Following are the circumstances in which company can be wound up:
If the company has, by a Special Resolution, resolved that the company be wound up by the Tribunal.
If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting. A
petition on this ground may be filed by the Registrar or a contributory before the expiry of 14 days after the last day
on which the meeting ought to have been held. The Tribunal may instead of winding up, order the holding of
statutory meeting or the delivery of the statutory report.
If the company fails to commence its business within one year of its incorporation, or suspends its business
for a whole year. The winding up on this ground is ordered only if there is no intention to carry on the business and
the Tribunals power in this situation is discretionary.
If the number of members is reduced below the statutory minimum i.e. below seven in case of a public
company and two in the case of a private company.
If the company is unable to pay its debts. According to Sec 434 of the Companies Act, the circumstances in
which company shall be deemed to be unable to pay its debts are as follows:
(a) If a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one lakh
rupees, has served on the company, by causing it to be delivered at its registered office, by registered post or
otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three
weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the
creditor;
(b) If execution or other process issued on a decree or order of any Court or Tribunal in favour of a creditor of
the company is returned unsatisfied in whole or in part; or
(c) If it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining
whether a company is unable to pay its debts, the court shall take into account the contingent and prospective
liabilities of the company.
The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand
of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if
it is signed by any such agent or legal adviser or by any member of the firm.
If the tribunal is of the opinion that it is just and equitable that the company should be wound up.
Circumstances under which court has ordered winding up of the company on the ground of just and equitable
are as follows:
1. When the object of the company for which the company is formed is illegal or it become illegal subsequently.
2. When the business cannot be carried on except at a loss.
3. When there is complete deadlock in the management.
4. When the companys main object has been failed and has become impossible to run business.
5. When there is mismanagement of funds by the directors of the private company or lack of confidence in the
management.

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Tribunal may inquire into the revival and rehabilitation of sick units. If its revival is unlikely, the tribunal
can order its winding up.
If the company has made a default in filing with the Registrar its balance sheet and profit and loss account
or annual return for any five consecutive financial years.
If the company has acted against the interests of the sovereignty and integrity of India, the security of the
State, friendly relations with foreign States, public order, decency or morality.
[Provided that the Tribunal shall make an order for winding up of a company on application made by the
Central Government or a State Government]

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