BCOC 135 Solved Assignment 2022 – 23 [IGNOU BCOMG]

BCOC 135 Solved Assignment 2022 – 23

IGNOU BCOMG – 3rd Semester

COURSE CODE: BCOC-135 (COMPANY LAW)

ASSIGNMENT CODE: BCOC-135/TMA/2022-23

COVERAGE: ALL BLOCKS

Maximum Marks: 100

Note: Attempt all the questions.

BCOC 135 SOLVED ASSIGNMENT 2022 – 23

Section-A

In this post you will get BCOC 135 Solved Assignment 2022 – 23. Subject Title is Company Law which is an important subject of IGNOU BCOMG 3rd Semester. All the IGNOU BCOMG solved assignment are free. Visit our blog regularly for more solved assignment.

1. Discuss types of company on the basis of liability.      (10)

Ans: Registered or Incorporated Companies: Companies registered under the Companies Act, 2013, or the earlier Companies Acts are called registered companies. Such companies come into existence when they are registered under the Companies Act and a certificate of incorporation is granted to them by the Registrar. On the basis of liability, a registered company may be (a) a company limited by shares, or (b) a company limited by guarantee, or (c) an unlimited company.

(a) Companies limited by shares: [Sec. 2(22) of Companies Act, 2013]. In a company limited by shares the liability of the members is limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them. The liability can be enforced during the existence of the company as well as during the winding up. Where the shares are fully paid, no further liability rests on them. The Companies limited by shares may be either ‘private’ or public companies. For example, if a person holds 500 shares of the value of Rs. 10 and has paid Rs. 5 per share with the application and allotment of shares, his total liability will be Rs. 2,500 which can be called up at any time.

(b) Companies limited by guarantee: [Sec. 2(21) of Companies Act, 2013]. It is a registered company public or private, in which the liability of members is limited to such amounts as they may respectively undertake in the memorandum to contribute to the assets of the company in the event of its being would up. In the case of such companies, the liability of its members is limited, to the amount of guarantee undertaken by them. The members are not required to contribute while the company is a going concern.

A company limited by guarantee may or may not have a share capital. If it has a share capital, the liability of the members is twofold; (1) liability to pay the share amount; and (2) the amount guaranteed.

A guarantee company without share capital does not obtain its initial and working funds from its members, but from some other source or sources e.g., grants, endowments, fees, subscriptions and the like. But a guarantee company having a share capital raises its initial capital from its members, while the normal working funds would be provided from other sources such as fees, charges, etc. The Companies limited by guarantee may also be either Private or Public Companies.

Every company limited by guarantee must have its memorandum and articles of association. The memorandum shall 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. In other words, the members give guarantee that when the company is to be wound up, they will contribute a certain fixed amount towards the assets of the company, if those assets are not sufficient to pay its debts.

(c) Unlimited companies: [Sec. 2(92) of Companies Act, 2013]. A company not having any limit on the liability of its members is termed as unlimited company. In such a company the liability of each member extends to the whole amount of the company’s debts and liabilities, but he will be entitled to claim contribution from other members. 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. Such companies are rarely formed.

There are two varieties of each of these kinds of companies, i.e., companies limited by shares, companies limited by guarantee and unlimited companies. A company may be companies limited by guarantee and unlimited companies either a public company or a private company.

2. Define a private company and explain the procedure of converting a private company into public company.                (10)

Ans: Private company [Sec.2 (68)]: A private company is normally what the Americans call a ‘close corporation’. According to Sec.2 (68), a private company means a company which has a minimum paid-up capital as may be prescribed, and by its Articles:

a.    Restricts the right to transfer its shares, if any. The restriction is meant to preserve the private character of the company.

b.    Except in case of one-person company, limits the number of its members to 200 not including its employee-members. Joint shareholders shall be counted as one member only.

c.     Prohibits any invitation to the public to subscribe for any securities. In other words, a private company shall not make a public issue of its securities.

Conversion of private company into public company

Where a private company alters its articles by passing special resolution in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company, then such company shall cease to be a private company from the date of such alteration. The following procedure should be followed to convert private company into public limited company:

a) The very first step in the conversion of a Public Limited Company is to convey a Board Meeting.Notice for Board Meeting should be given least 7 days from date of the board meeting.

b) The Board of directors shall convey the extraordinary General Meeting to approve the conversion of the private company into public company.

c) Special resolution must be passed by the shareholders to alter the memorandum and articles of association of the company.

d) Special resolution to delete the word “private” from the company’s name must be passed.

e) The Company shall file Form INC-27 with the Registrar of the Company within 15 days from the date of holding an extraordinary general meeting along with the following documents:

– Altered memorandum and articles of association

– Certified copy of special resolution

– Minutes of members meeting

– Order of competent authority in case of conversion from a public company to a private company

f) After receiving above documents, the registrar verifies all these documents and issue of new certificate of incorporation if he finds all documents are correct.

g) After getting new certificate of incorporation, Compliance of provisions applicable on public companies like appointment of additional no. of Directors and increase in no. of members must be done.

3. Explain the doctrine of ultra vires. What are the effects of ultra vires transactions?       (10)

Ans: Doctrine of Ultra vires

The word Ultra means beyond and vires means powers. So, simply Ultra vires means any act of the company outside the scope of memorandum of association. An act is said to be ultra vires when it is performed, is not authorised by the object clause in the memorandum of association. The Companies Act requires that the memorandum of every company must state the object of the company. The objects must be legal and not be against the provision of the companies Act, 2013.

The object clause requires that every company must devote itself only to the objects set out in the memorandum. Thus memorandum fixes the area beyond which a company cannot operate. Any activities beyond the object clause of the company are ultra vires the company. Such an act is void and cannot be ratified even by unanimous resolution of all the shareholders. But any act is ultra vires the articles, it can be ratified by altering the articles by passing a special resolution in the general meeting.

The main purpose of this doctrine is to protect the interest of the shareholders. They are assured that their investment is not spent on activities which are authorised by the memorandum of association. Also it safeguards the interest of the creditors as the property of the company cannot be diverted to unauthorized objects.

Consequences/Effects of Doctrine of Ultra vires

a) Void ab initio: The ultra vires acts are null and void ab initio. The company is not bound by these acts. Even the company cannot sue or be sued upon. Ultra vires contracts are void ab initio and hence cannot become intra vires by reason of estoppel or ratification.

b) Injunction: The members can get an injunction to restrain a company wherein ultra vires act has been or is about to be undertaken.

c) Personal liability of Directors: It is one of the duties of directors to ensure that the corporate capital is used only for the legitimate business of the company and hence if such capital is diverted to purposes alien to the company’s memorandum, the directors will be personally liable to replace it.

d) Company’s money: Where a company’s money has been used ultra vires to acquire some property, the company’s right over such property is held secure and the company will be the right party to protect the property. This is because, though the property has been acquired for some ultra vires object, it represents the money of the company.

e) Borrowing: If company has no borrowing powers or has already exceeded or borrowings are made for the purpose which is ultra vires, then the contract of loan is void and no action can be brought under it to recover the money lent. Ultra vires borrowing does not create the relationship of creditor and debtor.

f) Ultra vires torts: A company will be liable for torts or crimes committed in the pursuit of its stated objects. But a tort or crime committed in the course of activity which is ultra vires the company, the company would not be liable.

4. What are sweat equity shares? Discuss the conditions for issuing the sweat equity shares.    (10)

Ans: Sweat Equity Shares: The expression ‘sweat equity shares’ means equity shares issued by the company to employees or directors at a discount or for consideration other than cash for providing know-how or making available right in the nature of intellectual property rights or value additions, by whatever name called. The companies will be allowed to issue Sweat Equity Shares if authorized by a resolution passed by a general meeting.

The resolution should specify the number of shares, their value and class or classes of directors or employees to whom such equity is proposed to be issued. The issue of sweat equity shares will be further subject to regulations made by SEBI in this behalf. All limitations, restrictions and provisions relating to equity shares shall be applicable to sweat equity shares as well.

Section 54(1) provides that notwithstanding anything contained in Section 53, a company can issue sweat equity shares, of a class of shares already issued, if the following conditions are satisfied:

(i) the issue has been authorized by a special resolution passed by the company in the general meeting.

(ii) the following are clearly specified in the resolution:

(a) number of shares;

(b) current market price;

(c) consideration, if any; and

(d) class or classes of directors or employees to whom such equity shares are to be issued.

(iii) Where shares are listed on a recognized stock exchange, the company issuing sweat equity shares should comply with the regulations made in this behalf by SEBI.

(iv) a company whose shares are not so listed should issue sweat equity shares in compliance with the rules made in this behalf by the Central Government i.e., Companies (Share Capital and Debentures)Rules, 2014.

Section 54(1)(d) of the Act provides that where the equity shares of the company are listed on a recognised stock exchange, the sweat equity shares are issued in accordance with the regulations made by the SEBI and if they are not so listed, the sweat equity shares are issued in accordance with Rule 8 of Companies (Share Capital and Debentures) Rules, 2014.

5. Explain the duties of a company secretary.          (10)

Ans: Duties of the Company Secretary

The duties of a company secretary are classified under the following heads:

A) General Duties: General duties of a company secretary are given below:

(1) To provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers;

(2) To facilitate the convening of meetings and attend Board, committee and general meetings, and maintain the minutes of these meetings;

(3) To obtain approvals from the Board, general meetings, the Government and such other authorities as required under the provisions of the Act;

(4) To represent before various regulators, Tribunal and other authorities under the Act in connection with discharge of various functions under the Act;

(5) To assist the Board in the conduct of the affairs of the company;

(6) To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and

(7) To discharge such other duties as may be assigned by the Board from time to time;

(8) Such other duties as have been prescribed under the Act and Rules.

B) Statutory Duties: Apart from general secretarial duties with regards to organizing Board and general meetings, keeping minutes of meeting, recording approved share transfers, corresponding with directors and shareholders,maintaining statutory records, filing necessary returns with Registrar of Companies etc., the Companies Act, 2013 has also prescribed some duties and authorities, which are as follow:

1. Declaration regarding compliance with requirement of registration: In terms of section 7(1)(b) of the Companies Act, 2013, a company gets incorporated by submitting memorandum and articles duly signed along with a declaration in a prescribed form that all requirements of Act and rules have been complied with in respect of registration of company. Such declaration in prescribed form can be signed by an Advocate, a chartered accountant, cost accountant or company secretary in practice who is engaged in the formation of the company and by a person named in the articles as a director, manager or secretary of the company.

2. Authentication of documents, proceedings and contracts: A document or proceeding requiring authentication by a company or contract made by or on behalf of a company must be signed by any key managerial personnel or an officer of the company duly authorized by the Board in this behalf. However, in case of a company does not have a common seal, the requirement of law would be complied with if the authorization is done by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.

3. Signing share certificate: Share certificates of the company should be signed by two directors (out of which one should be Managing Director or whole time director, if appointed) and Secretary or other person authorized by Board.

4. Signing annual return: Annual return to be filed with Registrar of Companies has to be signed by a director and Company Secretary. If Company does not have Company Secretary, the return can be signed by company secretary in practice.

5. Signing of financial statements: The financial statement, including consolidated financial statement is to be signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed.

6. Appear before NCLT: A Company Secretary can appear before National Company Law Tribunal (NCLT) on behalf of the company.

7. Secretary as Compliance Officer of listed company: As per clause (1) of Regulation 6 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a listed company is required to appoint the company secretary to act as ‘Compliance Officer’, who will be responsible for the following:

(a) ensuring conformity with the regulatory provisions applicable to the listed entity in letter and spirit.

(b) co-ordination with and reporting to the Board, recognised stock exchange(s) and depositories with respect to compliance with rules, regulations and other directives of these authorities.

(c) ensuring that the correct procedures have been followed that would result in the correctness, authenticity and comprehensiveness of the information, statements and reports filed by the listed entity.

(d) monitoring email address of grievance redressal division as designated by the listed entity for the purpose of registering complaints by investors.

8. Demat shares: Secretary has to coordinate between depository and stock exchange in case of demat shares.

9. Additional duties: In addition to statutory duties of company secretary, he is often entrusted with additional duties like looking after legal matters, personnel matters, finance and sometime even general administration.

10. Nodal Officer: Company secretary has to perform duty of nodal officer under IEPF Rules. He shall verify all applications filed to reclaim shares from IEPF.

BCOC 135 SOLVED ASSIGNMENT 2022 – 23

Section-B

6. What is National Company Law Tribunal? What are its powers?           (6)

Ans: After Companies Act’ 2013 the Company Law Board has been abolished and a Tribunal known as the National Company Law Tribunal has been constituted. The powers which are earlier under the jurisdiction of the Company Law Board have been transferred to Central Government and some of this is transferred to NCLT by the central government. It consists of a president and such number of judicial and technical members as may be deemed necessary.

The powers of the Tribunal and Appellate Tribunal are described below:

(1) Powers as a civil court under the Code of Civil Procedure, 1908: The Tribunal and the Appellate Tribunal shall enjoy the same powers as a civil court on the following matters:

(a) Summoning and enforcing the attendance of any person and examining him on oath;

(b) Requiring the discovery and production of documents;

(c) Receiving evidence on affidavits;

(d) Subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872; requisitioning any public record or document or a copy of such record or document from any office;

(e) Issuing commissions for the examination of witnesses or documents;

(f) Dismissing a representation for default or deciding it ex-parte;

(g) Setting aside any order of dismissal of any representation for default or any order passed by it ex-parte; and

(h) Any other matter which may be prescribed [Section 424 (2)].

(2) Execution of an order: Orders of Tribunals are enforceable in the manner of a court decree. In the case of a company, the order will be sent for enforcement to the court in whose local limits the office of the company is situated. In the case of individual order has to be sent to the court in whose local limits the individual resides, or carries on business or professional works for gain.

Proceedings before them are deemed to be judicial proceedings within the meaning of Sections 193 and 228 for the purposes of Section 198 IPC. Tribunals are deemed to be civil courts for the purposes of Section 195 and Chapter 26 CRPC, 1973.

(3) Power to Punish for Contempt [Section 425]: In respect of any contempt of an order of the Tribunal or Appellate Tribunal, they shall have the same powers and authority to punish for contempt as the High Court under the provisions of the Contempt of Courts Act, 1970.

(4) Power to seek assistance of Chief Metropolitan Magistrate etc. [Section 429]: In any proceeding relating to winding up of a company or rehabilitation of a sick company, the Tribunal may seek the help of the Chief Metropolitan Magistrate, Chief Judicial Magistrate or the District Collector for the purpose of taking into custody property, books of account or other documents.

7. Differentiate between share and stock.           (6)

Ans: Difference between Shares and Stocks

8. What is book building? What are its advantages?       (6)

Ans: Book building is a process of fixing price for an issue of securities on a feedback from potential investors based upon their perception about a company. It involves selling an issue step-wise to investors at an acceptable price with the help of a few intermediaries’/merchant bankers who are called book-runners. Under book-building process, the issue price is not determined in advance, it is determined by the offer of potential investors.

The book runner maintains a record of various offers and the price at which the institutional buyers, mutual funds, underwriters etc. are willing to subscribe to securities. On receipt of the information, the book runner and the issuer company determine the price at which the issue will be made. Thus, book-building helps in determining the price of an issue on more realistic way based on the intrinsic worth of the security.

Benefits of books building:

a) Book-building helps in determining the price of an issue on more realistic way based on the intrinsic worth of the security.

b) In case of book-building, the shares are pre-sold. There is no uncertainties about the issue of shares.

c) Book building helps is raising quick capital than the public issue.

d) The main objective of book building is to arrive at fair pricing of the issue which is supposed to emerge out of offers.

e) It helps the issuing company to select investors by quality.

9. Who is chairman of meeting? What is his role?            (6)

Ans: Chairman of a Meeting: ‘Chairman’ is the person who has been designated or elected to preside over and conduct the proceedings of a meeting. He is the chief authority in the conduct and control of the meeting.

The role, responsibility and powers of the Chairman are primarily centered on the proper conduct of meeting. Other managerial or executive powers are not vested in the Chairman by virtue of any provisions of the Act. The Chairman’s position assumes great importance, as he is responsible for the successful conduct of a meeting. The Chairman has a duty to keep order, to see that the business is properly conducted and to ensure that the sense of the meeting is properly ascertained in regard to any question before it.

The Chairman has powers to adjourn a meeting in the event of disorder or other like causes, when it becomes impossible to conduct the meeting and complete its business. Hence the powers of adjournment shall be exercised duly. If he declares the meeting closed prematurely and leaves the chair, the members may resolve to proceed with the meeting and elect another Chairman and continue with the business for which it was convened.

The Chairman shall explain the objective and implications of the Resolutions before they are put to vote at the Meeting. The Chairman shall provide a fair opportunity to Members who are entitled to vote to seek clarifications and/or offer comments related to any item of business and address the same, as warranted.

in case of public companies, the Chairman shall not propose or conduct the proceedings for the resolution in which he is interested. He shall entrust his chair to any dis-interested director or member with consent of the members and shall resume chair only after that item is transacted.

Chairman enjoys certain other powers like powers to exclude certain matter from minutes of the meeting under sub section (5) of section 118. The Chairman is given powers to invite the secretarial auditor to any extraordinary general meeting.

10. Discuss the provisions relating to dividend.             (6)

Provisions of the Companies Act’ 2013 relating to distribution of dividend:

1. General meeting resolution: Dividend to be paid to the shareholders are recommended by the directors and declared at annual general meeting of the company. Shareholders cannot declare dividend on shares.

2. Payment of Dividend on paid up value: Dividends are usually paid on the paid up value shares in the absence of any indication to the contrary in the Articles of Association.

3. Sources of Declaring Dividend: As per Section 123 of the Companies Act, 2013 dividend may be declared out of the following three sources:

a)    Out of Current Profits: Dividend may be declared out of the profits of the company for the current year after providing depreciation. The company must transfer the prescribed percentage of its profits to general reserve before declaring dividends. This percentage depends on the percentage of dividend declared.

b)   Out of Past Reserves: Dividend may be declared out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of Schedule II of the Companies Act, 2013 and remaining undistributed. Section 123 of the Act, requires that dividend can be declared out of the reserves only in accordance with the rules framed by the Central Government in this behalf.

c)    Out of both mentioned above.

d)   Out of Money provided by the Government: A company can also declare dividend out of the moneys provided by the Central Government for payment of such dividend in pursuance of guarantee given by the Government.

4. Divisible Profits: The term “Divisible Profit” is a very complicated term because all profits are not divisible profits. Only those profits are divisible profits which are legally available for dividend to shareholders. Dividends cannot be declared except out of profits, i.e. excess of income over expenditure; ordinarily capital profits are not available for distribution amongst shareholders because such profits are not trading profits.

Thus, profits arising from revaluation or sale of fixed assets or redemption of fixed liabilities should not be available for distribution as dividend amongst shareholders. The principles of determination of the divisible profit are given in Sec 123 of the Companies Act, 2013. According to Section 123 of the Companies Act, 2013 no dividends can be declared unless:

– Depreciation has been provided for in respect of the current financial years for which dividend is to be declared;

– Arrears of depreciation in respect of previous years have been deducted from the profits; and

– Losses incurred by the company in the previous years.

– After transferring to reserves of the company prescribed percentage of its profits before declaring dividend.

5. Transfer to Reserves: Section 123 of the Companies Act, 2013 provides that before any dividend is declared or paid a certain percentage of profits for that financial year may be transferred to the reserves of the company. The company is free to decide the percentage for such transfer to the reserves. Mandatory transfer to specific reserves is now not required under companies Act’ 2013.

6. Interim dividend also included in dividend: The term dividend includes both interim and final dividend and all the provisions of the Companies Act relating to dividend declared at the AGM shall also apply to interim dividend.

5. Deposit of amount of dividend in a bank: Dividend must be deposited in a bank within 5 days after declaration as per Sec 123 of the Companies Act’ 2013.

7. Declaration of dividends in case of absence or inadequacy of profits: In the absence of profits or inadequate profits, a company can pay dividend out of past year’s profits transferred to reserves, provided:

a)    The rate of dividend declared shall not exceed the average of the rate of dividend which was declared, if any, by it in preceding 3 years,

b)   The total amount to be drawn from such past reserves shall not exceed 1/10^th of the sum of its paid-up share capital and free reserves as per latest audited financial statements.

c)    The balance of reserves after such withdrawal shall not fall below 15% of the current shareholders’ fund.

e)   Current year’s losses and depreciation must be set off before declaring dividend out of past reserves.

8. Default in repayment of deposit: In case of default in repayment of deposit as per the provisions of Sec 73 and Sec 74, no company shall declare dividend on its equity shares.

9. Mode of payment of dividend: The dividend is to be paid in cash or by cheque or by dividend warrant or any electronic mode to the shareholders. Also, there is no prohibition on the company for the capitalization of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time unpaid on any shares held by the members of the company.

10. Time within which dividend is to be paid: Dividend declared must be paid to the shareholders within 30 days from the date of its declaration (Sec. 124). In case of default, the defaulting directors of the company is punishable with simple imprisonment upto 2 years together with a fine of Rs. 1,000 plus interest @18% p.a. during the period for which such default continues.

11. Unpaid or unclaimed dividend: If dividend is not paid or not claimed within 30 days from the date of the declaration, the company shall within 7 days from the date of the expiry of 30 days, transfer such dividends unpaid dividend accounts. If such funds are unclaimed for 7 years from the date of such transfer, it must be transferred to the Investor education and protection fund. After such transfer, no claim will be entertained.

Section-C

11. What are the grounds for compulsory winding up?            (5)

Ans: Modes of winding up of a company

As per section 270 of the Companies Act 2013, the procedure for winding up of a company can be initiated either:

a) Compulsory winding up by the tribunal or,

b) Voluntary.

Winding up by the tribunal: As per new Companies Act 2013, a company can be wound up by a tribunal in the below mentioned circumstances:

1. When the company is unable to pay its debts

2. If the company has by special resolution resolved that the company is wound up by the tribunal.

3. If the company has acted against the interest of the integrity or morality of India, security of the state, or has spoiled any kind of friendly relations with foreign or neighboring countries.

4. If the company has not filled its financial statements or annual returns for preceding 5 consecutive financial years.

5. If the tribunal by any means finds that it is just & equitable that the company should be wound up.

6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any person or management connected with the formation of company is found guilty of fraud, or any kind of misconduct.

12. What are the provisions relating to proxy? (5)

Ans: Proxy: The term ‘proxy’ is used to refer to the person who is nominated by a shareholder to represent him at a general meeting of the company. It also refers to the instrument through which such a nominee is named and authorised to attend the meeting.

Appointment of Proxy and His Rights

Section 105 authorizes every member to appoint another person as a ‘proxy’ to attend and vote instead of himself. Unless Articles provide otherwise:

(1) a member of a company having no share capital can’t appoint a proxy;

(2) the member of a private company can’t appoint more than one proxy to attend on the same occasion.

But a member of a public company may appoint more than one proxy i.e., he may appoint one proxy in respect of certain shares held by him and a different proxy for other shares held by him. A private company can also provide in the articles that a proxy should be a member.

(3) a proxy cannot vote except on a poll.

13. What is forged transfer? What are its consequences? (5)

Ans: A forged transfer is an illegal mean to transfer shares from one person to another. Such transfer is done by forged instruments wherein the signature of the transferor is forged. It is a null transfer and does not confer any title.

Consequences of Forged Transfer

a) A forged transfer is a nullity and, therefore, the original owner of the shares continues to be the shareholder and the company is bound to restore his name on the register of members. A forged document never has any legal effect. It can never move ownership from one person to another, however, genuine it may appear.

Thus, a forged instrument of transfer leaves the ownership of the shares exactly where it always was in the so-called transferor. It follows that if a company registers a forged transfer, the true owner can apply so as to be replaced on the register and his name will be restored. But the company does not incur any liability in damages by putting the name on the register.

(b) However, if the company issues a share certificate to the transferee and he sells the shares to an innocent purchaser, the company is liable to compensate such a purchaser, if it refuses to register him as a member, or if his name has to be removed on the application of the true owner.

(c) If the company is put to loss by reason of the forged transfer, as it may have paid damages to an innocent purchaser, it may recover the same independently from the person who lodged the forged transfer.

14. What are the statutory requirements in relation to a prospectus?    (5)

Ans: Statutory requirements in relation to a prospectus:

(1) Dating of prospectus (Section 26)

A prospectus issued by a company must be dated. Section 26 further provides that the date on the prospectus shall, unless contrary is provided be taken as the date of the publication of the prospectus. This ensures a prima facie evidence of the date of its publication. However, this evidence may be rebutted by a contrary evidence.

(2) Registration of prospectus (Section 27(7)]

(a) Nature: A prospectus must not be issued unless a copy thereof has been delivered to the Registrar for registration.

(b) Time Limit: Registration must be made on or before the publication of the prospectus.

(c) Signatures: The copy sent for registration must be signed by every person who is named in the prospectus as a director or a proposed director of the company or by his agent duly authorised in writing.

(d) Date of issue of prospectus: The date of issue of prospectus is the date on which the prospectus first appears as a newspaper advertisement.

(e) Contents: Prospectus should:

(1) State that a Copy thereof has been delivered to ROC for registration,

(2) Specify documents endorsed or attached to the copy so delivered, and

(3) Contain an endorsement that the consent of Experts has been obtained.

(f) Enclosures:

(1) Consent of the Expert to the Issue of Prospectus, where it contains a Report by an Expert,

(2) Copy of every material contract appointing or fixing remuneration of a MD or Manager.

(3) Copy of every other material contract. However, the following need not be enclosed –

(i) Contract entered into in ordinary course of business, or

(ii) Contract entered into more than 2 years before the date of Prospectus.

(4) Written statement from Auditors relating to the adjustments to figures of abridged Financial Statements along with reasons there for.

(5) Consent of every person named therein as Auditor, Legal Adviser, Attorney, Solicitor, Banker or Broker of the Company / Intended Company to act in that capacity.

(g) Registration: The prospectus must be issued within ninety days of its registration. If it is issued say 91 days after, it shall be deemed to be a prospectus a copy of which has not been delivered for registration.

(h) Penalty for non-registration of prospectus: If a prospectus is issued without a copy thereof being delivered to the Registrar for registration or without the required documents or consent attached thereto, the company and every person knowingly party to the issue of the prospectus, shall be punishable with fine which may extend to Rs. 50,000 which may extend to rupees three lakhs.

(i) Opening of subscription list: Where a prospectus has been issued, no allotment of any shares shall be made until:

(1) The beginning of the 5^th day after prospectus is first issued; or

(2) Such later time as may be specified in the prospectus; or

(3) The beginning of the 5^th day after public notice is given. Such day is referred to as ‘date of opening of subscription list’.

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