BLS LLB 5 Years Sem 7 Company Law 2025-26 Question Paper with Solutions

A prospectus is defined by section 2(70) of the Companies Act, 2013 as any document described or issued as a prospectus, and it 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.

Under the first proviso to section 96(1), a company must hold its first annual general meeting within nine months from the closing of its first financial year.

If it does so, it need not hold any annual general meeting in the year of its incorporation, and the Registrar has no power to extend the time for a first AGM.

The Board's powers are collective, and section 179(3) requires the following to be exercised only by means of a resolution passed at a meeting of the Board. Three of them are:

1. To make calls on shareholders in respect of money unpaid on their shares;
2. To borrow monies and to invest the funds of the company; and
3. To grant loans or give guarantees or provide security in respect of loans.

Section 2(26) defines a contributory as a person liable to contribute towards the assets of the company in the event of its being wound up.

The expression includes the holder of fully paid-up shares, and it includes a person alleged to be a contributory for the purposes of proceedings for determining who the contributories are.

Under section 92(4) of the Companies Act, 2013, every company must file a copy of its annual return with the Registrar within sixty days from the date on which the annual general meeting is held.

If no annual general meeting is held in any year, the return must be filed within sixty days from the date on which the AGM should have been held, together with a statement of the reasons for not holding it.

In Kelner v. Baxter (1866) LR 2 CP 174, the promoters bought wine "on behalf of the proposed Gravesend Royal Alexandra Hotel Company". The company was later formed and consumed the wine but failed before paying. It was held that the promoters were personally liable: a contract signed on behalf of a principal who does not exist binds the agent personally, otherwise it binds nobody and is a nullity.

In Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 QB 45, the contract was signed "Leopold Newborne (London) Ltd." with Newborne's signature underneath as authentication, not as agent. The buyer refused the goods and Newborne sued personally. It was held that he could not: the contract purported to be the company's own contract, the company did not exist, and so there was no contract at all.

The distinction, which is what the examiner is looking for, is: sign as agent for a non-existent principal and you are personally liable; sign as the non-existent principal itself and the contract is void.

The statutory cure in India. Sections 15(h) and 19(e) of the Specific Relief Act, 1963 allow specific performance to be obtained where the contract was entered into by the promoters for the purposes of the company and before its incorporation, provided:

For full marks, cover: the meaning, the three sources of funds, the two authorising routes with their limits, the conditions in section 68(2), the prohibitions in section 70, and the mandatory destruction of the bought-back shares.

Buy-back is the purchase by a company of its own shares or other specified securities out of its own funds. It is permitted by section 68 of the Companies Act, 2013, as an exception to the general rule that a company must not traffic in its own shares.

Sources of funds. A company may buy back only out of:

1. Its free reserves;
2. The securities premium account; or
3. The proceeds of a fresh issue of shares or other specified securities.

It may not buy back out of the proceeds of an earlier issue of the same kind of shares.

The two routes and their limits.

Prohibitions under section 70. A company must not buy back its securities through a subsidiary company, through investment companies or a group of investment companies, or if it is in default in repayment of deposits, redemption of debentures or preference shares, payment of dividend or repayment of a term loan to a bank. The default bar lifts once the default has been remedied and three years have elapsed.

After the buy-back, the company must extinguish and physically destroy the securities within seven days of completion, and must not make a further issue of the same kind of shares within six months, except by way of a bonus issue or the discharge of a subsisting obligation such as a conversion of debentures or the exercise of stock options.

Where a company buys back out of free reserves, a sum equal to the nominal value of the shares bought back must be transferred to the Capital Redemption Reserve Account.

For full marks, cover: what the statutory meeting was, that the Companies Act, 2013 does not provide for it, the contents of the statutory report, and what has replaced it.

There is no statutory meeting under the Companies Act, 2013. The statutory meeting was section 165 of the Companies Act, 1956, and it was not re-enacted when the 1956 Act was replaced. A company incorporated today never holds one. Any answer to this question has to begin there, because the marks lie in knowing what the position now is.

What it was. Under section 165 of the 1956 Act, every public company limited by shares, and every public company limited by guarantee and having a share capital, had to hold a general meeting of its members not less than one month and not more than six months from the date on which it became entitled to commence business. It was held once in the life of the company. A private company and a company not having a share capital never had to hold one.

A copy had to be filed with the Registrar immediately after it was sent to members. At the meeting the members were free to discuss any matter relating to the formation of the company or arising out of the report, whether or not it was on the notice, though no resolution could be passed on a matter of which notice had not been given.

Default was serious: failure to hold the meeting or to deliver the report was a ground on which the Court could order the company to be wound up under section 433(b) of the 1956 Act.

What replaced it. Nothing directly. The 2013 Act deals with the same mischief in three other ways:

1. Section 10A, inserted with effect from 2 November 2018, requires a company incorporated with share capital to file a declaration of commencement of business in Form INC-20A within 180 days, confirming that every subscriber has paid the value of the shares agreed to be taken;
2. The prospectus and allotment provisions, sections 26 to 42, now regulate at the point of issue what the statutory report used to disclose after the event; and
3. The first annual general meeting under section 96 brings members together within nine months of the close of the first financial year.

For full marks, cover: the meaning, Ashbury Railway Carriage, the effect of an ultra vires act, the four exceptions or reliefs, and the modern narrowing of the doctrine.

Ultra vires means beyond the powers. A company can do only what its memorandum of association, and in particular its objects clause, authorises it to do, together with whatever is reasonably incidental to those objects. An act outside that is ultra vires the company and is void.

The leading case is Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875) LR 7 HL 653. The company's objects were to make and sell railway carriages and rolling stock. Its directors contracted to finance the construction of a railway line in Belgium. The House of Lords held the contract void as ultra vires, and, crucially, that it could not be ratified even by the unanimous assent of all the shareholders, because what is void has nothing in it to ratify.

Effects of an ultra vires act.

1. The contract is void from the beginning and neither party can enforce it;

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) of the 2013 Act itself covers "matters considered necessary in furtherance thereof".
4. Ultra vires the directors, not the company. If the act is within the company's powers but beyond what the directors were authorised to do, it is not void; the company may ratify it, and a third party dealing in good faith is protected by the doctrine of indoor management.

Conclusion. The doctrine of ultra vires confines a company to the objects stated in its memorandum, and an act outside them is void from the beginning and incapable of ratification even by the unanimous assent of every member, Ashbury Railway Carriage and Iron Co. Ltd. v. Riche. The reliefs that have grown around it, tracing, subrogation, injunction and the personal liability of directors, exist precisely because the contract itself is a nullity. It is essential to keep the doctrine apart from an act which is within the company's powers but beyond the directors' authority: that act is merely irregular, the company may ratify it, and the outsider is protected by the doctrine of indoor management.

For full marks, cover: section 119, the answer that the refusal is unlawful, the fee and hours the company may impose, the Tribunal's power to compel, and the penalty.

(a) Is Ravi entitled to inspect the minutes?

Yes. The refusal is not lawful, and "confidential" is not a ground known to the Act.

Section 119(1) of the Companies Act, 2013 provides that the books containing the minutes of the proceedings of any general meeting shall be kept at the registered office of the company and shall be open to inspection by any member without charge during business hours, subject to such reasonable restrictions as the company may impose by its articles or in general meeting, so that not less than two hours in each business day are allowed for inspection.

2. Penalty. Under section 119(3), the company is liable to a penalty and every officer of the company who is in default is liable to a penalty for each such refusal or default. The company secretary who refused is an officer in default.
3. Complaint to the Registrar, who may take up the default in the course of inspection or inquiry under sections 206 to 208.
4. Inspection of other records. If Ravi's real object is information about the company, he should also be told that section 94 gives him the right to inspect the register of members and the annual return, and section 171 the right to inspect the register of directors' shareholding, all kept at the registered office.

For full marks, cover: perpetual succession, that death does not dissolve the company, transmission of the deceased's shares, section 3A and the six-month rule, and the practical routes out.

(a) Can the company continue to exist?

Yes. The company continues to exist. The death of a member has no effect on the existence of the company.

Two reasons, and both should be stated.

1. Separate legal personality. On incorporation the company becomes a person in law distinct from its members, Salomon v. Salomon & Co. Ltd. It follows that the fortunes of a member are not the fortunes of the company.

Section 3(1) requires a private company to have at least two members and a public company at least seven. A one-member company, other than a One Person Company, is below the statutory minimum.

Section 3A, inserted by the Companies (Amendment) Act, 2017 with effect from 9 February 2018, provides the consequence. If the number of members falls below two in a private company or below seven in a public company, and the company carries on business for more than six months while so reduced, then every person who is a member during that time after those six months, and who is aware that the company is carrying on business with fewer members than the minimum, becomes severally liable for the payment of the whole of the debts of the company contracted during that time, and may be severally sued for them.

That is a statutory lifting of the corporate veil. Note its limits carefully, because they are the marks:

1. The liability attaches only after six months have elapsed;
2. Only for debts contracted during that period, not earlier debts; and
3. Only against a member who is cognisant of the fact.

The remedies, in order of practicality.

Conclusion. On these facts the answer to (a) is that the company continues to exist, because perpetual succession means the death of a member does not affect the company's existence; the shares simply pass by transmission to the deceased member's legal representative. The real difficulty is section 3A: if the membership of a private company falls below two and the company carries on business for more than six months, every person who is a member during that time and knows of the fact becomes severally liable for the whole of the debts contracted after those six months. The remedy under (b) is therefore to restore the membership within six months, by registering the legal representative or transferring a share, or to convert into a One Person Company.

The statutory meeting was section 165 of the Companies Act, 1956. It required every public company limited by shares to hold, not less than one month and not more than six months from the date on which it became entitled to commence business, a general meeting of members, and to send them a statutory report at least twenty-one days beforehand. Had this company been incorporated under the 1956 Act, it would have had to hold that meeting between 15 May and 15 October 2025, counting from the date it became entitled to commence business.

Section 165 was not re-enacted in the Companies Act, 2013. There is therefore no statutory meeting, no statutory report, and no default.

A second correction to the facts. The 2013 Act does not provide for a certificate to commence business either. Under section 10A, which applies to companies incorporated on or after 2 November 2018 having a share capital, a company must not commence business unless a director files a declaration in Form INC-20A within 180 days of incorporation, confirming that every subscriber has paid the value of the shares agreed to be taken, and unless the company has filed a verification of its registered office. What the company obtained on 15 April 2025 was therefore, in modern terms, the filing of that declaration, not a certificate issued to it.

3. Because the company holds its first AGM within that period, it need not hold any annual general meeting in the year of its incorporation, that is, in 2025.
4. No extension is available. The Registrar's power under the third proviso to section 96(1) to extend the time by up to three months does not apply to the first annual general meeting.

Its second AGM must then be held within six months from the close of the financial year ending 31 March 2027, that is by 30 September 2027, and the gap between the two must not exceed fifteen months.

Conclusion. On these facts the answer to (a) is no statutory meeting is required, because the statutory meeting was a requirement of section 165 of the Companies Act, 1956 and has no counterpart in the Companies Act, 2013; what the company must do instead is file the declaration under section 10A before commencing business. The answer to (b) is that the company having been incorporated on 1 April 2025, its first financial year closes on 31 March 2026, and section 96(1) requires the first annual general meeting to be held within nine months of that date, that is by 31 December 2026. Its second annual general meeting must follow within six months of the close of the next financial year, by 30 September 2027, and the gap must not exceed fifteen months.

2. The company cannot ratify it after incorporation, because ratification relates back to the date of the contract and requires that the principal was in existence and competent to contract at that date; and
3. It follows that the company can neither sue nor be sued on the contract.

There is one route by which the company could have been made liable, and it fails here. Under sections 15(h) and 19(e) of the Specific Relief Act, 1963, a pre-incorporation contract may be enforced against the company if:

1. The contract was entered into by the promoters for the purposes of the company and before its incorporation;
2. The terms of the incorporation warrant such a contract; and
3. The company has accepted the contract and communicated the acceptance to the other party.

On these facts the third condition is not satisfied: the company has expressly refused the contract. There is therefore no acceptance to communicate, and section 19(e) cannot be invoked against it. The company is not liable.

The qualification, which is where the marks are. The result turns on how he signed, not on what he intended.

In Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 QB 45, the contract was made in the name of "Leopold Newborne (London) Ltd.", with Newborne signing underneath merely to authenticate the company's signature. He was not purporting to be an agent; he was purporting to be the company itself. The company not existing, the Court held there was no contract at all, and Newborne could not enforce it personally either.

The rule to state is therefore:

Since the facts say Mr. Shah contracted on behalf of the company, he falls in the first row and is personally liable.

The consequences of the veil are the standard four: separate property (Macaura v. Northern Assurance Co. [1925] AC 619, where a sole shareholder who insured the company's timber in his own name recovered nothing, because the timber belonged to the company and he had no insurable interest in it); capacity to sue in its own name; perpetual succession; and limited liability.

Indian courts have applied Salomon fully, notably in Lee v. Lee's Air Farming Ltd. [1961] AC 12, where the governing director and principal shareholder of a company was held to be also its employee, so that his widow could recover workmen's compensation when he died flying the company's aircraft. One man, two capacities, because there are two persons.

2. Why the veil is lifted

The veil is a privilege granted by statute for the conduct of business, not a licence. Where it is used to defeat the law, evade an obligation or perpetrate a fraud, the court will disregard the separate personality and look at the realities behind it: who in truth controls the company, and who in truth benefits.

The grounds fall into two classes.

3. Statutory lifting

4. Judicial lifting, with the cases

1. Fraud or improper conduct. Gilford Motor Co. Ltd. v. Horne [1933] Ch 935. Horne had covenanted not to solicit his former employer's customers. He formed a company and solicited through it. The court granted an injunction against both Horne and the company, calling it "a mere cloak or sham".
2. Evasion of a legal or contractual obligation. Jones v. Lipman [1962] 1 WLR 832. Lipman contracted to sell land, then transferred it to a company he had formed and controlled, to defeat a decree of specific performance. Specific performance was ordered against both, the company being "a device and a sham, a mask which he holds before his face".

6. Public interest and protection of the State. Life Insurance Corporation of India v. Escorts Ltd. AIR 1986 SC 1370, where the Supreme Court said the veil may be lifted where the statute itself contemplates it, or where there is fraud, or where the associated companies are inextricably connected as to be one concern.
7. Determination of the character of the company, as in Daimler, and to punish contempt of court, where a company is used to breach an undertaking given to the court.

5. When the courts will not lift it

State this to finish, because it is what distinguishes an answer from a list. The veil is not lifted merely because a company is a one-man company, or because a group is under common control, or because lifting would produce a fairer result. Salomon itself was a one-man company. In Adams v. Cape Industries plc [1990] Ch 433 the English Court of Appeal refused to treat a group as a single entity merely because it was economically one, holding that the court is not free to disregard Salomon "merely because it considers that justice so requires".

For full marks, cover: both definitions with sections, the compulsory clauses of the memorandum, what the articles contain, a comparison table, section 10 and the four-limb contract, and the doctrines of constructive notice and indoor management.

1. Memorandum of association

Section 2(56) defines the memorandum as the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of the 2013 Act.

It is the company's charter. It defines the company's constitution, its objects and the extent of its powers, and it regulates the company's relations with the outside world. It is the document a person dealing with the company consults to learn what the company is and what it may do.

The compulsory clauses, under section 4(1), are six and must be named:

2. Articles of association

Section 2(5) defines the articles as the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of the 2013 Act.

The articles are the company's internal regulations: the rules by which the company's own affairs are managed and the rights of members among themselves are settled. Section 5 provides that the articles shall contain the regulations for management, and may contain entrenchment provisions, that is, provisions which may be altered only on conditions more restrictive than a special resolution.

Typically the articles deal with: share capital and variation of rights, calls, lien, transfer and transmission, forfeiture, alteration of capital, general meetings and proceedings at them, voting and proxies, the Board, its powers and proceedings, the managing director, dividends and reserves, accounts, the seal, and winding up.

Model forms are in Tables F to J of Schedule I. A company limited by shares may adopt Table F in whole or in part, and if it registers no articles of its own, Table F applies by default.

3. The two compared

4. Their role in defining the relationship with members

This is the heart of the question and section 10 is the provision.

Section 10(1) provides that, subject to the provisions of the Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on the part of the company and each member to observe all the provisions of the memorandum and of the articles.

Section 10(2) adds that all money payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.

The classical analysis is that this creates a statutory contract with four limbs, and the fourth is the trap:

1. Company to members. The company is bound to each member in respect of his rights as a member. In Wood v. Odessa Waterworks Co. (1889) 42 Ch D 636 the articles provided for dividends to be paid; a resolution to give debentures instead was restrained.

Constructive notice. The memorandum and articles are public documents, filed with the Registrar and open to inspection under section 399. Every person dealing with the company is deemed to have read them and to have understood them properly. He therefore deals at his peril with an act which those documents forbid. This works against the outsider.

Indoor management, the rule in Royal British Bank v. Turquand (1856) 6 E&B 327. Having read the registered documents, an outsider is entitled to assume that the company's internal proceedings have been regularly carried out. He is bound by what he could have discovered from the public documents, not by what he could not. This works in favour of the outsider. Its exceptions are knowledge of the irregularity, suspicion of irregularity, forgery (Ruben v. Great Fingall Consolidated), negligence, and acts void or ultra vires the company.

For full marks, cover: who a director is, the number of directors, the modes of appointment with sections, the qualifications and disqualifications, removal by the company under section 169 with the procedure, the other ways an office is vacated, and the safeguards.

1. Who is a director

Section 2(34) defines a director as a director appointed to the Board of a company, and section 2(10) defines the Board as the collective body of the directors of the company. Only an individual may be appointed a director, section 149(3), so a body corporate, an association or a firm cannot be one.

2. Number of directors, section 149(1)

3. Rotational directors, section 152(6). In a public company, at least two-thirds of the total number of directors must be liable to retire by rotation, and one-third of those must retire at every annual general meeting. Those to retire are those longest in office; between equals, by agreement or by lot. A retiring director is eligible for re-appointment.
4. Additional director, section 161(1). Appointed by the Board if the articles so authorise; holds office only up to the date of the next annual general meeting or the last date on which it should have been held, whichever is earlier. A person who has failed to get appointed as a director in a general meeting cannot be appointed as an additional director.
5. Alternate director, section 161(2). Appointed by the Board for a director absent from India for at least three months; vacates office on the original director's return.
6. Nominee director, section 161(3). Appointed by the Board on the nomination of an institution in pursuance of any law or of an agreement, or by the Government.

Section 164(1). A person is disqualified if he is of unsound mind and so declared by a competent court; is an undischarged insolvent; has applied to be adjudicated an insolvent and the application is pending; has been convicted of any offence and sentenced to imprisonment for not less than six months, and five years have not elapsed since (if the sentence is seven years or more, he is disqualified permanently); has been disqualified by an order of a court or Tribunal; has not paid any calls on his shares for six months; has been convicted of related party transaction offences under section 188 in the preceding five years; or has not complied with section 152(3), that is, has no DIN.

Section 164(2) is the one that catches directors of defaulting companies. A person who is or has been a director of a company which has failed to file financial statements or annual returns for three continuous financial years, or has failed to repay deposits, redeem debentures or pay declared dividends and the failure continues for one year or more, is not eligible to be re-appointed in that company or appointed in any other company for five years.

5. Removal by the company, section 169

This is the core of the second half of the question.

3. The director is entitled to be heard on the resolution at the meeting, whether or not he is a member.
4. If the director makes a written representation of reasonable length and requests its notification, the company must state the fact of the representation in the notice to members and send a copy to every member. If it is received too late, or the company defaults, the director may require it to be read out at the meeting.
5. The Tribunal may, on the application of the company or an aggrieved person, order that the representation need not be sent or read out if satisfied that the rights are being abused to secure needless publicity for defamatory matter.
6. A vacancy created by removal may be filled at the same meeting, provided special notice of the intended appointment was given. A person so appointed holds office up to the date the removed director would otherwise have held it.
7. If the vacancy is not so filled, the Board may fill it as a casual vacancy, but the removed director must not be re-appointed to fill that vacancy.

3. Vacation of office, section 167. The office is vacated automatically if he incurs any disqualification under section 164; absents himself from all meetings of the Board held during twelve months, with or without leave; contravenes section 184 on disclosure of interest; becomes disqualified by an order of a court or Tribunal; is convicted and sentenced to imprisonment for not less than six months; or is removed under the Act.
4. By the Tribunal, section 242, in oppression and mismanagement proceedings.

Conclusion. Appointment of directors belongs to the members under section 152, the Board's powers under section 161 being exceptions kept temporary or derivative in every case, and removal belongs to the members too. Section 169 allows a company to remove any director before the expiry of his term by ordinary resolution, provided special notice is given, the director is heard and his written representation is circulated, and it does so notwithstanding anything in the articles or in any agreement. The two exceptions are a director appointed by the Tribunal under section 242 and a director appointed by proportional representation under section 163, and vacation under section 167 operates automatically without any resolution at all.

The golden rule for framing a prospectus was stated by Kindersley V-C in New Brunswick and Canada Railway Co. v. Muggeridge (1860) 1 Dr & Sm 363. Those who issue a prospectus hold out to the public great advantages which will accrue to persons who take shares, and they are bound to state everything with strict and scrupulous accuracy, and not to omit any fact within their knowledge the existence of which might in any degree affect the nature or quality of the privileges and advantages the prospectus holds out. In short, the true nature of the company's venture must be disclosed, and nothing must be stated which is not strictly true.

The rule was called the golden legacy in Henderson v. Lacon. Its practical meaning is that a prospectus may mislead by omission as much as by statement, and a literally true statement which creates a false impression is a misstatement. R. v. Kylsant [1932] 1 KB 442 is the illustration: a prospectus stated that dividends had been paid regularly over a period, which was true, but omitted that they had been paid out of wartime reserves while the company was trading at a loss. The statement was held false in a material particular.

2. Contents, section 26

A prospectus must be dated and signed, and must state:

10. Particulars relating to management perception of risk factors specific to the project, gestation period, deadlines for completion, and any pending litigation or default;
11. Minimum subscription, amount payable by way of premium, and the number of shares to be issued;
12. Details of directors including their appointments and remuneration, and any litigation or legal action pending against the promoters during the last five years;
13. Sources of promoter's contribution.

(b) Reports for the financial information:

1. Reports by the auditors of the company on its profits and losses and assets and liabilities, and such other matters as may be prescribed;
2. Reports relating to profits and losses for each of the five financial years immediately preceding the issue, and if no accounts have been made up for a period of five years, then for the period since incorporation;
3. Reports made by the auditors on the assets and liabilities of the business as at a date not more than 180 days before the issue;
4. Reports about the business or transaction to which the proceeds of the securities are to be applied.

2. Every person who has authorised himself to be named and is named in the prospectus as a director, or as having agreed to become one;
3. Every person who is a promoter of the company;
4. Every person who has authorised the issue of the prospectus; and
5. Every person who is an expert referred to in section 26(5).

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 is personally responsible, without any limitation of liability, for all or any of the losses or damages incurred by any person who subscribed on the faith of it.

Defences under section 35(2). A person 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;

Section 447 is severe: imprisonment for a term not less than six months, extending to ten years, and a fine not less than the amount involved in the fraud, extending to three times that amount. Where the fraud involves public interest, the minimum imprisonment is three years.

Section 36 separately punishes any person who fraudulently induces persons to invest money, and it too attracts section 447.

(iii) Rescission and damages against the company

Against the company itself, the subscriber's remedies lie in the general law:

1. Rescission of the contract of allotment for misrepresentation, and a return of the money with interest. The right is lost by affirmation, by unreasonable delay (Christineville Rubber Estates Ltd., Re), by inability to restore the parties to their position, and by the commencement of winding up.

Conclusion. Section 26 fixes the contents of a prospectus, and the reason the list is so detailed is that the document is an invitation addressed to strangers who have no other means of knowing the company's affairs, so the golden rule of scrupulous accuracy applies to what is omitted as much as to what is said. Liability for a misstatement runs in two directions: civil, by rescission and damages against the company and compensation under section 35 against the directors, promoters and experts; and criminal, under section 34 and under section 36 for fraudulently inducing investment, both attracting section 447. The claimant must have subscribed on the faith of the prospectus, for its office is exhausted on allotment.

Winding up is not the same as 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. During winding up the company continues to exist and retains its corporate personality, though its business is carried on only so far as is necessary for a beneficial winding up.

2. How many modes there are now

Under the Companies Act, 1956 there were three modes: compulsory winding up by the Court, voluntary winding up (members' or creditors'), and voluntary winding up under the supervision of the Court.

The Companies Act, 2013 as enacted provided for two: winding up by the Tribunal, and voluntary winding up under sections 304 to 323.

Sections 304 to 323 were omitted by the Eleventh Schedule to the Insolvency and Bankruptcy Code, 2016, with effect from 15 November 2016, and voluntary liquidation now lies under section 59 of the IBC, notified on 30 March 2017. So the modes today are:

1. Winding up by the Tribunal, under the Companies Act, 2013; and

3. (c) On an application by the Registrar or any other person authorised by the Central Government, the Tribunal is of opinion that the affairs of the company have been conducted in a fraudulent manner, or that the company was formed for a fraudulent or unlawful purpose, or that the persons concerned in its formation or management have been guilty of fraud, misfeasance or misconduct, and that it is proper that the company be wound up;
4. (d) The company has defaulted in filing with the Registrar its financial statements or annual returns for the immediately preceding five consecutive financial years; or
5. (e) The Tribunal is of opinion that it is just and equitable that the company should be wound up.

"Inability to pay debts" is no longer a ground. It was section 271(1)(a) as originally enacted, and it went to the Insolvency and Bankruptcy Code, where an unpaid creditor now files under section 7 or section 9 for a corporate insolvency resolution process. So does reduction of members below the statutory minimum, which is not a ground at all any more. Both are among the commonest wrong answers to this question.

Procedure in outline: petition to the Tribunal, which may under section 273 dismiss it, make an interim order, appoint a provisional liquidator, or make an order for winding up. On the order, the Tribunal appoints a Company Liquidator, section 275. The order operates in favour of all creditors and contributories. The liquidator submits a report within sixty days, takes custody of the assets, and settles the list of contributories. Section 279 stays all suits and proceedings against the company except with the Tribunal's leave. The liquidator realises the assets and applies them in the order of section 53 of the IBC, and on completion the Tribunal makes an order for dissolution under section 302, a copy of which goes to the Registrar within thirty days.

4. Voluntary liquidation, section 59 of the IBC

A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings.

The conditions are:

5. Summary procedure, section 361

The Central Government may order the winding up of a company summarily where the assets are of a book value not exceeding one crore rupees and the company falls within a prescribed class. The Official Liquidator conducts it, and the process is compressed: he takes over the assets, sells them, settles the list of contributories, and applies for dissolution.

6. Keep it apart from CIRP

Say this at the end. The corporate insolvency resolution process under the IBC is not a mode of winding up. Its object is the revival of the company through a resolution plan; liquidation follows only if no plan is approved within the statutory period. A company that cannot pay its debts today goes into CIRP, not into winding up, and that is the single largest change the IBC made to this topic.