LLM Group 2 Business Law Corporate Law 2015 Question Paper with Solutions

The process of registration under the Companies Act, 2013

Registration is the act that brings the company into existence, and until it happens there is no company. Section 3(1) allows a company to be formed for any lawful purpose by seven or more persons for a public company, two or more for a private company, and one person for a One Person Company, in each case by subscribing their names to a memorandum and complying with the requirements of the Act in respect of registration. Section 3(2) then fixes the three forms the liability may take, limited by shares, limited by guarantee, or unlimited.

The name comes first. Section 4(4) allows an application to the Registrar for reservation of a name, and section 4(5)(i) makes the reservation good for twenty days from approval. A name may not be identical to or too nearly resemble an existing company's name, and may not be one the Central Government considers undesirable, under section 4(2). Section 4(5)(ii) is worth remembering because it is punitive: where the reservation was obtained by wrong or false information, the reservation is cancelled and the promoters are liable to a penalty of up to one lakh rupees.

Registration is now a single integrated electronic filing. The Ministry of Corporate Affairs replaced the old suite of forms with SPICe and then SPICe+, which combines name reservation, incorporation, Director Identification Number allotment, and the mandatory issue of PAN and TAN with EPFO and ESIC registration, professional tax registration in Maharashtra, the opening of a bank account and, at the applicant's option, GSTIN. The practical consequence for a student to state is that the statutory content of section 7 has not changed, but the procedure is now one form and a digital signature.

Section 7(2) requires the Registrar, on being satisfied, to register the documents and issue a certificate of incorporation in the prescribed form, and section 7(3) requires the allotment of a Corporate Identity Number, which is a distinct identity for the company and is entered in the register of companies.

Section 7(5) to (7) is what stops registration being a laundering device. If incorporation is obtained by furnishing false or incorrect information, the promoters, the persons named as first directors and the persons making the declaration are liable for fraud under section 447; and where a company has been got up by furnishing false information, the Tribunal may under section 7(7) order regulation of the company's affairs, order that the liability of the members be unlimited, order removal of the name from the register, or order the company wound up.

The advantages of incorporation

Everything begins with separate legal personality, and the authority is Salomon v. A. Salomon and Co. Ltd., [1897] AC 22. Aron Salomon, a leather merchant, sold his solvent business to a company he formed, in which he, his wife, daughter and four sons held one share each and he held the remaining 20,001, taking part of the price in debentures secured by a floating charge. The company failed within a year, and the unsecured trade creditors argued that the company was a mere sham or agent for Salomon so that he should indemnify them.

Indian law has taken the same road and gone one step further. In Bacha F. Guzdar v. Commissioner of Income Tax, Bombay, AIR 1955 SC 74, a shareholder in tea companies argued that sixty per cent of her dividend was exempt as agricultural income because sixty per cent of the companies' income was. The Supreme Court held that a shareholder has no interest, legal or equitable, in the property of the company, that dividend is not agricultural income in her hands, and that the income changes its character when it reaches her.

In Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40, the Court refused to lift the veil to let a company assert the fundamental rights of its shareholders in a writ petition, treating the corporate personality the company had chosen as one it must live with. And in Macaura v. Northern Assurance Co. Ltd., [1925] AC 619, the owner of a timber estate who had transferred it to a company but insured it in his own name recovered nothing when it burned, because he had no insurable interest in property that belonged to the company.

The advantages have limits and an honest answer names them. A company is not a citizen and cannot claim rights guaranteed only to citizens: State Trading Corporation of India v. Commercial Tax Officer, AIR 1963 SC 1811. Incorporation costs money and imposes a continuous disclosure burden that a partnership does not carry. And the courts will lift the veil where the form is used to evade an obligation or perpetrate a fraud, so limited liability is a privilege the law can withdraw in the individual case.

The memorandum of association: contents and importance

Section 4(1) fixes six clauses, and the discipline in this answer is to give each clause with the alteration it requires under section 13. The name clause requires the name with "Limited" for a public company and "Private Limited" for a private company, and its alteration needs a special resolution and the approval of the Central Government, except for a change of the word private on conversion. The situation clause states only the State in which the registered office is to be situated, which is why a shift of office within the same city needs no alteration of the memorandum at all, while a shift from one State to another needs a special resolution and confirmation by the Central Government under section 13(4).

In A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185, directors of an insurance company paid Rs. 75,000 out of the shareholders' funds to a charitable trust for the promotion of technical and business knowledge; the Supreme Court held the payment ultra vires, because the objects authorised charitable donations only in furtherance of the company's own objects, and the directors were held personally liable to make good the money.

Second, the memorandum is a public document. It is registered, it is open to inspection under section 399, and the world is treated as knowing it, which is the foundation of the doctrine dealt with in the last limb of this question.

Third, it is a contract. Section 10(1) provides that the memorandum and articles, when registered, bind the company and its members to the same extent as if they had been signed by the company and by each member, and contain covenants on the part of each member to observe them. Section 6 makes the Act override anything to the contrary in them.

A mortgage bond for Rs. 1,000 was executed carrying only the signatures of the working director and the secretary. The plaintiff, who took an assignment of the bond, sued to enforce it. The Madras High Court held the deed of no effect against the company: the plaintiff was bound to know the article, and having accepted a deed executed contrary to it could not complain that it did not bind the company. That the plaintiff acted honestly made no difference at all, and that is the point of the doctrine and also the case against it.

Section 80 shows that the same idea is applied by statute in a narrower field. Where a charge on the property of a company is registered under section 77, any person acquiring the property or an interest in it is deemed to have notice of the charge from the date of registration.

Nor does it protect a person who has not in fact consulted the documents at all where their contents would have shown he could not have relied on the authority he claims, nor a transaction with an officer acting outside any authority the articles could confer: Anand Bihari Lal v. Dinshaw and Co., AIR 1942 Oudh 417, where a transfer of property executed by an accountant was held void because the plaintiff should have seen the power of attorney.

The honest assessment, which the examiner is looking for, is that constructive notice is a doctrine in retreat everywhere except India. In England section 9(1) of the European Communities Act, 1972 abolished it, and the position is now governed by section 40 of the Companies Act, 2006, under which the power of the directors to bind the company is deemed free of any limitation in the constitution in favour of a person dealing in good faith. India retains the doctrine, softened by Turquand and by section 40's absence, and the practical justification is that the registered documents are now available to anyone on the Ministry of Corporate Affairs portal in seconds, which is a far stronger answer than the one available when Kotla Venkataswamy was decided.

For full marks, cover: three limbs of roughly equal weight, each on the 2013 Act's own provisions; debentures defined by section 2(30) with the issue procedure under section 71 and the debenture redemption reserve; amalgamation under sections 230 to 232 with the fast track route in section 233 and the cross border route in section 234, and Miheer Mafatlal on how far the Tribunal may go in examining a scheme; and, in the third limb, the point that carries the marks, that the statement in lieu of prospectus has no counterpart at all in the Companies Act, 2013, so the honest answer states what it was under the 1956 Act and what replaced it.

Debentures: classes

The classification a student should be able to produce runs on four axes. By security, debentures are secured, where a fixed or floating charge is created over the company's assets and registered under section 77, or unsecured, sometimes called naked debentures. By convertibility, they are non-convertible, fully convertible or partly convertible into shares. By redeemability, they are redeemable at a stated date or by instalments, or irredeemable, also called perpetual, in which case the principal is repayable only on winding up or on a specified contingency. By transferability, they are registered, transferable only by an instrument of transfer registered with the company, or bearer, transferable by delivery, though bearer debentures are effectively obsolete in India after the dematerialisation regime.

Section 71(4) requires the creation of a Debenture Redemption Reserve out of profits available for dividend, to be used only for redemption. Section 71(5) forbids an issue of debentures to more than five hundred persons without the appointment of a debenture trustee. Section 71(6) makes the trustee's duty one of protecting the interests of the debenture holders and redressing their grievances. Section 71(9) allows the trustee to petition the Tribunal where the assets are insufficient or likely to become insufficient, and the Tribunal may restrict the incurring of further liabilities. Section 71(10) is the remedy that matters: where a company fails to redeem debentures on maturity or to pay interest, the Tribunal may, on the application of any or all the debenture holders or the trustee, direct the company to redeem forthwith on payment of principal and interest.

Two further provisions complete the picture. A debenture is a security within section 2(81), so a listed issue attracts the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 as well. And a charge securing debentures must be registered with the Registrar under section 77 within thirty days, extendable on payment of additional fees, failing which the charge is void against the liquidator and other creditors under section 77(3).

The leading Indian authority on how far the Tribunal may examine the merits is Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579. A scheme of amalgamation between two Mafatlal companies was approved by the requisite majorities but opposed by a shareholder who alleged that the exchange ratio was unfair and that the two groups were in conflict.

The Supreme Court sanctioned the scheme and laid down the parameters that are still cited: the court must see that the statutory procedure has been complied with and the requisite majorities obtained, that the class was fairly represented and the majority acted bona fide and not coercively, that the scheme is not violative of any law or contrary to public policy, and that it is one a man of business would reasonably approve. The court is not a court of appeal on commercial wisdom, and the exchange ratio fixed by recognised valuers will not be interfered with unless it is patently unfair.

Section 234, brought into force on 13 April 2017 with Rule 25A, permits cross border mergers in both directions, with the prior approval of the Reserve Bank of India, and the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 supply the exchange control framework. Before 2017 an Indian company could merge into a foreign company only in the reverse direction, so this is a genuine change in the law.

Prospectus and statement in lieu of prospectus

Section 2(70) defines a prospectus as any document described or issued as a prospectus, and includes a red herring prospectus, a shelf prospectus, or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate. Section 23 sets out the ways in which a public company may issue securities, by public offer, private placement, rights issue or bonus issue, and a private company may not offer securities to the public at all.

Liability for a misstatement is both civil and criminal. Section 34 makes a person who authorises the issue of a prospectus containing an untrue or misleading statement, or an omission calculated to mislead, liable for fraud under section 447, unless he proves the statement or omission was immaterial or that he had reasonable grounds to believe and did believe it was true. Section 35 imposes civil liability to compensate every person who has sustained loss by subscribing on the faith of the prospectus, on the company and on its directors, promoters, experts and persons who authorised the issue, with the defences of withdrawal of consent and of reasonable belief; and section 35(3) makes the liability one for fraud under section 447 where the issue was made with intent to defraud. Section 36 punishes fraudulently inducing persons to invest money.

The 2013 Act achieves the same object by a different route and dropped the document. The work section 70 of the 1956 Act used to do is now done by section 42, which governs private placement, requires a private placement offer letter in Form PAS-4, limits the offer to two hundred persons in a financial year excluding qualified institutional buyers and employees under a stock option scheme, requires the money to be received only by banking channels and kept in a separate bank account, forbids utilisation before allotment, and by section 42(7) prohibits any public advertisement of the offer.

Section 42(9), inserted by the Companies (Amendment) Act, 2017, makes a contravention punishable with a penalty which may extend to the amount raised or two crore rupees, whichever is lower, with a duty to refund within thirty days. Section 23 read with section 25 catches the attempt to reach the public indirectly.

The honest examination answer therefore says three things: that the statement in lieu of prospectus was a creature of section 70 of the 1956 Act; that the 2013 Act contains no such document; and that the protection it gave now comes from section 42 read with sections 23, 25 and 26. A candidate who describes the statement in lieu of prospectus as current law is describing a repealed Act.

For full marks, cover: part (a) as the four classic decisions of corporate finance mapped onto the sections of the Companies Act, 2013 that regulate each, so that the answer is company law and not finance theory; then part (b) regulator by regulator in the order the paper names them, with the statutory source of each power; and, on the fourth regulator, the fact that decides the answer, which is that the Company Law Board no longer exists, having been dissolved by section 466 on the constitution of the National Company Law Tribunal on 1 June 2016.

Debt is raised by debentures under section 71, by deposits under sections 73 to 76 with the deposit repayment reserve and the restriction on accepting deposits from the public, and by borrowing, which beyond the aggregate of paid-up capital, free reserves and securities premium requires a special resolution under section 180(1)(c).

The investment decision is the deployment of that capital, and here the Act intervenes through section 179, which reserves to the Board the powers to borrow, to invest the funds of the company and to grant loans; section 186, which caps loans, guarantees, securities and investments at sixty per cent of paid-up capital, free reserves and securities premium or one hundred per cent of free reserves and securities premium, whichever is higher, and requires a special resolution beyond that; section 185, which restricts loans to directors and to entities in which they are interested; and section 188, which subjects related party transactions to Board and, above prescribed thresholds, shareholder approval.

(a) Why it matters

The importance of corporate finance in a law syllabus is that it is where the agency problem becomes concrete. Directors decide how much to raise, from whom, on what terms, what to do with it and how much to give back, and every one of those decisions can be made in their own interest rather than the company's. The Act's answer is not to forbid the decisions but to condition them: on a resolution of the members for the large ones, on disclosure for all of them, on an independent audit for the reporting of them, and on a tribunal for the abuse of them.

A second reason is macroeconomic and is worth one sentence. A company that can raise capital from strangers can undertake projects no individual could finance, and the willingness of strangers to supply that capital depends entirely on the credibility of the legal regime that protects it. That is the justification for every regulator discussed in part (b).

Enforcement runs through sections 15A to 15HB, which prescribe penalties, section 15I, under which an adjudicating officer inquires and imposes them, section 15J, which lists the factors to be considered, section 15JB, which provides for settlement, section 15T, which gives an appeal to the Securities Appellate Tribunal, and section 15Z, which gives an appeal to the Supreme Court on a question of law.

Under the Companies Act itself, section 24 divides the field. The provisions of Chapters III and IV and section 127, in so far as they relate to the issue and transfer of securities and to non-payment of dividend, are administered by the Securities and Exchange Board in the case of listed companies and companies that intend to get their securities listed, and by the Central Government in every other case. That is the statutory boundary between the two regulators named in this question.

The authority that shows the reach of the Board's jurisdiction is Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India, (2013) 1 SCC 1, decided on 31 August 2012. Two unlisted Sahara group companies raised about twenty four thousand crore rupees from roughly three crore investors through optionally fully convertible debentures, describing the issue as a private placement to friends, associates and workers.

(b) The Central Government

The Central Government acts through the Ministry of Corporate Affairs, and its powers over corporate finance are of four kinds. It has rule-making power under section 469 and the power to amend Schedules under section 467, so the detail of every financing provision is in rules it makes. It has investigative power: section 210 to order an investigation into the affairs of a company, section 211 to establish the Serious Fraud Investigation Office and section 212 to assign investigations to it, section 216 to appoint inspectors to determine beneficial ownership, section 221 to apply to the Tribunal to freeze the assets of a company where its affairs have been conducted to defraud creditors or members, and section 222 to apply for restrictions to be imposed on securities.

On 7 February 2025 the Delhi High Court upheld the validity of section 132 and of the National Financial Reporting Authority Rules, 2018, but quashed a batch of show cause notices on the ground that the Authority had not maintained the separation between its audit quality review function and its disciplinary function that the statutory scheme requires. The Authority's appeal is pending in the Supreme Court, which has permitted proceedings to continue but restrained final orders, so the correct statement is that the constitutional validity is settled and the procedure is not.

(b) The Registrar of Companies

The Registrar is the field office of the Ministry and is where the company's financial history is created and kept. He incorporates the company under section 7, maintains the register of companies, and receives the annual return under section 92, the financial statements under section 137, the prospectus for registration under section 26, and the return of allotment under section 39(4). He registers charges under sections 77 to 79 and issues the certificate under section 77(2), and section 80 makes registration of the charge deemed notice to anyone acquiring the property, which is the whole basis on which secured lending to companies works.

(b) The Company Law Board

Here the answer must correct the question. The Company Law Board was constituted under section 10E of the Companies Act, 1956 and exercised the powers now found in Chapter XVI, including relief against oppression and mismanagement and the rectification of the register. It no longer exists. Section 466 of the Companies Act, 2013 provides that the Board of Company Law Administration shall stand dissolved on the constitution of the Tribunal and the Appellate Tribunal, and the National Company Law Tribunal and the National Company Law Appellate Tribunal were constituted with effect from 1 June 2016 under sections 408 and 410. The Board's pending matters stood transferred to the Tribunal.

Conclusion. Corporate finance in law is the regulation of money raised from people who will not manage it, and the Act regulates it at four points, raising, deploying, distributing and reporting. The Securities and Exchange Board controls the market-facing part of that under its own Act and under section 24; the Central Government controls rule-making, investigation and the fitness of managers; the Registrar controls the record on which everyone else relies; and the Company Law Board, which the question names, has not existed since 1 June 2016, its work having passed to the National Company Law Tribunal under section 466. A candidate who describes the Board as a live regulator loses the marks that the rest of the answer earns.

The reason the law wanted it is a list of the failures of paper. Physical certificates were forged, stolen and lost; transfer required a stamped instrument, the physical movement of certificates and registration by the company, so settlement took weeks; bad deliveries on signature mismatches were routine; and the register of members was perpetually out of date. The Depositories Act, 1996 was enacted to end that, and the National Securities Depository Limited began operations in November 1996 and Central Depository Services (India) Limited in February 1999.

The statutory scheme

Section 29 of the Companies Act, 2013 is the parent provision. Section 29(1) requires every company making a public offer, and such other class of companies as may be prescribed, to issue securities only in dematerialised form in compliance with the Depositories Act, 1996. Section 29(1A), inserted by the Companies (Amendment) Act, 2019, provides that in the case of such class of unlisted companies as may be prescribed, securities shall be held or transferred only in dematerialised form. Section 29(2) leaves every other company free to choose.

The Depositories Act, 1996 supplies the mechanics. Section 2(1)(e) defines a depository as a company registered under the Companies Act and granted a certificate of registration under the Securities and Exchange Board of India Act, 1992. Section 4 requires an agreement between the depository and the participant. Section 6 provides for the surrender of the certificate of security to the issuer, which must cancel it and inform the depository. Section 7 requires the issuer to register the transfer in the name of the depository, on which the depository enters the name of the beneficial owner in its records.

Section 8 preserves the investor's option to hold in either form and to convert either way. Section 9 provides that securities in a depository are in fungible form, with the consequence that the beneficial owner has no distinctive numbered shares. Section 10 provides that the depository is the registered owner for the purpose of effecting transfer, while the beneficial owner is entitled to all the rights and benefits and is subject to all the liabilities in respect of the securities. Section 14 provides for opting out of a depository, and sections 17 and 18 give the Securities and Exchange Board power to give directions and make regulations.

Section 56(1) prescribes the machinery for physical securities. A company shall not register a transfer unless a proper instrument of transfer in the prescribed form, Form SH-4, duly stamped, dated and executed by or on behalf of both transferor and transferee and specifying the name, address and occupation of the transferee, has been delivered to the company within sixty days from the date of execution, together with the certificate or, if none exists, the letter of allotment. The proviso allows the company to register the transfer on such terms as to indemnity as the Board thinks fit where the instrument has been lost or has not been delivered in time. Section 56(1) expressly does not apply to a transfer between two persons both of whose names are entered as beneficial owners in the records of a depository, which is the dematerialised transfer described above.

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 the transferee raises no objection within two weeks.

Transmission of securities

Transmission is not a transfer at all: it is the passing of title by operation of law. It occurs on the death of a member, when the securities vest in the legal representative or in the surviving joint holder; on the insolvency of a member, when they vest in the official assignee or receiver; on a member being found of unsound mind, when they vest in the committee or manager; and where the member is a body corporate, on its amalgamation or dissolution, when they vest in the transferee company or as ordered.

Section 56(2) preserves the company's power to register a transmission on intimation. No instrument of transfer is needed, because there is no transferor capable of executing one; the person claiming produces the evidence of title, such as a succession certificate, probate or letters of administration, or the order vesting the estate. Section 56(5) makes a transfer of the securities of a deceased person by his legal representative valid even though the representative is not himself a holder, which is what allows an estate to be dealt with without first registering the representative as a member. Section 72 allows a nomination in Form SH-13, and the nominee becomes entitled on death to the exclusion of all other persons, subject to the rights of others under any other law.

A limits paragraph the examiner will reward. Dematerialisation has not abolished disputes about title; it has moved them. Because securities in a depository are fungible under section 9 of the Depositories Act, a claim to specific shares by number is no longer possible, and because the depository is the registered owner while the beneficial owner holds the rights under section 10, a wrongful debit to an account is corrected by the depository's own mechanism and by the Securities and Exchange Board rather than by rectification of the company's register. Section 56(7) exists precisely because the possibility of a fraudulent electronic transfer is the price of the electronic system.

Bajaj Auto Ltd. v. N.K. Firodia, AIR 1971 SC 321, decided on 4 September 1970, controls the company's refusal to register. Article 52 of Bajaj Auto's articles gave the directors an "absolute and uncontrolled discretion" to decline to register any transfer. The directors refused to register transfers in favour of the Firodia group.

The Supreme Court held that however absolute the language of the article, the directors are in a fiduciary position and must exercise the power in good faith, for the paramount interest of the company and the general interest of the shareholders, not arbitrarily and not for any collateral motive; on the facts they had acted from hostility, with the dominant purpose of keeping Firodia out, and the refusal was set aside. That is the standard the Tribunal applies today on an appeal under section 58, and it explains why section 58(4) speaks of refusal on sufficient cause rather than at will.

Conclusion. Dematerialisation is now the rule and physical holding the exception: compulsory for every public offer under section 29(1), for unlisted public companies since 2 October 2018 under Rule 9A, and for private companies other than small companies from 30 June 2025 under Rule 9B. Transfer remains a voluntary act requiring an instrument under section 56(1) unless both parties are beneficial owners in a depository, in which case it is a book entry under section 7 of the Depositories Act; transmission is the passing of title by law under section 56(2) and needs no instrument at all. In both cases the certificate or the credit must follow within one month under section 56(4)(c), and the Tribunal under sections 58 and 59 is the forum when the company gets it wrong.

(a) Protection and rights of investors and creditors

The Act protects the investor at three moments: entry, holding and exit. At entry, sections 26, 34, 35 and 36 govern the prospectus: section 26 prescribes what must be disclosed and requires registration with the Registrar; section 34 makes an untrue statement in it fraud under section 447; section 35 gives every subscriber who suffers loss a civil claim against the company, its directors, promoters and experts; and section 36 punishes fraudulently inducing persons to invest. Section 39 requires the return of allotment and refunds where the minimum subscription is not received, and section 40 requires the money to be kept in a separate bank account.

While holding, the investor's protections are informational and participatory. Sections 129 to 137 require a true and fair financial statement, a board's report and their filing; sections 96 to 122 give the right to notice, to attend, to speak, to appoint a proxy and to vote, with section 110 requiring postal ballot for prescribed items; section 108 requires e-voting for prescribed classes; and section 136 gives the right to copies of the financial statements.

Creditors are protected chiefly by capital maintenance and by publicity. The creditor cannot vote, so the law protects him by limiting what the company may give away: section 66 requires the Tribunal's confirmation for a reduction of capital and requires creditors' objections to be heard; section 123 confines dividend to profits; section 68 caps buy-back and requires a declaration of solvency; sections 77 to 87 require charges to be registered, and section 77(3) makes an unregistered charge void against the liquidator and other creditors. On a scheme of arrangement, section 230 requires a meeting of each class of creditors and a three fourths majority in value. On default, the Insolvency and Bankruptcy Code, 2016 gives the financial creditor section 7 and the operational creditor section 9, and section 53 fixes the waterfall of distribution in liquidation.

(b) Legal regulations of multinationals

A multinational is not a legal category in Indian company law; it is a group of companies, and each entity is regulated where it is incorporated. The consequence, which is the whole difficulty of the topic, is that the group is an economic unit and a legal plurality, so liability tends to stop at the border of the subsidiary.

Section 379(2) is the trap: where not less than fifty per cent of the paid-up capital of a foreign company is held by Indian citizens or Indian bodies corporate, the company must comply with Chapter XXII and such other provisions as may be prescribed as if it were an Indian company. Section 391 applies sections 34 to 36 and the whole of Chapter XX to a foreign company that issues a prospectus in India, and section 376 allows a foreign company that has ceased to carry on business in India to be wound up as an unregistered company even though it has been dissolved abroad. Or it may operate through a liaison, branch or project office under the Foreign Exchange Management Act, 1999 with the approval of the Reserve Bank.

Four other statutes complete the framework. The Foreign Exchange Management Act, 1999 with the Consolidated Foreign Direct Investment Policy governs entry, sectoral caps and the automatic and approval routes, and since the press note of April 2020 an investment from a country sharing a land border with India requires Government approval. The Competition Act, 2002 governs combinations, and the Competition (Amendment) Act, 2023 added a deal value threshold of two thousand crore rupees for transactions with substantial business operations in India.

The doctrinal answer developed in a different case: in M.C. Mehta v. Union of India, (1987) 1 SCC 395, arising from the oleum leak at Shriram Foods and Fertiliser Industries in Delhi in December 1985, the Supreme Court laid down absolute liability for an enterprise engaged in a hazardous activity, without the exceptions to the rule in Rylands v. Fletcher, and said the measure of damages must be correlated to the magnitude and capacity of the enterprise. In Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613, the Supreme Court held that the sale of a Cayman Islands company holding Indian assets was not taxable in India, and the answer of the legislature was a retrospective amendment, itself withdrawn by the Taxation Laws (Amendment) Act, 2021. Both cases show the same thing: the group's structure is chosen abroad and the harm occurs here.

Section 141 fixes qualifications and disqualifications, so that a body corporate other than a limited liability partnership, an officer or employee of the company, a person indebted to it beyond five lakh rupees, a person holding any security of it, and a person providing prohibited services under section 144 cannot be appointed. Section 144 is the provision that protects independence by listing the services an auditor may not render to the company, its holding or its subsidiary: accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory and banking services, outsourced financial services and management services.

Section 143 states the functions. The auditor has a right of access at all times to the books and vouchers, and is entitled to require information from officers. He must inquire into the matters listed in section 143(1), including whether loans on the security of shares have been properly secured, whether transactions merely represented by book entries are prejudicial, and whether personal expenses have been charged to revenue. Section 143(2) requires the report to state whether the accounts give a true and fair view.

(d) Majority powers and minority rights

The starting rule is majority rule, and it comes from Foss v. Harbottle, (1843) 2 Hare 461. Two shareholders of the Victoria Park Company sued five directors alleging that they had sold their own land to the company at an inflated price. The suit was dismissed on two grounds that have governed ever since: the proper plaintiff rule, that where a wrong is done to the company the company is the proper plaintiff, and the internal management rule, that where the act complained of is one the majority could ratify, the court will not interfere at the instance of an individual member. The commercial sense of it is that a court should not be asked to decide what a general meeting can decide for itself.

The exceptions are as important as the rule: an act that is illegal or ultra vires the company; an act requiring a special majority which has been done by a simple majority; an invasion of the individual membership rights of the plaintiff; and a fraud on the minority by those in control. To these the Act adds statutory remedies which are now the practical route.

Section 245 adds a class action, allowing prescribed numbers of members or depositors to apply to restrain the company from acting ultra vires or in breach of the memorandum or articles, to declare a resolution void where it was passed by suppression of material facts, and to claim damages against the company, its directors, the auditor including the audit firm, and any expert or adviser. Section 246 applies sections 337 to 341 to proceedings under sections 241 and 245. Sections 210 to 217 allow investigation, and section 213 allows the Tribunal to order one on the application of the same numbers of members.

The limits of the minority remedy were fixed by Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, decided on 26 March 2021. The Appellate Tribunal had reinstated Cyrus Mistry as Executive Chairman of Tata Sons and set aside the conversion of the company into a private company. The Supreme Court reversed. Removal from the office of chairman is not by itself oppression; a petition under section 241 must show conduct prejudicial or oppressive to the member as a member, or prejudicial to the company; and the Tribunal has no power under sections 241 and 242 to reinstate a person in office.

By number of members and constitutional restrictions, section 2(68) defines a private company as one which by its articles restricts the right to transfer its shares, limits its members to two hundred excluding present and former employee members, and prohibits any invitation to the public to subscribe for securities; section 2(71) defines a public company as one that is not private and has a minimum paid-up capital as may be prescribed, and includes a private company which is a subsidiary of a public company. Section 2(62) defines a One Person Company as a company with one person as a member, introduced by the 2013 Act, and the Rules were amended with effect from 1 April 2021 to remove the paid-up capital and turnover ceilings and to allow a Non-Resident Indian to incorporate one after a residence of one hundred and twenty days.

By control, section 2(46) defines a holding company, section 2(87) a subsidiary, with control of more than half the total voting power or of the composition of the Board and a limit on layers of subsidiaries prescribed by rules, and section 2(6) an associate company, in which another company has significant influence, meaning at least twenty per cent of total voting power or control of business decisions under an agreement.

Conclusion. The five notes share a single organising idea, which is that the Companies Act allocates power to those who manage and gives protection to those who do not. Investors and creditors get disclosure and capital maintenance, the audit gives the disclosure its credibility, the minority gets sections 241, 242 and 245 when the majority abuses its power, the multinational is regulated entity by entity because the law has no concept of the group, and the classification of companies determines which of these protections applies to which enterprise.

(a) The Central Government's own standing under section 241

The ordinary route to relief against oppression and mismanagement belongs to the member, who must satisfy the numerical threshold in section 244 or obtain a waiver. The Central Government's powers are different in kind, because they exist to protect the public interest rather than the complaining shareholder.

Section 241(2) is the core provision. 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. It is not bound by section 244; it need not be a member; and the ground is narrower than a member's, because prejudice to a member or to the company is not enough, the prejudice must be to the public interest.

The investigation powers feed that machinery. 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, on a special resolution of the company, or in the public interest, and requires it to do so where the Tribunal so orders. Section 211 establishes the Serious Fraud Investigation Office and section 212 allows the Central Government to assign an investigation to it, with the investigating officer having the powers of an inspector under section 217 and, in the case of the offences in section 447, powers of arrest under section 212(8).

Section 213 allows the Tribunal, on the application of the members meeting the section 244 thresholds or of any other person, to order an investigation, and requires the Central Government to appoint inspectors. Section 216 allows the appointment of inspectors to determine the true persons financially interested in the company and who control its policy. Section 217 gives the inspector the powers of a civil court in respect of discovery, production and the examination on oath.

The honest assessment is that these powers are used rarely and visibly. The best known modern instance is the removal of the Board of Infrastructure Leasing and Financial Services Limited on the Union Government's petition under sections 241 and 242 in October 2018, where the Tribunal superseded the Board and allowed the Government to appoint directors. The point that a strong answer makes is that this is not a shareholder remedy exercised by the Government; it is a regulatory power that happens to use the shareholder's forum.

(b) Winding up of defunct companies

A defunct company is one that exists on the register and does nothing, and the law's answer is not winding up but removal of the name. The Companies Act, 1956 dealt with it in section 560 and the Ministry ran a Fast Track Exit scheme. The 2013 Act deals with it in sections 248 to 252.

Section 250 preserves liability: notwithstanding the dissolution, the liability of every director, manager or officer and of every member continues and may be enforced as if the company had not been dissolved. Section 252 gives an appeal to the Tribunal within three years by any person aggrieved by the order, and allows the Tribunal, on an application by the company, a member, a creditor or a workman within twenty years, to restore the name where the company was carrying on business or it is otherwise just to do so.

(b) Winding up of sick undertakings

The regime the question assumes has been repealed, and the answer must say so. The Sick Industrial Companies (Special Provisions) Act, 1985 defined a sick industrial company by reference to the erosion of net worth, and gave the Board for Industrial and Financial Reconstruction power to sanction a scheme of rehabilitation or to opine that the company should be wound up. The Companies Act, 2013 contained its own Chapter XIX, sections 253 to 269, on the revival and rehabilitation of sick companies, which was never brought into force.

Three decisions are worth naming. Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, held that once a financial creditor establishes a default the Adjudicating Authority must admit the application, and that the corporate debtor's defences about the debt not being due are largely irrelevant at that stage. Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, upheld the Code as a whole and explained the classification between financial and operational creditors.

And Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352, held that section 7 confers a discretion and not an obligation to admit, which qualified Innoventive and remains the most litigated proposition in the field. The Insolvency and Bankruptcy Code (Amendment) Act, 2026, which received assent on 6 April 2026 and has not yet been notified into force, adds a creditor-initiated resolution process in a new Chapter IV-A, a framework for group insolvency and one for cross-border insolvency.

The sharpest point in this whole answer is that comparison. Inability to pay debts was removed as a ground for winding up a registered company when the Insolvency and Bankruptcy Code substituted section 271 on 15 November 2016, because insolvency now belongs to the Code. It survives untouched in section 375(3)(b) for unregistered companies. So the same fact, an unpaid demand, produces a winding up petition before the Tribunal in one case and an insolvency application under the Code in the other.

(b) Winding up of foreign companies

A foreign company under section 2(42) is not registered in India, so it cannot be wound up as a company registered under the Act. It is wound up as an unregistered company under Part XXI, and the provisions of section 375 apply to it. The Tribunal's jurisdiction rests on the company having carried on business in India and on assets or a place of business being here, and the winding up is ancillary: it deals with the Indian assets and the Indian creditors, and the foreign liquidation deals with the rest.

Conclusion. Part (a) and part (b) are connected, and saying so is what turns two lists into an answer. The Central Government's powers in section 241(2), in the fit-and-proper reference and in sections 210 to 224 exist because a company can be run against the public interest without any individual shareholder being willing or able to complain. Part (b) is what happens when that failure is terminal, and the modern law has split the old single remedy of winding up four ways: the empty company is struck off under section 248, the sick company goes to the Insolvency and Bankruptcy Code, and only the unregistered company under section 375 and the foreign company under sections 375 and 376 are still wound up in the way the question assumes.