COMPANY LAW & SECRETARIAL PRACTICE – II

UNIT – I

SECTION-A

1. Define charge?

Ans: “Charge” means an interest or lien created on the property or assets of a company or any

of its understandings or both as security and includes a mortgage.

2. What is mortgage?

Ans: Mortgage is a transaction where the borrower without transferring possession of the

immovable property of which he is a owner transfer his interest in specific immovable

property as security for the loan he has borrowed or to be borrowed from the lender.The

borrower is known as mortgagee.

3. Define Debenture.

Ans: Section 2 (12); Debenture has been defined “as one that includes debentures stock,

bonds and any other security of a company, whether constituting charge on the company’s

assets or not which either creates a debt or acknowledgement and any document which fulfils

either of these conditions is a debenture”.

4. What is a fixed charge?

Ans: A fixed charge is a charge created over specific identifiable movable or immovable

properties given as securities in favour of the creditor by the debtor. A fixed charge possesses

legal title to certain specific assets and company loses the right to disposed the property,

though the company possess the property.

5. What is floating charge?

Ans: A floating charge is a charge created over the entire assets of the company which may

be both movable and immovable properties, subject to certain terms and conditions. In other

words it is a charge on the current assets of the company, present or future which changes

from time to time in ordinary course of business. Eg: bills receivable.

6. What is “paripassu” clause?

Ans:paripasu clause means a clause that is found in the debenture deed in respect of

repayment of loan advanced by third party creditors to the company on priority basis. The

term paripasu clause signifies discharge of loan to several creditors on equal footing, on

property basis. This is to say, first recipients of loan to be discharged first in order of the

series.

7. Who is shareholder?

Ans: A shareholder is one who participates in contributing towards equity capital. He is an

investor. A shareholder is entitled for dividend payable annually subject to availability of

distributable profits.

8. Who is debenture holder?

Ans: A debenture holder is a participant in respect of borrower capital. He is a creditor. A

debenture holder has to advance the entire money.

9. Give the meaning of ultra vires borrowing?

Ans: The borrowers can borrow up to the limit specified in the memorandum / Articles of

association.Any borrowing in excess of the limit is ultra vires the company.

10. State any two advantages of debentures.

Ans: (i) Lower rate of interest

(ii) Trading on equity.

SECTION – B

1. How are borrowings classified?

Ans: Borrowings can be classified as;

(i) Borrowings which are ultra vires the company.

(ii) Borrowings which are considered ultra vires the directors.

Borrower’s ultra vires the company: Any borrowings which are beyond the powers of the

company are not recognised as debts against company. In such cases, the lender of the

money cannot sue the company for recovery of excess money borrowed by it.

Borrowings ultra vires the directors but ntra vires the company: The directors might have

borrowed money exceeding the limit authorised under articles of association. Such

borrowings are said to be beyond their powers since they have violated the articles. But

the articles can be amended at any time. Hence, by a specoal resolution, the borrowings of

the directors exceeding the limit could be ratified by the general meting of the company.

2. What is the purpose of registration of charge?

Ans:

(i) The main purpose of registration of charges is only to put the third parties or

prospective lenders on notice that a specific asset or property of the company has been

given as security and a loan has been raised by the company over it. This will be a notice

to a third party or a prospective creditor not to advance further loan on the security of the

same property.

(ii) Secondly, the charge holder can also feel secured over the loan he has advanced to

the company because no loan could be advanced further on the property which has been given as

security by the company. They also cannot be sold of otherwise disposed of without notice to the

charge holder concerned. According to section 125(4), the following charges must be registered with

registrar of companies.

a) A charge on the issue of debentures.

b) A charge on the uncalled capital of the company

c) A charge on any immovable property

d) A charge on the book debts of the company

e) A floating charge on the undertaking or any property of the company including

stock in trade

f) A charge on calls made but not paid

g) A charge on the goodwill or a patent or licence under a copyright.

3. What are the duties of company secretary with regard to borrowing powers and

loan advances?

Ans: (i) The company secretary must ensure the condition as laid down under the section 293

is duly complied with. That is the company cannot borrow funds exceeding the paid-up

capital and free reserves.

(ii)The money advanced by the company towards loan must be instrict compliance with

the section 295. That is to say, loans to the directors or to its holding company or

subsidiary or to a private company in which the director is occupying the position of a

director cannot be sanctioned without the approval of central government proceeded by

passing a special resolution to this effect.

(iii) The secretary must ensure that the loans advanced by the third party creditors are

adequately supported by securities.

(iv) The charge created over the assets must be registered under section 124 and a

book must be maintained for registration of charges.

(v) It is imperative on the part of a company secretary to maintain a separate register

for debenture holders duly recording the interest paid on the loan advanced.

4. Discuss the differences between Mortgage and Charge

Mortgage Charge

1 Transfer of interest:

There is a transfer of interest in

specific property under mortgage.

In charge, the repayment of a debt is secured

out of particular property without

transferring any interest in the property.

2 Duration:

A mortgage is usually for some fixed

time.

Charge may be perpetual

3 As per section 124:

Mortgage is a part of charge

The expression charge includes mortgage.

5. What is the debenture trust deed? What are the advantages of debenture trust deed

Ans: When a company issues Mortgage debentures, it has to execute a deed mortgaging

the assets in favour of the debenture-holders.

As the debenture-holders are the individuals scattered over a wide area and cannot act as

a single person, the trust deed is executed in favour of trustees appointed to act on behalf

of the debenture-holders. Under the trust deed, the assets of the company are mortgaged

in favour of the trustees. The trustees hold the assets in trust for and on behalf of the

debenture-holders and in case of default by the company, they take prompt legal action to

safe guard the interest of debenture-holders.

ADVANTAGES OF TRUST DEED:

a. Under the trust deed, interests of the debenture holders can be fully secured by

legal or equitable mortgage on immovable assets or floating mortgage on other

assets. Without such an arrangement legal interest in the assets could not have

been vested in thousands of individual debenture holders.

b. The legal interest being vested in the trustees, the company cannot create a

subsequent mortgage having priority over the trustees.

c. In case of default, trustees can take quick and effective steps to safeguard the

interests of the debenture holders, which is not possible for individual debenture-

holders scattered widely.

d. The trustees are usually given power to sell and realize the security without the

intervention of the court or to appoint a receiver for carrying on the business of

the company if necessary.

e. The trustees are empowered to keep with over the affairs of the company and to

see that the property mortgaged is insured and maintained in proper condition.

f. With the consent of the trustees, the company can also exercise powers of sale,

lease or exchange of the mortgaged property, thus putting it to advantageous use

without affecting the interest of the debenture holders.

SECTION – C

1. Distinguish between shareholder and debenture holder

Ans:

Shareholder Debenture holder

1 He is an investor He is a creditor

2 He participates in contributing towards

equity capital.

He advances loan to the company repayable

on or after a particular date

3 He is entitled to dividend He is entitled to interest

4 The liability is limited to the extent of

the face value debenture of the share

There is no liability in case of holder

5 Shareholders are eligible to participate

in the company meetings

Debenture holders are not entitled to attend

any meeting except creditors meeting.

6 Shares may be partly paid Debentures are fully supported by

consideration representing the loan

advanced by the debenture holder to the

company

7 Only two types of shares are issued

under company law:Equity shares and

preference shares.

Debentures are various types:

Bearer and registered debentures;

redeemable and irredeemable; convertable

and non-convertible; secured and

unsecured.

8 All equity shareholders are treated alike

only preferential right to dividend and

repayment of capital

Debentures are sometimes issued in series

with paripasu clause which means the

debentures falling under earlier series enjoy

a prior claim the regard to repayment of

loan.

2. How are debentures classified? Explain or Explain the types of

debentures?

Ans:

A. Classification according to transferability:

• Bearer Debentures – A bearer debenture conveys title or ownership by mere

delivery and transfer of possession. Mere possessionconveys ownership. It is

payable to the bearer of the deed. It is termed as negotiable instrument and is

transferable by delivery. A bonafide transferee for value is not affected by

any defect in the title of transfer.

• Registered Debentures – These debentures are registered with the company.

The amount of such debentures is payable only to those debenture holders

whose name appears in the registrar of the company.

B. Classification according to securities:

• Secured Debentures – These debentures that are held by persons who are

said to be secured creditors.This is due to the reason that secured debentures

are supported with fixed property or assets that are given as security and

charged therein for loan obtained on the said debentures. It is also called

mortgaged debentures.

• Unsecured Debentures or Naked debentures – These debentures are not

supported by any security or assets with which charge is created for the said

debentures. Therefore, they are known as naked or unsecured debentures. The

holders of these debentures are ordinary creditors or unsecured creditors of

the company.

C. Classification according to performance:

• Irredeemable or Perpetual Debentures – When the principal sum is made

payable only at the time of winding up, then such debentures on which the

loan is obtained are known as irredeemable debentures.

• Redeemable Debentures – When a period is fixed for repayment of

principal, sum on the debenture, then debenture is known as redeemable

debenture.

D. Classification according to convertibility

• Convertible or fully convertible or partially convertible Debentures –

The debenture holders are given the option to convert the same into equity

shares at certain rates of exchange after a particular period. Once the holders

of debentures convert them into equity shares they are no longer creditors of

the company, but became members of the company.

The former could be fully exchanged for shares and in the latter only a

portion of it could be exchanged for shares.

• Non-convertible debentures – In this kind of debentures, option is not given

to holders of debentures into shares. These debentures have to be paid on the

due date of maturity. Sometimes, even non-convertible debentures also could

be converted as shares according to the direction of central government

through company law board.

E. Classification according to priority:

• Debenture without PariPassu clause – To be repaired according to the date

on which they have been issued.

• Debenture with PariPassu clause – This clause would be treated equity on

par with one another. Repayment of loans would be made in proportionate

order among them. If the debentures are issued on the same day and are

serially numbered, they would rank in numerical order.

3. State the provisions relating to registration of charges. List out the

charges that are to be registered.

Ans: As per sec. 124 of the Act the expression “Charge” also includes a

“Mortgage”.

As per sec 125, following charges are required to be registered with the

Registrar of companies within thirty days of their creation in order to be valid

against the creditor and the liquidator.7 days more may be allowed by the

registrar if there is sufficient cause for delay.

a. A charge for the purpose of securing any issue of debentures.

b. A charge on the uncalled share capital of the company.

c. A charge on any immovable property, or any interest there of

d. A charge on any book debts of the company

e. A charge not being a pledge, on any movable property of the

company.

f. A floating charge on the undertaking or any property including in

stock-in-trading.

g. A charge on calls made but not paid.

h. A charge on a slip or any share in a ship

i. A charge on goodwill or a patent, on a trade mark, or on the copy

right or a licence there under.

It is the duty of the company to send the above particulars to the Registrar, but registration may also

be affected on the application of the creditor who may recover the registration fee from the company.

UNIT – II

[COMPANY MANAGEMENT]

SECTION – A

1. Who is a Director?

Ans. A director is one of the person constituting the board and he is said to be responsible for

controlling regulating and directing the company.

2. Who are board of directing?

Ans. The directors collectively constitute the board and they are known as board of directors.

(Sec 252 (3)

3. Who is an alternate director?

Ans. An alternate director must act in the place of the original director for a minimum of at

least 3 Months, With regard to the appointment of alternate director arises only in the case of

original directors leaving India to a foreign country for duration of not less than three months.

4. What is audit committee?

Ans. Every public company having paid up share capital of not less than five cores of rupees

shall constitute a committee of the board known as audit committee. It shall consist not less

than three directors and such number of directors as the board may decider of the members

shall be directors. The audit committee shall have a chairman elected by the members.

5. Define sole selling agent?

Ans. Sole selling agent means an exclusive agent appointed over an area in which no other

person has any right or privilege to act agent. He has monopoly over the area allotted to him.

He has exclusive jurisdiction to transact business in the area allotted to him.

6. Define a managing director?

Ans. Section 226 defines “A managing directors as a director, who, by virtue of an agreement

with the company or of a resolution passes by the company in general meeting or by its board

of directors”.

7. Define corporate governance?

Ans. Corporate governance is defined as the responsibility of running a corporate unit

effectively, economically and above all being trust worthy to the people who have reposed

their faith, hope and future as shareholders, creditors, employees and patronizing consumers.

SECTION – B

1. What are the difference between a manager and managing director?

Ans:

S.no Manager Managing Director

1 A manager need not be a director of

the company.

A managing director in order to occupy

the said position must be a director of

the company

2 A manager is vested with power to

manage the whole or substantially the

whole of the affairs of the company.

A managing director has substantial

powers of management as given under

the articles or as approved by the board

of directors.

3 Maximum remuneration payable to a

manager cannot exceed 5% of the

annual net profits (section 387)

In case of managing director,where there

is morethan one, the maximum limit is

fixed at 10% of annual net profits

[section 309(3)]

2. What are the differences between whole time director and managing director?

Ans:

S.no Whole time Director Managing Director

1. A whole time director is just an

ordinary employee of the company

of management and has no

discretionary power.

A managing director is entrusted with

substantial power of management to take

decisions with discretion.

2 The appointment of a whole time

director requires the sanction of the

shareholders, by means of a special

resolution except when he is

appointed in the capacity of trustees

for debenture holders or manager.

The appointment of a managing director

does not require the consent of the

shareholders

3 A whole time director could be

appointed along with a managing

director

A managing director and a whole time

director cannot exist simultaneously

(section 197-A)

4 A whole time director being a full

time employees of the company

cannot serve elsewhere

A managing director can be a managing

director for more than one company.

5 There is no time restriction with

regard to the duration of period of

employment.

A managing director of a public company

or subsidiary thereof can be appointed as

such for maximum period of only 5 years.

3. Detail the short notes on qualification of directors or who is eligible to become

director?

Ans: A Director:

(a) A director can only be an individual.

(b) Must be competent to contract

(c) Must possess share qualification.

A schedule I table a regulation 66 states that the qualification of a director shall be the

holding of at least one share in the company. If a direction fails to acquire his

qualification shares within 2 months from the date of his appointment, his office is

deemed to have become vacant. Furthermore, he will be liable to pay penalty for

continuing as a director after such prescribed period.

4. Explain the short note on disqualification of directors?

Ans: The following persons cannot be appointed as directors (section 274)

(a) A person of unsound mind duly certified by a court of competent jurisdiction to be

insane.

(b) A person who is an undercharged insolvent.

(c) Any person who has been sentenced to at least 6 months of imprisonment for an

offence involving moral turpitude and 5 years have not elapsed from the date of

expiry of the sentence.

(d) Where a person has not paid any call money on his shares for a period of 6 months.

(e) A person who has applied to be adjusted as an insolvent.

(f) When a person has indulged in fraud or unlawful methods in the matter of managing

and administering the companies.

5. Describe the role or legal status of directors?

Ans: According to L.J. Bower, “Director are described sometimes as agents, sometimes

as trustees and sometimes as managing partners”.

I) Directors as agents:

The director is normally regarded as an agent of the company because he

represents the company in many transactions. Further, he signs all the deeds and

agreements with the third parties for and on behalf of the company.

II) Directors as employees:

A director who carries out action in several decisions of the board cannot be

designed as employees of the company because

(a) There is no contract of employment between the director and the

company.

(b) They are not paid any regular monthly remuneration for the service

rendered by them.

III) Directors as trustees:

The directors being endowed with responsibility of managing and

administering the company, is considered as a trustees for safeguarding the

capital and securing the assets of the company.

Directors are trustees so far as safeguarding and securing the capital of the

company and they are said to be the agents of the company in respect of entering

into transactions with outside parties.

(a) The directors are trustees to the company’s capital and property or assets

acquired by it.

(b) Directors are also considered as trustees of the power granted and sanctioned

under the companies act and articles of association.

6. What are the powers exercised by the board of directors?

Ans: The board of directors of the company by means of passing resolution at the

meetings of the board.

(a) The power to make calls on shareholders in respect of money unpaid on their shares.

(b) The power to issue debentures.

(c) The power to borrow money otherwise on debentures.

(d) The power to invest the funds of the company

(e) The power to take loans.

7. Describe the provisions of Act for the Removal of directors by shareholders before

the expiry of their term of office?

Ans: Section 284 of the Act provides for the removal of directors by the company before

the expiry of their term of office. The procedure laid down is;

(i) A special notice of 14days is required to be given to the company to move an

ordinary resolution to remove the director and to appoint another director in his place.

(ii) On receipt of notice, the company must inform all the members of the proposed

resolution. It must also send a copy of the notice to the director proposed to be

removed.

(iii) If the director concerned wishes to make a representation he may send it to the

company and the company in turn sends copies of the representation to the members,

together within the notice of a meeting.

(iv) If the representation is not received by the company within a reasonable time, the

representation may be read out at the meeting. Further, the director concerned can

speak at the meeting against his removal.

(v) At the meeting, two ordinary resolution will have to be passed;one resolution for the

removal of the director and another resolution for the filling up the vacancy. The new

director will hold office till the date his predecessor would have held it.

8. How a managing director is appointed?

Ans: Appointment of Managing Director:

i. Appointment (sec 269): compulsory appointment of managing or whole time

director or manager: Every public company or a private company which is z

subsidiary of a public company having a paid-up share capital of Rs.5 crores or

more shall have a managing or whole time director or a manager.

ii. Prior approval of the central government unless appointment is in

accordance with the conditions specified in schedule XII: No such

appointment shall be made except with the prior approval of the central

government. However no such approval is required where the appointment is

made in accordance with the conditions specific is schedule XII.

Schedule XII prescribes conditions to be fulfilled for the appointment of a

managing or whole time director or manager without the approval of the central

government. It also lays down the remuneration payable to managerial personnel.

Approval, of the central government is not required in the case of appointment of

managerial personnel made on or after 15th day of June 1988,in accordance with

the conditions specified in schedule XII to the Act.

9. Define Managing Director. What are disqualifications of Managing Director?

Ans: Section 226, defines, “A managing director as a director, who, by virtue of an

agreement with the company or of a resolution passes by the company in general meeting

or by its board of directors. Which would be otherwise be exercised by him and includes

a director occupying the position of a managing director by whatever name called”.

Disqualifications of Managing Director: No person shall be appointed a managing or

whole-time director who-

i. Is a discharged insolvent, or has at any time been adjudged an insolvent.

ii. Suspends, or has at any time suspended, payment to his creditors or makes or has

at any time mode, composition with them or

iii. Is or has at any time been, convicted by a tribunal of an offence involving moral

turpitude.

The disqualifications which apply to directors also apply to a managing

director.

SECTION – C

1. What are the duties of directors?

Ans: Duties and obligations of directors could be classified under heads:

a) Discharge of statutory duties

b) Discharge of other duties

(i) Discharge of statutory duties

• Fiduciary duties

• Duties of care, skill and diligence

Fiduciary duties: Fiduciary duties impose the necessity of discharging the duties honestly and

bonafide for the benefits of the company.

Duties of care, skill and diligence: The directors are expected to discharge their duties with

reasonable skill, care and diligence as a normal businessman would act. The amount of care and

diligence very much depends upon the nature of company’s business and circumstances of the case.

For example, the directors should not enter into any agreement which would involve risk and

liabilities to the company.They should keep a vigilant watch against the use of capital,security of the

assets an safeguarding the properties of the company.

Statutory duties of directors are enumerated below:

a. To be ensured that the application money received from the applicants for shares is deposited

in a schedule bank,till the certificate to commence business is obtained under section 149.

b. To forward a copy of the statutory report atleast 21 days before the statutory meeting to every

member of the company and to the registrat (section 165)

c. To call for annual general meeting every year and submit the annual report to the general

body in order to get its approval. Even if such meeting is not held, the return must be

submitted to the registrar within 15 days from the due date on which the meeting has to be

held. (section 166)

d. To convene extraordinary general meeting on the requisition of the prescribed number of

members. (section 169)

e. To co-operate with the court and liquidation in case of winding up of the company.

f. To take steps for filling declaration of solvency in the case of voluntary windingup.

g. To convey the board meeting at least four times in a year and once in three months.

Other duties:The board of directors are expected to discharge the following duties;

a. They must ensure that they are trustees for the capital of the company contributed by

shareholders and they must not make any secret profits.

b. They are responsible for submitting returns under Income Tax Law, Sales Tax, M.R.T.P.,

Acts and other such miscellaneous acts.

1. What are the liabilities of directors?

Ans: The directors are liable to make good the loss to the company.such

occasions may arise:

a. When they enter into contracts ultra vires the memorandum.

b. When they make secret profits or use of company’s funds for their

personal purpose and commit breach of trust.

c. When they make secret profits or use of company’s funds for their

sell to the company at a higher price dishonestly.

d. When they act negligently in the performance of their duties by

paying dividends when there id no profits.

e. When they act in such a way as to misappropriate company’s assets

wilfully and thereby indulge in misconduct.

f. When the directors abstain themselves without leave from attending

the board meetings.

g.

Liabilities to these parties: The directors are liable to the parties

a. For mis-statements or concealments in prospectus.

b. For signing negotiable instruments without mentioning name of the company for giving false

guarantee or warranty.

c. For indulging in such acts of fraud to as to cheat the company and the public.

Criminal Liability: The directors may incur criminal liability for the following acts of defults:

a. Mis-statements in prospectus (section 63)

b. Failure to file return of allotment (section 75)

c. Failure to intimate the alteration in capital structure to the registrar of companies (section 95)

d. Failure to issue share certificated (section 113)

e. Default in filling with the registrar in respect of charges created in favour of third party

creditors.

f. Failure to keep member’s ans debentures holders registers (section 150)

g. Default in holding annual general meeting (section 168)

h. Failure to file annual returns with audited balance sheet before the annual general meeting

(section 210)

i. For holding office of director in more than 15 companies (section 275)

j. For securing loan without the approval of central government.

2.Detail the notes on director or Removal of directors?

Ans: Directors may be removal or terminated by

a. Shareholders (section 284)

b. Central government (section 388 E)

c. Company law board (section 402)

Removal of shareholders: A director may be removed by shareholders by passing an ordinary

resolution before he could serve the full term of his office. Directors appointed by the central

government, directors employed in private companies or a nominee director representing the

banking company or financial institutions like U.T.I, L.I.C, and S.B.I cannot be removed by

shareholders. However, shareholders cannot be prevented on restrained from calling a general

meeting to remove the existing directors and appoint new directors.

A removed director cannot be reappointed but can claim compensation, for wrongful

termination of the appointment.

Removal by central government: Based on reference made by the company Law board, on the

grounds of alleged fraud, gross negligence or breach of trust, the central government by order

may remove any director from his office against whom such allegations are proved (section

388 B). The person so removed cannot be allowed or become a director in any company for a

period of 5 years. No compensation be paid to the terminated director.

Removal by company law board: The company law board has and the power to remove a

director to prevent oppression and mismanagement. It may terminate, set aside or modify any

agreement between the company and managing director or any other director on manager.

Terminated managerial personnel cannot sue the company for damages or compensation for

the loss for his office. He cannot also be re-appointed for a period of 5years from the date of

the order. The company law board could grant exemption from this order.

Unit-III

Section –A

1. What is a Statutory Meeting?

Ans. Statutory meeting is considered to be the first meeting of the shareholders f a public

company and is held only once in the life of the company. The term “Statutory “Implies that

their meeting is mandatory.

2. What is annual general meeting?

Ans. The annual general meeting is intended to reveal to the shareholders and general public

as to how far the company has performed its business or activities relating to the procedure

year. The audited balance sheets including profit and loss account are placed before the

shareholders for their security and approval.

3. What are the requirements for a valid meeting?

Ans.

� Proper convening authority

� Proper notice

� Requisite quorum

� Agenda

� Proper chair person

� Motion and resolution

� Minutes of the meeting

4. What is a quorum?

Ans. Quorum signifies the minimum number of members who must be present in order to

constitute a valid meeting. The quorum will be decided based on the number of members on

the date of the meeting which are as follows.

Number of Members Quorum

Below 1000 5

1000-5000 15

Above 5000 30

If no quorum is present in the general meeting, the proceedings will become invalid. The

quorum for general meetings is required to be present at the time when the meeting proceeds

to do business.

5. What is Agenda?

Ans: Agenda is “a list of things to be dealt with especially at meeting” it is a statement of

business to be transacted at a meeting.

6. What is a poll?

Ans: Poll is a system of ascertaining the sense of the meeting in relation to the number by

shares held by a member. A poll may also be demanded even before the declaration of the

result on show of hands. (section179)

7. Define motion?

Ans: A motion is a formal proposition which also means a proposal on any item contained

in the Agenda. It is initiated by a member for deliberation, discussion and taking decision at a

meeting. Passing a motion or moving proposal is said to be the preliminary step for passing a

final resolution a motion or moving a proposal is said to be the preliminary step for passing a

final resolution

8. What are the kinds of resolutions passed at the general meeting?

Ans:

� Ordinary Resolution

� Special Resolution

� Resolution requiring Special notice

9. What is an ordinary Resolution?

Ans: An ordinary resolution is the one which the votes that are cast in favour of the

resolution is more than the votes cast against it. It is supported only by numerical majority.

Ordinary resolutions are passed for transacting ordinary business.

10. What is special Resolution?

Ans: Special resolutions are passed for transacting special business. Unlike an ordinary

resolution which requires numerical majority, in a special resolution the votes that are cast in

favour of the resolution are three times more than the votes that are cast against it.

11. What is Minutes of Meetings?

Ans. The terms minutes means “Official summary of the proceedings of a meeting:. The

minutes convey the highlights of the decisions arrived at a meeting. It precisely pictures the

event that takes place in the meeting in concise terms.

There are two types of Minutes:

� Minutes of natation.

� Minutes of resolution.

12. What do you mean by proxy?

Ans. Proxy is a person appointed by the shareholder to attend the meeting on his behalf. Any

member of a company who is entitled to attend and vote at a meeting is entitled to appoint

another person as his proxy to attend and vote at the meeting on his behalf. A Proxy need not

be a member of the company. Has no right to speak at the meeting. He has a right to demand

a poll or join in demanding poll. The right of a proxy to vote arises only on a poll.

Section-B

1. What are the contents of statutory report?

Ans.Contents of Statutory Report:

1. The total number of shares allotted distinguishing shares allotted otherwise than for

cash including partly paid up shares.

2. Total amount of cash received by the company in respect of the shares allotted.

3. An extract of receipts and payments up to a date within seven days of the date on

which the report is prepared with a balance of cash in hand.

4. The report also must disclose the names. Addresses and occupations of the

company’s directors, auditors, manager or managing director, manager, secretary,

banker, broker and underwriter etc.

5. The report should also mention the contract between the company and managerial

personnel between the company and third parties etc...

6. The report must mention as to what extend the underwriting contract has not been

carried out and the reasons thereof.

7. The report should also disclose the arrears of call including the amount due from

directors, managing directors or managers.

8. The report should also mention the commission paid to brokers and underwriters.

2. What are the businesses transacted in the statutory meeting?

Ans.

• Constitution of board of directors.

• Selection of directors, revealing their identity, qualification and business

background to the shareholders.

• Finalisation of contract between the company and the managerial personnel.

• Appointment of auditor, underwriter, broker, banker solicitor.

• Contract between the company and third parties for sale, supply, for

procurement of materials or for rendering service to third parties.

• Present project launched by the company is disclosed to shareholders.

• A statement of receipts and payment duly prepared just seven days before the

convening of the statutory meeting has to be disclosed to the shareholders

attending the meeting.

3. What are the objectives of statutory meeting?

Ans.

a) To obtain the approval of the shareholders in respect of the statutory

report submitted to them.

b) To constitute legally the board of directors to manage the company.

c) To obtain the approval of the shareholders regarding the appointment of

directors or managing directors or managers, auditor, company secretary

banker, broker, solicitor etc..

d) To facilitate the shareholders to become conversant with the business of

the company and also acquaint themselves as regards the amount realised

by way of capital.

4. Explain the legal provision regarding board meeting?

Ans. As per the section 285 of the company Act, 1956, a company should hold a board

meeting one in every three calendar months and there should be four such meeting every

year.

Notice: Notice of the board Meeting must be given in writing to every director at their

usual address in India. If notice of the board of directors is invalid and the resolution

passed at such meeting is in operation.

Time and place: The companies Act, 1956 does not specify about the time and place of

board meeting can be held at any place and outside business hours, but an adjourned

board meeting cannot be held on a public holiday.

Agenda: Agenda should be circulated in advance to the directors.

Minutes: Minutes are the records of the meeting. It must be recorded within 30days of the

conclusion of the meeting and numbered consecutively. The minutes of the board

meetings are not open to the inspection for the members. The minutes must be duly

signed by the chairman of the meeting.

Quorum: Quorum signifies the minimum number of members who must be present in

order to constitute a valid meeting. The quorum for a board meeting shall be one third of

the total strength of the directors or two directors whichever is higher. The quorum is

requires to be present throughout the meeting.

5. What are the conditions for recording minutes?

Ans.

a) It must be in third person and free from personal impression and commands.

b) It must be brief. Brief should be at the cost of lucidity and result in paucity of

information.

c) It must not be ambiguous and repetitive in nature.

d) The minute’s book must be in the form of a note book duly stitched and each page

containing the page numbers in chronological order.

e) The minute’s book must be in the form of a notes book duly stitched and each

page containing the page numbers in chronological order.

f) Each page must be duly signed by the chairman with date.

g) The minute’s book must be kept in the safe locker and the custody of the

secretary.

6. What are the duties of the chairman of meeting?

Ans.

1. To see that the meeting has been properly convened and that the required quorum is

present.

2. To take care that the statutory requirements as laid down by the act and the articles

are complied with.

3. To preserve order at the meeting

4. To take care that the proceeding are conducted in a proper manner.

5. To make sure that the views of the directors are properly ascertained with regard to

any question before the meeting.

6. To act in good faith and to be impartial in the performance of the duties.

7. To see that proper ‘minutes’ of proceedings are kept ant to sign them.

8. To adjourn the meeting if necessary.

9. To declare the meeting closed.

7. State the secretarial duties regarding proxy.

Ans. A member who is entitled to vote and attend the meeting is entitled to appoint a

proxy need not be a member in a company since the members have contributed to the

capital.

• The appointment of proxies must be done in accordance with the articles of

association

• A proxy shall not be allowed to vote expect on poll subject to the articles.

• An appointment of proxy must be in (article 62 of table A and sec 176(6). The

proxy form must be duly signed by the member it is better that proxy signature is

duly attested by the attesting witnesses in order to prevent fraud. If the appointing

person a corporate body.

• A duly signed stamped and completed proxy form must be filed with the

registered office of the company not later than 48 hours before the

commencement of the meeting this the one to enable the secretary of the

company to verify the give ness of the appointment of proxy.

8. Describe the guidelines relating to the issue of debentures?

Ans. The guidelines have been given for the issue of debenture by SEBI. Guidelines will

be applicable for the issue of convertible and non-convertible debenture by public limited

as well as public sector companies.

1. Debentures can be issued for the following:

� For starting new understanding

� Expansion or diversification.

� For modernisation

� Merger/amalgamation which has been approved by financial

institution.

� Restricting of capital

� For acquiring assets.

� For increasing resources of long term finance.

2. Issue of debentures should not exceed more than 20% of gross current asset and also

loans and advances.

3. Debt equity ratio should not exceed 2:1 but this condition will be relaxed for capital

intensive projects.

4. Any redemption of debenture will not commence before 7 years, since the

commencement of the company.

5. For small investor for value such as Rs. 5,000 payment should be made in

instalments.

6. With the consent of SEBI, even non-convertible debenture can be converted

debentures only.

7. The face value of debentures will be Rs.100 and it will be listed in one or more stock

exchanges in the country.

8. Secured debentures will be permitted for public subscriptions.

SECTION-C

1. What are the duties of secretary with regard to statutory meeting?

Ans. Duties of the secretary: Before the meeting:

1. He must observe and adhere the time factor with regard to convening the meeting.

2. He must not only get prepared the statutory report, but ensure that it is attached with the

notice sent to the shareholders.

3. The statutory meeting must be preceded by the board meeting and the directors must

approve the statutory report.

4. The secretary must ensure that the statutory report is duly printed and see that it is

attached to the notice convening the meeting. Notice must be given 21 days before

convening the meeting.

5. Agenda of the meeting must be prepared in consultation with the chairman.

6. He must prepare the list of shareholders or members showing their names, occupation,

address and the numbers of shares held by them in order to disclose the same before the

meeting.

7. Venue, seating arrangement, proxy register, attendance register including refreshments

are the responsibilities of the secretary.

Duties of the secretary during the meeting:

1. Must ensure that quorum is present and all the persons attending the meeting are

entitled to attend the meeting.

2. Must read the notice of the meeting. If directed by the chairman, must read the

statutory report.

3. Must produce the list of members of the company

4. Must render assistance to the chairman for the proper conduct of the meeting, and

should supply necessary information to the chairman of explaining facts before the

meeting.

5. Must take the notes of proceedings in the meeting

Duties of secretary after the meeting:

1. Must prepare the minutes of meeting.

2. Must record the resolutions passed during the meeting.

3. Must submit the copy of the resolution passed at the meeting with statutory report

duly signed by the chairman and the same should be filed with registrar of companies

within 30 days from the conclusion of meeting.

2. What are the duties of secretary with regard to annual general meeting? Or explain the

provisions regarding annual general meeting.

Ans. Business transacted in the annual general meeting.

a) The annual accounts consisting of audited balance sheet, trading account and

profit/loss appropriation account covered by director’s report is approved and

adopted by passing ordinary resolution in the meeting.

b) The dividend as recommended by the directors has to bbe approved by the meeting

and cannot be enhanced.

c) The statutory auditor is appointed in the general meeting whose terms of office

continues upto subsequent annual general meeting.

d) The remuneration of auditor is fixed as per rules and norms of the companies act and

practice.

e) In the place of retiring directors, new directors are appointed. A retiring director can

also stand for re-election.

f) Any other business other than the above ordinary business could be transacted

subject to the fact that adequate notice has been given to the members of the

company.

Duties of the secretary during the meeting:

i. Ensure that no person who is not a shareholder is admitted and see that quorum is

present examine that proxy forms and the proxies to attend the meeting.

ii. Read the notice of the meeting if ordered by the chairman including auditor and

director’s report.

iii. Record the proceedings of the meeting, incorporating them in the minute’s book.

iv. Advise the chairman regarding ascertaining the sense of the meeting inheriting

conduct of poll.

v. Personally attend to the requirements of shareholders and clarify their doubts.

vi. Make necessary arrangements with banks concerned and issue dividend warrants to

all the shareholders on the list of the register on the day meeting.

Duties of the secretary after the meeting:

i. Brief the press if necessary for publication of chairman of the same meeting within 30

days of the meeting

ii. Make necessary charges in the register of directors and notify the same meeting within

30 days of the meeting.

iii. Make necessary charges in the register of directors and notify the same to the register

within 30 days of the meeting.

iv. Send intimation of appointments and re-appointment to the directors and auditors.

v. See that the annual return with balance sheet, profit and loss account as adopted and

approved by the meeting with its copy of resolution duly signed by the authorities

concerned are submitted to the register within 30 days of the meeting.

3. What are the duties of secretary regarding extra- ordinary general meeting?

Ans:

i. The necessity for convening such a meeting must be decided on the basis of situation,

subject matter, urgency and importance of the matter.

ii. If the requisitionists call for a meeting, the secretary has to consult the board but the

convening a board meeting to take a decision.

iii. The secretary must ensure that the notice is properly given, disclosing whether it is

convened by the company law board, including the draft of the special resolution proposed

to be passed. He must attach the explanatory statement setting out the material facts.

iv. He must prepare the agenda in consultation with the chairman. Necessary registers for

attendance, proxy register etc., must display before the meeting is commenced.

v. Seating arrangements with light refreshment should be arranged by the secretary.

vi. Proxy forms and necessary register and arrangement for conducting poll must be prepared

by secretary.

Duties of the secretary during the meeting:

i. The secretary has to ensure that persons who are admitted to attend and participate with

meeting are eligible.

ii. He has to produce such records, registers and other documents that may be required by the

chairman for clarification of doubts expressed buy the members.

iii. He has taken down notes on the proceedings of the meeting for preparation of minutes.

UNIT – IV

SECTION-A

1. What is the meaning of Dividend?

Ans: The term Dividend" is derived from the Latin term "dividend" meaning that which

is company to be divided. The profits of the company distributed to the members shall be

called the Dividend.

2. What is Dividend Warrant?

Ans:The cheque issued by the company to the shareholders for the amount of dividend is

known as the dividend warrant. The dividend warrant is sent along with a dividend notice

which gives particulars as to the meeting in which the dividend was declared, the rate of

dividend, the period to which it relates, the gross amount due and the income tax collected

etc.

3. What is dividend mandate?

Ans:The shareholders who want the dividend due on their shareholdings to be paid directly to

his bankers should make a request to the company to pay the amount direct to their bankers

the request should be made in the prescribed form supplied bY the company. A completed

form of this type is known as divide mandate or dividend request.

4. What is interim dividend?

Ans:Interim dividend is usually declared in between two annual general meetings. The

interim dividend is usually declared the board of directors in anticipation of profit to be

calculated at the end of the year. Declaration of Interim dividend depends upon the financial

position of the company and its earning capacity.

5. What are the documents to be submitted at the annual general meeting?

Ans:*Profit and Loss Account for the period

*Balance Sheet as on that date.

*A report of the directors.

6. What are Statutory Books?

Ans:Statutory books are those books which a company is required to maintain under law.

Failure to maintain these books shall attract penalty to the management of the company.

7. Define Audit?

Ans:Audit means vindication of the recorded transactions of the firm's incomes and expenses

supported by hills and vouchers. It also involves examination of their transactions

incorporated in the books of accounts as entries.

8. Define dividend.

Ans:"Dividends are profits of a trading company divided amongst the members in proportion

to their shares. Such proportion may be determined by the articles, if not, dividend is paid on

each share in proportion to the nominal values of that share".

9. What is the penalty for failure to maintain proper books of accounts?

Ans:The persons responsible for maintenance of accounts who are in default will be liable for

imprisonment up to six months or fine up toRs. 10,000 or both. However, the act specifically

mentions that no imprisonment can be awarded if there is no wilful default. Only fine can be

imposed in those circumstances.

10. What are optional books?

Ans:Optional books are those books which a company is not bound to keep under law. Most

of the companies maintain these books to ensure efficiency in performance. These books are

also known as non-statutory books.

11. What is unpaid dividend Account?

Ans:Unpaid and Unclaimed dividend account (sec205 B): Any person, who is legitimate

claim to the dividend amount transferred to the investor Education and Protection fund will

have to apply either to the authority concerned or to the committee formed for that purpose.

The authority concerned or the foresaid committee on being satisfied with the bonfires of the

claim either. Partially or fully in settlement, shall order payment of the dividend after taking

necessary securities from the claimants.

12. State the qualifications of an auditor?

Ans:Unless a person is a qualified with the meaning of the Chartered Accountant act 1949 he

or she cannot be appointed as an auditor either in a Public Ltd company or private company.

Unless all the partners of the firm are qualified Chartered Accountant firm cannot act as an

auditor for a company or companies as such.

13. Who is a first auditor?

Ans:The first auditor of the company is appointed by the board of directors. The first auditors

have to appointed within one month from the date of registration of the company. The

auditors so appointed by the board shall hold their office until the conclusion of the first

annual general meeting. If the Board of directors fails to appoint the first auditors, the

company in general meeting may appoint the first auditors.

14. When subsequent auditors are appointed?

Ans:Appointment of auditor shall be made by members at First AGM and every subsequent

6th AGM. Company shall intimate the auditor about appointment. After intimating, company

shall obtain written consent and certificate from auditor. Then, company is required to file a

notice with the registrar about the appointment within 15 Days of the meeting. The Auditor

shall hold office for a period of 5 Years.

SECTION – B

1. What is the Distinction between Interim Dividend and final Dividend?

Ans:

Interim Dividend Final Dividend

1) Declared by the board of directors. Declared by shareholders in the annual

general meeting.

2) Declared before the preparation of

final accounts.

Can be declared only after the accounts are

prepared.

3) Relates to part of the year i.e.,

usually 6 months.

Relates to the full year

4) Can be declared only when articles

permit.

Need not be any express provision in the

articles for declaring final declaration.

5) Interim dividend once declared shall

not become a debt due from the

company to the shareholders.

Final dividend once declared shall become

a debt due from the company.

6) The directors are also empowered to

cancel the declaration of the interim

dividend after it is declared.

The shareholders once declared a final

dividend cannot cancel the declaration.

2. HOW ARE BOOKS OF COMPANY CATEGORIES?

Ans:

� STATUTORY BOOKS

� OPTIONAL BOOKS

I. SATUTORY BOOKS: Statutory books are those which are these is required to

maintain under law. Failure to maintain these books shall attract penalty to the

management of the company. The following are the statutory books.

(a)Resister of investments

(b)Register of charges

(c)Register of members

(d)Index of members

(e)Register of debenture holders

(f)Index of debenture holders

(g) Foreign register of members and debenture holders (in duplicate)

(h) Minutes of books

(i) Register of contracts with companies and firms which the directors are interested

(k) Register of director’s shareholding

(l) Register of investments in shares and debentures of other companies

(M) Register of loans made, guarantees (or) securities provided

(n) Register of fixed deposits

(o) Cost account records

(p) Register of renewed and duplicate share certificates.

II. OPTIONAL BOOKS: Optional books are those books which a company is not bound to

keep under law. Most of the companies maintain these to ensure efficiency in performance.

The following are the optional books as non-statutory books. The following are the optional

books generally maintained by the companies.

(a)Register of transfers

(b) Register of documents sealed

(c) Register of certification

(d) Register of balance tickets

(e) Share application and allotment book

(f) Register of shares warrants

(g) Director’s attendance books

(h) Register of probates and letters of administration

(i) Register of dividend mandates

(j) Register of lost certificates

(k) Log book

(l) Proxies record

3. What are the various returns that are to be filled with the registrar?

Ans:

� Return as to allotment

� Return to directors

� Return as to alteration of memorandum

� Return as to alteration of share capital

� Annual return

� Return of charges

� Return of resolution and agreements.

4. What are the charges that require registration with the registrar of companies?

Ans:

• A change for the purpose of security any issue of debentures.

• A charge on uncalled capital of the company

• A charge on any immovable property

• A charge on any book debts of the company

• A charge on any movable property of the company

• A charge on calls made bit not paid.

• A charge on a goodwill, on a patent right, on a trade mark, on as copyright.

• A floating charge on the undertaking or any property of the including stock

in trade.

5. Explain the statutory powers of an auditor?

Ans:

• The auditor has a right of access the to the bokks of accounts of the

company including its branches and subsidiaries at all times.

• He can examine any officers of the company call for explanation and

record statements pertaining to the state of affairs of the company.

• He is entitled to visit the branches and subsidiaries of the company and

examine the accounts.

• He is entitled to receive all notices and other communications relating to

any general meeting of the company.

• He is entitled to be heard at the general meeting an any part of business

concerning him.

• He is entitled to obtain his remuneration on completion of the work.

The report of the auditor must strictly be submitted according to the prescribed manner as laid down

by the companies Act.

SECTION – C

1. What are the duties of the company secretary regarding maintenance of books?

Ans:*To see that the books and registers required to be maintained by every company under the Act

are properly maintained.

*To see that the statutory books and annual returns contain, particular required under the

Act.

*To see that the statutory books and returns are kept at the registered office of the company.

*To see that the statutory books and returns are open tt inspection by the members and

outsiders two hours on every working day and to realise the requisite fees from

outsiders for such inspection.

*To supply copies of registers and books to members and outsiders on application after

realising the requisite charges.

*To see that proper books of accounts are maintained at the head office and separately at

branch office.

*To see that proper summarised returns of branch accounts are received at the head office

at intervals of not more than 3 months.

*To open the books of accounts, for inspection by the registrar of companies or any

officer appointed by the central Government at any time they demand and to produce all

books, documents and papers and to supply all information, statements and explanations

required by the person making the inspection.

*To comply with the direction of the national comply law tribunal for the rectification of

any omission or mis-statement in the register of members and register of charges.

* To see that the annual return is prepared properly in the form prescribed by the act

and filed with the registrar of companies within 60 days of the annual general meeting.

*To see that the non-statutory statistical and other books of the company are

maintained properly as per the provisions of articles and directions of the board.

2. What are the duties of company secretary regarding payment of dividend?

Ans:*To close the share transfer book, dispose of all pending transfers and to make the

register of members up-to-date on the basis of the authority derived from board of directors

of the company.

*The secretary will draft the forms of the dividend notice and warrant and make

arrangements for their printing.

*After closing the register of transfer, the secretary will prepare a list of registered

members showing the names and address of the members, the number of shares held, the

gross dividend payable, the amount of income tax to be deducted and the net amount

payable to each member.

*The secretary will complete the dividend "Notice and Warrants" and get them signed by

two directors or put his own signature if he is empowered to do so.

*The secretary will arrange to open a special dividend account with the company's bankers and

the necessary funds required to pay, as dividend will be transferred to that account.

*The secretary will also make arrangements with the bankers for the payment of dividends.

*In case, the company has issued share warrants, the secretary will send a notice of

declaration of dividend to the press for information of share warrant holders.

*The secretary will make arrangement for despatching dividend warrants by post to the

registered members within 30 days of declaration of dividend.

*The secretary must ensure that the approval of reserve bank has been obtained under the

foreign exchange management act 1999, before the dividend is remitted to the non-resident

shareholders.

*The secretary must see that the income tax deducted at source from the dividend is

deposited with the government within seven days from the date of dividend warrant.

* If the dividend is not paid within 30 days of declaration or the dividend warrant is not sent

within that period, the secretary must see that the total amount of such unpaid or unclaimed

dividend is transferred to a special account in a scheduled bank to be called “Unpaid dividend

account” within 7 days of the expiry of 30 days from the declaration of dividend.

* If the money transferred to the “Unpaid Dividend Account” remains unpaid or unclaimed for

a period of 3 years, the secretary should make arrangement for transferring such money to the

“General Revenue Account” of the central government along with a statement in the prescribed

form.

3. What are the rules relating to books of accounts?

Ans:

Books of accounts to be maintained (sec 209(1)):

I. According to section 209(1) of the Act, every company should maintain

proper books of accounts, which disclose the following:

a. All sums of money received and expenditure made by the company and

the matter to which they relate.

b. All sales and purchases of goods by the company.

c. The assets and liabilities of the company.

d. In case of a company engaged in production, processing, manufacturing

or mining activities, particulars relating to utilisation of material or

labour or other items of cost as may be prescribed by the central

government.

II. Location of the books (sec209 (2)): The Act specifically states that books of

accounts should be maintained at registered office of the company. The

following provisions can be noted at this stage.

a. If the directors decide to keep the books in any other place, they can keep

the books at the desired place. But they should communicate their

decision to the registrar within 7 days of taking such decisions. Full

address of the place should be informed to him.

b. If the company has a branch office, the books of accounts relating to the

transactions made at the branch office, must be kept at the branch,

however, summarised accounts at intervals of not exceeding 3 months

should be sent to the registered office.

III. Period of preservation of accounts (sec 209(4)): The books of accounts of

each year along with the relevant documents and vouchers must be preserved

in good condition for a period of 8 years.

IV. Responsibility of keeping the books: The Act fixes responsibility for the

maintenance of the books on two alternate categories of persons. They are as

follows:

a. Where the company has a managing director or manager, such managing

director or manager and all officers and other employees of the company.

b. Where the company has neither the managing director nor a manager,

every director of the company.

V. Inspection of books of accounts of companies:

a. The books of accounts shall be open to inspection during business hours

by the following persons.

b. Registrar.

c. Officer of the government as authorised by the central government.

d. Officer of SEBI as authorised by it.

4. Distinguish between Dividend and Interest?

Ans:

Dividend Interest

1. Dividend is a portion of the divisible

profits payable to the members.

Interest is the considerstion payable to the

lender of money for the use of that amount.

2. Dividend is payable out of profits,

except when the government has

sanctioned it.

Interest is payable even out of capital.

3. The dividend is paid after it is

recommended by the board of

directors declared in the general

meeting.

Interest, being a compulsory payment,

requires such recommendation or and

sanctions.

4. Income by way of dividends is

uncertain and varies with the progress

of the company.

Interest is a certain and constant figure.

5. Dividend does not attract interest if

payment is delayed.

Interest must be paid when due, otherwise

the company has to pay the interest on the

arrears.

6. Dividend is not payable on calls paid

amount in advance.

Interest is payable on any advanced by a

creditor.

5. What are the qualifications and disqualifications of an auditor of a company? Explain

his rights?

Ans: Qualifications and disqualifications of an auditor:

Qualifications:

Unless a person is a qualified with the meaning of the chartered accountant Act 1949 he or

she cannot be appointed as an auditor either in a public limited company or private

company.Unless all the partners of the firm are qualified chartered accountants the firm

cannot act as an auditor for a company or companies as such.

Disqualifications:

The under mentioned persons are disqualified for appointment as auditor of a company;

a. A body corporate

b. An officer or employee of a company

c. A person who is a partner or who is in the employment of an officer or employee of the

company.

d. A person who is in debited to the company to the extent of a sum exceeding of Rs. 1000 to the

company.

e. A person who is disqualified for any other reason. If an auditor after the date of his

appointment becomes affected with any of the above mentioned disqualification then he is

deemed to have vacated his office.

The above disqualification is applicable to all companies whether public, private or

government companies.

UNIT –V

SECTION –A

1. Define the term “Winding Up”.

Ans: The term “Winding up” signifies a process, “whereby he functioning of the company is

put to an end by the disposal of the assets of the company so as to benefit its creditors and its

members. Thus the process of winding up involves the realisation of the assets, payment of

the liabilities and distribution of the surplus among the members of the company”-Justice

Grover.

2. State the difference between winding up and dissolution.

Ans: Winding up is one of the processes or stages in dissolution. In fact Winding up precedes

dissolution. On dissolution of the company, It ceases to exist and its name is struck off from

the register of companies by the registrar, which has got to be given a wider publicity in

notifying in the official gazette.

3. What are the modes of winding up?

Ans:

a) Compulsory winding up under order of the court.

b) Voluntary winding up

c) Voluntary winding up subject to the supervision of the court.

4. Who may file the petition for winding up?

Ans: An application for winding up of a company may be submitted by the following

persons;

• By the company

• By the creditor or creditors

• By the contributory or contributories

• By all or any prior parties

• By the registrar

• By the central government

• By the official liquidator.

5. Who is a liquidator?

Ans: The term, “Liquidator” means to close down the business and all the assets will be

realised at the best prices and the amount realised will be settled among the creditors and

members in the order of preferences. These jobs are activities have to be done by an

individual person officially appointed. Such person who is entrusted with above task is known

as liquidator.

6. What is the order for discharge of liabilities?

Ans: On realisation of the assets,the liquidator has to finalise the list of claimants. The order

will be as under;

� Costs and expenses of winding up

� Preferential creditors

� Creditors secured on fixed charge, creditors secured on floating charge

� Unsecured creditors.

7. What are the 3 aspects required for member’s for voluntary winding up?

Ans:i) Declaration of solvency certificate

ii) Passing of an ordinary or special resolution by members at an extra ordinary general

meeting.

iii) Filing of necessary documents with registrar in this regard.

8. What is meant by contributory?

Ans: Contributory refer to person who are liable to contribute to the assets of the company

in the event of winding up contributories include not only the holders of partly-paid shares,

who are liable to contribute the unpaid amount on their shares, but also the holders of fully

paid shares who are entitled to a share in the surplus, if any.

9. Differentiate between compulsory winding up and voluntary winding up?

Ans: The main differences between compulsory winding up and voluntary winding up are;

� Compulsory winding up of a company is brought about by an order of the copurt,

whereas voluntary winding up is brought about either by the members or by the

creditors of the company without the intervention of the court.

� Compulsory winding up is of only one type. But voluntary winding up is of two types

viz a. Members voluntary winding up; b. creditors voluntary winding up.

� In case of compulsory winding up, the liquidator is appointed by the court. On the

other hand, in the case of voluntary winding up, the liquidator is appointed either by

the members or by both the members and the creditors.

� Voluntary winding up is more convenient than compulsory winding up.

10. What is corporate restructuring?

Ans:Corporate restructuring is a comprehensive process by which a company can

consolidated or re arrange its organisational setup or business operations and strengthen its

position so as to achieve its short term and long term objectives and establish itself as a

synergetic. Dynamic,continuing as well as successful independent corporate entity in the

competitive environment.

SECTION – B

1. What is winding up? What are the reasons for winding up?

Ans: Winding up of company is the process whereby its life is ended and its property

administered for the benefit of its creditors. An administrator, called liquidator, pay its

debts and finally distributes any surplus among the members in accordance with their

rights.

In other words, winding up or liquidation of a company is a legal process by which the

business of a company is closed, i.e., the assets of the company are realized, its creditors are

paid off and the surplus , if any is distributed among the members in accordance with their

rights as provided in the articles of a company.

Reasons for the winding up of a company:

When a company is wound up, it does not necessary mean that it has become insolvent .Even

a solvent company may be wound up, if the members of the company decide to do so. For

instance, a solvent company may be wound up for the purpose of reconstruction and

amalgamation. Some of the followings are reasons under which a company can winding up of

a company or;

• If the main objects of the company for which it was formed have been accomplished

• If the company is unable to carry out its main objects

• If the company has to dispose of its business or undertaking to another company or

concern.

• If the company has become insolvent (i.e. if the company is unable to pay its creditors

in full).

2. What is meant by voluntary winding up? Explain the procedure for voluntary

winding up?

Ans: Voluntary winding up refers to the winding up of a company either by its member

or by its creditors without eh interference of the court. In voluntary winding up, the

shareholders and the creditors of a company settled their affairs themselves without going

to the court, though they may apply to the court for directions or orders, if and when

necessary.

Procedure

I. Procedure for members voluntary winding up: The following procedure is, voluntarily

followed in the case of members winding up.

� Making and filing of a declaration of solvency of the company.

� Passing of the resolution at an extraordinary general meeting, publication of the same

in the official gazette and local newspapers and filing a copy of the same with the

registrar of the companies.

� Appointment of liquidator or liquidators

� Commencement of liquidation proceedings by the liquidator

� Calling of the general meeting of the member’s by the liquidator at the end of each

year and presentation of his report and statement on winding up.

� Calling of the final meeting of the members and presentation of detailed final

accounts of the winding up proceedings by the liquidator.

� Filling of the certified copies of final accounts of the wnding up of the company with

the registrar of companies and also with the official liquidator.

� Making of a thorough scrutiny of books of account of the company by the official

liquidator.

� Dissolution of the company.

� Calling of the creditors meeting in case of insolvency.

II. Creditor’s voluntary winding up: The voluntary winding up in which the declaration of the

solvency of the company is not made by the directions and so is controlled and supervised by

the creditors of the company is known as creditors voluntary winding up. In short, the

winding up which takes place at the instance and under the control and supervision of the

creditors is called creditors winding up.

Circumstances under which the creditors of the voluntary winding up takes place:

A creditor’s voluntary winding takes –place when a company is unable to pay its

liabilities in full (i.e. when a company is insolvent) and still wants to undergo voluntary

winding up.

Procedure for creditor’s for voluntary winding up: The following procedure is generally,

followed in the case of creditors voluntary winding up.

� Convening the meeting of the members and the meeting of the creditors.

� Presentation of statement of affairs before the creditors meeting.

� Passing of resolution for the voluntary winding up and appointment of liquidators.

� Filling of the copy of the resolution for voluntary registrar of winding up with the

companies.

� Appointment of the committee of inspection by the creditors

� Fixation of the remuneration of the liquidator

� Sessesion of the powers of the board of directors and the commencement of the

liquidator proceedings by the liquidator.

� Calling of the meeting of the members and the creditors the liquidator at the end of

each year and presentation of his report and statement on winding up

� Calling of the final meeting of the members and the creditors and the presentation of

the final accounts of the winding up proceedings by the liquidator.

� Filling of the certified final account of the winding up with the registrar of the

companies by liquidator.

� Dissolution of the company.

3. Mention the circumstances under which a court can order winding up of a

company?

Ans: Compulsory winding up of a company is brought about by an order of the court

� If the company, of its own accord passes a special resolution that it should be

wounded by the court and presents a petition to the court for the winding up.

� If the company makes a default in filling the statutory report with the registrar of

companies or in holding the statutory meeting either the prescribed time.

� If the company does not commence within one year from the date of its

incorporation or suspends its business for the whole year.

� If the number of members falls below 7 in the case of public company and below

2 in the case of a private company.

� If the company is unable to pay its debts.

� If the court is of the opinion that it is just and equitable that the company is

wound up.

4. Distinguish between winding up and dissolutions?

Ans: i) In winding up the assets of a company are sold. The proceeds there from or

utilised for the payment of liabilities of a company. It is the first stage where by the

existence of a company ends. While dissolution is the second stage and after this the

company remains no more in existence.

ii) The winding up proceeding, are carried out by liquidator of the company while is

dissolution no such proceedings are carried out.

iii) The liquidator represents the company in case of winding up but no such

representation is made by the liquidator in dissolution.

iv) Creditors can prove their debts in the winding up but not in the dissolution of the

company.

Order of the court not essential in winding up because voluntary winding up may also

take place while for dissolution the order of court is essential.

5. Who can present petition for winding up of a company briefly explain?

Ans: Section 439 and application for winding up of a company may be submitted by the

following persons.

By the company

By the creditor or creditors

By the contributory or contributories (shareholders)

By all or any prior parties shareholders together or separately.

By the registrar

By the central government.

a. Petition by the company(section 439(1)(a):Company never submits a petition for

winding up of company could be achieved more conveniently by passing a special

resolution in a company meeting for voluntary winding up on behalf of the company.

A Managing director cannot file on application for winding up the affairs of the

company as he cannot unilaterally act without the sanction or approval of the general

body.

b. Petition by any Creditor or Creditors (439 (1)(b):The term creditor has a wider

comprehension in the sense that it include not only persons to whom a depth is due

but it is also includes person having a claim against the company in any manner. A

company which has paid the principal loan amount after filling of the suit against it

but unable to pay the interest due on it, will become justifiable for winding up the

company.

SECTION – C

1. What are the powers of the official liquidator? Or what is the legal status of the

liquidator?

Ans: (I) with the approval of court, the liquidator can exercise the following powers:

a. To defend any suit prosecution or other, legal, civil or other criminal proceedings in

the name or on behalf of the company.

b. Any liability incurred by the liquidator for the limited purpose of carrying on the

business for winding up the company shall rank for payment in priority to the other

general debts and liabilities of the company.

c. To sell or dispose off movable and immovable assets, per sue actionable claims of the

company either by private contracts or by public action.

d. To raise loan on the security of the assets of the company.

e. To render all such service as may be necessary for winding up of the affairs of the

company and distributing its assets and setting the lists of creditors and

contributories.

f. To engage and advocate or attorney or pleader to conduct legal proceedings before

the court in connection with matter relating to winding up of the company.

(II) Without obtaining the permission from the court, the liquidator can exercise the following powers:

a. To do all acts of routine nature in the name of the company on behalf of the company

including execution of all deeds, receipts and other document by using thecommon seal of the

company.

b. To inspect all records and returns of the company without payment of any fee.

c. To prove the rank and claim in the solvency of any contributory for any balance against his

estate and to receive dividend in the insolvency.

d. To draw, accept, make and endorse any negotiable instruments such as pronote,bill of

exchange in the name of the company.

e. To take out letters of administration in his official name to the estate of a diseased

contributory for obtaining payment.

f. To avoid fraudulent preferences done within 6 months before the commencement of winding

up.

g. To appoint an agent on his behalf to execute the work entrusted to him.

h. To avoid objectionable voluntary transfers made within a year before the commencement of

winding up the order.

2. Explain the provisions applicable to creditors voluntary winding up.

Ans: Where a company proposes to windup voluntarily and the directors are not in a position

to make the statutory declaration of solvency, the winding up is said to be a creditors

voluntary winding up. The following are the provisions related to the creditors voluntary

winding up:

a. A company shall convene the creditors meeting on the day or next

following day on which a resolution for voluntary winding up is

proposed in the general meeting.

b. The company shall give notice of resolution passed at the creditors

meeting to the registrar within 10 days of its passing.

c. The creditors and the company shall appoint a person as liquidator.

d. Appointment of committee of inspection with representatives from

members and creditors equal in number to monitor the winding up

proceedings.

e. Liquidator’s remuneration is fixed either by the committee or inspection

or the creditors in their meeting.

f. On appointment of liquidator, all the powers of the board shall come to

an end.

g. The creditors in their meeting may fill up any vacancy caused in the

office of the liquidator.

h. Where the winding proceedings continues for more than a year the

liquidator shall call a general meeting of the company and a

corresponding meeting of the creditors at the end of the first year and at

the end of each subsequent years.

i. As soon as the affairs of the company are wound up, the liquidator shall

make up the account duly audited and lay before the general meeting.

6. What do you mean by voluntary winding up? Explain its types.

Ans: Voluntary winding up refers to the winding up of a company either by its members

is by its creditors without the interference of the court. In voluntary winding, the

shareholders and the creditors of a company settle their affairs themselves without going

to report, though they may apply to the court for directors or orders, if and when

necessary.

Modes or types of voluntary winding up:

There are two types of voluntary winding up. They are

1. Members voluntary winding up

2. Creditors voluntary winding up

A members voluntary winding up refers to a voluntary winding up which takes place

at the instants under the control and supervision of the members of the company, and

in which a declaration of the solvency of the company has been made by the board

and the same has been find with the registrar of companies.

Creditor’s voluntary winding up:

The voluntary winding up in which the declaration of the solvency of the company is

not made by the directors and so is controlled and supervised by the creditors of the

company is known as creditor’s voluntary winding up. In short the winding up which

takes place and under the control and supervision of the creditors is called creditors

winding up.

Circumstances under which the creditors voluntary winding up takes place:

A creditor’s voluntary winding takes place when a company is unable to pay its

liabilities in full .and still wants to undergo voluntary winding up.