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.

(a) Debentures: the lender who cannot vote

Start from the position the debenture holder is in. He has given the company money; he is a creditor, not a member; he has no vote, because section 71(2) expressly prohibits the issue of debentures carrying voting rights; and he cannot attend the general meeting at which the decisions that affect his security are taken. Every provision of section 71 is a substitute for the control he does not have.

Section 2(30) defines a debenture inclusively, as including debenture stock, bonds and any other instrument of a company evidencing a debt, whether or not constituting a charge on the assets, and, since the Companies (Amendment) Act, 2017, excluding instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934 and such other instruments as may be prescribed in consultation with the Reserve Bank. The definition tells you the nature of the instrument in one word: debt. Interest is payable whether or not there are profits and is a charge against profits, not an appropriation of them; in a winding up the debenture holder is paid before the members and, if secured, before the unsecured creditors to the extent of his security.

The reserve: section 71(4) requires a Debenture Redemption Reserve out of profits available for dividend, usable only for redemption. The consent of the members where conversion is proposed: section 71(1) requires a special resolution. The early warning: section 71(9) allows the trustee to petition the Tribunal where the assets are or are likely to become insufficient, and the Tribunal may impose restrictions on incurring further liabilities. And the remedy on default: section 71(10) allows the Tribunal, on the application of any or all of the holders or of the trustee, to direct redemption forthwith with payment of principal and interest.

The commercial reality is that a modern default goes to a different forum. A debenture holder is a financial creditor within section 5(7) of the Insolvency and Bankruptcy Code, 2016, so on a default of one crore rupees or more the debenture trustee may apply under section 7 of the Code, and that route is used far more often than section 71(10) because it produces a moratorium and a committee of creditors rather than a decree.

Section 230(7) requires the order to provide for the transfer of property and liabilities, the allotment of shares, the continuation of legal proceedings and the protection of dissenting shareholders and creditors, and requires a certificate from the company's auditor that the accounting treatment conforms to the accounting standards.

Section 230(5) brings the regulators in: notice must be sent to the Central Government, the Registrar, the income tax authorities, the Reserve Bank of India, the Securities and Exchange Board of India, the Competition Commission of India, the stock exchanges and other sectoral regulators, and their representations must be considered.

How far the Tribunal may look behind the majority's decision was settled in Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579. A scheme amalgamating Mafatlal Industries with Mafatlal Fine Spinning was approved by the required majorities and challenged by a shareholder who said the share exchange ratio was unfair and the two family groups were in conflict.

Two routes bypass the Tribunal or cross the border. Section 233 allows a fast track merger between two or more small companies, between a holding company and its wholly owned subsidiary, or between prescribed classes, on the approval of members holding at least ninety per cent of the total number of shares and creditors representing nine tenths in value, with notice to the Registrar and Official Liquidator and registration by the Central Government acting through the Regional Director. 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. Sections 235 and 236 deal with the acquisition of the shares of dissenting shareholders and with the purchase of minority shareholding once a person acquires ninety per cent or more.

One current fact belongs here. The Corporate Laws (Amendment) Bill, 2026 proposes to reduce the section 233 thresholds from ninety per cent of members and nine tenths in value of creditors to seventy five per cent in each case. It was introduced on 23 March 2026 and referred to a Joint Parliamentary Committee, which reported on 3 August 2026. It is not law and must not be stated as law.

Section 25 catches the evasion: where a company allots securities with a view to their being offered for sale to the public, the document by which the offer is made is deemed to be a prospectus issued by the company, and the evidence of that intention includes an offer within six months of allotment or the fact that the consideration had not been fully received at the date of the offer. Section 31 provides for a shelf prospectus valid for one year with an information memorandum for each subsequent offer; section 32 for a red herring prospectus filed at least three days before the offer opens; section 33 for an abridged prospectus with every application form.

Liability is the part that earns marks. Section 35 gives the subscriber a civil claim: where a person has subscribed for securities acting on a misleading statement or on an inclusion or omission calculated to mislead, and has sustained loss, the company and every director, promoter, expert and person who authorised the issue are liable to pay compensation, with the defences that the person withdrew his consent before the issue, or that the prospectus was issued without his knowledge or consent and he gave reasonable public notice, or that he had reasonable ground to believe and did believe the statement was true; and section 35(3) makes the liability one for fraud under section 447 where the issue was made with intent to defraud.

And now the third limb's real content. The statement in lieu of prospectus was section 70 of the Companies Act, 1956. A public company which did not issue a prospectus, or which issued one but did not go on to allot, could allot no shares or debentures unless it had delivered to the Registrar, at least three days before the first allotment, a statement in lieu of prospectus signed by every director or proposed director in the form of Schedule III to that Act.

The Companies Act, 2013 contains no such document. The function it performed is now performed by section 42, which governs private placement: an offer to not more than two hundred persons in a financial year excluding qualified institutional buyers and employees under a stock option scheme, made by a private placement offer letter in Form PAS-4, with the money received only through banking channels into a separate bank account, no utilisation before allotment and the return of allotment filed, and by section 42(7), which forbids any public advertisement of such an offer. Contravention attracts, under section 42(10), a penalty which may extend to the amount raised or two crore rupees, whichever is lower, with a duty to refund within thirty days.

For full marks, cover: part (a) organised by source of finance, own funds against borrowed funds and long term against short term, with the section of the Companies Act, 2013 that regulates each source, so that the answer is law and not finance; then part (b) organised by the function each named body performs, gatekeeping, disclosure, enforcement and adjudication, and finishing on the fact that the Company Law Board has not existed since 1 June 2016.

Preference share capital is regulated by section 55, which forbids irredeemable preference shares and caps the redemption period at twenty years, with an exception up to thirty years for infrastructure projects, and requires redemption only out of profits available for dividend or out of a fresh issue, with the transfer of an equivalent amount to the Capital Redemption Reserve. Sweat equity is regulated by section 54 and requires a special resolution. Bonus shares under section 63 may be issued only out of free reserves, the securities premium account or the capital redemption reserve, never out of revaluation reserve, and not by a company in default of statutory dues to employees. Retained earnings are regulated indirectly by section 123, which limits what may be paid out as dividend and so determines what stays in.

The deployment of the funds is regulated too, because a company that raises money and lends it on is exporting the risk its own investors took. Section 186 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, requires a special resolution beyond that, and forbids investment through more than two layers of investment companies. Section 185 restricts loans to directors and to entities in which they are interested. Section 188 subjects related party transactions to approval.

And the return of funds is regulated at three points: dividend under sections 123 to 127, buy-back under section 68, which caps it at twenty five per cent of paid-up capital and free reserves with a two to one debt-equity ceiling and a one year gap between offers, and reduction of capital under section 66, which requires a special resolution and the confirmation of the Tribunal after hearing creditors.

(b) The four bodies, by function

Gatekeeping, that is, who may raise money from whom. The Registrar of Companies is the first gate: he incorporates the company under section 7, registers the prospectus under section 26 before it may be published, receives the return of allotment under section 39(4), and registers charges under section 77, issuing the certificate that makes the security good against the world under section 80.

The Securities and Exchange Board of India is the second gate for any company approaching the public: under section 11A of its own Act of 1992 it regulates the issue of capital and the transfer of securities, and its Issue of Capital and Disclosure Requirements Regulations, 2018 fix eligibility, promoter contribution, lock-in and the contents of the offer document. Section 24 of the Companies Act draws the boundary: 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 Board for listed companies and those intending to list, and by the Central Government for every other company.

The Central Government orders investigations under section 210, assigns them to the Serious Fraud Investigation Office under section 212, appoints inspectors to trace beneficial ownership under section 216, and on the report may prosecute, direct the company to sue, or itself petition for winding up or for relief against oppression under section 224. The Registrar calls for information and inquires under section 206, inspects under section 207, and adjudicates penalties as adjudicating officer under section 454 with an appeal to the Regional Director.

The reach of the enforcement power is best shown by Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India, (2013) 1 SCC 1. Two unlisted Sahara companies raised about twenty four thousand crore rupees from roughly three crore investors through optionally fully convertible debentures, calling it a private placement.

Every adjudicatory question of corporate finance now goes to the Tribunal: confirmation of a reduction of capital under section 66, sanction of a scheme under sections 230 to 232, relief against oppression and mismanagement under sections 241 and 242, class actions under section 245, rectification of the register under section 59, redemption of debentures under section 71(10), the freezing of assets under section 221, restoration of a struck-off company under section 252, and winding up under section 271. Appeals lie to the Appellate Tribunal under section 421 and to the Supreme Court under section 423.

One current fact completes the limb. In Madras Bar Association v. Union of India, decided on 19 November 2025, the Supreme Court struck down the core appointment and tenure provisions of the Tribunals Reforms Act, 2021 as a re-enactment of provisions already held unconstitutional, and directed the establishment of a National Tribunals Commission within four months. Since the Tribunal is the forum for all of the above, the independence of its members is the condition on which this whole part of the answer depends.

For full marks, cover: the whole of this question can be answered by following one share through its life, from issue to the death of its holder, naming the provision that governs each step. That plan covers dematerialisation under section 29 and the Depositories Act, 1996, transfer under section 56(1) and section 44, transmission under section 56(2), the certificate under section 56(4), and the remedies under sections 58 and 59, and it forces the distinction between transfer and transmission to come out where it belongs.

Step one: the share is issued, and after 2 October 2018 it is usually issued electronically

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, goes further for prescribed classes of unlisted companies, requiring securities to be held or transferred only in dematerialised form. Section 29(2) leaves every other company free to choose.

Step two: the share is held, and the holder's title is a book entry

Section 9 of the Depositories Act provides that securities held in a depository are in fungible form, so the beneficial owner no longer owns identified certificates bearing distinctive numbers. Section 10 makes the depository the registered owner for the purpose of effecting transfer, while providing that the depository has no voting or other rights and that the beneficial owner is entitled to all the rights and benefits and subject to all the liabilities in respect of the securities. The register of beneficial owners maintained by the depository under section 11 is what proves title.

Section 44 of the Companies Act states the character of the asset: the shares, debentures or other interest of a member in a company are movable property, transferable in the manner provided by the articles. That single sentence is why the transfer of shares is a matter of contract and registration and not of conveyance.

Since 1 April 2019, under Regulation 40 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a listed company may not 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 clearing corporation.

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

Step four: the holder dies, becomes insolvent or loses capacity, and this is transmission

Transmission is the passing of title by operation of law, not by act of parties. It occurs on death, when the securities vest in the legal representative or in the surviving joint holder; on insolvency, when they vest in the official assignee or receiver; on the holder being found of unsound mind, when they vest in the committee; and, where the holder is a body corporate, on its amalgamation or dissolution.

Section 58 governs refusal to register. For a private company, whose articles restrict transfer, notice of refusal with reasons must be sent within thirty days of receipt of the instrument, and the transferee may appeal to the Tribunal within thirty days of receipt of the notice or, where no notice is sent, within sixty days of delivery of the instrument. For a public company, section 58(2) declares that the securities are freely transferable, while the proviso preserves the enforceability as a contract of any agreement between two or more persons in respect of transfer, and section 58(4) allows an appeal to the Tribunal within sixty days of the refusal or ninety days of delivery. Section 58(5) empowers the Tribunal to direct registration within ten days and to award damages.

What the courts have added to the statutory machinery

The provisions above are enforced through three decisions, and the marks in this question are as much in them as in the sections.

On the character of the requirement, Mannalal Khetan v. Kedar Nath Khetan, (1977) 2 SCC 424. Shares in Lakshmi Devi Sugar Mills were transferred between two branches of one family and registered by the company without duly stamped and executed transfer instruments, and in breach of an attachment order. The Supreme Court held that section 108 of the Companies Act, 1956, whose successor is section 56(1), is mandatory and not directory: prohibitory words admit of only one form of obedience, and a transaction that requires the doing of what a statute forbids is void. The registrations were struck down. Applied to section 56(1) the proposition is that the sixty day delivery requirement and the instrument itself are conditions of the company's power to register, not conveniences it may dispense with.

On transmission, World Wide Agencies (P) Ltd. v. Margarat T. Desor, (1990) 1 SCC 536. The legal representatives of a deceased controlling shareholder sought relief against oppression before being registered as members, and the company objected that only a member may apply. The Supreme Court rejected the objection: title had devolved on them by operation of law, and a company cannot defeat the rights that follow from a transmission by declining or delaying to register it. The decision is the reason a board cannot treat an intimation under section 56(2) as something it may leave in a file.

Conclusion. Following one share through its life gives the whole answer. It is issued in dematerialised form under section 29 and Rules 9A and 9B; held as a book entry under sections 9, 10 and 11 of the Depositories Act; sold by an instrument under section 56(1) or by a book entry under section 7 of that Act; passed on death or insolvency by transmission under section 56(2) with no instrument at all; evidenced by a certificate or credit within the periods in section 56(4); and protected, when the company gets any of it wrong, by sections 58 and 59 before the Tribunal.

The company itself is the first forum. Section 56(4) requires the certificate within one month of a transfer or transmission; section 58 requires the reasons for a refusal to register within thirty days for a private company and sixty for a public one; section 136 requires copies of the financial statements to be sent to every member; sections 101, 105, 108 and 110 give the right to notice, to a proxy, to vote electronically and to vote by postal ballot; and section 123(5) requires dividend to be paid within thirty days of declaration.

The Securities and Exchange Board of India is the forum where the company is listed or has approached the public. Its Act of 1992 gives it the duty under section 11 to protect investors, the power under section 11(4) to pass interim orders impounding proceeds and restraining access to the market, the power under section 11B to issue directions and impose penalties, and the machinery in sections 15A to 15HB, 15I, 15T and 15Z. Its Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003 and Prohibition of Insider Trading Regulations, 2015 are the substantive rules, and the SCORES platform is where a retail investor actually complains.

The creditor's protection is different in kind because he has no vote at all. It is capital maintenance, publicity and priority: section 66 requires the Tribunal's confirmation of a reduction of capital after hearing creditors; section 123 confines dividend to profits; section 68 caps buy-back and requires a declaration of solvency; sections 77 to 87 require registration of charges, and section 77(3) makes an unregistered charge void against the liquidator and other creditors; section 230 requires a meeting of each class of creditors and a three fourths majority in value for a scheme.

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 order of distribution in liquidation, in which workmen's dues for twenty four months and the secured creditor who has relinquished his security rank together immediately after the insolvency resolution process costs.

(b) Legal regulations of multinationals: four problems, four statutes

A multinational is an economic unit and a legal plurality, and Indian law regulates it entity by entity. There is no definition of a multinational in the Companies Act, 2013. The regulation is best understood as four problems.

Section 379(2) is the provision most often missed: 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, it must comply with Chapter XXII and such other provisions as may be prescribed as if it were an Indian company. Alternatively it may operate through a liaison, branch or project office with the approval of the Reserve Bank of India.

Concentration and revenue. The Competition Act, 2002 regulates combinations, and the Competition (Amendment) Act, 2023 added a deal value threshold of two thousand crore rupees where the target has substantial business operations in India, which was aimed squarely at global acquisitions with Indian effects. The Income-tax Act, 1961 with its transfer pricing provisions and the General Anti-Avoidance Rule governs the allocation of profit between the group's entities, and the Income-tax Act, 2025 carries that scheme forward from 1 April 2026.

(c) Functions of auditors: three relationships

The auditor stands in three relationships, and every provision of sections 139 to 148 belongs to one of them.

To the members, who appoint him and for whom he reports. Section 139(1) provides for appointment at the first annual general meeting to hold office until the sixth, subject to ratification as prescribed; section 139(6) requires the Board to appoint the first auditor within thirty days of registration, failing which the members do so within ninety days. Section 143(2) requires him to make his report to the members and to state whether the accounts give a true and fair view of the state of affairs and of the profit or loss and cash flow. Section 146 entitles him to attend general meetings and to be heard on any part of the business that concerns him as auditor. Section 140 makes his removal before the expiry of his term dependent on a special resolution and the previous approval of the Central Government, which exists so that a Board cannot dismiss an inconvenient auditor.

To the regulator and the State. Section 143(1) requires him to inquire into the matters listed there, including whether loans and advances made on the basis of security have been properly secured, whether transactions represented merely by book entries are prejudicial to the company, and whether personal expenses have been charged to revenue account. Section 143(3) lists what the report must state, including whether the company has adequate internal financial controls with reference to financial statements and their operating effectiveness.

Section 143(12), read with Rule 13 of the Companies (Audit and Auditors) Rules, 2014, requires him to report a suspected fraud of one crore rupees or more to the Central Government within the prescribed time, and a smaller one to the audit committee or the Board. Section 147 imposes fine and, where the contravention is knowing or wilful and intended to deceive, imprisonment of up to one year, with liability to refund the remuneration and pay damages, and makes the partners of a firm jointly and severally liable where the fraud was committed with their knowledge. Section 132 subjects him to the National Financial Reporting Authority, which may investigate professional misconduct and debar for six months to ten years.

The majority may decide the company's business. Foss v. Harbottle, (1843) 2 Hare 461, holds that where a wrong is done to the company the company is the proper plaintiff, and that where an irregularity can be cured by a resolution of the majority no individual member may sue. Two shareholders alleging that directors had sold their own land to the Victoria Park Company at an inflated price were held to have no standing, because the company in general meeting could decide whether to sue.

The majority may alter the articles, but only bona fide for the benefit of the company as a whole. Allen v. Gold Reefs of West Africa Ltd., [1900] 1 Ch 656, upheld an alteration extending the company's lien on partly paid shares to fully paid shares, which in fact affected only one deceased member, because the power in section 14 must be exercised bona fide for the benefit of the company as a whole. Sidebottom v. Kershaw, Leese and Co. Ltd., [1920] 1 Ch 154, upheld an alteration allowing the directors to require a member competing with the company to transfer his shares at fair value, while Brown v. British Abrasive Wheel Co., [1919] 1 Ch 290, struck down an alteration allowing a ninety eight per cent majority to buy out the remaining two per cent, because it was for the benefit of the majority and not of the company.

Two cases fix the modern boundaries. Ebrahimi v. Westbourne Galleries Ltd., [1973] AC 360, held that where a company is in substance a partnership founded on personal relationship and mutual confidence, the exclusion of a member from management can justify winding up on the just and equitable ground even though the majority acted within its strict legal powers. Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, held that the removal of a person from the office of executive chairman is not by itself oppression, that a section 241 petition must show prejudice to the member as a member or to the company, that the Tribunal has no power to reinstate, and that winding up cannot be the substantive prayer in such a petition because it is only one of the reliefs listed in section 242(2).

(e) Kinds of companies: what turns on the classification

Classification is not taxonomy; each label switches a different set of provisions on or off, and that is what a note should show.

Small company under section 2(85) switches off compliance burdens: currently a company that is not public, whose paid-up capital does not exceed four crore rupees and turnover does not exceed forty crore rupees, excluding a holding or subsidiary, a section 8 company and a company governed by a special Act. A small company files an abridged annual return, holds two Board meetings a year rather than four, is exempt from the cash flow statement and from auditor rotation, and is exempt from Rule 9B on dematerialisation. The Corporate Laws (Amendment) Bill, 2026 proposes to raise those thresholds to twenty crore and two hundred crore rupees; it is not law.

Holding, subsidiary and associate decide consolidation and the layering rules. Section 2(87) defines a subsidiary by control of the composition of the Board or of more than half the total voting power, with a prescribed limit on layers; section 2(6) defines an associate by significant influence, meaning at least twenty per cent of total voting power or control of business decisions under an agreement; section 129(3) requires consolidated financial statements; and section 19 forbids a subsidiary from holding shares in its holding company.

Conclusion. Each of these five notes answers a different question about the same statute. The protections in the first note are enforced by four different bodies and a candidate must know which; the multinational is regulated by four statutes solving four different problems, and by none of them for the harm the group causes; the auditor's independence is protected because he answers to the members and not to the Board; the majority's power is real but is bounded by bona fides and by sections 241 to 245; and every classification of company exists because it switches a specific set of obligations on or off.

(i) The Central Government as regulator of last resort

The member's remedy and the Government's power are not the same remedy exercised by different people; they protect different interests. A member applies under section 241(1) because he has been oppressed or the company has been prejudiced, and must satisfy the threshold in section 244. The Central Government applies under section 241(2) because the public interest is prejudiced, and it is subject to no threshold at all: it need not be a member, and need not have suffered anything.

Why such a power is needed is worth one paragraph, because it is the reasoning the examiner wants. Oppression is normally a wrong to a shareholder, and a shareholder can be expected to complain. But three situations produce no complainant. The shareholders may all be part of the wrong, as in a closely held company used for fraud. The shareholders may be dispersed and diffident, as in a listed company whose retail holders each own too little to litigate. Or the harm may fall on people who are not shareholders at all: depositors, employees, lenders, the financial system. Section 241(2) exists for those three cases.

The investigation chain is what produces the material for both powers. Section 210 empowers the Central Government to order an investigation into a company's affairs on a Registrar's or inspector's report, on a special resolution of the company, or in the public interest, and requires it where the Tribunal so orders. Section 211 establishes the Serious Fraud Investigation Office and section 212 allows the Government to assign an investigation to it, with power of arrest under section 212(8) for the offences in section 447. Section 213 allows the Tribunal to order an investigation on the application of members meeting the section 244 thresholds or of any other person, on being satisfied that the business is being conducted with intent to defraud or for a fraudulent or unlawful purpose or that the persons concerned are guilty of fraud or misconduct.

One worked example makes the whole limb concrete. In October 2018 the Union Government, through the Ministry of Corporate Affairs, applied to the National Company Law Tribunal, Mumbai, under sections 241 and 242 in respect of Infrastructure Leasing and Financial Services Limited, a systemically important non-banking financial company whose group had defaulted on debt of about ninety one thousand crore rupees. The Tribunal superseded the existing Board and permitted the Government to nominate six directors; the Appellate Tribunal later granted a moratorium on the group's obligations. The case is the best available demonstration of what section 241(2) is for: not a single oppressed shareholder in sight, and a public interest, the stability of the financial system, that no private litigant would have vindicated.

The honest limitation. These powers depend on the Government forming an opinion, and an opinion formed too late is worth little; in the same matter the auditors and the regulator had years of warning. The powers are also concentrated in the executive, which is why section 241(3) hands the finding on fitness to the Tribunal rather than allowing the Government to make it, and why the independence of that Tribunal, addressed by the Supreme Court in Madras Bar Association v. Union of India on 19 November 2025, matters to this limb as much as to any other.

Section 248(2) allows the company itself to apply after extinguishing all its liabilities, by special resolution or with the consent of seventy five per cent of members in terms of paid-up capital. Section 249 bars the application where in the previous three months the company has changed its name or shifted its registered office, disposed of property held for value, engaged in activity beyond what is necessary for the application, applied for a compromise or arrangement, or is being wound up.

The creditor is not abandoned. Section 250 provides that on dissolution the liability of every director, manager, officer and member continues and may be enforced as if the company had not been dissolved. Section 252 allows any person aggrieved to appeal to the Tribunal within three years, and allows the company, a member, a creditor or a workman to apply within twenty years for restoration where the company was in fact carrying on business or it is otherwise just, and on restoration the company is deemed to have continued in existence.

Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, upheld the Code and explained why financial and operational creditors are differently placed; 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 it approves; and 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 part of it stand extinguished, giving the successful resolution applicant a clean slate. The Insolvency and Bankruptcy Code (Amendment) Act, 2026, assented to on 6 April 2026 and not yet brought into force, will add a creditor-initiated process, a group insolvency framework and a cross-border framework.

Unregistered company: there are assets and no register, so winding up is the only tool. Part XXI applies. The Explanation to section 375 defines an unregistered company to include a partnership firm, a limited liability partnership, a cooperative society, a society or other association of more than seven persons, excluding a railway company incorporated by statute, a company registered under Indian company law and an illegal association.

Foreign company: the assets in India are what the Indian court can reach. A foreign company is not registered here, so it cannot be wound up as a registered company; it is wound up as an unregistered company under Part XXI, and the proceeding is ancillary, dealing with the Indian assets and Indian creditors while the principal liquidation proceeds in the country of incorporation. Section 376 is the provision to quote: where a body corporate incorporated outside India which has been carrying on business in India ceases to carry on business in India, it may be wound up as an unregistered company notwithstanding that it has been dissolved or has otherwise ceased to exist under the law of the country in which it was incorporated. Without that provision, dissolution abroad would extinguish the debtor and leave the Indian creditor with no defendant.