BLS LLB 5 Years Sem 7 Company Law 2023-24 - ATKT 60/40 Question Paper with Solutions

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 its resolutions are void.

Under section 103(1), unless the articles provide for a larger number, the quorum for a general meeting is two members personally present in a private company, and in a public company five where the members are not more than one thousand, fifteen where they exceed one thousand but not five thousand, and thirty where they exceed five thousand. Under section 174(1), the quorum for a Board meeting is one-third of the total strength or two directors, whichever is higher.

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 of a company 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.

Two modes by which a person becomes a member of a company are:

1. By subscribing to the memorandum. Under section 2(55)(i), the subscribers to the memorandum of a company shall be deemed to have agreed to become members, and on its registration shall be entered as members in the register of members. No allotment, no application and no entry in the register is necessary to make them members: membership arises by operation of law on incorporation; and
2. By agreement in writing and entry in the register. Under section 2(55)(ii), every other person who agrees in writing to become a member and whose name is entered in the register of members is a member. Both elements are necessary: the agreement alone does not make him a member until the entry is made.

A merger, also called amalgamation, is the combination of two or more companies into one, either by one company absorbing another (absorption), or by two or more companies transferring their undertakings to a new company formed for the purpose (amalgamation in the strict sense). The undertaking, property, rights and liabilities of the transferor company vest in the transferee, and the transferor is dissolved without winding up.

A demerger is the reverse: the splitting of a company by transferring one or more of its undertakings or divisions to another company, the shareholders of the transferor receiving shares in the transferee, so that a single business is separated into two or more.

Section 114(1) of the Companies Act, 2013 provides that a resolution shall be an ordinary resolution if the notice required under the Act has been duly given and it is required to be passed by the votes cast, whether on a show of hands, electronically or on a poll, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, in favour of the resolution, including the casting vote of the chairman, exceeding the votes, if any, cast against the resolution.

In short, an ordinary resolution is carried by a simple majority of the votes cast.

For full marks, cover: the definition, who may file one, the one-year validity, the information memorandum with its refund rule, and the contrast with the other three kinds of prospectus.

Section 31(1) of the Companies Act, 2013 provides that any class or classes of companies as the Securities and Exchange Board may provide by regulations may file with the Registrar, at the stage of the first offer of securities, a shelf prospectus indicating a period not exceeding one year as the period of validity of that prospectus from the date of opening of the first offer.

The explanation defines a shelf prospectus as a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus.

The consequence. In respect of a second or subsequent offer made during that period, no further prospectus is required.

Conclusion. A shelf prospectus under section 31 spares a company that raises money repeatedly from filing a fresh prospectus each time, allowing one document to remain valid for up to one year from the opening of the first offer. What keeps investors protected is the information memorandum: the company must file it before each subsequent offer, stating new charges created, changes in the financial position and any other prescribed change, and where it is filed with the shelf prospectus the two together are deemed to be the prospectus. So the disclosure is not reduced, only reorganised.

Model articles, section 5(6) and Schedule I. The forms are Tables F to J: Table F for a company limited by shares; Table G for a company limited by guarantee having a share capital; Table H for one limited by guarantee not having a share capital; Table I for an unlimited company having a share capital; and Table J for an unlimited company not having a share capital. A company may adopt all or any of the regulations of the applicable table, and where it registers no articles of its own, the applicable table applies by default, section 5(7) and (9).

Entrenchment, section 5(3) to (5). A new provision of the 2013 Act. The articles may contain provisions for entrenchment, to the effect that specified provisions of the articles may be altered only if conditions or procedures more restrictive than those applicable in the case of a special resolution are met. Entrenchment provisions may be made only:

1. On formation of the company; or
2. By an amendment of the articles agreed to by all the members in the case of a private company, and by a special resolution in the case of a public company.

5. It must not increase the liability of a member to subscribe for more shares or to pay more money, without his consent in writing, section 38 of the 1956 Act now embodied in section 10 read with section 13 and 14;
6. It must not be in breach of a contract with a third party, though the company cannot contract out of its statutory power to alter: it may alter and be liable in damages for the breach, Southern Foundries (1926) Ltd. v. Shirlaw [1940] AC 701; and
7. A conversion from public to private requires the approval of the Tribunal under the proviso to section 14(1).

The section 10 contract. Under section 10(1), the memorandum and articles, 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 contain covenants to observe all their provisions. Section 10(2) makes all money payable by a member under them a debt due from him to the company.

The contract has four limbs:

The two doctrines. The articles are a public document open to inspection under section 399, so every person dealing with the company is fixed with constructive notice of them, which operates against the outsider. Having read them, he is entitled by the doctrine of indoor management, the rule in Royal British Bank v. Turquand (1856), to assume that the internal proceedings have been regularly carried out, which operates in his favour.

Conclusion. The articles are the company's internal regulations, subordinate to the memorandum and to the Act, and section 10 gives them the force of a contract binding the company and its members to the same extent as if each had signed them. Two consequences follow and are worth stating together: the contract binds only in the capacity of member, so an outsider cannot sue on an article, Eley v. Positive Government Security Life Assurance Co.; and because the articles are public, an outsider is deemed to have read them, but is entitled by the rule in Royal British Bank v. Turquand to assume that whatever they require internally has been regularly done.

The nominee, section 3(1) proviso. This is the feature that distinguishes an OPC from every other company and it must be given. The memorandum shall indicate the name of the other person, with his prior written consent in Form INC-3, who shall, in the event of the subscriber's death or his incapacity to contract, become the member of the company. The nominee's consent is filed with the Registrar at the time of incorporation. The member may withdraw or change the nominee at any time, and the nominee may withdraw his consent, in which case another must be nominated within fifteen days.

Restrictions, Rule 3:

1. A person can be a member of only one OPC, and a nominee in only one OPC. Where a person becomes a member of a second OPC by virtue of being a nominee, he must meet the eligibility criteria within one hundred and eighty days;
2. A minor cannot become a member or nominee, nor hold a beneficial interest in shares;
3. An OPC cannot be incorporated as, or converted into, a section 8 company; and
4. An OPC cannot carry out non-banking financial investment activities, including investment in the securities of any body corporate.

6. Section 134(1): the financial statement and Board's report may be signed by one director; and
7. Section 137(1): a copy of the financial statements must be filed within one hundred and eighty days from the closure of the financial year, and the annual return may be signed by the company secretary or, where there is none, by the director.

Conversion. The old thresholds, under which an OPC had to convert into a private or public company if its paid-up capital exceeded fifty lakh rupees or its average annual turnover exceeded two crore rupees, were omitted with effect from 1 April 2021. An OPC may now convert voluntarily at any time, and there is no compulsory conversion on growth. Conversion is effected by altering the memorandum and articles and filing Form INC-6, and a private company other than a section 8 company may convert into an OPC where it has paid-up capital of fifty lakh rupees or less and average annual turnover of two crore rupees or less, with the no objection of members and creditors by special resolution.

For full marks, cover: who must appoint them, the definition in section 149(6), the declaration, tenure, remuneration, the limited liability under section 149(12), and Schedule IV.

Section 2(47) defines an independent director as a director referred to in sub-section (6) of section 149.

Which companies, section 149(4) and Rule 4:

1. Every listed public company shall have at least one-third of the total number of directors as independent directors, any fraction being rounded up; and
2. The following unlisted public companies shall have at least two: those with paid-up share capital of ten crore rupees or more, or turnover of one hundred crore rupees or more, or aggregate outstanding loans, debentures and deposits exceeding fifty crore rupees.

A private company need have none, and the requirement does not apply to a joint venture, a wholly owned subsidiary or a dormant company.

The definition, section 149(6). An independent director means a director other than a managing director, a whole-time director or a nominee director, who:

5. Who, neither himself nor any of his relatives, (i) holds or has held the position of key managerial personnel or has been an employee of any of them in any of the three preceding financial years; (ii) is or has been, in any of the three preceding financial years, an employee, proprietor or partner of a firm of auditors, company secretaries in practice or cost auditors of any of them, or of a legal or consulting firm having transactions with any of them amounting to ten per cent or more of that firm's gross turnover; (iii) holds with his relatives two per cent or more of the total voting power; or (iv) is a chief executive or director of a non-profit organisation receiving twenty-five per cent or more of its receipts from any of them, or holding two per cent or more of the voting power of the company; and
6. Possesses such other qualifications as may be prescribed.

Declaration, section 149(7). Every independent director shall give a declaration that he meets the criteria of independence at the first Board meeting in which he participates, at the first Board meeting of every financial year, and whenever there is a change in circumstances affecting his status.

Schedule IV, the Code for Independent Directors, prescribes the guidelines of professional conduct, the role and functions, the duties, the manner of appointment, resignation or removal, and:

1. A separate meeting: the independent directors shall hold at least one meeting in a financial year without the attendance of non-independent directors and members of management, to review the performance of non-independent directors and of the Board as a whole, to review the performance of the chairperson taking into account the views of executive and non-executive directors, and to assess the quality, quantity and timeliness of the flow of information between management and the Board; and
2. Performance evaluation of an independent director is done by the entire Board excluding the director being evaluated, and on that basis it is determined whether to extend or continue his term.

If the number falls below two and the company carries on business for more than six months while so reduced, section 3A makes every member aware of the fact severally liable for the whole of the debts contracted during that time.

The other two restrictions of section 2(68) travel with this one: the articles must also restrict the right to transfer shares and prohibit any invitation to the public to subscribe for any securities.

(b) Issue of prospectus

A private company cannot issue a prospectus. Section 2(68)(iii) requires its articles to prohibit any invitation to the public to subscribe for any securities, and a prospectus is by definition a document inviting offers from the public for subscription or purchase of securities, section 2(70).

What it does instead:

1. Rights issue to existing members, section 62(1)(a), on notice of not less than fifteen and not more than thirty days, with a right of renunciation unless the articles otherwise provide;

Section 42 explanation: an offer or invitation to more than the prescribed number of persons is deemed to be an offer to the public, and attracts the whole of the public issue regime. That is the commonest way a private company accidentally ceases to be one.

(c) Conversion into a public company

1. Board meeting to approve the proposal and call a general meeting;
2. Special resolution under section 14(1) altering the articles to delete the three restrictions in section 2(68);
3. File Form MGT-14 within thirty days of the resolution;
4. File Form INC-27 under section 18, with the altered memorandum and articles and the prescribed documents;
5. Section 14(2): where a private company alters its articles so that they no longer include the restrictions, it shall, as from the date of the alteration, cease to be a private company; and
6. Section 18(3): the Registrar closes the former registration and issues a fresh certificate of incorporation, and the conversion shall not affect any debts, liabilities, obligations or contracts incurred before it, which may be enforced as if the conversion had not been done.

Conclusion. On these facts the advice to Mr. A and Mr. B is that (a) the articles of a private company must limit its members to two hundred, excluding present and former employee members and treating joint holders as a single member, section 2(68); (b) it cannot issue a prospectus at all, since the same definition prohibits any invitation to the public to subscribe for its securities, and it must therefore raise capital by private placement under section 42; and (c) conversion into a public company requires a special resolution deleting the three restrictions from the articles, filing with the Registrar, compliance with all the requirements the Act imposes on a public company, the loss of the private company exemptions under the section 462 notification, and the removal of the word Private from the name.

What external reconstruction is. It is the arrangement by which the undertaking and assets of an existing company are transferred to a newly formed company, the shareholders of the old company receiving shares in the new one, and the old company is then wound up or dissolved. It is distinguished from internal reconstruction, which reorganises the capital of the same company by a reduction under section 66 or a variation of rights under section 48, without any transfer of the undertaking.

Two separate approvals are required, and both are outside the Board.

First, section 180(1)(a). The Board of Directors of a company shall exercise the power to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company only with the consent of the company by a special resolution. An external reconstruction necessarily involves the disposal of the whole undertaking to the new company, so a special resolution of the members is indispensable. "Undertaking" is defined in the explanation as an undertaking in which the investment of the company exceeds twenty per cent of its net worth or which generates twenty per cent of the total income during the previous financial year.

4. Notice to the Central Government, the Registrar, the income tax authorities, the Reserve Bank, SEBI, the Competition Commission and the stock exchanges as applicable, who may make representations within thirty days; and
5. Sanction by the Tribunal under section 232(3), whose order may provide for the transfer of the undertaking, property and liabilities, the allotment of shares, the continuation of pending proceedings, and the dissolution of the transferor company without winding up.

A certified copy of the order is filed with the Registrar within thirty days.

Section 233 offers a fast track merger without the Tribunal, but only for two or more small companies, a holding company and its wholly owned subsidiary, or such other class as may be prescribed, and it requires approval of members holding ninety per cent of the total number of shares and creditors representing nine-tenths in value, plus the approval of the Central Government through the Regional Director. A company described as "Sun Pharmaceuticals Co. Ltd" is unlikely to qualify, and nothing in the facts suggests it.

A reconstruction is plainly within the powers of the company. Every company has the capacity to dispose of its undertaking and to be reconstructed; sections 180 and 230 to 232 assume as much and lay down how it is to be done. What the Board has done is to exercise, without the sanction the statute requires, a power that belongs to the company acting through its members and the Tribunal.

Therefore:

1. The resolution is not void. It is inoperative and ineffective as it stands, an act done without authority;
2. It can be regularised. If the members pass the special resolution under section 180(1)(a) and the scheme is put through sections 230 to 232 and sanctioned by the Tribunal, the reconstruction is perfectly valid. The defect is one of procedure and authority, not of capacity;

Conclusion. On these facts the Board of Sun Pharmaceuticals Co. Ltd. does not have the power, and its resolution is ineffective for the purpose. External reconstruction involves transferring the whole or substantially the whole of the undertaking to a new company, which is a disposal falling within section 180(1)(a) and therefore beyond the Board's competence without the members' authority. What the company must do is pass a special resolution under section 180(1)(a), file Form MGT-14 within thirty days, and apply to the Tribunal under section 230 for directions to convene meetings of creditors and members, with sanction of the scheme thereafter under section 232.

The first half, "while he shall hold the office of a managing director", is valid. A negative covenant operating during the subsistence of employment is not a restraint of trade at all; it is a term of the service. Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd. AIR 1967 SC 1098 upheld such a covenant and granted an injunction, holding that a restriction operating during the term of the agreement and not thereafter is not in restraint of trade. See also Gujarat Bottling Co. Ltd. v. Coca Cola Co. (1995) 5 SCC 545.

The second half, "or afterwards", is void. Section 27 of the Indian Contract Act, 1872 provides that every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void, subject only to the exception for the sale of goodwill.

1. Breach of confidence and trade secrets. Section 27 protects a man's right to work; it does not permit him to use his former employer's confidential information. An injunction will restrain the use or disclosure of customer lists, pricing, formulae and drawings, and this cause of action is independent of section 27. Niranjan Golikari itself distinguishes protecting trade secrets from restraining competition;
2. Breach of fiduciary duty as a director. While in office Mr. Black owed the duties in section 166: to act in good faith to promote the objects of the company, to avoid conflicts of interest, and not to achieve any undue gain for himself or his associates, with section 166(5) requiring him to pay the company an amount equal to any such gain. If he prepared the ground for the rival while still managing director, canvassed FICO's customers, or diverted a corporate opportunity, he must account. Cook v. Deeks [1916] 1 AC 554 and Industrial Development Consultants Ltd. v. Cooley [1972] 1 WLR 443;
3. Damages for breach of the valid in-term half, for any solicitation before his employment ended; and
4. Passing off, if the rival uses FICO's name, get-up or goodwill.

1. Misuse of confidential information, in which case the company through which it is exploited may be restrained along with the individual;
2. Breach of fiduciary duty committed while in office, in which case the company that received the diverted opportunity or profit may be made to account as a constructive trustee, having taken it with notice; or
3. Passing off or misuse of FICO's goodwill.

Footing 2: inducing breach of contract. If Mr. White or his company knowingly induced Mr. Black to breach a subsisting and valid obligation, such as the in-term covenant or his fiduciary duty as managing director, FICO has a direct action for inducing breach of contract, and for conspiracy, without needing to lift any veil. Lumley v. Gye (1853) is the source of the tort.

For full marks, cover: that the exemption fails, the principle of separate legal personality, Salomon, Macaura and Bacha F. Guzdar, and the one qualification about lifting the veil.

(a) Can the exemption be claimed?

No. Stamp duty is payable on the transfer.

The claim rests on the proposition that the property has not really changed hands because the company "belongs to them only". That proposition is wrong in law.

On incorporation ABC Exciting Park Ltd. became, under section 9, a body corporate with power to acquire, hold and dispose of property, and a person distinct from its members. Therefore:

(b) The principle

The principle is the separate legal personality of a company.

1. Salomon v. Salomon & Co. Ltd. [1897] AC 22. The company "is at law a different person altogether from the subscribers to the memorandum", and the fact that the same persons manage the business and receive the profits does not make the company their agent or trustee.

2. Macaura v. Northern Assurance Co. Ltd. [1925] AC 619. This is the closest analogue and should be given in full. Macaura owned an estate and sold the entire timber on it to a company in which he held all but one of the shares and to which he was the principal creditor. He insured the timber in his own name. It was destroyed by fire and the insurers repudiated. The House of Lords held he had no insurable interest: the timber belonged to the company, and "no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein". The four friends had a proprietary interest in the park before the transfer and only a shareholding afterwards.

But lifting the veil in such cases works against the taxpayer, not for him. The doctrine exists to prevent the corporate form being used to escape a liability; it is not a facility a promoter may invoke to escape a duty by asserting that his own company is not really separate. The four friends are asking the court to disregard the personality for their own benefit, and no case supports that.

Conclusion. On these facts the exemption cannot be claimed. On the transfer of the amusement park to ABC Exciting Park Ltd. the property passed to a person distinct in law from the four friends, so the transaction was a conveyance to a different person and attracted ad valorem duty just as a sale to a stranger would. Separate legal personality is not an option the members may take when it suits them and disclaim when it does not: it is the consequence of incorporation, and the four friends are asking the court to disregard for their own benefit the very personality on which their limited liability depends.

For full marks, cover: who may be a director, the DIN and consent requirements, the absence of any general qualification, the positive qualifications for particular classes, the whole of section 164 in both its sub-sections, section 167 vacation of office, and the removal provisions.

1. Who may be a director

Section 2(34): a director means a director appointed to the Board of a company. Section 149(3) requires that only an individual may be appointed, so a body corporate, association or firm cannot be a director.

Two formalities are conditions of appointment:

1. Director Identification Number, section 152(3). No person shall be appointed as a director unless he has been allotted a DIN under section 154, or such other identification number as prescribed under section 153; and

2. Age. No general minimum, though a director must be competent to contract and therefore of full age and sound mind. A managing director, whole-time director or manager must have attained the age of twenty-one years and not attained seventy, though appointment beyond seventy is permitted by a special resolution with an explanatory statement stating the justification, Part I of Schedule V; and
3. Nationality and residence. No requirement that a director be an Indian citizen, but section 149(3) requires every company to have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days during the financial year.

Positive qualifications are prescribed only for particular classes:

1. Independent director, section 149(6): must be a person of integrity with relevant expertise and experience, must not be a promoter or related to promoters or directors, must have no pecuniary relationship beyond the prescribed limits, must not have been an employee or a partner in the audit or legal firm within the prescribed look-back periods, and must not hold with his relatives two per cent or more of the voting power;

1. Is of unsound mind and stands so declared by a competent court;
2. Is an undischarged insolvent;
3. Has applied to be adjudicated as an insolvent and his application is pending;
4. Has been convicted by a court of any offence, whether or not involving moral turpitude, and sentenced to imprisonment for not less than six months, and five years have not elapsed from the expiry of the sentence. Where the sentence is imprisonment for seven years or more, he shall not be eligible to be appointed as a director in any company, permanently;
5. Has been disqualified by an order of a court or Tribunal and the order is in force;
6. Has not paid any calls in respect of shares held by him, whether alone or jointly, and six months have elapsed from the last day fixed for payment;
7. Has been convicted of the offence dealing with related party transactions under section 188 at any time during the preceding five years; or
8. Has not complied with section 152(3), that is, has not been allotted a DIN.

A private company may by its articles provide for additional disqualifications, section 164(3) proviso.

The consequences are severe and should be named: the office is vacated automatically under section 167(1)(a) in every other company he sits in; his DIN is deactivated; and the disqualification runs for five years even if the default is subsequently cured.

5. Vacation of office, section 167

The office of a director shall become vacant in case he:

1. Incurs any of the disqualifications specified in section 164;
2. Absents himself from all the meetings of the Board of Directors held during a period of twelve months, with or without seeking leave of absence;
3. Acts in contravention of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested, or fails to disclose his interest;
4. Becomes disqualified by an order of a court or the Tribunal;
5. Is convicted by a court of any offence and sentenced to imprisonment for not less than six months, though the office is not vacated for thirty days from the conviction, and where an appeal is filed, until it is disposed of;

6. Removal and resignation

Removal, section 169. A company may, by ordinary resolution, remove a director before the expiry of the period of his office, after giving him a reasonable opportunity of being heard, save a director appointed by the Tribunal under section 242 and directors appointed by proportional representation under section 163. The procedure requires special notice under section 115, a copy sent forthwith to the director, his right to make a written representation to be circulated to members or read out at the meeting, and, where the vacancy is filled at the same meeting, special notice of the intended appointment. A director so removed shall not be re-appointed to fill the resulting casual vacancy. Section 169(8) preserves any claim to compensation or damages under his contract.

For full marks, cover: the meaning and the difference from dissolution, the historical three modes against the present two, winding up by the Tribunal with grounds, petitioners and procedure, voluntary liquidation under section 59 of the IBC, the summary procedure, and the distinction from CIRP and from striking off.

1. Meaning

Winding up, or liquidation, is the process by which the life of a company is brought to an end and its property administered for the benefit of its creditors and members. A liquidator takes control of the assets, realises them, pays the debts in the statutory order and distributes any surplus among the members.

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 and its name is struck off. During winding up the company continues to exist and retains its corporate personality and its property.

Section 2(94A) defines winding up as winding up under the Companies Act, 2013 or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable.

To which may be added the summary procedure under section 361, which is a variant of the first rather than a separate type.

3. Winding up by the Tribunal

Grounds, section 271. A company may be wound up by the Tribunal if:

1. It has by special resolution resolved that it be wound up by the Tribunal;
2. It has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;

The just and equitable ground is the residual discretion and should be illustrated: deadlock in management (Re Yenidje Tobacco Co. Ltd. [1916] 2 Ch 426, two equal shareholder-directors who communicated only through the office boy); 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; and the breakdown of a quasi-partnership (Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360).

Who may petition, section 272: the company; any contributory or contributories, even a holder of fully paid shares and even where the company has no assets or no surplus; the Registrar, on any ground except the company's own special resolution and only with the previous sanction of the Central Government after giving the company an opportunity to make representations; any person authorised by the Central Government; and the Central or State Government under ground (b).

1. Declaration of solvency by a majority of the directors, verified by affidavit, that they have made a full inquiry into the affairs and formed the opinion that the company has no debt or will be able to pay its debts in full out of the proceeds of the assets, and that it is not being liquidated to defraud any person, accompanied by the audited financial statements and record of business operations for the previous two years and a valuation report;
2. Within four weeks, a special resolution of the members to liquidate voluntarily and to appoint an insolvency professional as liquidator. Where the articles fixed a period of duration which has expired, or provided for dissolution on an event which has occurred, a resolution suffices;
3. Where the company owes any debt, the approval of creditors representing two-thirds in value of the debt within seven days of the special resolution; and
4. Notice to the Registrar and to the Board within seven days.

Liquidation is deemed to commence from the date of the resolution, and on completion the liquidator applies to the NCLT for an order of dissolution.

Striking off under sections 248 to 252 is also not winding up. The Registrar may remove the name of a company from the register where it has not commenced business within one year of incorporation, or has not been carrying on any business or operation for two immediately preceding financial years and has not applied for dormant status; and a company may itself apply, after extinguishing all its liabilities, by special resolution or with the consent of seventy-five per cent of members in terms of paid-up capital. There is no liquidator and no realisation of assets; the company is simply dissolved, and an aggrieved person may appeal to the Tribunal within three years under section 252 for restoration.

Conclusion. The types of winding up are fewer than the older textbooks suggest, because the Companies Act, 2013 now provides only for winding up by the Tribunal on the grounds in section 271, voluntary winding up having been omitted with sections 304 to 323 and replaced by voluntary liquidation under section 59 of the Insolvency and Bankruptcy Code, 2016, which is open only to a company that has committed no default. Two further routes must be kept distinct from winding up altogether: the summary procedure in section 361 for small companies, and removal of the name from the register under section 248, in which there is no liquidator and no realisation at all.

1. Separate legal personality

The foundation of all the rest. Salomon v. Salomon & Co. Ltd. [1897] AC 22: Salomon sold his boot business to a company he formed, taking 20,000 shares and £10,000 of debentures secured by a floating charge, his wife and five children holding one share each. On failure the unsecured creditors argued the company was a sham or Salomon's agent. The House of Lords held it duly incorporated, not the agent or trustee of Salomon, and his secured debentures entitled to be paid first. Lord Macnaghten: the company "is at law a different person altogether from the subscribers".

2. Artificial legal person

Created by law, not by nature. It has no body, no mind and no soul, and acts only through human agency, its members in general meeting and its Board of Directors. It cannot do acts which by their nature require a natural person, such as taking an oath or marrying. The organic or alter ego theory attributes the acts and state of mind of the directing mind and will to the company, which is how it can be convicted of an offence requiring mens rea: Standard Chartered Bank v. Directorate of Enforcement (2005) 4 SCC 530; Iridium India Telecom Ltd. v. Motorola Inc. (2011) 1 SCC 74.

5. Separate property

The company's property is its own. Macaura v. Northern Assurance Co. Ltd. [1925] AC 619: the owner of practically all the shares insured the company's timber in his own name and recovered nothing, having no insurable interest, since "no shareholder has any right to any item of property owned by the company". Bacha F. Guzdar v. CIT AIR 1955 SC 74: a dividend from a tea company is not agricultural income in the shareholder's hands.

6. Capacity to sue and be sued in its own name

This is the basis of the rule in Foss v. Harbottle, that for a wrong done to the company the company is the proper plaintiff. A company may sue for defamation affecting its trading reputation, and may be sued in tort and prosecuted through its directing mind.

7. Capacity to contract, including with its own members

Lee v. Lee's Air Farming Ltd. [1961] AC 12: Lee, governing director and holder of all but one share, was also its chief pilot; when he was killed flying, his widow recovered workmen's compensation, because Lee and the company were two distinct legal persons.

11. Termination only by law

A company can be ended only by a process recognised by law: winding up by the Tribunal, voluntary liquidation under section 59 of the Code, or removal of its name by the Registrar under section 248. It cannot be dissolved by the agreement of its members, as a partnership can.

The limits

1. Lifting the corporate veil. Where the form is used to evade an obligation, commit a fraud or defeat the public interest, the court disregards the separate personality: Gilford Motor Co. v. Horne, Jones v. Lipman, Daimler Co. v. Continental Tyre, Sir Dinshaw Maneckjee Petit, Re, State of U.P. v. Renusagar Power Co.; and statutorily under sections 3A, 7(7), 34, 35, 251(1), 339 and 464.

2. A company is not a citizen. State Trading Corporation of India v. Commercial Tax Officer AIR 1963 SC 1811: a company is not a citizen for the purposes of Part III of the Constitution and cannot claim rights conferred on citizens alone, such as Article 19, though it may claim rights conferred on "persons", such as Article 14 and Article 300A. Bennett Coleman & Co. v. Union of India AIR 1973 SC 106 allowed the shareholders to assert their own rights.

For full marks, cover: the facts, the two limbs, the four justifications, the exceptions with cases, the derivative action, and the statutory remedies that have overtaken it.

1. The case

Foss v. Harbottle (1843) 2 Hare 461. Two shareholders of the Victoria Park Company sued five directors and a solicitor, alleging that they had sold their own land to the company at an inflated price and had otherwise misapplied its property, and asked that the defendants make good the loss. The suit was dismissed by Sir James Wigram V-C: the company was still in existence and able to sue in its own name, and the acts complained of were capable of confirmation by a majority of the members.

2. The two limbs

1. The proper plaintiff rule. Where a wrong is alleged to have been done to a company, the company is prima facie the only proper plaintiff; and

4. The exceptions

1. Ultra vires or illegal acts. No majority can ratify what the company has no power to do, so any member may sue or obtain an injunction. Bharat Insurance Co. Ltd. v. Kanhaiya Lal AIR 1935 Lah 792, funds invested contrary to the objects clause.

2. Acts requiring a special majority. Where a special resolution is required and an ordinary one is used, an individual member may sue, the majority not having been competent to do it that way. Edwards v. Halliwell [1950] 2 All ER 1064, a trade union subscription increased without the two-thirds ballot the rules required.

3. Invasion of individual or personal rights. A member may always sue in his own name to enforce a right belonging to him as a member: to vote and have his vote counted (Pender v. Lushington (1877) 6 Ch D 70), to receive a declared dividend, to have his name on the register, to receive notice of meetings, to enforce the articles as a section 10 contract, to be offered his proportionate share of a further issue under section 62, and to inspect the registers and the minutes of general meetings. Nagappa Chettiar v. Madras Race Club AIR 1949 Mad 809.

6. Wrongdoer control is sometimes treated as an independent head, and some cases add that an action lies where the interests of justice require it, though Prudential Assurance Co. Ltd. v. Newman Industries Ltd. (No. 2) [1982] Ch 204 doubted so open-ended an exception.

5. The derivative action

A derivative action is brought by a member on behalf of himself and all other shareholders except the defendants, with the company joined as a defendant. The member's right is derived from the company's right, so any decree runs in the company's favour and the fruits belong to the company. It is therefore not truly an exception to the proper plaintiff rule but the means of enforcing it when the proper plaintiff has been captured by the wrongdoers.

The Companies Act, 2013 has not codified the derivative action, unlike the English Companies Act, 2006. It survives in India as a common law remedy: Rajahmundry Electric Supply Corporation v. A. Nageswara Rao AIR 1956 SC 213.

6. The statutory remedies

3. Section 245, class action, by which members or depositors may restrain the company from acting ultra vires or in breach of the 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 or adviser; and
4. Sections 210 and 213, investigation, and section 216, investigation of ownership.

The rule has never been overruled, and the proposition that the company is the proper plaintiff for a wrong to the company remains the starting point in India. What has changed is that the exceptions have largely been absorbed into statute. A minority shareholder today will almost always proceed under sections 241 and 242, which give a direct remedy, a Tribunal with very wide powers, and a threshold the Tribunal can waive, rather than attempt a common law derivative action. The rule survives as the doctrinal explanation of why he needs a statutory remedy at all.