BLS LLB 5 Years Sem 7 Company Law 2018-19 Question Paper with Solutions

Section 2(69) defines a promoter as a person named as such in a prospectus or identified by the company in the annual return under section 92; or who has control over the affairs of the company, directly or indirectly, whether as a shareholder, director or otherwise; or in accordance with whose advice, directions or instructions the Board of Directors is accustomed to act, otherwise than in a professional capacity.

Cockburn CJ in Twycross v. Grant (1877): a promoter is "one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose."

A fixed or specific charge is a charge on specific, identified and ascertained property of the company, such as land, a building or a particular machine. It attaches at the moment it is created, and the company cannot sell or deal with the property free of the charge.

A floating charge is a charge on a class of assets, present and future, which in the ordinary course of business changes from time to time, such as stock in trade or book debts, under which the company remains free to deal with those assets in the ordinary course until crystallisation.

A proxy is a person appointed by a member to attend and vote at a meeting on his behalf, and the word is also used for the instrument by which the appointment is made.

Section 105(1) provides that any member entitled to attend and vote at a meeting shall be entitled to appoint another person as a proxy to attend and vote on a poll instead of himself, and that a proxy shall not have the right to speak at the meeting and shall not be entitled to vote except on a poll, unless the articles otherwise provide.

A joint venture is an arrangement by which two or more parties combine their resources to carry on a particular business or project, sharing the control, profits, losses and risks, while remaining otherwise independent of each other.

Under the Companies Act, 2013, a joint venture company is expressly brought within the definition of an associate company in section 2(6), and the explanation to the Rules defines a joint venture as a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Section 2(l) of the Foreign Exchange Management Act, 1999 defines "export", with its grammatical variations and cognate expressions, as:

1. The taking out of India to a place outside India any goods; and
2. The provision of services from India to any person outside India.

For full marks, cover: the doctrine and its statutory basis, the cases, the criticism, and its relationship with indoor management.

The doctrine of constructive notice is that the memorandum and articles of a company, on registration, become public documents open to inspection by any person, and every person dealing with the company is therefore deemed to have read them and to have understood their contents properly, whether or not he in fact did.

Section 399 of the Companies Act, 2013 is the basis: any person may inspect, make a record of or get a copy or extract of any document kept by the Registrar on payment of the prescribed fee.

The consequence. A person dealing with a company deals at his peril with a transaction which the registered documents forbid, or which they permit only on conditions apparent on their face. He cannot plead ignorance of what is on the public file.

The cases:

1. It is a fiction. Nobody in ordinary commercial life searches the file at the Registrar before every transaction, and the doctrine treats a person as knowing what he almost certainly does not;
2. It operates against the outsider and in favour of the company, which is the party better able to look after itself; and
3. English law has effectively abolished it by statute for third parties dealing in good faith. In India it survives, and it survives alongside the objects clause in section 4(1)(c), which is why the doctrine of ultra vires also survives here while it has withered in England.

Its relationship with indoor management

The two doctrines are complementary, and the second exists because of the first.

Constructive notice standing alone would be intolerable. It would require an outsider to satisfy himself not only that the articles permit the act but that every internal condition had actually been complied with: that the resolution was in fact passed, the meeting in fact held, the consent in fact given. He has no means of doing so, because the minute books and registers are not open to him.

Indoor management does not apply where the outsider knows of the irregularity (Howard v. Patent Ivory Manufacturing Co.), where the circumstances are suspicious (Anand Bihari Lal v. Dinshaw & Co.), where there is forgery (Ruben v. Great Fingall Consolidated), where he has not read the articles (Rama Corporation v. Proved Tin), where the act is ultra vires the company, or where he has been negligent.

Conclusion. Constructive notice is the price the outsider pays for the company's documents being public: because the memorandum and articles are registered under section 399 and open to inspection, he is deemed to have read them and to have understood them, whether or not he did. The doctrine has been criticised as a fiction that no commercial person acts on, and its practical reach today is small, because the indoor management rule protects the outsider as to everything he could not have discovered from the register. Its remaining force is against a person who deals in a manner the public documents plainly forbid.

3. Name a further day, not being earlier than the expiry of fourteen days from the date of service, on or before which the payment is to be made; and
4. State that in the event of non-payment on or before the day appointed, the shares in respect of which the call was made will be liable to be forfeited;
5. A resolution of the Board. Under regulation 30, if the requirements of the notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before payment is made, be forfeited by a resolution of the Board to that effect; and
6. Bona fide exercise for the benefit of the company. The power is a fiduciary one and must be exercised in good faith and for the purpose for which it was conferred, that is, to recover unpaid capital, and not for a collateral purpose such as relieving a friendly shareholder of his liability or excluding a troublesome member.

The effect of forfeiture:

1. The person ceases to be a member in respect of the forfeited shares, and his name is removed from the register;

Contrast: surrender of shares. Surrender is the voluntary return of shares by the member to the company. It is likewise not provided for by the Act, and is permitted only where:

1. The articles authorise it; and
2. It is accepted in circumstances in which the company could lawfully have forfeited the shares, or where the surrender is in exchange for other shares of the same nominal value.

A surrender in any other circumstance is void, because it would amount to a purchase by the company of its own shares outside section 68, and to a reduction of capital without complying with section 66.

Conclusion. Forfeiture takes away a shareholder's property without returning what he has paid, and the law therefore insists that every step be exact: authority in the articles, a valid call, a notice giving at least fourteen days and warning of forfeiture, and a positive Board resolution. Any defect makes the forfeiture void and the member may recover his shares. Forfeiture must not be used as a means of relieving a shareholder of his liability or of returning capital to him, because that would be a reduction of capital outside section 66.

1. The words are "personally present". A member represented by proxy is NOT counted towards the quorum, although a proxy may vote on a poll;
2. A representative of a body corporate appointed under section 113, and a representative of the President or a Governor under section 112, ARE counted as personally present; and
3. The rung of the ladder is fixed by the number of members of the company, taken from the register, and not by the number who attend.

2. If a quorum is not present, section 103(2)

Unless the articles otherwise provide, if the quorum is not present within half an hour from the time appointed:

1. The meeting shall stand adjourned to the same day in the next week at the same time and place, or to such other date, time and place as the Board may determine; or
2. The meeting shall stand CANCELLED, if it was called upon the requisition of members under section 100;

Section 174(4): a Board meeting which could not be held for want of quorum stands adjourned to the same day at the same time and place in the next week, or, if that is a national holiday, to the next succeeding day which is not.

Section 174(2): the continuing directors may act notwithstanding any vacancy, but if their number falls below the quorum fixed by the articles, they may act only to increase the number of directors to that quorum, or to summon a general meeting.

4. Is a quorum required throughout?

Generally no, and this is regularly examined. Section 103 addresses the position at the commencement of the meeting, and nowhere requires a quorum to remain present. Re Hartley Baird Ltd. [1955] Ch 143: ten members were required and ten were present when the meeting began; one left during the proceedings; the business transacted thereafter was held valid. The point turns on the articles: if they expressly require a quorum throughout, a departure invalidates the subsequent business.

For full marks, cover: both definitions with sections, the comparison table with figures, and the exemptions a private company enjoys.

Private company, section 2(68): a company which by its articles:

1. Restricts the right to transfer its shares;
2. Limits the number of its members to two hundred, not counting present or former employees who were and continue to be members, and treating joint holders as a single member; and
3. Prohibits any invitation to the public to subscribe for any securities of the company.

Public company, section 2(71): a company which is not a private company and has such minimum paid-up share capital as may be prescribed. A subsidiary of a public company is deemed to be a public company even where it continues to be a private company in its own articles.

The distinctions

Conclusion. The three restrictions in section 2(68), on the transfer of shares, on the number of members and on any invitation to the public, are what make a company private, and every exemption it enjoys is traceable to the last of them. A company that does not take money from the public does not need the machinery the Act builds to protect public investors, so it is relieved of requirements on meetings, resolutions, interested directors and related party voting. The relief is lost the moment the company becomes the subsidiary of a public company, because the substance of public ownership then exists.

Conditions for shares with differential rights, Rule 4: the articles must authorise it; the issue must be authorised by an ordinary resolution in general meeting, and by a postal ballot in a listed company; the shares with differential rights shall not exceed seventy-four per cent of the total post-issue paid-up equity share capital, including equity shares with differential rights issued at any point of time; the company must have a consistent track record of distributable profits for the last three years; and it must not have defaulted in filing financial statements and annual returns, in payment of a declared dividend, in repayment of deposits or debentures, or in the payment of statutory dues.

The rights of an equity shareholder:

1. Voting. Section 47(1): every member of a company limited by shares and holding equity share capital shall have a right to vote on every resolution placed before the company, and his voting right on a poll shall be in proportion to his share in the paid-up equity share capital. On a show of hands each member has one vote regardless of his holding, section 107;
2. Dividend, when declared out of profits under section 123, after the preference dividend;

Sweat equity shares, section 54 and section 2(88): equity shares issued by a company to its directors or employees at a discount or for consideration other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions. They require a special resolution, and are the only exception to section 53, which makes the issue of shares at a discount void.

Equity against preference

For full marks, cover: the definition, the illustrative list, the contrast with a current account transaction, the regulatory scheme in sections 6 and 47, the 2015 restructuring, and the enforcement provisions.

Section 2(e) of the Foreign Exchange Management Act, 1999 defines a "capital account transaction" as a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India, or assets or liabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6.

The test is whether the transaction ALTERS ASSETS OR LIABILITIES ACROSS THE BORDER, and the definition is drawn by reference to that effect rather than by a list.

The transactions listed in section 6(3) as originally enacted, which remain the standard illustrations:

1. Transfer or issue of any foreign security by a person resident in India;
2. Transfer or issue of any security by a person resident outside India;

Section 6(2A), inserted by the Finance Act, 2015: the Central Government may, in consultation with the Reserve Bank, prescribe any class or classes of capital account transactions not involving debt instruments, the limit of admissibility, and any conditions.

The 2015 restructuring is worth stating, because it changed who regulates what. Before it, all capital account transactions were regulated by the Reserve Bank. Since 2015 the field is split: the Reserve Bank regulates transactions involving debt instruments, principally external commercial borrowings, while the Central Government regulates those not involving debt instruments, principally foreign direct investment and other equity flows. The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 are made by the Central Government under section 6(2A), and the Debt Instruments Regulations, 2019 by the Reserve Bank.

Section 6(4) and (5), as substituted in 2015: a person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if it was acquired, held or owned by him when he was resident outside India or inherited from a person resident outside India; and the corresponding provision applies to a person resident outside India in respect of property in India.

Conclusion. A capital account transaction under section 2(e) of the Foreign Exchange Management Act, 1999 is one which alters the assets or liabilities of a person outside India or of a person resident outside India in India, and the test is that alteration and not the description the parties give the transaction. The distinction matters because FEMA liberalised current account transactions while leaving capital movements regulated, so a current account transaction is free unless restricted and a capital account transaction is prohibited unless permitted. Contravention attracts a penalty of up to three times the sum involved under section 13, with adjudication and a right of appeal.

For full marks, cover: what participating preference shares are, the answer that they are presumed non-participating, the two cases, and the contrast with the opposite presumption as to cumulation.

(a) What participating preference shares are

Preference share capital is defined in the explanation to section 43 of the Companies Act, 2013 as that part of the issued share capital which carries a preferential right as to the payment of dividend, at a fixed amount or a fixed rate, and as to the repayment of capital on a winding up.

The reason is the settled rule of construction that a preference expressed as to dividend is presumed to be EXHAUSTIVE of the rights of that class as to dividend. Where the terms of issue fix a rate of preferential dividend, that rate is treated as the whole of the bargain, and the class is taken to have exchanged the prospect of a fluctuating return for the certainty of a fixed one.

Will v. United Lankat Plantations Co. Ltd. [1914] AC 11 is the authority. Preference shares carried "a preferential dividend at the rate of ten per cent per annum". The House of Lords held that the holders were entitled to that ten per cent and no more, and could not participate further in the profits: the statement of the preference was exhaustive of their rights to dividend.

Re Isle of Thanet Electric Supply Co. Ltd. [1950] Ch 161 applies the same presumption to surplus assets on a winding up. Where the articles define the rights of preference shareholders as to capital, those rights are exhaustive, and the preference shareholders are not entitled to share in the surplus assets after repayment of capital.

Why the two presumptions differ. The cumulative presumption protects the preference shareholder: he bargained for a fixed dividend, and a company should not be able to escape a year's obligation merely because it earned nothing that year, so the arrears carry forward. The non-participating presumption limits him: he bargained for certainty and priority, and the price of that bargain is that he does not share the upside, which belongs to the equity shareholders who bear the residual risk.

Both presumptions therefore express one idea: the preference share is a fixed-return instrument, and the fixed return is both its protection and its ceiling.

Conclusion. On these facts the preference shares of Prabhavati Manufacturing Co. are non-participating. Where neither the memorandum nor the articles says anything about participation, the presumption is that a preference share is non-participating, so the holder takes his fixed preferential dividend and nothing more, and the surplus belongs to the equity shareholders. This is the opposite of the presumption on arrears, where silence makes a preference share cumulative, and the two presumptions express the same idea from different sides: the fixed return is both the preference shareholder's protection and his ceiling.

The reason. Section 103(1) provides that the prescribed number of members personally present "shall be the quorum for a meeting of the company", and section 103(2) fixes the consequence of a quorum not being present within half an hour from the time appointed for holding the meeting. The Act therefore directs its attention to the COMMENCEMENT of the meeting. It nowhere provides that a quorum must remain present throughout, and prescribes no consequence for a member leaving.

Re Hartley Baird Ltd. [1955] Ch 143 is the authority. The articles required a quorum of ten members present in person; ten were present when the meeting began; one left during the proceedings. It was held that the business transacted thereafter was valid, the article being construed as requiring the quorum only at the outset.

The contrary view must be acknowledged, because a question asking for reasons expects it. Some writers take the view that a quorum should continue throughout, on the footing that a meeting is a coming together of the requisite number and a decision taken by fewer is not a decision of the company. The point is ultimately one of construction of the articles:

1. If the articles say nothing, the Hartley Baird rule applies and the meeting remains valid;

(b) Quorum, and the prescribed numbers

Quorum means the minimum number of persons whose presence is necessary for the valid transaction of business at a meeting. A meeting held without a quorum is a nullity, and any resolution purportedly passed at it is void.

Section 103(1), which applies unless the articles of the company provide for a larger number, and which therefore governs Vithai Co. Ltd. exactly as the question posits:

Three points on the counting:

1. The words are "personally present". A member represented by proxy is NOT counted for the quorum, although a proxy may vote on a poll;

Conclusion. On these facts the business transacted after the members left is valid. Section 103 requires the quorum to be present when the meeting begins, and once it has been validly constituted the later departure of members does not invalidate what follows, unless the articles expressly require a quorum to be present throughout. Any other rule would allow a dissatisfied minority to break up a meeting by walking out of it. Had the quorum been absent at the outset, the meeting would have stood adjourned to the same day in the next week, with not less than three days' notice of the adjourned meeting.

Yes, the Tribunal may order winding up, on the JUST AND EQUITABLE ground in section 271(e).

Re Yenidje Tobacco Co. Ltd. [1916] 2 Ch 426 is this problem almost exactly. Two tobacco manufacturers, formerly competitors, amalgamated into a private company in which they were the only two shareholders and the only two directors, with equal shares and equal voting power. They quarrelled so completely that they would not speak to each other and communicated only through the office boy. The company was nevertheless making a profit. The Court of Appeal held that the company should be wound up on the just and equitable ground, because there was a complete deadlock and the substratum of mutual confidence on which the concern had been founded had gone.

Every element of Yenidje is present here: a private company; shares divided between two members; a quarrel that is irreconcilable; refusal to meet in matters of business; no hope of reconciliation; and a business that can no longer be effectively carried on.

What is that "other remedy" here? Principally sections 241 and 242, oppression and mismanagement. Under section 242 the Tribunal may regulate the conduct of the company's affairs in future, and, most aptly on these facts, may order the purchase of the shares of any members by other members or by the company. A buy-out lets one of the two members exit at a fair value and the business continue, which is a far better outcome than destroying a solvent trading company. Winding up is a remedy of last resort.

Note the practical difficulty in a two-member deadlock: the section 244 threshold requires one-tenth of the members or of the issued share capital, which a fifty per cent holder easily meets, and in any event the Tribunal may now waive it.

Note also section 273(2)'s main limb, which cuts the other way: the Tribunal shall not refuse to make a winding up order merely because the assets have been mortgaged for an amount equal to or in excess of those assets, or because the company has no assets. Poverty is no answer to a petition; the availability of a better remedy is.

(b) The grounds under section 271

A company may be wound up by the Tribunal if:

1. Inability to pay debts. It was section 271(1)(a) as originally enacted and was removed by the Insolvency and Bankruptcy Code, 2016 with effect from 15 November 2016. An unpaid creditor now applies for a corporate insolvency resolution process under section 7 if a financial creditor or section 9 if an operational creditor, on a default of one crore rupees or more; and
2. Reduction of members below the statutory minimum, whose only surviving consequence is section 3A, making members severally liable for debts contracted after six months.

The heads under the just and equitable ground, for completeness: deadlock (Yenidje Tobacco); loss of substratum, where the main object has failed or become impossible (Re German Date Coffee Co. (1882) 20 Ch D 169); the company being a bubble with no real business; oppression of the minority; fraudulent or illegal purpose; and the breakdown of a quasi-partnership (Ebrahimi).

Who may petition, section 272: the company; any contributory, notwithstanding that he holds fully paid shares or that the company has no assets; the Registrar, with the previous sanction of the Central Government; any person authorised by the Central Government; and the Central or State Government under ground (b).

Held: the company was liable. The bank, on reading the registered deed, would have found that the directors could borrow if authorised, and was entitled to assume that the necessary resolution had in fact been passed, that being a matter of internal management which no outsider could verify.

2. Why the rule exists

It is the necessary counterweight to the doctrine of CONSTRUCTIVE NOTICE, and this is the paragraph that carries the most understanding.

Constructive notice deems every person dealing with a company to have read the memorandum and articles, which are public documents under section 399, and it operates against him. If it stood alone, an outsider would have to satisfy himself not only that the articles permit the act, but that every internal condition had actually been complied with: that the resolution was passed, the meeting held, the consent given, the quorum present. He has no means of doing so, because the minute books and registers are not open to him.

The two doctrines together produce a workable line: the outsider is bound by what is PUBLIC and open to him, and protected as to what is INTERNAL and closed to him.

The further justifications:

2. Suspicion of irregularity, or unusual circumstances. Where the circumstances surrounding the transaction are suspicious and invite enquiry, the outsider must enquire, and cannot shelter behind the rule if he does not.

Anand Bihari Lal v. Dinshaw & Co. AIR 1946 PC 54: a transfer of the company's property by its accountant was held void, the plaintiff having been put on enquiry and having failed to obtain a copy of the power of attorney. Underwood v. Bank of Liverpool [1924] 1 KB 775: the sole director paid cheques drawn in favour of the company into his own personal account; the bank was put on enquiry and was liable.

3. Forgery. The rule protects against irregularity, not against forgery, because a forged document is a nullity and there is nothing capable of being presumed regular or of being ratified.

Ruben v. Great Fingall Consolidated [1906] AC 439: the secretary of the company issued a share certificate under the company's seal with his own signature and a forgery of the signatures of two directors. The company was held not bound. Lord Loreburn: the doctrine "has no application to a case where a person has not in fact acted at all"; a forgery is not a defective exercise of authority but no exercise of authority at all.

4. Indian application

Dewan Singh v. Minerva Films Ltd. AIR 1959 Punj 106: an irregularity in the appointment of directors did not affect an outsider dealing with them in good faith, the appointment being a matter of internal management.

Section 176 of the Companies Act, 2013 supplies a statutory analogue: acts done by a person as a director shall be valid notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification, though nothing validates an act done after the defect has been brought to the company's notice.

Conclusion. The rule in Turquand protects a person dealing with a company as to everything that happens inside it, and it exists because business could not be carried on if every outsider had to satisfy himself that the company's internal machinery had actually worked. The limits of the rule are set by its rationale: it presumes regularity and not authority, so it cannot help a person who knew of the irregularity, who was put on enquiry, who never read the articles, who relied on a forgery, or who was negligent. Section 176 supplies a statutory analogue for defects in the appointment of directors, but it does not validate acts done after the defect is known.

The doctrine protects two groups: shareholders, who subscribed on the faith of a stated business and are entitled not to have their money put into a different and possibly riskier one; and creditors, who dealt with the company on the footing that its funds would be applied to that business and would generate the assets against which they lent.

2. Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875) LR 7 HL 653

The facts. The company was incorporated under the Companies Act, 1862. Its objects clause authorised it:

"to make, and sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery and rolling stock; to carry on the business of mechanical engineers and general contractors; to purchase, lease, work and sell mines, minerals, land and buildings; to purchase and sell as merchants, timber, coal, metals or other materials, and to buy and sell any such materials on commission or as agents."

2. On the ratification point, and this is the proposition the case is chiefly cited for, the contract was incapable of ratification EVEN BY THE UNANIMOUS ASSENT OF THE WHOLE BODY OF SHAREHOLDERS. Lord Cairns LC explained why: the memorandum contains the conditions upon which alone the company is allowed to be incorporated, and states affirmatively the ambit and extent of the company's vital forces and activities, and negatively, that nothing shall be done beyond that ambit. A contract beyond the objects is therefore void from the beginning, and what is void has nothing in it capable of being ratified.

Lord Cairns' distinction should be given: a contract may be void because it was beyond the powers of the directors but within those of the company, in which case the shareholders can ratify; or void because it was beyond the powers of the company itself, in which case no ratification is possible. The Belgian railway contract was of the second kind.

3. The effects of an ultra vires act

1. The contract is void from the beginning and unenforceable by EITHER party, even where the other party acted in good faith, and even where the company has taken the benefit of it;

2. Subrogation. If the ultra vires borrowing has been used to pay off lawful debts of the company, the lender steps into the shoes of the creditors so paid and may recover to that extent, because the company's overall position is unchanged and to deny recovery would give it a windfall;
3. Incidental acts. Anything reasonably incidental or ancillary to the stated objects is intra vires even though not expressly stated, and section 4(1)(c) itself covers "matters considered necessary in furtherance thereof"; and
4. Ultra vires the directors, not the company. If the act is within the company's powers but beyond the authority the Act or the articles confer on the Board, it is not void: the company may ratify it in general meeting, and a third party dealing in good faith is protected by the doctrine of indoor management.

7. The modern narrowing, and why it survives in India

The practical importance of the doctrine has fallen a long way, and explaining why earns marks.

1. Companies responded to Ashbury by drafting objects clauses of enormous length, listing every conceivable activity, so that almost nothing fell outside them;

Note one modern relaxation: the Companies (Amendment) Act, 2017 removed the requirement that the objects clause be divided into main objects, objects incidental or ancillary, and other objects, so a company may now state its objects more simply. And section 13 permits the objects clause to be altered by special resolution, with the further requirement in section 13(8) that a company which has raised money from the public through a prospectus and has any unutilised amount may change its objects only with a special resolution, newspaper and website publication, and an exit offer to dissenting shareholders.

Conclusion. The doctrine of ultra vires confines a company to the objects stated in its memorandum, and Ashbury Railway Carriage and Iron Co. Ltd. v. Riche settled that an act outside those objects is void from the beginning and cannot be ratified even by the unanimous assent of every shareholder, because ratification cannot create a capacity the company never had. The reliefs that have grown up around the rule, tracing, subrogation, personal liability of directors and injunction, exist precisely because the contract itself is a nullity. The doctrine's practical importance has fallen since objects clauses became wide, and section 13 now allows the objects to be changed by special resolution, with an exit offer where public money is unutilised.

2. The framing

A director is not any one thing, and the classic statement of that is Bowen LJ's in Imperial Hydropathic Hotel Co. v. Hampson: directors are

"described sometimes as agents, sometimes as trustees, sometimes as managing partners; but each of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful points of view from which they may for the moment and for the particular purpose be considered."

The right approach is therefore not to choose between the descriptions but to see which one answers the question in hand.

3. Directors as AGENTS

In relation to contracts made on the company's behalf, directors are agents of the company, and the ordinary law of agency applies.

Ferguson v. Wilson (1866) LR 2 Ch App 77, Cairns LJ: "the company itself cannot act in its own person, for it has no person; it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent."

4. Directors as TRUSTEES

They are not trustees in the strict sense, because the company's property is vested in the company and not in them, and there is no trust deed and no beneficiary in the technical sense. But they are treated as trustees:

1. Of the company's money and property which comes into their hands or under their control; and
2. Of the POWERS entrusted to them, which must be exercised bona fide and for the purposes for which they were conferred, and not for a collateral purpose.

Ramaswamy Iyer v. Brahmayya & Co.: directors are trustees of the company's money and property and are liable to make good money improperly paid away.

5. Directors as MANAGING PARTNERS

In relation to the general body of shareholders directors have been described as managing partners, since they were historically both members and the managers of the concern. The analogy is weak under the 2013 Act: a director need hold no shares at all, there being no share qualification unless the articles impose one, and the members have no power to manage.

6. Directors as ORGANS of the company

The modern description, and the most useful. A company has no mind and no body of its own, so the Board is an organ through which the company itself acts. The alter ego or organic doctrine attributes the acts and the state of mind of the directing mind and will to the company.

Standard Chartered Bank v. Directorate of Enforcement (2005) 4 SCC 530: a company may be prosecuted and punished for an offence carrying a mandatory sentence of imprisonment and fine, the court imposing the fine. Iridium India Telecom Ltd. v. Motorola Incorporated (2011) 1 SCC 74: a company may be prosecuted for an offence requiring mens rea, the criminal intent of the alter ego being imputed to the corporation.

4. Not to involve himself in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company;
5. Not to achieve any undue gain or advantage to himself or his relatives, partners or associates, and if found guilty, to pay an amount equal to that gain to the company, section 166(5); and
6. Not to assign his office, any assignment being void.

To these the general law adds the duty not to make a secret profit, Regal (Hastings) Ltd. v. Gulliver [1967] 2 AC 134, where directors who subscribed personally for shares in a subsidiary the company could not afford had to account for their profit although the company suffered no loss and they acted honestly; the duty not to divert a corporate opportunity, Cook v. Deeks [1916] 1 AC 554; and the duty to disclose interest under section 184 and to comply with section 188 on related party transactions.

9. To whom the duties are owed

Conclusion. The office of director has no exact counterpart at common law, and the analogies the courts used, agent, trustee, managing partner, organ and employee, are each true for a purpose and misleading beyond it. What holds them together is that a director exercises powers given to him by statute and the articles, over property that is not his, for the benefit of a company that is not himself, which is the definition of a fiduciary. Section 166 now sets out the content of that fiduciary position, and section 166(2) is notable for naming employees, shareholders, the community and the environment, the clearest stakeholder language in the Act.

Winding up is NOT dissolution. Winding up is the PROCESS; dissolution is the EVENT at the end of it, when the company ceases to exist as a legal person and its name is struck off the register. During winding up the company CONTINUES TO EXIST, retains its corporate personality and its property, and may carry on business so far as is necessary for a beneficial winding up. Its Board's powers cease and the liquidator takes over, but the company itself is alive until the order of dissolution.

Section 2(94A) defines winding up as winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable, a definition which is itself a summary of the modern position.

2. The modes

(c) Fraud, misfeasance or misconduct. On an application made by the Registrar or any other person authorised by the Central Government by notification, the Tribunal is of opinion that:

1. The affairs of the company have been conducted in a fraudulent manner; or
2. The company was formed for a fraudulent and unlawful purpose; or
3. The persons concerned in the formation of the company or the management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith,

and that it is proper that the company be wound up.

(d) Default in filing. The company has made a default in filing with the Registrar its financial statements or annual returns for the immediately preceding FIVE consecutive financial years.

(e) Just and equitable. The Tribunal is of the opinion that it is just and equitable that the company should be wound up.

4. The two grounds that were removed

These are the commonest wrong answers and must be dealt with expressly.

2. Loss of substratum, where the main object for which the company was formed has failed or become impossible. Re German Date Coffee Co. (1882) 20 Ch D 169: a company formed to work a German patent for making coffee from dates, which was never granted;
3. The company is a bubble, having no real business or property;
4. Oppression of the minority, or a fraudulent or illegal purpose; and
5. Breakdown of a quasi-partnership, where the company was in substance a partnership founded on mutual confidence which has been destroyed. Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360.

The proviso to section 273(2) limits this ground: where a petition is presented on the just and equitable ground, the Tribunal may REFUSE to make an order of winding up if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. In practice that other remedy is sections 241 and 242, and the most useful order is a buy-out of one party's shares under section 242(2)(b), which lets the business survive.

7. The procedure in outline

Section 273: within ninety days of presentation the Tribunal may dismiss the petition, make an interim order, appoint a provisional liquidator after notice to the company, order winding up, or make any other order. Section 275: it appoints a Company Liquidator from a panel of insolvency professionals. Sections 277 to 279: the order operates in favour of all creditors and contributories, a copy goes to the Registrar within thirty days, and no suit or proceeding shall be commenced or continued except with the leave of the Tribunal. Section 281: the liquidator reports within sixty days. Sections 283 and 290: he takes custody of the property, deemed to be in the custody of the Tribunal, and realises it. Sections 285 and 295: the Tribunal settles the list of contributories and makes calls. Distribution follows the section 53 waterfall of the Code. Section 302: when the affairs are completely wound up, the Tribunal orders that the company be dissolved from the date of the order.

For full marks, cover: the definition and the four kinds, the golden rule with Kylsant, the contents in section 26, then the remedies under four heads with the defences, who may sue, and the ladder of fault.

1. What a prospectus is

Section 2(70) defines a prospectus as any document described or issued as a prospectus, and includes a red herring prospectus under section 32, a shelf prospectus under section 31, and any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

Its essence is the INVITATION TO THE PUBLIC: a document is a prospectus because of what it does, not because of what it is called. Four elements must be present: a document; an invitation to offer; the invitation being to the public; and it being for the subscription or purchase of securities.

2. The golden rule of framing

Kindersley V-C in New Brunswick and Canada Railway and Land Co. v. Muggeridge (1860) 1 Dr & Sm 363:

Those who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature, or extent, or quality of the privileges and advantages which the prospectus holds out as inducement to take shares.

Called the "golden legacy" in Henderson v. Lacon. Its three limbs are strict and scrupulous accuracy, no material omission, and no half-truth.

A copy must be delivered to the Registrar for registration on or before the date of publication, and the prospectus is valid for ninety days.

4. The remedies for misstatement

Keep them under four heads.

A. Against the COMPANY

1. Rescission of the contract of allotment. An allottee induced by a material misrepresentation of fact on which he relied may rescind, have his name removed from the register and recover his money with interest.

Requirements: a statement of fact, not of law or of mere opinion; materiality; reliance; and prompt action.

The right is lost in four ways:

1. By affirmation, express or implied, such as attending meetings, accepting dividends or attempting to sell the shares;
2. By unreasonable delay or laches, Re Christineville Rubber Estates Ltd.;
3. Where restitutio in integrum is impossible; and
4. By the commencement of winding up, Oakes v. Turquand (1867) LR 2 HL 325, the rights of creditors having intervened.

4. Every person who has authorised the issue of the prospectus; and
5. Every expert referred to in section 26(5).

Section 35(3): where it is proved that the prospectus was issued with intent to defraud the applicants or any other person, or for any fraudulent purpose, every such person shall be personally responsible, WITHOUT ANY LIMITATION OF LIABILITY, for all or any of the losses incurred by any person who subscribed on the faith of it.

The defences, section 35(2). He is not liable if he proves:

1. That, having consented to become a director, he withdrew his consent before the issue and it was issued without his authority or consent;
2. That the prospectus was issued without his knowledge or consent, and that on becoming aware of it he forthwith gave reasonable public notice; or
3. That, as regards a statement purporting to be made by an expert or contained in an official document, it was a correct and fair representation or a correct copy or extract, and he had reasonable ground to believe and did believe up to the time of issue that the expert was competent and had given his consent, not withdrawn.

1. Section 37: a suit or any other action under sections 34, 35 or 36 may be taken by any person, group of persons or association of persons affected;
2. Section 245, class action: members or depositors may restrain the company from acting ultra vires or in breach of its memorandum or articles, or on a resolution obtained by suppression of material facts, and may claim damages against the company, its directors, its auditors including the audit firm, and any expert, adviser or consultant;
3. Section 26(9): penalty for issuing a prospectus in contravention;
4. Investigation under section 210 or by the Serious Fraud Investigation Office under sections 211 and 212; and
5. For a listed company, action by SEBI under the SEBI Act, 1992 and the ICDR Regulations, including debarment and disgorgement.

5. Who may sue

Only a person who SUBSCRIBED on the faith of the prospectus and thereby sustained loss. Peek v. Gurney (1873) LR 6 HL 377: a prospectus is addressed to the persons invited to subscribe, and its office is exhausted on allotment, so a person who bought in the open market relying on it could not recover.

For full marks, cover: the meaning and the source of the power, the four conditions in detail, the effect, re-issue at a discount, the contrast with surrender and with a lien, and the capital maintenance principle that explains it all.

1. What forfeiture is

Forfeiture of shares is the compulsory termination of a member's shares by the company for non-payment of a call or of an instalment of a call, the shares reverting to the company and the amount already paid on them being forfeited.

There is NO provision in the Companies Act, 2013 authorising forfeiture. The power exists only if the ARTICLES confer it, and Table F of Schedule I, regulations 28 to 34, contains the standard provisions. Forfeiture is a drastic remedy, amounting in substance to a reduction of capital without the Tribunal's sanction, so the conditions are construed strictly, and any departure makes the forfeiture VOID.

3. Section 49 and Table F be complied with as to the amount and timing: under Table F regulation 13, no call shall exceed one-fourth of the nominal value of the share, and there must be at least one month between two calls; and
4. Fourteen days' notice of the call be given.

Rule 3: a proper notice of forfeiture.

Under Table F, regulation 29, the notice must:

1. Require payment of so much of the call as is unpaid, together with any interest which may have accrued;
2. Name a further day, NOT BEING EARLIER THAN THE EXPIRY OF FOURTEEN DAYS from the date of service of the notice, on or before which the payment is to be made; and
3. State that in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be LIABLE TO BE FORFEITED.

All three requirements are mandatory. A notice that gives less than fourteen days, or that fails to warn of forfeiture, or that demands more than is actually due, is bad, and a forfeiture founded on it is void. The notice must also be served on the right person, that is, the registered holder or, on his death or insolvency, his legal representative or assignee.

1. The person ceases to be a member in respect of the forfeited shares, and his name is removed from the register of members;
2. He REMAINS LIABLE to pay the company all moneys which, at the date of forfeiture, were presently payable by him in respect of the shares, together with interest, and that liability ceases only when the company receives payment in full of all such money. Table F, regulation 32;
3. The amount already paid on the shares is forfeited to the company;
4. The shares become the property of the company and may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Board thinks fit; and
5. The Board may, at any time before a sale or disposal, CANCEL the forfeiture on such terms as it thinks fit.

Table F, regulation 33 provides that a duly verified declaration in writing that the declarant is a director, manager or secretary and that a share has been duly forfeited on a stated date is conclusive evidence of the facts as against all persons claiming to be entitled to the share.

A surrender in any other circumstance is VOID, because it would amount to a purchase by the company of its own shares outside section 68, and to a reduction of capital without complying with section 66.

6. Remedies of a member against an invalid forfeiture

1. Application to the Tribunal under section 59 for rectification of the register of members, where his name has been omitted without sufficient cause, and for damages sustained;