KEY ANSWER CORPORATE LAW- June 2010 Annual Examination

Transcription

1 KEY ANSWER CORPORATE LAW- June 2010 Annual Examination 1. a) Steps to be taken PART A (1) Name & approval of the name by ROC (See S. 20) (2) Preparation of the Constitutional documents(moa & AOA) printed and duly stamped complying with requirements of Sections 13 to 15 (MOA), Sections 26 & 27 (AOA) (3) Signing these documents by the Subscribers (Minimum 7) and Compliance of S. 33(2). Attestation of the signatures of Subscribers (4) Presentation of the documents to ROC, after payment of the registration fee stipulated in schedule X Articles to contain a provision empowering the Board of Directors to enter into a contract for the purchase of the property from the promoters. 1. b) Further Steps (1) Since the Promoters and associates can provide only part of the amount required for the Commencement of business, a public issue is necessary. For this a Prospectus satisfying the requirements of section 56 etc and Schedule II is to be registered with the ROC. The Prospectus should contain full disclosure with respect to the purchase of property from promoters. (2) If Minimum Subscription requirement is satisfied, allotment may be made. (S. 69 and 73 requirements to be complied). S. 75- Return on allotment to be filed with ROC. 75 (1) (b) to be satisfied Section 149 (2) requirement to be complied with. (Trading certificate) 1. c) Purchase of property - AOA to contain the provision that the Company may enter into the contract for the purchase of the property identical with the agreement but A & B on One part and other promoters on the other. - Board Resolution adopting the contract and intimating the Vendors in Writing about this. - Refer S. 15 & 19 of the Special Relief Act, a) Two Situations (i) The Object clause in the MOA Contain a provision for carrying on the hotel Business (other Object) If so, S. 149 (2A) or (2B) as the case may be is to be satisfied, 1

2 (ii) The Object clause does not at present contain the hotel business. Then the object clause has to be altered complying with requisites of Sections 17 and b) If the Object clause is not amended the proposed transaction is ultravires the company. A member has the locus standi to seek an injunction remedy preventing the parties from proceeding with the transactions. Even if the contract is executed the court may declare the contract null & Void. In such a case equitable remedies would be available to the parties. If the Company enters into an ultravires contract, the directors will be liable to the company and third party to pay damages. As regards the claim by the other contracting party, the directors may plead constructive notice of the MOA which would reveal that the transaction is ultra vires. 3. Relevant Statutory Provisions- Companies Act, Section 64, Whether the Company can be made liable for the prospectus published by S Liability in respect of the expert opinion. Sections 57, 58, 59- Whether expert liable Criminal Liability. Section 63- Who can be fastened Liability? Defences Burden of Proof 4. a) See Section 45 A public Company with 12 Members. After the accident, membership of the Company reduced to 6. Still the company continued to carry on business with membership less than the statutory minimum of 7 & 45 is attracted. In respect of the debts incurred by the company 6 Months after the date on which the membership is reduced below the statutory minimum (April) all the members who are aware of the fact will be personally liable to the creditors Examination of whether the two transactions viz (1) Loan from canara Bank and (2) Amount due to the construction Contractor fall within the ambit of S b) Here also the issue is whether the doctrine of lifting the veil applies to fasten liability (1) On the holding Co. X & Y Ltd. On the ground that both the Companies are one and the same economic entity and also on the principles laid down in Smithstone & Knight v. Bermingham Corporation (2) Vivekanandan as the shadow director of the Company and the person actually carrying on the business as the subsidiary Co. and the holding Co. are mere his instrumentality and that it was he who really carried on the business. (3) Other Directors for the loss caused to the plaintiffs on account of their failure to discharge their duties of due care and skill and exercise of unfettered discretion. 2

3 PART - B 1. a) Examine the ambit of Section 36. The Provisions of AOA as such are not contractual terms between (a) Company and outsiders (b) Company and members in respect of matters which do not affect the rights or liabilities members as members. In other words S. 36 does not cover outsider rights. But they may be the basis of an implied Contract between Company and outsider. In such cases the parties (i.e. the company and the other contracting party) may refer to them. But the company can alter these provisions (See S.31) without the consent of the other party. Such alteration would not be treated as a breach of contract by the company. The reason is that the parties have presumed to have consented that the implied contract is liable to be altered by the company without the consent of the other contracting party. The only gloss on this that by such alteration the accrued rights of the other party cannot be affected. 1. b ) (1) No alteration having the effect of increasing the liability of the existing members without their consent (exception S. 38). (2) Class Rights cannot be varied without the consent of the affected class as provided in S. 106.In certain cases class rights cannot be varied at all. (3) No alteration which is a fraud on the Minority. (For the meaning of the term and the scope of the exception see the leading cases- Allen v. Gold Reef, Greenhalgh v. Arderone Cinemas Ltd, Peter American, and Gambatto). 2. a) Chairman responsible for the orderly conduct of company meeting. He has duties derived from common law, Statute (Companies Act) and AOA. He is responsible for the orderly conduct of the meeting. He must be impartial. His duties are of a quasi fiduciary nature. He has suo moto powers in regard to the orderly conduct of the business of the meeting including adjournment. 2. b) EGM on requisition- Sec 169 (1) Within 21 days of a valid requisition being made by these members who satisfy the requirements of s. 169(4) the Board shall take steps for the calling of the EGM which is to be held within 45 days of the receipt of the notice. Failure to do so is an offence by virtue of s. 629 A. The Board has no discretion in this matter. (2) If the Board fails to call the EGM within the time specified in S.169 (6), the requisitionists themselves, or such of them who satisfy s. 169 (6) (b) or (c) may call the EGM. Such meeting shall be held within 90 days of the date of requisition being received by the company. 3

4 3. a) See Gover: 6 th ed., P The three divisions made therein (1) Transaction with the company (2) Use of Corporate Opportunity (3) Competition with the Company The Relevant case law is to be examined: (a) Aberdeen Railway Co. and other cases (b) Regal Hastings, Industrial Development Consultants Ltd v. Cooley, Canadian Aerospace, Boardman v. Phipps etc. 3. b) Floating Charge- Distinction from fixed charge- Impact of S Two theories: (1) Licence theory and (2) Mortgage of future assets theory Distinction between the two Negative Covenant Meaning - Priority list earlier floating charge and subsequent legal mortgage. - What is the effect of Subsequent mortgagee s Knowledge of earlier floating charge. - Whether Constructive notice will operate to impute Knowledge. ( S. 125) 4. a) Allotment One of the two devices which a person becomes a shareholder. Allotment- Original Transfer Company creating new shares and issuing the same to those persons either Apply for them or accept the offer made by the company. See the scope of sections 69 and 70. Effect of irregular allotment- The allotment voidable at the option of the allottee Allotment- Original title Transfer and transmission- derivative title. Sections 69 & 70 apply to a public company only. 4. b) Section 299 to be read with S. 300 Extension of the principle of fiduciary duties of the directors. - Envisages that the directors should disclose their personal interest in any transaction- Contract or other arrangement to the Board - Not to participate in the discussion of the matter by the Board: not to Vote etc. - Exception: see section 300 (2) - The concerned director s presence will not be considered for quorum requirement. - Failure to comply with the requirement (see S. 299(4) & (5) - Companies to which S. 299 applies See S. 299 (4) & 299(6) 4

5 5. SHORT NOTES a) Declaration of Solvency See S. 488 Consequences of not filing the declaration of solvency- The voluntary winding up can be only creditor s Voluntary winding up. Declaration of solvency to be accompanied by a copy of auditor s report. Declaration of solvency shall not be earlier than 5 weeks before the special Resolution to wind up the company voluntarily. b) Preference shares Where any of the principal rights attached to a share different from those of another legally they belong to two different classes- The Principal rights are:- (1) Voting rights (2) Right to dividend (3) Return of Capital either on reduction of capital (S. 100 etc) or in the winding up. (4) Right to the surplus assets in winding up as regards public Companies and subsidiary private Companies.Sections 85 to 90 apply. c) Squeezing out of the minority The right of an offeror Company to compulsorily acquire the shares of the minority shareholders satisfying the requirements of S The dissenting minority have also been given certain legal rights and remedies by the section. d) Illegal association See S. 11: The Principle of compulsory incorporation. The maximum strength permitted for an unincorporated business association is 10 (Banking) or 20 (Non Banking association). Consequences of violation of S. 11 request (1) Penal liability fastened on members (2) Personal liability on them for the debts and liabilities incurred by the unincorporated body. (3) Neither the association nor members can sue the third parties. ******** 5