Company Law ECO 08 Solved Assignment 2021 – 22, BCOE 108 Solved Assignment 2021 – 22, IGNOU B.Com

IGNOU B.Com Solved Assignment 2021 – 22

Company Law ECO 08 Solved Assignment 2021 – 22

BCOE 108 Solved Assignment 2021 – 22

Bachelor’s Degree Programme (BDP)

For July 2021 and January 2022 Admission Cycle

School of Management Studies

Indira Gandhi National Open University Maidan Garhi, New Delhi -110068

BCOE-108 / ECO-08 (Elective Course in Commerce)

BCOE-108 / ECO-08: COMPANY LAW

ASSIGNMENT- 2021-22

1. (a) Explain the meaning of a company. (15)

Ans: Definition: A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal. It is an association of many persons who contribute money or money’s worth to a common stock and employs it for a common purpose. The common stock so contributed is denoted in terms of money and is called capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.

According to The Companies Act’ 2013 – “Company means a every association of person formed and registered under this Act or any companies enacted prior to the Companies Act, 2013.” [sec.2(20)]

Joint Stock Company has been defined by many eminent authors, jurists and institutions. Some of these definitions are given below:

According to L. H. Haney – “A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal.”

According to Chief Justice Marshall – “A company is an artificial being invisible, intangible and existing only in the eyes of law.”

Characteristics of a Company

The system of joint stock organization is very useful for large undertakings for which large capital is required. It is an incorporated association created by law, having distinctive name, a common seal, perpetual succession, limited liability etc. formed to carry on business for profit. Some of the essential characteristics of a company are given below:

1) Artificial Person: A company is an artificial person, which exists only in the eyes of law. The company carries business on its own behalf. It has a right to sue and can be sued, can have its own property and its own bank account. It can also own money and be a creditor.

2) Created by law: A company can be formed only with registration. It has to fulfill a lot of formalities to be registered. It has also to fulfill a lot of legal formalities in order to be dissolved.

3) Separate Legal entity: A company has a separate legal entity and is not affected by changes in its membership.

4) Perpetual succession: A company has a continuous existence. Its existence does not affected by admission, retirement, death or insolvency of its members. The members may come or go but the company may go forever. Only law can terminate its existence.

5) Limited Liability: The liability of every member is limited to the amount he has agreed to pay to the company on the shares held by him.

6) Voluntary Association: A company is a voluntary association. It cannot compel any one to become its member or shareholder.

7) Capital Structure: A company has to mention its maximum capital requirements in future in its memorandum of association. Its capital is divided into shares, which are easily transferable from person to person.

8) Transferability of Shares: The shares of the company are movable property. The shares of a company are freely transferable by its members except in case of a private company, which may have certain restrictions of such transferability. [ Sec.44 of the Companies Act, 2013]

9) Common Seal: Since a company has no physical existence, it must act through its agents and all such contracts entered into by such agents must be under the seal of the company. The common seal acts as the official seal of the company. (Amendments, 2014): Now, the use of common seal has been made optional. All such documents which required affixing the common seal may now instead be signed by two directors or one director and a company secretary of the company.

10) Democratic Ownership: The directors of a company are elected by its shareholders in a democratic way.

11) Maintenance of Books: A limited Company is required by law to keep a prescribed set of account books and failure in this regard may attract penalty.

12) Periodical audit: A Company has to get its accounts periodically audited through the chartered accountants appointed for this purpose by the shareholders.

(b) What is Corporate veil? Explain the circumstances when it can be lifted. (5)

Ans: Corporate Veil – Meaning and when it can be lifted

From the juristic point of view, a company is a legal person distinct from its members [Saloman v. Saloman & Co. Ltd.]. When a company is incorporated, it has a separate legal status which is
distinct from its members, shareholders, directors etc. and any change is shareholding pattern or directors does not affect the existence and continuity of a company. Separate legal status of a company has led the concept of corporate veil. The effect of this principle is that there is a veil between the company and its members and company has a corporate personality which is distinct from its members.

The consequence of attributing a legal personality to a corporation is that it is distinct entity from its members and this “legal personality” is often described as an artificial person in contrast with a human being, a natural person. This clearly indicates that a corporation is completely capable of enjoying rights and of being subject to certain duties that are not same as borne by its members. Also members or directors are not personally made liable for all the acts of the company.

Corporate veil can be lifted When (LIC v. Escort ltd.)

Lifting of corporate veil means disregarding the separate legal entity of any company and looking for the original persons who are in control of the company. The companies Act’ 2013 itself has provided for certain cases making the members or directors personally liable or corporate veil are lifted. These are:

1. Reduction in membership: If a company carries not business of more than six months after the number of its members has been reduced below seven in case of a public company and two in
case of private company, every person who was a member of the company during the time when it carried on business after those six months and who was aware of this fact shall be severally liable for all debts contracted after six months.

2. Misdescription of the company: The name of the company should be fully and properly mentioned on all documents, instruments, etc. If an officer of a company or any other person acts on its behalf and enters into a contract or signs a negotiable instrument without fully writing the name of the company, then such officer or person shall be personally liable.

3. Fraudulent trading: Where in the course of winding up of a company it appears that the business of the company has been carried on with intent to defraud creditors of the company or any other person or for any fraudulent purpose; all those who were aware of such fraud shall be personally liable without any limitation of liability.

4. Tax evasions: Corporate veil can be lifted if court is of the opinion that this doctrine is used for tax evasions or deceive tab obligations.

5. Enemy character of a company: If a company is controlled by a person who is a resident of an enemy country, in such a case court may examine the character of person in control of the company and may declare company as an enemy company and lift the corporate veil.

6. Holding act subsidiary company: In the eyes of law, the holding company and its subsidiary company have separate legal entities. In has been held that even a hundred per cent subsidiary is a separate legal entity and its holding company is not liable for its acts. A holding company is required to attach with its final accounts, a copy of the balance sheet profit and loss account directors report of each subsidiary. Sometimes the court may refuse to treat the subsidiary company as a separate entity and treat it as only a branch of the holding company.

7. Failure to Refund application money: If the application money of those applicants to whom shares have not been allotted, is not repaid within 15 days, then the directors shall be jointly and severally liable to repay that money with interest @ 12% p.a.

8. Ultra vires acts: Directors of a company shall be personally liable for all such acts which they have done on behalf of the company if they are ultra vires the company or ultra vires the directors and the company does not ratify their acts.

9. When a company is sham: The Courts also lift the veil where a company is a mere cloak or sham (hoax).

2. (a) What are memorandum of association and articles of association? What is the difference between them? (12)

Ans: Memorandum of Association

Memorandum of association is the document which contains the rules regarding constitution and activities and objects of the company. It is fundamental charter of the company. Its relation towards the members and the outsiders are determined by this important document.

Section 2 (56) of the Companies Act, 2013 defines Memorandum as “Memorandum means the Memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies’ law or of this act”.

One of the essentials for the registration of a company is memorandum of association. It is the first step in the formation of a company. Its importance lies in the fact that it contains the fundamental clauses which have often been described as the conditions of the company’s incorporation.

Articles of Association

The Articles contain rules and regulations for the internal management of the company. They are framed with the object of carrying out the aims and object of the memorandum of association and also to monitor that the same are carried as prescribed.

Section 2 (5) of the Companies Act, 2013 defines articles as “Articles means Articles of Association of a company as originally framed or altered from time to time in pursuance of any previous law or of this act including so far as they apply to the company the regulations contain as the case may be in Table A to Schedule I of this act”

The difference between Memorandum of Association & Article of Association is given here:

BASIS OF DISTINCTION

MEMORANDUM OF ASSOCIATION

ARTICLE OF ASSOCIATION

MEANING

It is a charter of a company .It sets the constitution .It defines limits ,powers and objects of the company

It contains rules and regulation for the internal management of the company

OBJECTIVES

It governs relationship with the external world i.e. creditors, sellers, buyers
& debtors

It governs internal relationship between the members of the company.

STATUS

It is the primary document. It is the foundation of the company.

It is the secondary document & it is based on the memorandum of association.

ALTERATION

It is an unalterable document. Alteration can only be done by the permission of court

It can be stitched according to the management a resolution is to be passed and it is within the limits of Memorandum of Association

Ultra Vires
Actions

It lays down the boundaries beyond which a company cannot work. All such acts are illegal and they are called ultra vires acts.

The articles are controlled by the memorandum Within it the shareholders and the directors may make such regulations as they feel fit for internal management.

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(b) What are the consequences of misstatement in a prospectus. (8)

Ans: Misleading Prospectus or Mis-statement in prospectus:

A prospectus is said to be misleading or untrue in two following cases:

a) A statement included in a prospectus shall be deemed to be untrue, if the statement is misleading in the form and context in which it is included.

b) Omission from prospectus of any matter to mislead the investors.

CRIMINAL LIABILITY FOR MIS-STATEMENT IN PROSPECTUS (SECTION 34):

Where a prospectus, issued, circulated or distributed:

a) includes any statement which is untrue or misleading in form or context in which it is included; or

b)  where any inclusion or omission of any matter is likely to mislead;

Every person who authorises the issue of such prospectus shall be liable under section 447 i.e. fraud.

Defences available in this section are:

a)   Person proves that statement or omission was immaterial;

b)  Person has reasonable ground to believe and did believe that statement was true; or

c)   Person has reasonable ground to believe and did believe that the inclusion or omission was necessary.

CIVIL LIABILITY FOR MIS-STATEMENTS IN PROSPECTUS (SECTION 35):

Where a person has subscribed for securities of a company acting upon any misleading statement, inclusion or omission and has sustained any loss or damage as its consequence, the company and every person who:

a)   is a director at the time of the issue of prospectus;

b)  has named as director or as proposed director with his consent;

c)   is a promoter of the company;

d)   has authorised the issue of the prospectus; and

e)   is an expert;

shall be liable to pay compensation to effected person. This civil liability shall be in addition to the criminal liability under section 36. Where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus.

Defences under this section are:

a)   he has withdrawn his consent or never gives his consent;

b)  the prospectus was issued without his knowledge or consent and when he became aware, gave a reasonable public notice that prospectus was issued without his knowledge or consent.

3. (a) What is allotment of shares? What are the conditions regarding allotment of shares?  (14)

Ans: A public limited company invites subscriptions from the public and for this purpose a prospectus is issued. In response to this invitation, the prospective investors offer to buy shares by submitting the prescribed application form. If the application is accepted by the company, it proceeds to allot him the shares. With the issue of the letter of allotment, the offer stands accepted thereby giving rise, to a legally binding contract between the company and the shareholder. Thus, an allotment is the acceptance by the company of the offer to purchase shares. The term ‘Allotment’ has nowhere been defined in the Companies Act. It may be said that allotment is an appropriation by the Board of directors of a certain number of shares to a specified person in
response to his application. In other words, allotment means the appropriation out of the previously un-appropriated capital of a company, of a certain number of shares to a person.

Rules regarding Allotment of Shares

The rules regarding allotment of shares can be discussed under the two broad headings:

(a) General rules and

(b) the legal rules.

General Rules: The allotment is the acceptance of an offer to purchase certain number of shares. Therefore, the general rules relating to valid acceptance of an offer must be followed. The general rules regarding allotment of shares are as follows:

i) The allotment must be made by proper authority: It is the duty of the Board of directors to allot the shares. However, the Board may delegate this authority to some other person or persons as per the provisions of the articles of association. Allotment of Shares made by an improper authority will make it void.

ii) The allotment should be made within a reasonable time: The offer to purchase shares of the company must be accepted within a reasonable time otherwise the applicants may refuse to take shares because after a reasonable time the offer lapses. What is the ‘reasonable time’ is a question of fact in each case.

iii) It must be communicated: The allotment of shares should be communicated to the applicants. Posting of a properly addressed and stamped letter of allotment will be taken as a valid communication. Even if this letter of allotment is delayed or lost in transit, the allottee will be liable. ‘G’ applied for certain shares in a company. The letter of allotment was dispatched to him but it never reached. It was held that ‘G’ was liable as a shareholder.

iv) It must be absolute and unconditional. The allotment of shares must conform to the terms and conditions of the application. If the allotment is not according to the terms and conditions, the applicant may refuse to accept the shares even though allotment has been made to him. If the conditions are not fulfilled, the applicant must reject the shares promptly. His silence or acceptance will debar him from this right.

Legal Rules: So far as the private companies are concerned, the Act does not lay down any restrictions as to the allotment of shares. But the Act has laid down certain restrictions
regarding the allotment of shares by public companies.

When no public offer is made: Where a public company does not offer its shares to  the public but arranges the capital privately, the company cannot proceed with the allotment unless it files with the Registrar of Companies at least three days before the first allotment, a statement in lieu of prospectus. If the allotment is made in contravention to this provision, it will be termed as irregular allotment and it shall be voidable at the option of the allottee. In addition to this, every officer of the company, who is a party to such allotment shall be punishable with fine which may extent to Rs. 1,000.

When an Offer is made to the Public: Where a company offers to shares to the public:

i) a prospectus must be issued and a copy of the same should be filed with the Registrar. You should note that the company cannot allot the shares immediately after issuing the prospectus. No allotment can be made until the beginning of the fifth day from the date of issue of prospectus. The fifth day is to be counted from the date of issue of prospectus was published or was otherwise notified to the public. The beginning of the fifth day is known as ‘the time of the opening of the subscription lists. The object of this provision is to enable the public to go through the prospectus and to decide whether to apply for the shares. The Companies Act, however, does not specifically provide for the time of closing the subscription list. It means that the company may keep the subscription list open for any length of time it wants. According to stock exchange regulations where the shares are listed on any stock exchange, the subscription list must be kept open for at least three days, in such cases, the prospectus usually mentions the time of closing of the subscription lists.

ii) Minimum subscription: No company can proceed to allot shares to the public until the minimum subscription (which is 90%.thc issue amount) has been subscribed, and the sum payable on applications for it has been received by the company in cash. If the company does not receive the minimum subscription of 90% of the issue amount, the entire subscription will be refunded to the applicants within 90 days from the date of closure of the issue. If there is a delay in refund of such amount by more than ten days, the company is liable to pay interest at the rate of 15% per annum for the delayed period.

iii) Application money: It is the amount which is payable on each share along with the application for purchase of shares. The amount payable on application 0% each share shall not be less than 5 per cent of the nominal amount of the share.

iv) Application money to be deposited in a scheduled bank: All the money received from applicants must be deposited in a scheduled bank and it shall remain there until the certificate to commence business is received.

v) Allotment of shares to dealt in on stock exchange. According to Section 73(1) of the Companies Act, every company intending to offer shares to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for the shares to be dealt with in the stock exchange. Thus, now it is made compulsory that the shares must be listed on a recognised exchange. The prospectus must state the name of the stock exchange or each of such exchanges where the application has been ‘made.

Subsequent allotment of shares: The rules regarding the subsequent allotment of shares are the same as discussed above except the rule regarding minimum subscription.

(b) Distinguish between surrender of shares and forfeiture of shares. (6)

Ans: Difference between surrender and forfeiture of shares:

Surrender of shares

Forfeiture of shares

1.       It is an initiative of the shareholders concerned.

2.       In this case, the procedure for reduction of the share capital as provided in sec. 66 of the companies’ act should be followed.

3.       The shareholder is stopped from questioning validity in surrender of shares.

4.       The company is saved from the formalities of serving notice and working till the period of notice is over.

1.       It is at the instance of the company.

2.       No such procedure is followed for forfeiture of shares.

3.       The shareholder can challenge the defects in the notice for forfeiture of shares.

4.        The forfeiture is possible only when the articles of association of a company empowers the board of directors to do so

4. (a) Who can be a director? Explain the modes of appointments of a director. (4, 12)

Ans: Who can be a director of a company?

Qualifications of a Director:

As regards to the qualification of directors, there is no direct provision in the Companies Act, 2013.But, according to the different provisions relating to the directors; the following qualifications may be mentioned:

1. A director must be a person of sound mind.

2. A director must hold share qualification, if the article of association provides such.

3. A director must be an individual.

4. A director should be a solvent person.

5. A director should not be convicted by the Court for any offence, etc.

Disqualifications of a director:

Section 164 of Companies Act, 2013, has mentioned the disqualification as mentioned below:

1) A person shall not be capable of being appointed director of a company, if the director is

(a) Of unsound mind by a court of competent jurisdiction and the finding is in force;

(b) An undischarged insolvent;

(c) Has applied to be adjudicated as an insolvent and his application is pending;

(d) Has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence;

(e) Has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; or

(f) An order disqualifying him for appointment as director has been passed by a court in pursuance of section 203 and is in force, unless the leave of the court has been obtained for his appointment in pursuance of that section;

2) Such person is already a director of a public company which:

(a) Has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or

(b) Has failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more:

Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposit or interest or redeem its debentures on due date or paid dividend referred to in clause (B).

Appointment of Directors

Section 149 of the Companies Act, 2013, makes it obligatory on every public company to have at least three directors and on every other company to have at least two directors. The directors may be appointed in the following ways:

1. Appointment of First Directors (Sec. 152): First directors mean the director of the company who assumes office from the date of incorporation of the company. The first directors of a company may be named in its articles of association and if it is not mentioned, then the subscribers of the memorandum of association who are individual, shall be deemed to be the first directors of the company, until the directors are not appointed in accordance with Section 152.

In case of public company, if the article provides any share qualification, only such subscribers as possess the necessary share qualification shall be deemed to be directors. The articles at the time of registration may contain the names of the first directors until directors are appointed in the first general meeting.

2. Appointment of Directors by Members in the General Meeting (Sec. 152(2): Except for the first director, the subsequent directors are appointed by the company in the general meeting. Sec. 152(2) provides that not less than 2/3 of the total number of directors of a public company, or of a private company which is subsidiary of a public company must be appointed by the company in general meeting. These directors must be subject to retirement by rotation. The remaining directors of such a company and a purely private company are appointed by the company in general meeting

3. Appointment by Board of Directors: The directors are appointed in the general meeting by the members. But, the Board of Directors may also appoint the directors, in the following way: a. Additional Directors: Section 161, of the Act, lays down that the Board may appoint additional directors if the article of association of a company empower the Board of Directors to do so. Such additional directors shall hold office only up to the date of the next annual general meeting. If the annual general meeting is not held, then such additional director vacates his office on the last day on which the annual general meeting should have been held in terms of Section 166. The additional directors are exempted from the requirement of filing consent to act as directors.

b. Casual Vacancies: Section 161 empowers the Board of Directors to appoint the directors in the casual vacancy which may occur due to any reasons like, death, resignation, insanity, insolvency etc. of the directors. Such casual vacancy may be filled according to the regulations and procedure prescribed by the articles of association. A person appointed to fill a casual vacancy will hold
office only till the date up to which the directors in whose place, he is appointed would have held office. 

c. Alternate Directors: The Board Meeting may be held at a time when a director is, absent for a period of more than three months from the state and in such a situation, an ‘alternate director’ is appointed. The Board of Directors can appoint the additional director in the absence of a director if so authorized by articles or by a resolution passed by the company in general meeting. The alternate director shall work until the original director return or up to the period permitted to the original director. The provision of the Act not applicable to the alternate director is as:

A. The appointment of an alternate director is not considered as an increase in the strength of the Board of Directors.

B. Alternate Directorship held by a person cannot be counted for the maximum number of directorship, which a person can hold.

C. An alternate director is not required to hold any qualification shares.

4. Appointment of Directors by Central Government: At least 100 members of the company or the members of the company who hold at least one-tenth of the total voting power, approach the Central Government for appointing a director to safeguard the interest of the company or its members or the public or to curb the oppressive and mismanagement of company’s affairs.

The term of appointment of the directors by the Central Government should not exceed 3 years and he may be removed by the Central Government for appointing another person to hold the office.

5. Appointment of Directors by Third-Parties if the Article provides (Sec. 152): A company may have ‘nominee directors’ which is permissible in a company if the articles of association gives power to such third parties to appoint their nominee on company’s board. Here the third party may be debenture holders, financial corporation, banking companies who have advanced loan to the company to safeguard their interests that the money is only used for the purpose for which it was borrowed.

6. Appointment of Directors by small shareholders if the article provides: The Small Shareholders, in case of a public company having:

i) A paid-up capital of five cores rupees or more, and

ii) one thousand or more small shareholders.

may have a director elected by such small shareholders in the manner as may be prescribed. The directors are appointed by ordinary resolution i.e. through the majority of the shareholders. The minority of the shareholders does not get the opportunity to send representative in the Board of Directors. But, through proportional representative voting, the shareholders can get that opportunity.

7. Appointment of directors by professional representation (Sec. 163): The Directors of a company are generally appointed by simple majority. As a result, majority shareholders controlling 51% or more votes may elect all directors and a substantial minority of 49% may not find any representation on the board. This section gives power to the minority shareholders to elect directors through single transferable vote and cumulative voting.

(b) Explain the term company Secretary in practice. (4)

Ans: Company Secretary Appointment and his Rights and Obligations needs to understand the definitions and as per sec. 2(24) of Companies Act 2013, Company Secretary means a Company Secretary define in sec. 2(1)(c) of the Company Secretaries Act 1980. As per this clause, Company Secretary means a person who is a member of Institute of Company Secretary of India. Company Secretary is managerial personnel in a private sector company and in a public sector company, a Company Secretary is a person who can represent his company before any quasi-judicial body in relation to any legal dispute and other legal litigation.

To be qualified as a company secretary, one must clear the:

1. Company Secretary Executive level programme and Professional level programme.

2. Must have training certificates which includes student induction programme, executive development programme, professional development programmed and long term internship with specified cs entity.

However, to apply for the above programmes, one must:

(a)   Be a graduate from any recognized university or institution.

(b)   Should not be less than 17 years of age.

Thus, a company secretary should be a member of the institute of companies’ secretaries of India.

5. (a) What are the provisions of companies act with regard to annual general meeting. (10)

Ans: Provisions of the Company’s Act relating to Annual General Meeting: (Sec. 96 of the Companies Act, 2013)

As the term denotes, annual general meeting is the meeting under section 96 which has to be held annually. It is the meeting of the members through which they get the opportunity to express their views on the management of the company. Through this meeting, the shareholders can exercise control over the affairs of the company. The ‘Annual General Meeting’ is sometimes called ‘” Ordinary General Meeting” as it usually deals with the so-called ‘Ordinary Business’.

The main purpose (Objectives) to hold these meetings are:

1. To submit the annual account, balance sheet, director’s report and auditor’s report.

2.  To declare the dividend.

3.      Special business- any other business to be transacted will be deemed special business likes:

4.      To increase share capital

5.      To alter Article of Association

6.      To appoint auditors and fix their remuneration.

7.      To elect directors are that liable to retire by rotation.

Legal Provisions Relating to Annual General Meeting

Every company is required to hold this meeting. But, there are certain legal provisions which have to be followed, relating to the annual general meeting as contained in sections 96 and 97. There are:.

a.       First Annual general meeting: A company may hold its first annual general meeting within a period of 9 months from the date of incorporation. However, this should not be more than 9 months from close of financial years.

b.      Subsequent meeting: There must be one meeting held in each year. The gap between two annual general meetings must not be more than 15 months. Meeting must be held not later than 6 months from close of financial year.

c.       Extension of time: the registrar has the power to extend the time of 15 months by 3 more months in special cases.

d.      Day, hour and place of meeting: The meeting can be held at any working place, on any working day and working hours. If the day scheduled for meeting is declared by the Central Government to be a public holiday after the issue of the notice, it shall not be deemed as a holiday.

e.   Notice of the meeting: 21 clear days’ notice or any shorter notice if agreed by all shareholders must be given.

f.    Business to be transected: At every AGM, the following matters must be discussed and decided. Since such matters are discussed at every AGM, they are known as ordinary business. All other matters and business to be discussed at the AGM are special business.

The following matters constitute ordinary business at an AGM:

a.     Consideration of annual accounts, director’s report and the auditor’s report

b.     Declaration of dividend

c.     Appointment of directors in the place of those retiring

d.     Appointment of and the fixing of the remuneration of the statutory auditors. Ordinary business is transacted by passing ordinary resolution.

Special Business: All matters other than ordinary business is treated as special business at an annual general meeting. For transacting special business at a meeting, there shall be annexed to the notice of meeting an explanatory statement setting out:

a)       All material facts concerning each item of such business, and

b)      In particular, nature of the concern or interest, if any, of every director or manager in each item.

c)       Statement must also state time and place where document, if any, proposed for approval at the meeting can be inspected by members.

d) The items constituting special business are transacted either by an ordinary resolution or by a special resolution depending on the requirements of the Companies Act 2013 or articles of the company in respect of each particular item.

g.       Default in holding Annual general meeting: As mentioned earlier, every company is required to hold this meeting according to the provision of the Companies Act. If any company fails to hold the annual general meeting the consequences are as follows:

A. As mentioned above, the annual general meeting provides the opportunity to the members to express views on the management of the company. Any member can apply to the Central Government for the failure of the company to call the meeting. The Central Government may give direction to the company for calling the meeting.

B. The company as well as every officer will become liable if they fail to held the meeting and shall be punishable with fine upto Rs. 50,000, and if the default continues, with a further fine of Rs. 2,500 for every day after the first day of default during which the default continues. 

NIOS – 10 & 12 | NIOS Solved Assignments 2021-22

(b) Explain the different types of resolutions and the matters for these resolutions are required. (10)

Ans: Resolution and Its types

Every decision of the company either in the board or in the general meeting is taken by means of resolutions. Resolution is of three types – ordinary resolution, special resolution and resolution requiring special notice.

1. Ordinary resolution: Section 114(1) provides that a resolution shall be an ordinary resolution if the notice required has been duly given and it is required to be passed by the votes cast, whether on a show of hands, or electronically or on a poll, in favour of the resolution, including the casting vote, if any, of the Chairman, by members, who, being entitled so to do, vote in person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the resolutions by members, so entitled and voting.

2. Special resolution Section 114(2) provides that a resolution shall be a special resolution when:

a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to its members, of the resolution;

b) the notice required under the Act has been duly given; and

c) the votes cast in favour of the resolution, whether on a show of hands or electronically or on a poll, by members, who, being entitled so to do, vote in person or by proxy or by postal ballot, are
required to be not less than 3 times the number of the votes, if any, cast against the resolution by members so entitled and voting.

3. Resolutions requiring special notice: Section 115 provides that where by any provision contained in the Act or in the articles of a company, special notice is required of any resolution, notice of
the intention to move such resolution shall be given to the company by such number of members holding not less than 1% of the total voting power or holding shares on which such aggregate sum not exceeding Rs. 5 lakhs, as may be prescribed, has been paid up.

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