LLM Group 2 Business Law Corporate Law 2016 Question Paper with Solutions

Managerial personnel and the administration of the company

The Act's term is key managerial personnel and section 2(51) defines it exhaustively: the Chief Executive Officer or the managing director or the manager; the company secretary; the whole-time director; the Chief Financial Officer; and such other officer, not more than one level below the directors, who is in whole-time employment and designated as key managerial personnel by the Board. The definition matters because a long list of obligations, from disclosure of interest to liability as an officer in default, attaches to the persons within it.

Section 203 makes the appointment compulsory for the companies that matter. Every listed company and, under Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every other public company having a paid-up share capital of ten crore rupees or more must have a whole-time managing director or Chief Executive Officer or manager and, in their absence, a whole-time director, together with a company secretary and a Chief Financial Officer. The same person may not be both chairperson and managing director or Chief Executive Officer unless the articles provide otherwise or the company carries on multiple businesses. A vacancy must be filled within six months.

Section 197 caps what they may be paid, and the cap is the classic control of self-dealing. The total managerial remuneration payable by a public company to its directors, including the managing director, whole-time director and manager, in respect of any financial year may not exceed eleven per cent of the net profits computed under section 198. Within that, remuneration to one managing or whole-time director or manager may not exceed five per cent and to all of them together ten per cent; remuneration to directors who are neither may not exceed one per cent where there is a managing or whole-time director and three per cent otherwise.

The Companies (Amendment) Act, 2017 replaced the requirement of Central Government approval for exceeding these limits with approval by a special resolution of the company in general meeting, with the prior approval of the bank or financial institution or debenture holder where there is a default. Section 197(3) allows minimum remuneration in the absence or inadequacy of profits only in accordance with Schedule V, and section 197(9) and (10) require the refund of any excess, which may be waived only by a special resolution.

The Board of directors: rights

Section 149(1) fixes the Board's composition: a minimum of three directors for a public company, two for a private company and one for a One Person Company, and a maximum of fifteen, beyond which a special resolution is needed. Section 149(3) requires at least one director who stays in India for at least one hundred and eighty two days in the financial year; section 149(1) proviso requires at least one woman director for prescribed classes; and section 149(4) requires at least one third of a listed public company's Board to be independent directors.

The Board's rights are collective, and that is the first thing to say. A director has no individual power to bind the company; the power is the Board's, exercised at a meeting or by circulation. The collective rights include the right under section 179 to exercise all powers of the company subject to the Act and the articles, the right to appoint an additional, alternate or casual-vacancy director under section 161, the right to recommend dividend under section 123(1), the right to make calls, the right to delegate under section 179(3) proviso, and the right to sue on behalf of the company.

The Board: duties

Section 166 codified the duties of directors for the first time in Indian law, and before 2013 they were found only in the law of trusts and agency. A director must act in accordance with the articles; must 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; must exercise his duties with due and reasonable care, skill and diligence and exercise independent judgment; must not involve himself in a situation in which he may have a direct or indirect interest that conflicts or possibly may conflict with the interest of the company; must not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners or associates, and if found guilty must pay an amount equal to that gain to the company; and must not assign his office, any assignment so made being void.

The Board: liabilities

Liability arises in four ways and a good answer separates them. First, civil liability to the company for breach of fiduciary duty, negligence and misfeasance, enforced by the company, by the Tribunal under section 242 in a proceeding for oppression and mismanagement, by a class action under section 245, and in winding up by an application under section 340 for misfeasance.

Second, liability to outsiders, chiefly under section 35 to compensate subscribers for a misstatement in a prospectus, under section 39 where allotment is irregular, and personally on contracts made before incorporation or beyond the company's capacity, as in A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185, where directors who paid Rs. 75,000 of the company's money to a charitable trust for an object not authorised by the memorandum were held personally liable to restore it.

The Board: disabilities

The paper's word "disabilities" means the disqualifications and the restrictions on office. Section 164(1) disqualifies a person who is of unsound mind and so declared by a competent court, an undischarged insolvent, one who has applied to be adjudicated an insolvent, one convicted of any offence and sentenced to imprisonment for not less than six months where five years have not elapsed, or to imprisonment of seven years or more at any time, one against whom an order disqualifying him has been passed by a court or Tribunal, one who has not paid calls for six months, one convicted of an offence under section 188 in the preceding five years, and one who has not complied with section 152(3) regarding the Director Identification Number.

Legal mechanisms for conducting meetings

There are two systems and they must not be run together. General meetings are meetings of the members; Board meetings are meetings of the directors; the notice, quorum and voting rules differ throughout.

General meetings. Section 96 requires every company other than a One Person Company to hold an annual general meeting each year, the first within nine months of the close of the first financial year and every other within six months of the close of the financial year, with not more than fifteen months between one and the next, and gives the Registrar power to extend by up to three months for special reason, except for the first.

The meeting must be held between 9 a.m. and 6 p.m., not on a National Holiday, and at the registered office or some other place within the city, town or village where it is situated; an unlisted company may meet anywhere in India with the written consent of all members in advance. Section 100 provides for an extraordinary general meeting, called by the Board or on the requisition of members holding one tenth of the paid-up capital carrying voting rights, and section 100(4) allows the requisitionists themselves to call it within three months if the Board does not within twenty one days.

Section 105 gives every member entitled to attend and vote the right to appoint a proxy, who may not speak and may vote only on a poll, and, under Rule 19(2) of the Companies (Management and Administration) Rules, 2014, a person may act as proxy for not more than fifty members holding in the aggregate not more than ten per cent of the total share capital carrying voting rights. Section 106 permits the articles to restrict voting where calls are unpaid. Section 107 provides for voting on a show of hands and section 109 for a poll, which the chairman must order on a demand by members holding at least one tenth of the voting power or paid-up capital of five lakh rupees.

Section 108 requires electronic voting for prescribed classes of companies and section 110 requires postal ballot for prescribed items of business. Section 114 defines the ordinary resolution, carried by a simple majority, and the special resolution, requiring the votes cast in favour to be not less than three times the votes against. Section 117 requires prescribed resolutions to be filed with the Registrar, section 118 requires minutes within thirty days and makes them evidence of the proceedings, and section 119 gives members the right to inspect them.

One current development belongs here. The Ministry of Corporate Affairs permitted general meetings through video conferencing and other audio visual means by a series of general circulars from April 2020, extended repeatedly, and the Corporate Laws (Amendment) Bill, 2026 would put that permission on a statutory footing by allowing annual general meetings by video conferencing subject to a physical meeting at least once every three years, and by reducing the notice period for a fully virtual extraordinary general meeting from twenty one days to seven. Until it is enacted, the position rests on the circulars.

Two decisions that govern meetings and the division of power

Life Insurance Corporation of India v. Escorts Ltd., (1986) 1 SCC 264, decided on 19 December 1985, is the leading Indian case on the requisitioned meeting. The Life Insurance Corporation, holding a large stake in Escorts, requisitioned an extraordinary general meeting to remove several directors before the expiry of their terms and appoint others. The company resisted, arguing among other things that the Corporation, as an instrumentality of the State, must disclose the reasons for the resolutions it proposed.

Read together the two cases describe the constitutional settlement inside a company: the members control who the directors are and the largest decisions, and may summon a meeting without explaining themselves; the directors control the business and cannot be instructed on it. Everything in the law of meetings, from the notice period in section 101 to the quorum in section 103 and the majority in section 114, is machinery for working that settlement.

Conclusion. The administration of a company is a chain of delegations, and the Act regulates each link. The members hold the largest powers under section 180 and exercise them at meetings governed by sections 96 to 122; the Board holds the residue under section 179 and exercises it at meetings governed by sections 173 to 175; and the key managerial personnel under sections 2(51), 196, 197 and 203 carry out what is delegated to them, for remuneration the Act caps. The Board's rights are collective, its duties are those codified in section 166, its liabilities run to the company, to outsiders and to the State, and its disabilities are the disqualifications in section 164 and the vacation provisions in section 167. A candidate who states each limb with its section, and states the numbers in the meeting rules exactly, has the whole of this question.