LLM Group 2 Business Law Corporate Law 2025-26 - Set 2 Question Paper with Solutions

For full marks, cover: the concept first, that a company can form and express a will only through a meeting, which is why the law of meetings is the law of corporate decision-making; then the kinds, in two families, meetings of members and meetings of directors, with the class meeting and the creditors' meeting as the third and fourth; and then the third limb properly, because most answers stop at the second. Corporate governance has changed meetings in four measurable ways, and each has a provision or a regulation behind it: electronic voting, the postal ballot, the committee structure that has taken business out of the full Board, and disclosure of what happens at the meeting.

One proposition worth stating early because it explains the whole subject. A meeting is not a mere gathering; it is the occasion on which those entitled to decide hear each other before deciding. That is why section 102 requires an explanatory statement for special business, why section 101 requires twenty one clear days' notice, why an item not on the agenda cannot ordinarily be taken up, and why the courts insist that notice be given to every member entitled to attend, even one whose vote could not have changed the result.

The kinds of meetings

Family one, meetings of members.

The annual general meeting, section 96. Every company other than a One Person Company must hold one in each year. The first must be held within nine months of the close of the first financial year and every subsequent one within six months of the close of the financial year, with not more than fifteen months between one and the next; the Registrar may extend by up to three months for special reason, but never the first.

Family two, meetings of directors.

Board meetings, section 173. The first within thirty days of incorporation, and thereafter a minimum of four in each year with not more than one hundred and twenty days between two consecutive meetings, reduced to two a year for a One Person Company, a small company and a dormant company under section 173(5). Not less than seven days' notice in writing, with a shorter notice meeting for urgent business valid only if at least one independent director is present or ratifies it.

Participation by video conferencing is permitted except for the matters listed in Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014, which include approval of the financial statements, the Board's report, a prospectus and a scheme of amalgamation. Section 174 fixes the quorum at one third of the total strength or two directors, whichever is higher, with a special rule where interested directors reduce it below that. Section 175 permits a resolution by circulation except where the matter must be dealt with at a meeting, and a resolution so passed must be noted at the next meeting.

The machinery common to member meetings

Notice, section 101: at least twenty one clear days in writing or by electronic mode, to every member, legal representative of a deceased member, assignee of an insolvent member, auditor and director; shorter notice is permitted with the consent of not less than ninety five per cent of the members entitled to vote. Explanatory statement, section 102, for every item of special business, disclosing the nature of the concern or interest of every director, manager, key managerial personnel and their relatives.

Quorum, section 103: for a public company, five members personally present where the number of members is up to one thousand, fifteen where it is between one thousand and five thousand, and thirty where it exceeds five thousand; for a private company, two. If the quorum is not present within half an hour, the meeting stands adjourned to the same day in the next week at the same time and place, or as the Board determines, with not less than three days' notice; a requisitioned meeting stands cancelled; and at the adjourned meeting the members present are the quorum.

One, attendance has been separated from participation. Section 108 requires electronic voting for the classes of companies prescribed by Rule 20 of the Companies (Management and Administration) Rules, 2014, which covers every listed company and every company with a thousand or more members; section 110 requires the postal ballot for prescribed items of business.

The consequence is that the decision is no longer taken by the small number of members who can travel to the registered office, and the institutional investor who never attends now votes on every resolution. Regulation 44 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 requires the results to be published with the number of votes cast for and against each resolution, which has produced a public record of institutional dissent that did not exist before.

Section 178 gives the nomination and remuneration committee the function of identifying persons qualified to become directors and formulating the criteria for evaluation. And at the members' level, section 188 now requires prior approval by resolution for related party transactions above prescribed thresholds, with the interested member not voting, which converts a decision that was once the Board's into one the disinterested shareholders take.

Four, what happens at the meeting has become public. Regulation 30 and Schedule III of the Listing Obligations and Disclosure Requirements Regulations require disclosure of material events including the outcome of Board meetings; Regulation 34 requires an annual report with a corporate governance report; section 134(3) requires the Board's report to state the number of Board meetings and to contain the Directors' Responsibility Statement; and section 118(10) requires every company to observe the secretarial standards on general and Board meetings specified by the Institute of Company Secretaries of India and approved by the Central Government, which is the only place in the Act where a professional body's standards are given statutory force in this field.

The Supreme Court held that a shareholder, including a State instrumentality acting as a shareholder, has the same right as any other member to requisition a meeting and is not bound to disclose his motives; the duty to give an explanatory statement of material facts lies on the management in respect of business it brings, not on the requisitionists. The case is the practical guarantee behind section 100: the power to call a meeting would be worth nothing if the board could demand reasons first.

Automatic Self-Cleansing Filter Syndicate Co. Ltd. v. Cuninghame, [1906] 2 Ch 34, settles the relationship between the two organs. The articles vested the management of the business in the directors. The general meeting passed an ordinary resolution directing them to sell the company undertaking, and they refused. The Court of Appeal held the resolution did not bind the directors: where the constitution has vested a power in the board, the members cannot exercise it or dictate its exercise by ordinary resolution, and their remedies are to alter the articles by special resolution under section 14 or to remove the directors under section 169. That is why section 179(1) is expressed as a grant to the Board of everything not reserved to the members, and why section 180 has to name expressly the four decisions the members keep.

Corporate governance has separated participation from attendance through sections 108 and 110, dematerialised the meeting itself, moved substantive scrutiny into committees under sections 177 and 178 and to disinterested shareholders under section 188, and made the proceedings public through the listing regulations and section 118(10).

Oppression is conduct against a member and mismanagement is conduct against the company. Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535, requires conduct that is burdensome, harsh and wrongful, continuing up to the date of the petition, and directed at the member in his character as a member.

Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao, AIR 1956 SC 213, is the paradigm of mismanagement, where the vice chairman was in sole control, large sums were due from him, the directors were disqualified and the affairs were in complete disorder, and an administrator was appointed. Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, fixes the outer limit, holding that removal from an office is not by itself oppression, that the complaint must be of prejudice to the petitioner as a member or to the company, and that the Tribunal cannot reinstate a person in office.

Section 241 is wider than section 397 of the Companies Act, 1956: mere prejudice now suffices, prejudice to the company is a ground in itself, and the old requirement of proving facts that would justify winding up on the just and equitable ground has gone.

Power one: standing to apply, section 241(2)

If the Central Government is of the opinion that the affairs of a company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under Chapter XVI. The relief it may obtain is the whole of section 242(2): the regulation of the conduct of the company's affairs in future, the purchase of shares, restrictions on transfer or allotment, the termination or modification of agreements with the managing director or any other person, the setting aside of a preferential transfer made within three months, the removal of the managing director, manager or any director, the recovery of undue gains, the appointment of directors by the Tribunal, and any other matter for which provision is just and equitable, with interim orders under section 242(4).

The consequences are automatic. Section 242(4A) requires the Tribunal, where it records such a decision, to remove the person from his office; and section 243(1A) then makes him ineligible to hold the office of a director or any other office connected with the conduct and management of the affairs of any company for five years from the date of the decision. The design is deliberate: the Government forms the opinion and initiates, but the finding is made by the Tribunal, so that a power capable of ending a person's corporate career is not exercised by the executive alone.

Power three: the investigation chain, sections 210 to 224

Section 210 empowers the Central Government to order an investigation into the affairs of a company on the receipt of a report of the Registrar or inspector under section 208, on the intimation of a special resolution passed by the company, or in the public interest, and requires it to do so where the Tribunal so orders.

Section 224 is where investigation becomes action. On the inspector's report the Central Government may prosecute; may direct the company to institute proceedings for the recovery of damages for fraud, misfeasance or other misconduct in the promotion or management of the company, or for the recovery of property misapplied or wrongfully retained; and may itself present a petition for winding up under section 271(c) or an application under section 241. Section 224(5) makes it clear that a person is not excused from answering on the ground of self-incrimination, subject to the usual protection.

The Tribunal superseded the existing Board and permitted the Government to nominate six directors, and the Appellate Tribunal subsequently granted a moratorium on the group's obligations. Every feature of the statutory design appears in it: no oppressed shareholder came forward; the interest at stake was the stability of the financial system; the relief was the appointment of directors under section 242(2)(k) and the regulation of the company's affairs under section 242(2)(a); and the case was pursued alongside a Serious Fraud Investigation Office investigation and proceedings against the auditors.

The limits, stated honestly

First, the power depends on the Central Government forming an opinion, and an opinion formed late is worth little. In the same matter the warning signs, in the rating downgrades and the group's own accounts, preceded the application by a considerable period.

Second, the power is concentrated in the executive, which is why the fit and proper finding under section 241(3) is entrusted to the Tribunal and not to the Government, and why the reliefs under sections 221 and 222 require a Tribunal order and are limited to three years.

The Supreme Court set the allotment aside, holding that directors are in a fiduciary position and that the power to allot shares must be exercised for the proper purpose of raising capital and not to gain or keep control, and that an oppressor cannot be permitted to take advantage of his own wrong by buying out the person he has oppressed. It is the case to cite whenever the facts involve an allotment, a rights issue or a transfer that changes who controls the company.

Conclusion. Oppression is conduct in the running of a company's affairs that is burdensome, harsh and wrongful to a member as a member; mismanagement is conduct prejudicial to the company; and section 241 has widened both. The Central Government's role is that of a regulator of last resort, not of a litigating shareholder.

For full marks, cover: two limbs of equal weight. For the first, transfer and transmission as two different legal events, with the machinery of section 56, the depository route, and the remedies in sections 58 and 59, and a table distinguishing them. For the second, take the paper's own four words in its own order, appointment, removal, powers and functions, with the sections and with the independence provisions that make the office worth having.

(a) Transfer of securities

Section 44 states the character of the asset: the shares, debentures or other interest of any member in a company are movable property, transferable in the manner provided by the articles. A transfer is therefore a voluntary transaction between a transferor and a transferee, and the company's role is limited to registering it and to refusing registration only where it lawfully may.

Since 1 April 2019, Regulation 40 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 forbids a listed company to process a transfer at all unless the securities are in dematerialised form, transmission and transposition excepted; and since 1 July 2020 stamp duty on such transfers is collected uniformly under the amended Indian Stamp Act, 1899 by the depository or the clearing corporation.

Section 56(3) protects the transferee of partly paid shares where the application is made by the transferor alone: the company must give notice to the transferee, and the transfer is not registered unless he raises no objection within two weeks.

Refusal and remedy. Section 58(1) requires a private company which refuses to register a transfer to send notice of the refusal with reasons within thirty days, and section 58(3) allows the transferee to appeal to the Tribunal within thirty days of the notice or, where no notice is sent, within sixty days of the delivery of the instrument. Section 58(2) declares that the securities of a public company are freely transferable, while the proviso preserves as a contract any agreement between two or more persons in respect of transfer of securities, and section 58(4) allows an appeal within sixty days of the refusal or ninety days of delivery.

Section 56(2) preserves the company's power to register a transmission on intimation from the person to whom the right has been transmitted, and no instrument of transfer is required, because there is no transferor capable of executing one. What is produced instead is evidence of title: a death certificate with a succession certificate, probate or letters of administration, or the vesting order, or in a straightforward case a family settlement with an indemnity under the company's own transmission policy.

Section 56(5) removes the practical obstacle: a transfer of the securities of a deceased person made by his legal representative is valid even though the representative is not himself a holder, so an estate may be dealt with without first registering the representative as a member. Section 72 permits a nomination in Form SH-13, on which the nominee becomes entitled on death to the exclusion of all other persons, subject to rights under any other law, and the nomination may be varied or cancelled at any time.

The distinction, in a table.

Section 56(4)(c) applies to both, requiring the certificate within one month of receipt of the instrument of transfer or of the intimation of transmission, and section 56(6) makes default punishable with a penalty of fifty thousand rupees on the company and every officer in default. Section 56(7) makes a depository or depository participant that transfers shares with intent to defraud liable for fraud under section 447.

(b) Auditors: appointment

Section 139(6) requires the first auditor to be appointed by the Board within thirty days of the date of registration, failing which the members appoint within ninety days at an extraordinary general meeting, to hold office until the conclusion of the first annual general meeting. Section 139(1) requires every company at its first annual general meeting to appoint an auditor to hold office from the conclusion of that meeting until the conclusion of its sixth annual general meeting, with the company placing the matter for ratification at every annual general meeting as may be prescribed, and requires the written consent and a certificate from the auditor that the appointment is in accordance with the conditions prescribed and that he satisfies section 141.

(b) Auditors: removal, resignation and independence

Section 140(1) makes removal deliberately difficult, and this is what protects the office. An auditor may be removed before the expiry of his term only by a special resolution of the company and after obtaining the previous approval of the Central Government, and only after he has been given a reasonable opportunity of being heard. Section 140(2) requires a resigning auditor to file a statement in Form ADT-3 within thirty days with the company and the Registrar, and with the Comptroller and Auditor General in the case of a Government company, indicating the reasons; section 140(3) penalises failure to do so. Section 140(4) gives a retiring auditor whose removal is proposed the right to make a representation and to have it circulated to the members, and, if it is not circulated, to have it read out at the meeting.

Independence is protected by two further sections. Section 141 disqualifies a body corporate other than a limited liability partnership; an officer or employee of the company; a partner or employee of an officer or employee; a person or firm having a business relationship with the company; a person indebted to the company beyond five lakh rupees or holding any security in it; a person whose relative is a director or is in the employment of the company as a director or key managerial personnel; a person in full time employment elsewhere or a person or partner holding appointment as auditor of more than twenty companies; and a person convicted of an offence involving fraud within the preceding ten years.

Section 144 forbids specified services to the company, its holding and its subsidiary: accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory, investment banking, rendering of outsourced financial services, and management services.

Section 143(2) states the central function: the auditor shall make a report to the members on the accounts examined by him and on every financial statement required to be laid before the company in general meeting, and the report shall state whether, to the best of his information and knowledge, the accounts give a true and fair view of the state of the company's affairs as at the end of the financial year and of the profit or loss and cash flow for the year.

Section 143(3) lists what the report must state, including whether he has sought and obtained all information and explanations necessary; whether proper books of account have been kept; whether the balance sheet and profit and loss account agree with the books and returns; whether the financial statements comply with the accounting standards; the observations or comments on financial transactions which have an adverse effect on the functioning of the company; whether any director is disqualified under section 164(2); whether the company has adequate internal financial controls with reference to financial statements in place and their operating effectiveness; and such other matters as may be prescribed.

Liability and supervision. Section 147 provides that a contravention of sections 139, 143, 144 or 145 makes the auditor liable to a penalty, and where it is knowing or wilful and made with intent to deceive the company, its shareholders, creditors or tax authorities, to imprisonment up to one year and a fine, with liability to refund the remuneration and to pay damages; and where the fraud was committed with the knowledge or consent of the partners of a firm, the liability, civil and criminal, is joint and several. Section 245 permits a class action against the auditor and the audit firm.

Section 132 subjects auditors of listed and large companies to the National Financial Reporting Authority, which may investigate professional misconduct and debar for six months to ten years; its validity was upheld by the Delhi High Court on 7 February 2025, though a batch of show cause notices was quashed because the Authority had not kept its audit quality review function separate from its disciplinary function, and the appeal is pending in the Supreme Court, which has allowed proceedings to continue but restrained the enforcement of final orders.

And Bajaj Auto Ltd. v. N.K. Firodia, AIR 1971 SC 321, holds that an article giving the directors an absolute and uncontrolled discretion to refuse a transfer does not release them from their fiduciary duty: they must act bona fide in the paramount interest of the company and the general interest of the shareholders, and a refusal whose dominant purpose was to keep a rival group out was set aside. That is the content of sufficient cause in section 58(4).

On transmission, World Wide Agencies (P) Ltd. v. Margarat T. Desor, (1990) 1 SCC 536. The legal representatives of a deceased controlling shareholder petitioned for relief against oppression without having been registered as members. The Supreme Court held that they could: title had devolved on them by operation of law, and a company cannot defeat the rights that follow by declining or delaying to register the transmission. It is the reason an intimation under section 56(2) is not something a board may leave in a file.

On the auditor, In re Kingston Cotton Mill Co. (No. 2), [1896] 2 Ch 279. The manager had overstated stock for years and the auditors had taken his certificate without verifying it; they were held not liable, an auditor being a watchdog and not a bloodhound and entitled to rely on trusted officials absent suspicion.

Conclusion. Transfer is a voluntary act completed by an instrument under section 56(1) or by a book entry under section 7 of the Depositories Act, and transmission is the passing of title by law under section 56(2), needing no instrument; both require the certificate within one month under section 56(4)(c) and both are protected by sections 58 and 59 before the Tribunal.

The auditor is appointed at the first annual general meeting for five years under section 139(1), rotated under section 139(2), removable only by special resolution with the previous approval of the Central Government under section 140(1) or on a Tribunal's direction for fraud under section 140(5), disqualified by section 141, restricted by section 144, and charged by section 143 with access, inquiry, a true and fair report and, since 2013, the duty to report a fraud of one crore rupees or more to the Central Government.

Secured creditors could enforce security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and banks could recover before Debt Recovery Tribunals under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Individual insolvency remained under the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920.

The results were what the Bankruptcy Law Reforms Committee reported in November 2015: overlapping forums, no single moment at which the debtor's assets were frozen, a debtor left in control while creditors litigated, and recovery rates and timelines among the worst in comparable jurisdictions. The Code was enacted to consolidate all of that into one law, and its preamble states the objects in an order that matters: reorganisation and insolvency resolution in a time bound manner, maximisation of the value of assets, promotion of entrepreneurship, availability of credit, and balancing the interests of all stakeholders. Recovery of debt is not first on that list, and Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, upheld the Code by reference to exactly that ordering.

Three, the sick company regime was abolished. The Eighth Schedule to the Code brought the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 fully into force, so that the Act of 1985 and the Board for Industrial and Financial Reconstruction stood dissolved on 1 December 2016, pending references abating with liberty to file afresh under the Code within one hundred and eighty days. Sections 253 to 269 of the Companies Act, 2013, its own never-notified chapter on the revival and rehabilitation of sick companies, were omitted by the same Eleventh Schedule.

Four, the order of distribution changed. Section 327(7) of the Companies Act now provides that sections 326 and 327 shall not apply to a liquidation under the Code, where section 53 of the Code supplies a different waterfall: insolvency resolution process and liquidation costs first; then, equally and rateably, workmen's dues for twenty four months and the debts of a secured creditor who has relinquished his security; then employees' dues for twelve months; then unsecured financial creditors; then, equally, Government dues for two years and the unpaid portion of a secured creditor's debt after enforcement; then remaining debts; then preference shareholders; and last equity shareholders. The demotion of Government dues below unsecured financial creditors was a deliberate policy choice and has been litigated repeatedly.

The change of philosophy, and how it works

The Code substitutes resolution for liquidation as the first objective. A financial creditor applies under section 7, an operational creditor under section 9 after a demand notice and in the absence of a pre-existing dispute, and the corporate debtor itself under section 10, in each case on a default of one crore rupees or more, the threshold having been raised from one lakh by the notification of 24 March 2020.

On admission four things happen at once, and this is the machinery the old law lacked. A moratorium under section 14 bars the institution or continuation of suits, the transfer or disposal of assets, the enforcement of security under the Act of 2002, and the recovery of property by an owner or lessor. An interim resolution professional takes over under section 17, and the powers of the Board are suspended, which is the single most important departure from the sick company regime, under which the incumbent management stayed in place. A committee of creditors of financial creditors is constituted under section 21. And a public announcement invites claims, so that the whole body of creditors is brought into one proceeding.

Four decisions state the settled law. Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, held that once a financial creditor establishes a default the Adjudicating Authority must be satisfied only of the default and the completeness of the application, and that a State law suspending the debtor's liabilities was repugnant to the Code by force of section 238, which gives the Code overriding effect. Swiss Ribbons upheld the Code and explained why financial and operational creditors are differently placed, the former being able to assess viability and restructure.

Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, held that the commercial wisdom of the committee is not justiciable and that the Adjudicating Authority may not interfere with the distribution the committee approves, and read down the mandatory character of the three hundred and thirty day limit. Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, held that on approval of a plan all claims not forming part of it stand extinguished, giving the successful applicant a clean slate.

The effects remain as before: the Company Liquidator under section 275, the bar on suits without leave under section 279, the Tribunal's exclusive jurisdiction over claims under section 280, the list of contributories under section 285, the preferential payments under sections 326 and 327 where the Code does not apply, the avoidance of preferences and transfers under sections 328 and 329, personal liability for fraudulent trading under section 339, and dissolution under section 302.

And in practice a company with no assets is neither wound up nor resolved; its name is struck off by the Registrar under section 248, with liability continuing against its officers under section 250 and restoration available under section 252.

It inserts a new Chapter enabling the Central Government to prescribe a framework for group insolvency. And it inserts provisions for a cross-border insolvency framework, which India has long lacked, having never adopted the UNCITRAL Model Law. It also strengthens the position of the committee of creditors in liquidation, including a power to replace the liquidator, and tightens the admission timelines under sections 7, 9 and 10.

Until those provisions are notified, none of this is operative law, and an answer that presents the creditor-initiated process as available today is wrong.

Conclusion. The impact of the Code on winding up is not a matter of degree; it is a transfer of the subject from one statute to another. Inability to pay debts left section 271 on 15 November 2016, voluntary winding up left the Companies Act with the omission of sections 304 to 323, the sick company regime was abolished with the repeal of the Act of 1985 on 1 December 2016 and the omission of sections 253 to 269, the order of distribution in an insolvency liquidation moved from sections 326 and 327 to section 53 of the Code, pending winding up petitions became applications for resolution under section 434, and the Tribunal acquired a second identity as the Adjudicating Authority.

For full marks, cover: two doctrines that face in opposite directions, and saying so is the best opening: ultra vires protects the shareholder and the creditor by confining the company to its objects, while indoor management protects the outsider by relieving him of the duty to police the company's internal procedure. Give each with its leading case, its consequences and its exceptions, and close on the relationship between them, which runs through the doctrine of constructive notice.

(a) The doctrine of ultra vires

A company is a creature of its memorandum and has capacity only for what the objects clause authorises. An act beyond that is ultra vires the company, meaning beyond its powers, and is void from the beginning. The distinction to keep straight throughout the answer is between an act ultra vires the company, which is a nullity, and an act ultra vires the directors but within the company's own powers, which the company in general meeting may ratify.

The leading Indian authority is A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185. The shareholders of an insurance company resolved to pay Rs. 75,000 out of its funds to a charitable trust formed to promote technical and business knowledge, at a time when the insurance business had been nationalised and vested in the Life Insurance Corporation. The memorandum authorised charitable contributions conducive to the objects of the company. The Supreme Court held the payment ultra vires, because after nationalisation there remained no business to which the donation could be conducive, and held the directors personally liable to refund the money. It is the best Indian illustration of two propositions at once: that an objects clause is read in the light of the business actually carried on, and that the loss falls on the directors.

Four consequences follow.

The transaction is void and unratifiable. Neither party can sue on it; the company cannot be estopped from pleading its own incapacity; and no lapse of time validates it.

Where the doctrine has been narrowed. The Companies (Amendment) Act, 2017 substituted section 4(1)(c) so that the memorandum states the objects and the matters considered necessary in furtherance of them, removing the older division into main, ancillary and other objects; modern objects clauses are drafted so widely that few transactions fall outside them. In England the doctrine has been abolished in substance by section 39 of the Companies Act, 2006, under which the validity of an act done by a company may not be called into question on the ground of lack of capacity by reason of anything in its constitution, with section 31 permitting unrestricted objects. India has made no such change and the doctrine remains law here.

(b) The doctrine of indoor management

The doctrine is the counterweight to constructive notice. Because the memorandum and articles are registered and open to inspection under section 399, every person dealing with a company is deemed to have read and understood them, a rule enforced in India in Kotla Venkataswamy v. Chinta Ramamurthy, AIR 1934 Mad 579, where a mortgage deed signed by two officers when the articles required three was held to bind nobody, however honest the plaintiff. If that were the whole law, no outsider could safely deal with a company at all, because the documents he can read tell him what may be done and never whether it has been done.

One, actual knowledge of the irregularity. A person who knows that the resolution was not passed cannot rely on the presumption, and this includes a director or officer of the company, who is treated as knowing what the company knows.

Two, suspicion of irregularity. Where the circumstances are such as to put a reasonable person on inquiry, he must inquire, and he takes the risk if he does not. Anand Bihari Lal v. Dinshaw and Co., AIR 1942 Oudh 417, is the standard Indian illustration: a transfer of company property executed by an accountant was held void, because the plaintiff should have asked to see the power of attorney under which the accountant claimed to act.

Three, forgery. A forged document is a nullity and there is nothing for the presumption to operate on. Ruben v. Great Fingall Consolidated, [1906] AC 439, is the authority: a share certificate bearing the forged signatures of two directors, with the company's seal affixed by the secretary who forged them, conferred no title at all, because the company had never issued it.

The Indian position is settled and consistent with the English. The High Courts have applied the rule repeatedly to borrowings, mortgages and appointments; and section 176 of the Companies Act, 2013 gives it a statutory echo in a narrow field, providing that 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 or had terminated, though nothing in the section validates an act done after the defect has been shown to the company.

How the two doctrines fit together

They answer two different questions and confusing them is the commonest error. Ultra vires asks whether the company had capacity; the answer comes from the memorandum, and if the answer is no, the transaction is void and no doctrine can save it. Indoor management asks whether the company's internal procedure was followed; the answer comes from the articles, and the outsider is not required to know it.

The drafting device that hollowed the doctrine out is worth naming, because it explains why ultra vires is rarely litigated today. In Cotman v. Brougham, [1918] AC 514, a rubber company's memorandum listed some thirty objects and added a clause providing that every sub-clause should be construed as a substantive and independent object and not as subordinate to any other. The company underwrote shares in an oil company, and on its liquidation the transaction was challenged as ultra vires. The House of Lords held the independent objects clause valid, so that the objects could not be read down to what was incidental to the main business. After that decision draftsmen simply listed everything, and the objects clause, which Lord Cairns in Ashbury had treated as a real limit, became a formality.

For full marks, cover: two limbs of equal weight and of no obvious connection, so treat each on its own terms. For the foreign company, the definition in section 2(42) with the electronic mode limb, the extent to which the Act applies under section 379, the obligations in sections 380 to 393, and the two provisions that bite hardest, sections 376 and 393. For the contributory, the definition in section 2(26), the A and B lists under section 285, the extent of liability, and the contributory's standing to petition for winding up under section 272(2), which is the point most often missed.

(a) The foreign company

Section 2(42) defines a foreign company as any company or body corporate incorporated outside India which has a place of business in India, whether by itself or through an agent, physically or through electronic mode, and conducts any business activity in India in any other manner.

The extent to which the Act applies is fixed by section 379. Section 379(1), as substituted in 2017, provides that sections 380 to 386 and sections 392 and 393 shall apply to all foreign companies. Section 379(2) is the exception that matters: where not less than fifty per cent of the paid-up share capital, whether equity or preference or partly each, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, the company shall comply with Chapter XXII and such other provisions as may be prescribed as if it were a company incorporated in India with regard to the business it carries on here.

Section 391(1) applies sections 34 to 36 and Chapter XX to a foreign company which has issued a prospectus or made an offer for sale of securities in India, and section 384 applies the provisions on registration of charges, the annual return, books of account and inspection, inquiry and investigation.

The two provisions that bite hardest. Section 392 makes contravention of the Chapter punishable with a fine of one lakh to three lakh rupees on the company, with a further fifty thousand rupees for each day of continuing contravention, and twenty five thousand to five lakh rupees on every officer in default. Section 393 provides that a failure to comply with the Chapter does not affect the validity of any contract or the company's liability to be sued on it, but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of the contract until it has complied. The disability is on the plaintiff's side only, which is a deliberate asymmetry: the unregistered foreign company can be sued but cannot sue.

Winding up. A foreign company cannot be wound up as a registered company because it is not registered here; it is wound up as an unregistered company under Part XXI, and section 375 applies, with its bar on voluntary winding up and its three grounds, dissolution or cessation of business, inability to pay debts as defined in section 375(4) by an unsatisfied statutory demand exceeding one lakh rupees unpaid for three weeks, and the just and equitable ground.

(b) The concept of contributory

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, and includes the holder of fully paid-up shares, and for the purposes of all proceedings for determining and for all proceedings prior to the final determination of the persons who are to be deemed contributories, includes any person alleged to be a contributory.

The definition contains a surprise, and it is the examinable part. A holder of fully paid shares owes nothing and yet is a contributory. The reason is that the word describes a status in the winding up and not merely a liability to pay: a contributory is entitled to attend and be heard, to inspect the statement of affairs, to apply for the appointment or removal of a liquidator, to participate in the distribution of surplus assets, and, above all, to petition for winding up. The Companies Act, 1956 said so expressly in section 428, and section 2(26) carries the same meaning.

The liability of the B list is hedged with four conditions, and stating them is what distinguishes a good answer. A past member is not liable to contribute in respect of any debt or liability of the company contracted after he ceased to be a member; he is not liable unless the Tribunal is of opinion that the present members are unable to satisfy the contributions required; his liability is limited to the amount unpaid on the shares he held; and he is not liable at all if he ceased to be a member more than one year before the commencement of the winding up.

The extent of liability generally. In a company limited by shares, no contribution is required from any present or past member exceeding the amount, if any, unpaid on the shares in respect of which he is liable. In a company limited by guarantee, no contribution is required exceeding the amount he undertook to contribute, but if it has a share capital he is also liable for any sum unpaid on his shares.

Two further points. The liability of a contributory creates a debt accruing due from him at the time when his liability commenced but payable only when calls are made, so limitation runs from the call and not from the commencement of the winding up. And a contributory's liability is to the company, not to any individual creditor, which is why a creditor cannot sue a member directly and must proceed through the liquidator.

The authority on a company controlled from outside India

Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd., [1916] 2 AC 307, is the case that shows why the place of incorporation is not always the end of the enquiry. The respondent company was registered in England and its business was carried on there, but all its shares save one were held by German residents and all its directors were Germans living in Germany. On the outbreak of war it sued an English company for a trade debt. The House of Lords held that although the company was an English company by incorporation, the court could look at the nationality and residence of those in de facto control to determine whether it bore enemy character, and that payment to it would amount to trading with the enemy. The action failed.

Conclusion. A foreign company under section 2(42) is a body incorporated outside India with a place of business here, physically or electronically, which conducts business activity here; the Act applies to it through sections 380 to 386, 392 and 393 by force of section 379(1), and applies as if it were an Indian company where fifty per cent or more of its capital is held in India under section 379(2); its obligations are registration within thirty days, annual accounts, publicity of name and country, and an agent for service, with a fine under section 392 and, more painfully, the loss of the right to sue in India under section 393 until it complies, and with winding up available as an unregistered company even after dissolution abroad under section 376.

A contributory under section 2(26) is a person liable to contribute to the assets on a winding up, and includes the holder of fully paid shares; the list is settled in two classes under section 285, the B list being liable only for debts contracted before they left, only to the extent unpaid on their shares, only if the A list cannot pay, and only if they left within the preceding year; and under section 272(2) a contributory may petition for winding up even though his shares are fully paid and the company has nothing to distribute.

Theoretically, it settles a long argument in favour of the stakeholder model. The classical position, associated with Milton Friedman, is that the only social responsibility of business is to increase its profits within the rules of the game; the stakeholder position is that a company's licence to operate depends on the community, the environment and the workforce as much as on capital. Section 166(2) takes a side, requiring a director to act in good faith to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment. Section 135 is the enforcement of that commitment in money.

Statutorily, the scheme is precise. Section 135(1) applies to every company having a net worth of five hundred crore rupees or more, or a turnover of one thousand crore rupees or more, or a net profit of five crore rupees or more during the immediately preceding financial year, and requires a Corporate Social Responsibility Committee of three or more directors including at least one independent director, or of two or more directors where no independent director is required.

Practically, the obligation moves a very large sum every year into the Schedule VII heads, which include the eradication of hunger and poverty, education, gender equality, environmental sustainability, national heritage, armed forces veterans, sport, the Prime Minister's National Relief Fund, technology incubators, and rural and slum development; and the Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended in 2021 require the registration of implementing agencies, impact assessment for large spenders and disclosure on the website.

The criticisms are real and belong in the note: a mandatory percentage converts a moral duty into a compliance cost and can crowd out genuine engagement; spending clusters in a few States and a few heads; the obligation falls only on profitable companies, so it disappears in the years of greatest social need; and it is in substance a hypothecated tax collected and spent by companies rather than by the State. The Corporate Laws (Amendment) Bill, 2026 proposes to raise the profit threshold from five crore to ten crore rupees and to extend the ongoing project transfer window from thirty to ninety days; it is a Bill and not law.

The first proviso to section 149(1) requires at least one woman director in prescribed classes, which are every listed company and every other public company with a paid-up capital of one hundred crore rupees or a turnover of three hundred crore rupees. Section 149(4) requires a listed public company to have at least one third independent directors, and section 149(6) sets out the exacting definition of independence, including that the director must not be a promoter or related to a promoter, must have no pecuniary relationship other than remuneration and permitted transactions, and must possess appropriate skills and experience. Section 165 caps a person's directorships at twenty companies, of which not more than ten may be public companies. Any share qualification must come from the articles, since the Act prescribes none.

Its enforcement in 2017 and 2018, when the Ministry published lists of several lakh disqualified directors and deactivated their identification numbers, produced a large volume of writ litigation, chiefly about whether the disqualification could operate retrospectively and whether the identification number could be deactivated without notice. The Corporate Laws (Amendment) Bill, 2026 proposes to reduce the period from three financial years to two; it is not law.

Section 164(3) permits a private company to prescribe additional disqualifications by its articles. Section 167 provides for vacation of office, on incurring a disqualification under section 164, on absenting oneself from all meetings of the Board held during twelve months with or without leave, on contravening section 184 on disclosure of interest, on becoming disqualified by an order of a court or Tribunal, on conviction with a sentence of six months or more, and on removal under section 169; and section 167(2) makes it an offence to function as a director after the office has been vacated. Section 169 permits removal by an ordinary resolution after special notice and a reasonable opportunity of being heard, except a director appointed by the Tribunal under section 242.

Statutory lifting comes first because it is certain. Section 3A: where the membership falls below seven or two and the company carries on business for more than six months, every member during that time who is cognisant of the fact is severally liable for the whole debts contracted in that period. Section 7(7)(b): where incorporation was obtained by false information, the Tribunal may direct that the liability of the members shall be unlimited. Section 35(3): where a prospectus was issued with intent to defraud, those responsible are personally liable without any limitation.

Section 75: officers responsible for deposits accepted with intent to defraud depositors are personally responsible without limitation. Section 251: where an application for removal of the name is made with the object of evading liabilities, the persons in charge are jointly and severally liable without limitation. Section 339: a person knowingly party to the carrying on of business with intent to defraud creditors is personally responsible without limitation. And section 129(3), requiring consolidated accounts, is the veil lifted for the purpose of financial reporting.

The doctrine is not available to the company or its members at their own option. Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40, refused to lift the veil so that a company might assert the fundamental rights of its shareholders; Bacha F. Guzdar v. Commissioner of Income Tax, Bombay, AIR 1955 SC 74, refused to let a shareholder claim the character of the company's income.

The honest limit. Modern courts treat piercing as a remedy of last resort, preferring to reach the person behind the company through the ordinary law of agency, trust, tort or statute where that is possible. A candidate who suggests that a court will lift the veil whenever the result seems unfair is overstating the law, and Balwant Rai Saluja is the case that says so.

(d) Procedure for the alteration of the articles of association

Section 14(1) states the power in the widest terms: subject to the provisions of the Act and to the conditions contained in its memorandum, a company may, by a special resolution, alter its articles, including alterations having the effect of conversion of a private company into a public company or of a public company into a private company.

Entrenchment under section 5(3): the articles may contain provisions requiring conditions more restrictive than a special resolution for the alteration of specified provisions, and such a provision may be made only on formation, or afterwards by the agreement of all the members in a private company and by a special resolution in a public company, with notice to the Registrar under section 5(5).

The limits on the power are substantive and are what the note should end on.

One, the alteration must not conflict with the Act or with the memorandum, because section 6 makes the Act override both and section 14 is expressly subject to the memorandum.

Four, it cannot be made to breach a contract: the company may always alter its articles, and no member or outsider can restrain it, but the company remains liable in damages if the alteration causes it to break a contract, the classic authority being Southern Foundries (1926) Ltd. v. Shirlaw, [1940] AC 701, where a managing director appointed for ten years recovered damages when the articles were altered to permit his removal.

Five, where the Tribunal has made an order under section 242 altering the articles, section 242(6) forbids any alteration inconsistent with that order except with the leave of the Tribunal.

Conclusion. These four notes are four different points of contact between company law and the interests it protects: section 135 makes the stakeholder duty in section 166(2) concrete in money; sections 149, 152, 164, 165 and 167 police who may sit on a Board far more strictly than they define who is fit to; the lifting of the veil is the statutory and judicial answer to the abuse of the personality Salomon created; and the alteration of the articles is a power the majority holds but must exercise bona fide for the company as a whole, as Allen v. Gold Reefs and Brown v. British Abrasive Wheel between them establish.