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LLM · Group 2 Business Law
2018 Examination
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LLM Group 2 Business Law Corporate Law 2018 Question Paper with Solutions
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First published on munotes.in on 12 August 2026.
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Model answers written and edited by the munotes.in editorial desk.
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The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.
The question paper reproduced here is the paper as set by the University of Mumbai at the 2018 examination.
Four changes date most textbooks on this subject. Inability to pay debts ceased to be a ground of winding up on 15 November 2016, when the Insolvency and Bankruptcy Code substituted section 271, and voluntary winding up went with it: sections 304 to 323 were omitted and section 59 of the Code took over. The Company Law Board was dissolved on 1 June 2016 on the constitution of the National Company Law Tribunal. The certificate of commencement of business is gone: section 11 was omitted on 29 May 2015 and replaced from 2 November 2018 by the declaration in section 10A. And the statement in lieu of prospectus, section 70 of the Act of 1956, has no counterpart in the Act of 2013; section 42 on private placement does its work.
Contents
The questions below are the paper as the University of Mumbai set it at the 2018 examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2018 examination, reproduced as the University of Mumbai set them, in the order it set them. Nothing has been reworded, added or left out. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 12 questions answered
Instructions printed on the paper
- N.B: 1). Attempt any four questions. 2). Figures to the right indicate full marks. 3). Cite relevant case laws where necessary.
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
SECTION I
Q.P. Code 21995. Attempt any four questions, all questions carry equal marks
any four of six · 100 Marks
Q.1.(a) Discuss the manner in which the directors of Company are appointed.[25]
- (b) Briefly discuss the contents of Memorandum of association and Articles of association, further enhancing explanations on the two Doctrines of ultra vires and Doctrine of intra vires
Answer
For full marks, cover: part (a) as every route by which a person becomes a director, because the question says "the manner", and there are seven; part (b) as the two documents distinguished, then their contents clause by clause, then the two doctrines, and here a warning: "intra vires" is not a separate doctrine but the converse of ultra vires, and the honest answer says so and then explains what the examiner is really testing, which is the distinction between an act ultra vires the company and an act ultra vires the directors.
(a) The appointment of directors
Section 149(1) fixes the numbers: 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 required. Section 149(3) requires at least one director who has stayed in India for one hundred and eighty two days in the financial year, and the first proviso to section 149(1) requires at least one woman director in the prescribed classes. Only an individual may be a director, and section 152(3) requires a Director Identification Number.
Route one, the first directors. Section 152(1) provides that where no provision is made in the articles for the appointment of the first directors, the subscribers to the memorandum who are individuals are deemed to be the first directors until directors are duly appointed at the first annual general meeting. In practice the first directors are named in the articles and in the incorporation form, with their consent in Form DIR-2 filed under section 152(5).
Route two, appointment by the company in general meeting, which is the normal route. Section 152(2) provides that save as otherwise expressly provided, every director shall be appointed by the company in general meeting, by an ordinary resolution, and section 152(6) provides for retirement by rotation in a public company: not less than two thirds of the total number of directors must be liable to retire by rotation, and one third of those must retire at every annual general meeting, those longest in office retiring first, the vacancy being filled by reappointment or by another person. Section 152(7) provides for what happens if the vacancy is not filled and the meeting is adjourned.
Section 162 requires the appointment of directors to be voted on individually unless the meeting first agrees without any vote against that a single resolution may be moved, so that a slate cannot be forced through as one item. Section 160 allows a person other than a retiring director to stand for election on a notice given at least fourteen days before the meeting with a deposit of one lakh rupees, refundable if he is elected or secures twenty five per cent of the votes; the deposit requirement does not apply to an independent director or a director recommended by the Nomination and Remuneration Committee or the Board.
Route three, appointment by the Board. Section 161(1) permits the articles to confer power on the Board to appoint an additional director, who holds office up to the date of the next annual general meeting or the last date on which it should have been held. Section 161(2) permits the Board, if authorised by the articles or by a resolution of the company, to appoint an alternate director for a director absent from India for at least three months, who vacates office on the original director's return. Section 161(4) permits the Board to fill a casual vacancy in a public company, the appointee holding office only up to the date to which the director in whose place he is appointed would have held it, subject to approval by the members at the next general meeting.
Route four, nominee directors. Section 161(3) permits the Board, subject to the articles, to appoint a person nominated by any institution in pursuance of any law or of any agreement, or by the Central or a State Government by virtue of its shareholding in a Government company. That is how a lending institution or a private equity investor obtains Board representation.
Route five, appointment by proportional representation. Section 163 permits the articles to provide for the appointment of not less than two thirds of the total number of directors according to the principle of proportional representation, by the single transferable vote or by a system of cumulative voting, appointments being made once in every three years. It is the only route in the Act designed to give a minority a seat, and it is very rarely adopted.
Route six, appointment of independent directors. Section 149(4) requires a listed public company to have at least one third independent directors, and the prescribed classes of public companies to have at least two. Section 149(6) defines independence, section 149(10) fixes the term at up to five consecutive years with reappointment by special resolution and a maximum of two consecutive terms, and section 149(13) exempts them from retirement by rotation. Schedule IV contains the code for independent directors, and the Companies (Appointment and Qualification of Directors) Rules require the person to be included in the independent directors data bank maintained by the Indian Institute of Corporate Affairs and to pass its online proficiency self-assessment test, unless exempted.
Route seven, appointment by the Tribunal. Section 242(2)(k) permits the Tribunal, in a proceeding for oppression and mismanagement, to appoint such number of persons as directors as may be necessary to report to it, and section 242(4) permits interim orders; and section 241(2) allows the Central Government to seek exactly that, as it did in the Infrastructure Leasing and Financial Services matter in October 2018, where the Tribunal superseded the Board and permitted the Government to nominate directors.
Two provisions complete the answer. Section 152(4) requires a person appointed as a director to give his consent in writing, and section 170 requires a register of directors and key managerial personnel with their shareholdings, filed with the Registrar under section 170(2). Section 176 provides that acts done by a person as a director are valid notwithstanding that his appointment is later found to be invalid by reason of any defect or disqualification, which protects third parties, though it does not validate acts done after the defect has been shown to the company.
(b) The memorandum and the articles
The two documents do different work. The memorandum is the company's charter towards the outside world: it fixes the company's identity and the boundary of its capacity. The articles are the internal rulebook: they regulate the relations among the members and between the members and the company, and they are subordinate to the memorandum and to the Act.
| Point | Memorandum | Articles |
|---|---|---|
| Function | Defines the company's constitution and objects | Regulates internal management |
| Compulsory | Always, section 4 | Every company must register articles, section 5, but Table F applies by default |
| Hierarchy | Subordinate only to the Act | Subordinate to the Act and to the memorandum |
| Point | Memorandum | Articles |
|---|---|---|
| Alteration | Section 13, and Central Government approval for the name and an inter-State shift of office | Section 14, special resolution only, with Central Government approval for conversion of a public company into a private company |
| Effect of a breach | An act beyond the objects is void and cannot be ratified | An irregularity may be ratified by the members |
The contents of the memorandum, section 4(1): the name clause, with "Limited" or "Private Limited"; the situation clause, stating only the State in which the registered office is to be; the objects clause under section 4(1)(c), stating the objects and any matter considered necessary in furtherance of them; the liability clause; the capital clause, stating the authorised capital and its division; and the subscription clause with the declaration of the subscribers and, in a One Person Company, the nominee under section 4(1)(f). Section 4(6) requires the form of the appropriate Table in Schedule I.
The contents of the articles, section 5. Section 5(1) provides that the articles shall contain the regulations for the management of the company, and section 5(2) permits them to contain such matters as may be prescribed, without preventing a company from including any additional matter considered necessary. In practice they cover share capital and variation of rights, calls, lien, transfer and transmission, forfeiture, alteration of capital, general meetings and proceedings, votes and proxies, directors and their appointment, remuneration and powers, Board proceedings, the managing director, dividends and reserves, accounts, the winding up and the indemnity of officers.
Section 5(3) permits entrenchment, that is, provisions requiring conditions more restrictive than a special resolution for the alteration of specified provisions, which may be made on formation or afterwards by the agreement of all members in a private company and by special resolution in a public company. Section 5(6) provides that the articles shall be in the form of Tables F to J in Schedule I as applicable, and section 5(9) provides that any company may adopt all or any of the regulations in the applicable Table.
Section 10(1) gives both documents their binding force: when registered, they 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 both.
(b) Ultra vires, and the truth about "intra vires"
The doctrine of ultra vires is that a company has capacity only for what its memorandum authorises, and an act beyond that is void from the beginning. Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653, is the foundation: a company whose objects were to make and sell railway carriages contracted to finance the construction of a railway in Belgium; the House of Lords held the contract void from the beginning and incapable of ratification even by every shareholder, because ratification presupposes capacity.
Attorney General v. Great Eastern Railway Co., (1880) 5 App Cas 473, saves whatever is fairly incidental to or consequential upon the stated objects. A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185, is the Indian authority: directors of an insurance company paid Rs. 75,000 to a charitable trust for an object the memorandum authorised only if conducive to the company's own objects, and after nationalisation there was no such object; the payment was ultra vires and the directors were personally liable to refund it.
The consequences are four: the transaction is void and unratifiable; any member may obtain an injunction, one of the settled exceptions to Foss v. Harbottle, (1843) 2 Hare 461, now also available as a class action under section 245(1)(a); the directors are personally liable; and money spent ultra vires may be traced, with the lender of an ultra vires loan applied in paying a lawful debt being subrogated to the creditor he has paid.
Now the second half of the question, and it must be answered honestly. There is no separate "doctrine of intra vires". The expression means simply "within the powers", and it describes an act that is inside the company's capacity. What the examiner is testing, and what the marks are for, is the distinction the courts draw between two very different things.
An act ultra vires the company is beyond the objects in the memorandum. It is a nullity; the company itself cannot enforce it; no majority, however large, can ratify it; and neither party acquires rights under it.
An act intra vires the company but ultra vires the directors is within the company's objects but beyond the authority the articles or the Act give the Board. It is not void; it is voidable at the instance of the company, and the company may ratify it by an ordinary or special resolution as the case requires. If the company does not ratify, the directors are liable to it for any loss, and the outsider may still be protected by the rule in Royal British Bank v. Turquand, (1856) 6 E and B 327, under which he may assume that the internal proceedings have been regularly carried out.
A worked example makes the distinction concrete. A company whose objects are the manufacture of textiles borrows to build a mill: intra vires the company. If the Board borrows beyond the aggregate of the paid-up capital, free reserves and securities premium without the special resolution section 180(1)(c) requires, the act is intra vires the company and ultra vires the Board; section 180(5) provides that the debt is not valid or effectual unless the lender proves he advanced the loan in good faith and without knowledge of the limit having been exceeded, which is the statutory version of Turquand. If instead the same company lends its money to finance a railway in a foreign country, and its memorandum does not authorise it, the act is ultra vires the company and no resolution and no lender's good faith can save it.
Two closing observations. The Companies (Amendment) Act, 2017 substituted section 4(1)(c), removing the older division into main, ancillary and other objects, so objects clauses are now drafted very widely and the doctrine bites less often than it did. And England has abolished the doctrine in substance by section 39 of the Companies Act, 2006, under which the validity of an act may not be questioned on the ground of lack of capacity by reason of anything in the constitution; India has made no such change.
The drafting device that hollowed the doctrine out is worth naming, because it explains why ultra vires is rarely litigated today. In Cotman v. Brougham, [1918] AC 514, a rubber company's memorandum listed some thirty objects and added a clause providing that every sub-clause should be construed as a substantive and independent object and not as subordinate to any other. The company underwrote shares in an oil company, and on its liquidation the transaction was challenged as ultra vires. The House of Lords held the independent objects clause valid, so that the objects could not be read down to what was incidental to the main business. After that decision draftsmen simply listed everything, and the objects clause, which Lord Cairns in Ashbury had treated as a real limit, became a formality.
Conclusion. A director may reach the Board by seven routes: as a deemed first director under section 152(1), by appointment in general meeting under section 152(2) with the rotation rules in section 152(6) and the individual vote required by section 162, as an additional, alternate or casual-vacancy director under section 161, as a nominee under section 161(3), by proportional representation under section 163, as an independent director under section 149(4), or by an order of the Tribunal under section 242(2)(k).
The memorandum under section 4 fixes the company's identity and capacity and the articles under section 5 regulate its internal working, both binding under section 10 and both subordinate to the Act under section 6. Ultra vires makes an act beyond the objects void and unratifiable, as Ashbury holds and Lakshmanaswami Mudaliar applies; "intra vires" is not a separate doctrine but the converse, and the examinable distinction is between an act beyond the company's capacity, which nothing can cure, and an act beyond the directors' authority, which the company may ratify and which Turquand and section 180(5) may save.
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