LLM Group 2 Business Law Corporate Law 2018 Question Paper with Solutions

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.

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 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.

(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.

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.

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.

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 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.

Its nature is debt. The holder is a creditor and not a member; interest is payable whether or not there are profits and is a charge against profits rather than an appropriation of them; he has no vote, section 71(2) expressly forbidding debentures carrying voting rights; and on a winding up he is paid before the members, and before unsecured creditors to the extent of any security.

The classes run on four axes. By security, secured, where a fixed or floating charge is created and registered under section 77, an unregistered charge being void against the liquidator and other creditors under section 77(3), and unsecured or naked. By redeemability, redeemable on a fixed date or by instalments, and irredeemable or perpetual, repayable only on winding up or on a specified contingency.

By convertibility, non-convertible, fully convertible and partly convertible. By transferability, registered and bearer, the latter now effectively extinct after dematerialisation. The floating charge deserves a sentence of its own: it hovers over a class of assets that changes in the ordinary course, leaving the company free to trade with them, and crystallises into a fixed charge on default, on winding up, on the appointment of a receiver or on the cessation of business.

(b) The doctrine of constructive notice

Every person dealing with a company is deemed to have read its memorandum and articles and to have understood them properly. The justification is that they are registered public documents, open to inspection by any person under section 399 on payment of a fee, so that the person who has not read them is in no better position than one who has.

The Indian authority is Kotla Venkataswamy v. Chinta Ramamurthy, AIR 1934 Mad 579, decided by Curgenven J. on 16 January 1934. Article 15 of the articles of the South Indian Agricultural and Industrial Improvement Company required a deed to be signed by the managing director, the secretary and the working director. A mortgage bond for Rs. 1,000 was executed carrying only the signatures of the working director and the secretary, and the plaintiff, as assignee, sued on it. The Madras High Court held the deed of no effect against the company: the plaintiff was bound to know the article, and having taken a deed executed contrary to it could not complain. That the plaintiff acted honestly made no difference, which is both the point of the doctrine and the case against it.

The honest assessment. Constructive notice is a doctrine in retreat everywhere except India. Section 9(1) of the European Communities Act, 1972 abolished it in England, and the position there is now governed by section 40 of the Companies Act, 2006, under which the directors' power to bind the company is deemed free of any limitation in the constitution in favour of a person dealing in good faith. India retains it, softened only by Turquand, and the practical justification today is that the registered documents can be downloaded from the Ministry of Corporate Affairs portal in minutes, which was not true when Kotla Venkataswamy was decided.

Step two, the contents. Section 26(1) requires the prospectus to be dated and signed and to state the information and set out the reports specified: the names and addresses of the registered office, the company secretary, the Chief Financial Officer, the auditors, the bankers, the trustees, the underwriters and the experts; the dates of the opening and closing of the issue and the declaration about the issue of an allotment letter and refunds; a statement by the Board about the separate bank account to which the money is to be transferred; details of underwriting; the consent of the directors, auditors, bankers, expert and other persons; the authority for the issue and the details of the resolution; the procedure and time schedule for allotment and the issue of securities; the capital structure; the main objects of the public offer, the terms of the present issue and its objects; the particulars relating to the management perception of risk factors specific to the project, gestation period, deadlines for completion and any pending litigation or default; the minimum subscription, the amount payable by way of premium and the issue of shares otherwise than for cash; and the reports for the purposes of financial information, namely the auditor's reports on profits and losses and assets and liabilities and such other matters as may be prescribed.

Step six, the ninety day limit. Section 26(6) provides that no prospectus shall be valid if it is issued more than ninety days after the date on which a copy is delivered to the Registrar. This is the rule most often forgotten, and it exists because financial information goes stale.

Step seven, the consequences of default. Section 26(7) makes the issue of a prospectus in contravention of the section punishable, and section 26(9) prescribes the penalty for the company and for every person knowingly a party to the issue.

Beyond registration, section 40(1) requires the company to obtain stock exchange permission before making the offer, and section 40(3) requires the application money to be kept in a separate bank account in a scheduled bank; section 39 governs the minimum subscription and the return of allotment; and where the target is a listed issue, the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 add the draft offer document filed with the Board, the merchant banker's due diligence certificate, the observations of the Board, and the filing of the offer document with the Board and the exchanges.

Conclusion. A debenture is debt, distinguished from a share by the absence of a vote under section 71(2), classed by security, redeemability, convertibility and transferability, and issued under section 71 with a trustee, a trust deed, a redemption reserve and the Tribunal's power under section 71(10). Constructive notice, enforced in India in Kotla Venkataswamy and by section 80, deems every person to know the registered documents, and is tolerable only because Turquand relieves him of any duty to police the company's internal proceedings. And a prospectus must be signed by every named director and delivered to the Registrar for registration on or before publication under section 26(4), must say so on its face under section 26(5), and is valid for only ninety days from that delivery under section 26(6).

Winding up and dissolution are not the same thing

Winding up is the process and dissolution is the end of it. During winding up the company continues to exist, keeps its corporate personality and its property, and may sue and be sued; what changes is that its business is carried on only so far as is necessary for a beneficial winding up, and its powers are exercised by a liquidator. Dissolution under section 302 is the order by which the company ceases to exist and its name goes off the register. A company can be dissolved without winding up, by amalgamation under section 232 where the transferor is dissolved without winding up, or by strike-off under section 248.

Mode two, voluntary liquidation under section 59 of the Code. Sections 304 to 323 of the Companies Act, the whole of voluntary winding up, were omitted. A corporate person that has committed no default may now initiate voluntary liquidation on a declaration by a majority of the directors, verified by affidavit, that it has no debt or will be able to pay its debts in full from the proceeds of its assets and that the liquidation is not to defraud any person, supported by audited financial statements and a valuation report; followed within four weeks by a special resolution, and, where the company has debt, by the approval of creditors representing two thirds in value within seven days.

Mode three, liquidation under section 33 of the Code, which follows a failed corporate insolvency resolution process begun under section 7, 9 or 10 on a default of one crore rupees or more.

And the practical fourth route, which is not winding up at all. A company with no business and nothing to distribute has its name struck off under section 248, by the Registrar or on its own application after extinguishing its liabilities, with the liability of its directors, officers and members continuing under section 250 and restoration available under section 252 on appeal within three years or on application within twenty years.

The implications of winding up

On the company itself. It does not cease to exist; it continues until dissolution. Its property remains vested in it unless the Tribunal orders otherwise. Its business stops except so far as is necessary for a beneficial winding up. Every invoice, order for goods and business letter must state that the company is being wound up. And the powers of the Board cease, passing to the Company Liquidator appointed under section 275 from the panel maintained by the Central Government, who takes custody of the property, books and papers under section 283.

On the date of commencement, which is earlier than the order. Where a petition is presented, the winding up is deemed to commence at the time of the presentation of the petition, which is what exposes the intervening transactions to the avoidance provisions.

On the officers. Section 274 requires the directors and officers, where the Tribunal so directs, to file a statement of affairs within thirty days with audited books of account, and makes default punishable. Section 277 requires intimation of the order to the Liquidator and the Registrar within seven days and the constitution of a winding up committee to assist and monitor.

On the creditors and the order of payment. Section 326 gives overriding preferential payments to workmen's dues and to so much of a secured creditor's debt as could not be realised, ranking equally between themselves and ahead of everything else. Section 327 lists the preferential payments that follow, all ranking equally among themselves and abating rateably: government revenues, taxes and cesses due within the preceding twelve months; wages and salary of an employee for up to four months within the preceding twelve, subject to a prescribed limit; accrued holiday remuneration; contributions under the employees state insurance legislation; compensation under the Workmen's Compensation Act; provident, pension, gratuity and other welfare fund dues; and the expenses of an investigation under sections 213 and 216.

Then the unsecured creditors rateably, then preference shareholders, and last the equity shareholders. Section 327(7) provides that neither section applies to a liquidation under the Insolvency and Bankruptcy Code, where the waterfall in section 53 of that Code governs.

The case law on the grounds and on the consequences

Two decisions govern the ground a modern petition is actually brought on, and one governs what the process is for.

Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla, (1976) 3 SCC 259, is the Indian control on the just and equitable ground and it cuts against the petitioner. The Supreme Court held that where more than one family, or several friends and relations, together form a company, and there is no agreed right of active participation in management for those excluded from it, the principles of dissolution of partnership cannot be liberally invoked. It is only where the shareholding is more or less equal, there is a complete deadlock, there is a lack of probity in the management and there is no hope of the company continuing smoothly, that the ground is made out. The Court also treated winding up as a last resort, to be refused where another remedy is available, which is now the express language of section 273(2).

Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, explains why so little of this is now litigated under the Companies Act at all. In upholding the Insolvency and Bankruptcy Code the Supreme Court described its primary object as resolution and the maximisation of the value of assets rather than recovery, and explained the classification between financial and operational creditors by reference to the financial creditor's ability to assess viability and restructure. Since the same Code removed inability to pay debts from section 271 on 15 November 2016, the practical effect of Swiss Ribbons is that the commonest winding up petition of the previous century is now an application under section 7 or section 9 of a different statute, before the same Tribunal, with a different object.

Conclusion. Winding up is the process and dissolution the end of it, and a company may also be dissolved without winding up, by amalgamation or by strike-off. The modes are compulsory winding up by the Tribunal on the five grounds in section 271, voluntary liquidation under section 59 of the Insolvency and Bankruptcy Code since sections 304 to 323 were omitted, and liquidation under section 33 of that Code after a failed resolution, with strike-off under section 248 as the practical route for an empty company.

For full marks, cover: the procedure as a sequence with the statutory periods; then the second limb, which is the one that separates a current answer from a stale one, because the certificate of commencement of business no longer exists, section 11 having been omitted on 29 May 2015 and replaced from 2 November 2018 by a declaration under section 10A; and then the characteristics, each proved by a case rather than merely listed.

The procedure for registration

Section 3(1) states the preconditions: a lawful purpose, seven or more persons for a public company, two or more for a private company or one for a One Person Company, subscription to a memorandum, and compliance with the requirements of the Act as to registration. Section 3(2) fixes the choice between limited by shares, limited by guarantee and unlimited.

Filing. The application goes to the Registrar of the jurisdiction in which the registered office is to be, on the integrated SPICe+ form, which carries the name reservation, the incorporation, the identification numbers, the mandatory issue of PAN and TAN, registration under the provident fund and employees state insurance legislation, professional tax registration in Maharashtra, a bank account and optionally the goods and services tax registration.

Incorporation. Section 7(2) requires the Registrar, on being satisfied, to register the documents and issue the certificate of incorporation in the prescribed form; section 7(3) requires a Corporate Identity Number to be allotted.

The certificate of incorporation is issued by the Registrar under section 7(2) on registration of the documents. It is the birth certificate of the company: from the date mentioned in it, section 9 makes the subscribers and other members a body corporate with perpetual succession and the capacity to hold property, contract and sue.

It is issued to every company, whatever its class, and it is conclusive evidence that the company is duly registered, so that a defect in the preliminaries does not undo the incorporation; the classic illustration is Jubilee Cotton Mills Ltd. v. Lewis, [1924] AC 958, where the certificate was dated 6 January though issued on 8 January and shares allotted on 6 January were held validly allotted, the certificate being conclusive as to the date. What section 7(7) now does is not to unmake the incorporation retrospectively but to give the Tribunal a remedy against a company incorporated by fraud.

Section 11 was omitted by the Companies (Amendment) Act, 2015 with effect from 29 May 2015, as part of a package to ease the incorporation of companies, which also removed the minimum paid-up capital requirements of one lakh and five lakh rupees. The requirement was then restored in a different form by the Companies (Amendment) Ordinance, 2018 with effect from 2 November 2018, as section 10A, and this is the crucial difference: section 10A requires the company to file a declaration, and the Registrar issues no certificate at all. The obligation is a filing obligation, enforced by penalty and by the power to strike the company off, and not a condition precedent certified by an officer.

The characteristics of a company on incorporation

One, separate legal personality, which is the source of all the rest. Salomon v. A. Salomon and Co. Ltd., [1897] AC 22: once the memorandum is duly signed and registered, the company is at law a different person altogether from the subscribers, and Salomon's secured debentures ranked ahead of the trade creditors of the business he had transferred to it. Lee v. Lee's Air Farming Ltd., [1961] AC 12, carries it to its logical end: a man who owned all but two of the shares, was governing director and was employed as chief pilot was a worker of his own company, and his widow recovered compensation on his death.

Two, limited liability. The member's obligation is to pay the amount unpaid on his shares, section 2(22), or the amount guaranteed in a company limited by guarantee. It is not absolute: section 3A makes members severally liable for the whole debts where the membership falls below the statutory minimum and business is carried on for more than six months with their knowledge; section 7(7)(b) allows the Tribunal to make the liability unlimited where incorporation was procured by fraud; and section 339 makes a person knowingly party to fraudulent trading personally responsible without any limitation.

Five, capacity to sue and be sued in its own name, which is what makes the corporate form usable in litigation, and which also means that a wrong to the company is actionable by the company and not by its members, the rule in Foss v. Harbottle, (1843) 2 Hare 461.

Six, transferable shares. Section 44 makes the shares movable property transferable in the manner provided by the articles, and section 58(2) declares the securities of a public company freely transferable; a private company restricts transfer by its articles under section 2(68).

Seven, a common seal, now optional. The Companies (Amendment) Act, 2015 made the seal optional, and where a company has none, documents may be signed by two directors, or by a director and the company secretary.

Eight, capacity limited by the objects. The company can do only what its memorandum authorises: Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653.

The certificate of commencement of business does not exist under present law: it was section 149 of the 1956 Act, became section 11 of the 2013 Act, was omitted on 29 May 2015, and was replaced from 2 November 2018 by a declaration that is filed and not certified. What the certificate of incorporation produces is a person with separate legal personality, limited liability, perpetual succession, its own property, capacity to sue, transferable shares and a capacity bounded by its objects, and Salomon, Lee, Bacha F. Guzdar and Macaura are the four cases that prove it.

Before he invests. Sections 26, 34, 35 and 36 govern the prospectus: section 26 prescribes the contents and requires registration with the Registrar before publication and makes the document valid for only ninety days; section 34 makes an untrue statement fraud under section 447; section 35 gives every subscriber who suffers loss a claim to compensation against the company, its directors, promoters, experts and those who authorised the issue; section 36 punishes fraudulently inducing investment. Section 39 requires the minimum subscription and the refund of application money, and section 40 requires the money to be kept in a separate account in a scheduled bank and stock exchange permission to be obtained before the offer.

While he holds. Sections 129 to 137 require a true and fair financial statement, a Board's report and their filing; sections 96 to 122 give the rights of notice, attendance, proxy, poll, electronic voting and postal ballot; section 136 gives the right to copies of the accounts; and sections 92, 94 and 119 give inspection of the annual return, the register of members and the minutes.

It is publicity: sections 77 to 80 require charges to be registered, with section 77(3) making an unregistered charge void against the liquidator and other creditors, and section 80 making registration deemed notice. It is participation where their rights are altered: section 230 requires a meeting of each class of creditors and a three fourths majority in value for a scheme. And on default it is the Insolvency and Bankruptcy Code, 2016, section 7 for a financial creditor, section 9 for an operational creditor, and section 53 for the order of distribution.

(b) Legal regulations of multinationals

Indian law has no concept of a multinational; it regulates each entity where it is incorporated, which is the source of every difficulty in the topic.

The obligations of a foreign company are delivery of its constitutive documents, the list of directors and the name of a person resident in India authorised to accept service, within thirty days of establishing a place of business, under section 380; annual accounts of its Indian operations under section 381; display of its name and country of incorporation under section 382; a fine under section 392; and, most painfully, the disability in section 393, under which non-compliance does not invalidate its contracts or protect it from suit but prevents it from suing, setting off or counter-claiming in India until it complies. Section 376 permits it to be wound up as an unregistered company even after it has been dissolved abroad.

Four other statutes complete the framework: the Foreign Exchange Management Act, 1999 with the Consolidated Foreign Direct Investment Policy and the April 2020 press note requiring Government approval for investment from an entity of a land-bordering country; the Competition Act, 2002 as amended in 2023, with its deal value threshold of two thousand crore rupees; the income tax law with transfer pricing and the general anti-avoidance rule; and the Insolvency and Bankruptcy Code, whose cross-border framework in the new sections 240B and 240C, added by the Amendment Act of 2026, has not yet been brought into force.

Appointment. Section 139(6), the first auditor by the Board within thirty days of registration; section 139(1), appointment at the first annual general meeting to hold office until the sixth; section 139(2), rotation in listed and prescribed companies, five years for an individual and two terms of five for a firm, with a five year cooling off; section 139(5), appointment by the Comptroller and Auditor General in a Government company.

Independence. Section 141 disqualifies a body corporate other than a limited liability partnership, an officer or employee, a person having a business relationship with the company, a person indebted beyond five lakh rupees or holding any security, a person whose relative is a director or key managerial personnel, and a person convicted of an offence involving fraud in the preceding ten years, and caps an auditor at twenty companies.

Section 144 forbids accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory, investment banking, outsourced financial services and management services. Section 140 makes removal before expiry depend on a special resolution and the previous approval of the Central Government, and section 140(5) allows the Tribunal to direct a change of auditor who has acted fraudulently or colluded in a fraud, with a five year disqualification and liability under section 447.

Liability and supervision. Section 147, fine, and imprisonment up to one year where the contravention is knowing or wilful and intended to deceive, with refund of remuneration and damages, and joint and several liability of the partners of a firm where the fraud was committed with their knowledge; section 245, a class action against the auditor and the audit firm; and section 132, the National Financial Reporting Authority, whose validity was upheld by the Delhi High Court on 7 February 2025 although a batch of show cause notices was quashed for want of separation between its review and disciplinary functions, with the appeal pending in the Supreme Court. The standard in In re Kingston Cotton Mill Co. (No. 2), [1896] 2 Ch 279, that an auditor is a watchdog and not a bloodhound, has been substantially raised by section 143(12) and by section 132.

Disqualification, section 164(1). Unsound mind so declared by a competent court; undischarged insolvent; a pending application to be adjudicated insolvent; conviction with a sentence of not less than six months where five years have not elapsed, and permanent disqualification on a sentence of seven years or more; an order of disqualification by a court or Tribunal; calls unpaid for six months; conviction under section 188 in the preceding five years; and non-compliance with section 152(3).

Section 164(2) disqualifies a person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years, or which has failed to repay deposits, redeem debentures or pay declared dividend and the default has continued for a year, from reappointment in that company and from appointment in any other company for five years. Section 164(3) permits a private company to add further disqualifications by its articles.

Two points of contact worth a closing sentence. Both are securities within section 2(81) and both are movable property transferable under section 44, so the transfer machinery in section 56 and the dematerialisation requirements in section 29 apply to each. And the line between them is not impassable: a convertible debenture is debt that becomes equity, which is why section 71(1) requires a special resolution before the option can be given.

Conclusion. The five notes describe one system from five sides. Investors and creditors are protected before, during and after the investment, by four different bodies, with the Investor Education and Protection Fund as the residual holder of what is never claimed; a multinational is regulated entity by entity, with Chapter XXII for the foreign company and M.C. Mehta supplying what company law does not; the audit is the mechanism that makes every disclosure believable, and sections 140, 141 and 144 exist to keep the auditor independent of the Board; the appointment and disqualification provisions police who may sit on that Board; and the difference between a share and a debenture is the difference between owning the company and lending to it.

(i) The Central Government's powers over oppression and mismanagement

The member's remedy and the Government's power protect different interests. A member applies under section 241(1) because he has been oppressed or the company prejudiced, and must satisfy the threshold in section 244 or obtain a waiver. The Central Government applies under section 241(2) because the public interest is prejudiced, and it is subject to no threshold at all.

The justification is that three situations produce no complainant: where the shareholders are themselves parties to the wrong, as in a closely held company used for fraud; where they are dispersed and each too small to litigate; and where the harm falls on people who are not shareholders at all, on depositors, employees, lenders or the financial system.

Power two, the fit and proper reference, sections 241(3) to (5), inserted by the Companies (Amendment) Act, 2019. Where the Central Government is of opinion that a person concerned in the conduct and management of a company is or has been guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations, or breach of trust; or that the business has not been or is not likely to be conducted on sound business principles or prudent commercial practice; or that it is likely to cause serious injury to the interest of the trade, industry or business; or that it is or is likely to be conducted with intent to defraud or for a fraudulent or unlawful purpose or in a manner prejudicial to public interest, it may refer the matter to the Tribunal with a request to record a decision whether that person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company. Section 242(4A) then requires the Tribunal to remove him, and section 243(1A) disqualifies him from any such office in any company for five years.

Power four, protective orders. Section 221 allows the Tribunal, on a reference by the Central Government, to direct that the company's property shall not be removed or transferred for up to three years; section 222 allows it to impose restrictions on securities for the same period where the relevant facts about them cannot be found out. Both preserve the subject matter while the investigation runs.

One worked example. In October 2018 the Union Government applied to the National Company Law Tribunal at 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 Board and permitted the Government to nominate six directors, and the Appellate Tribunal later granted a moratorium. No shareholder had come forward, and the interest protected was the stability of the financial system.

His powers and duties are in section 143: access at all times to the books and vouchers wherever kept, and to information from officers; the duty to inquire into the six matters in section 143(1); the report to the members under section 143(2); the contents prescribed by section 143(3), including whether the company has adequate internal financial controls with reference to financial statements and whether they are operating effectively; compliance with the auditing standards under section 143(9); the reporting of a fraud of one crore rupees or more to the Central Government under section 143(12); and the right to attend and be heard at general meetings under section 146.

He is kept independent by the disqualifications in section 141 and the prohibited services in section 144, and he pays for a breach under section 147, with joint and several liability of the partners of a firm where the fraud was committed with their knowledge, and is exposed to a class action under section 245.

Audit four, the secretarial audit, section 204. Every listed company and every company of the prescribed class must annex to its Board's report a secretarial audit report given by a company secretary in practice, and the Board must explain in full any qualification or observation in it. It answers the question whether the company has complied with the law, as distinct from whether its accounts are correct.

And above all four, the supervisory layer. The audit committee under section 177, of at least three directors with a majority of independent directors, recommends the appointment and remuneration of the auditors, reviews their independence and performance, examines the financial statements, approves related party transactions, evaluates internal financial controls and has the power under section 177(4) to call for the comments of the auditors and to investigate any matter referred to it; and section 177(9) requires a vigil mechanism for directors and employees to report genuine concerns, with safeguards against victimisation.

The authority on the auditor, and the reason the Government's power exists at all

In re Kingston Cotton Mill Co. (No. 2), [1896] 2 Ch 279, is where the standard for the second limb begins. The company's manager had for years overstated both the quantity and the value of stock in hand, and the auditors had accepted his certificate without physically verifying the stock. The Court of Appeal held them not liable: an auditor is a watchdog and not a bloodhound, and in the absence of suspicious circumstances he is entitled to rely on the honesty of trusted officials. The case is still quoted and it is still the starting point, but the honest statement is that Indian law has moved a long way past it.

Section 143(1) imposes specific duties of inquiry; section 143(3) requires a report on the adequacy and operating effectiveness of internal financial controls; section 143(12) with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 requires a suspected fraud of one crore rupees or more to be reported to the Central Government; section 140(5) empowers the Tribunal to remove an auditor who has acted fraudulently or colluded in a fraud, with a five year disqualification; and section 132 subjects him to the National Financial Reporting Authority.

The audit is not one obligation but four, statutory under sections 139 to 147, internal under section 138, cost under section 148 and secretarial under section 204, supervised by the audit committee under section 177 and by the National Financial Reporting Authority under section 132, and the statutory auditor's central function remains what section 143(2) states, to tell the members whether the accounts give a true and fair view.

For full marks, cover: this question differs from the opening question of Q.P. Code 21995 by three words, "and terminated", and those three words are where the marks are. Deal with appointment compactly, then give termination in all six of its forms, which is a subject in itself and has its own case law. On part (b), do not repeat a list of clauses: organise the memorandum and articles by what happens when they conflict, and organise the two doctrines by their consequences, which is what an LLM examiner is testing.

The Board appoints additional, alternate and casual vacancy directors under section 161. A nominee director is appointed under section 161(3) by an institution under a law or an agreement, or by a Government by virtue of its shareholding. Proportional representation is available under section 163. Independent directors are appointed under section 149(4) for up to two consecutive terms of five years under section 149(10). And the Tribunal may appoint directors under section 242(2)(k).

(a) Termination, in all six of its forms

Form one, retirement by rotation, section 152(6). In a public company, two thirds of the directors must be liable to retire by rotation, and one third of them retire at every annual general meeting, those longest in office retiring first, with the meeting free to reappoint them or to appoint someone else. It is the only mode of termination that operates automatically and without fault. Section 152(7) provides that if the vacancy is not filled and the meeting has not resolved not to fill it, the meeting stands adjourned, and if it is still not filled the retiring director is deemed reappointed, unless he is disqualified, has expressed unwillingness, or a resolution for his reappointment has been put and lost.

The Tribunal may refuse circulation where the rights are being abused to secure needless publicity for defamatory matter. A vacancy created by removal may be filled at the same meeting if special notice of the appointment was given. Section 169(7) preserves the removed director's right to compensation or damages payable to him under any contract of service.

Form four, vacation of office by operation of law, section 167. The office is vacated where the director incurs any disqualification under section 164; absents himself from all the meetings of the Board held during twelve months, with or without leave; contravenes section 184 on disclosure of interest; becomes disqualified by an order of a court or Tribunal; is convicted of an offence and sentenced to imprisonment for not less than six months, though the office is not vacated for thirty days from conviction and, if an appeal is preferred, until it is disposed of; is removed under the Act; or, having been appointed by virtue of holding an office or employment, ceases to hold it. Section 167(2) makes it an offence, punishable with imprisonment up to one year or a fine, to function as a director after the office has been vacated.

Form six, removal by the Tribunal. Section 242(2)(h) permits the Tribunal, in a proceeding for oppression and mismanagement, to order the removal of the managing director, manager or any of the directors, and section 242(4A) requires it to remove a person on recording a decision under section 241(3) that he is not a fit and proper person, with section 243(1A) disqualifying him from any such office in any company for five years. Section 243(1)(a) provides that a person whose agreement is terminated by an order under section 242 shall not, without the leave of the Tribunal, be appointed to any office in the company for five years, and section 243(1)(b) denies him any claim to damages or compensation for the loss of office.

Two limits on all of this. Section 176 validates acts done by a person as a director notwithstanding a later discovered defect in his appointment or a termination of it, unless the defect has been shown to the company, which protects third parties. And Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, holds that no one has a right to remain a director, that removal from an office is not by itself oppression of the person as a member, and that the Tribunal has no power to reinstate; a director's protection is the procedure of section 169, not a right of tenure.

What each contains, compactly. The memorandum under section 4(1) carries the name, the State of the registered office, the objects and matters necessary in furtherance of them, the liability, the capital, the subscription, and the nominee in a One Person Company, in the form of the appropriate Table in Schedule I under section 4(6). The articles under section 5 carry the regulations for management, in the form of Tables F to J as applicable, and may contain entrenchment under section 5(3), requiring conditions more restrictive than a special resolution for the alteration of specified provisions.

Alteration differs, and the difference is the practical consequence of the hierarchy. The memorandum is altered under section 13, needing the Central Government's approval for a change of name and for a shift of the registered office from one State to another, and giving dissenting shareholders an exit offer under section 13(8) where the objects are changed after public money has been raised. The articles are altered under section 14 by special resolution alone, except that conversion of a public company into a private company needs the approval of the Central Government.

Four consequences follow and they should be stated as consequences. The transaction is a nullity, so neither party can sue on it and no estoppel arises. Any member may obtain an injunction, one of the settled exceptions to Foss v. Harbottle, (1843) 2 Hare 461, and now also a class action under section 245(1)(a). The directors are personally liable to the company for the loss. And money spent ultra vires may be traced while identifiable, with the lender whose ultra vires loan has paid off a lawful debt being subrogated to the creditor he has paid.

"Intra vires" is not a separate doctrine. It means "within the powers", and the distinction the examiner is testing is between an act ultra vires the company, which is void, and an act intra vires the company but ultra vires the directors, which is voidable and ratifiable by the members.

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

For full marks, cover: part (a) as three connected ideas, with dematerialisation taken first because it now determines how the other two operate; part (b) by first distinguishing member from shareholder, then dividing rights into individual and corporate, and then giving the duties and liabilities, which most answers omit entirely although the question asks for them.

(a) Dematerialisation, and why it comes first

Section 29(1) requires every company making a public offer, and such other class as may be prescribed, to issue securities only in dematerialised form in compliance with the Depositories Act, 1996; section 29(1A) requires prescribed classes of unlisted companies to hold or transfer securities only in that form. Rule 9A, in force from 2 October 2018, applies the obligation to every unlisted public company; Rule 9B, inserted on 27 October 2023, applies it to private companies other than small companies, with the compliance date extended to 30 June 2025.

The requirement does not apply where both parties are beneficial owners in a depository, and there the transfer is a book entry under section 7 of the Depositories Act. Regulation 40 of the Listing Obligations and Disclosure Requirements Regulations, 2015 has since 1 April 2019 forbidden a listed company to process any transfer unless the securities are dematerialised, transmission and transposition excepted, and stamp duty on such transfers has since 1 July 2020 been collected uniformly by the depository under the amended Indian Stamp Act, 1899.

Section 56(3) protects the transferee of partly paid shares by requiring notice and two weeks to object. Section 58 governs refusal to register, with thirty days' notice for a private company and an appeal to the Tribunal, and section 58(2) declaring the securities of a public company freely transferable. Section 59 allows rectification of the register where a name is entered or omitted without sufficient cause or there is default or unnecessary delay.

(b) Members and shareholders

Section 2(55) defines a member as a subscriber to the memorandum, who is deemed to have agreed to become a member and whose name is entered on the register on registration; every other person who agrees in writing to become a member and whose name is so entered; and every person holding shares whose name is entered as a beneficial owner in the records of a depository. A shareholder is the holder of shares. Every shareholder on the register is a member, but a company limited by guarantee has members and no shareholders, and a transferee whose instrument has not yet been registered is a shareholder in equity and not yet a member.

(b) Rights

Individual rights belong to the member personally and no majority can take them away: the right to vote under section 47, in proportion to his share of the paid-up equity capital, with preference shareholders voting in the cases in section 47(2) and on every resolution where dividend is unpaid for two years or more; the right to have a transfer registered and to appeal under section 58; the right to a certificate within the periods in section 56(4); the right to dividend once declared, payable within thirty days under section 123(5); and the pre-emptive right to a further issue under section 62(1)(a).

(b) Duties

The member's duties are fewer than his rights and are mostly owed to the company. He must pay the amount unpaid on his shares when called, section 49 requiring calls to be made on a uniform basis on all shares of the same class. He is bound by the memorandum and articles as if he had signed them, section 10(1), so a restriction on transfer in a private company's articles binds him. He must not exercise his vote so as to commit a fraud on the minority, which is one of the exceptions to Foss v. Harbottle, (1843) 2 Hare 461, and he must not use the machinery of the Act for a collateral purpose. Where he is a promoter within section 2(69) he owes fiduciary duties, and where he is a related party he must not vote on a resolution approving a contract in which he is interested, section 188.

Section 35(3): those responsible for a prospectus issued with intent to defraud are personally liable without limitation. Section 339: a person knowingly party to the carrying on of business with intent to defraud creditors is personally responsible without any limitation of liability. Section 251: where an application for removal of the name is made to evade liabilities, the persons in charge are jointly and severally liable without limitation.

And the judicial exception. The veil is lifted where the corporate form is used for fraud or to evade an obligation: Gilford Motor Co. Ltd. v. Horne, [1933] Ch 935, Jones v. Lipman, [1962] 1 WLR 832, and Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622, where the personal properties of the directors and their families were made available to purchasers whose money had been taken for space the company did not own. Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407, states the modern limit: the veil is pierced only where the form is a mere facade concealing the true state of affairs.

For full marks, cover: part (a) as two connected propositions about the same idea, that registration makes a document public and a certificate conclusive, with Kotla Venkataswamy on the first and Jubilee Cotton Mills on the second; part (b) regulator by regulator in the order the paper names them, and finishing on the fact that the Company Law Board has not existed since 1 June 2016, section 466 having dissolved it on the constitution of the Tribunal.

(a) Constructive notice

Every person dealing with a company is deemed to have read its memorandum and articles and to have understood them properly, because they are registered public documents open to inspection by any person under section 399. The doctrine is a consequence of registration and nothing else.

The counterweight is the rule in Royal British Bank v. Turquand, (1856) 6 E and B 327: a person dealing with a company must read the registered documents and see that the transaction is not inconsistent with them, but is not bound to do more and may assume that the internal proceedings have been regularly carried out. The exceptions are knowledge of the irregularity, suspicion putting a person on inquiry as in Anand Bihari Lal v. Dinshaw and Co., AIR 1942 Oudh 417, forgery, which is a nullity, as in Ruben v. Great Fingall Consolidated, [1906] AC 439, an act outside the officer's apparent authority, non-reliance on the articles, and an act ultra vires the company. England abolished constructive notice by section 9(1) of the European Communities Act, 1972, and the present English position is section 40 of the Companies Act, 2006; India retains it.

The two propositions connect. Registration is the act that both creates the company and publishes its constitution, and the certificate and the doctrine of constructive notice are the two faces of that single act: the world may rely on the certificate as conclusive that the company exists, and the world is deemed to know the documents on which the certificate was issued.

Section 24 of the Companies Act draws the boundary: Chapters III and IV and section 127, so far as they relate to the issue and transfer of securities and non-payment of dividend, are administered by the Board for listed companies and those intending to list, and by the Central Government otherwise. Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India, (2013) 1 SCC 1, shows the reach: about twenty four thousand crore rupees raised from roughly three crore investors by two unlisted companies on optionally fully convertible debentures was held to be a public issue, and refund with fifteen per cent interest was ordered.

The Central Government, through the Ministry of Corporate Affairs, controls the rules, the investigations and the fitness of managers. It makes rules under section 469 and amends the Schedules under section 467. It orders investigations under section 210, maintains the Serious Fraud Investigation Office under sections 211 and 212 with exclusive jurisdiction and a power of arrest, appoints inspectors to trace beneficial ownership under section 216, and acts on the report under section 224 by prosecuting, by directing the company to sue, or by petitioning for winding up or applying under section 241.

His supervisory powers are section 206, to call for information and to inquire; section 207, to inspect and require production of books; section 208, to report to the Central Government; and section 248, to remove the name of a company that has not commenced business within a year or has not carried on business for two immediately preceding financial years, with restoration under section 252.

The Company Law Board. Here the answer must correct the question. The 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 rectification of the register. Section 466 of the Companies Act, 2013 dissolved it on the constitution of the 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; section 434 transferred all matters pending before the Board to the Tribunal, with an appeal to the High Court against decisions made before that date. The Board no longer exists, and a candidate who describes it as a live regulator is describing a repealed statute.

Conclusion. Constructive notice and the certificate of incorporation are two consequences of one act: registration publishes the company's constitution, so that the world is deemed to know it, as Kotla Venkataswamy holds and section 80 confirms for charges, and registration creates the company, the certificate being conclusive evidence of that fact as Jubilee Cotton Mills holds, with the remedy for a fraudulent incorporation lying in section 7(6) and section 7(7) rather than in a challenge to the certificate.

Corporate finance is controlled by the Securities and Exchange Board under its own Act and section 24, by the Central Government through rule-making, investigation and the fitness of managers, by the Registrar through registration, filing and the register of charges, and, since 1 June 2016, not by the Company Law Board at all but by the National Company Law Tribunal, to which section 466 transferred its existence and section 434 its cases.

The prescription has been extended three times. Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, in force from 2 October 2018, requires every unlisted public company to issue securities only in dematerialised form and to facilitate the dematerialisation of its existing securities. Rule 9B, inserted on 27 October 2023, extends the obligation to private companies other than small companies, with the compliance date extended by a notification of 12 February 2025 to 30 June 2025; a small company for this purpose is one that is not a public company and whose paid-up capital does not exceed four crore rupees and turnover forty crore rupees, but a holding or subsidiary company is outside that exemption whatever its size. Default attracts the residuary penalty in section 450.

What holding electronically means. The certificate is surrendered and cancelled under section 6 of the Depositories Act and an equivalent number of securities is credited to an account with a depository participant. Section 9 makes securities held in a depository fungible, so the holder no longer owns identified shares bearing distinctive numbers, which is why section 45 of the Companies Act, requiring each share to be distinguished by a distinctive number, is expressly disapplied where the share is held with a depository.

If the securities are physical, section 44 makes them movable property transferable in the manner provided by the articles, and section 56(1) requires a proper instrument in Form SH-4, duly stamped, dated and executed by or on behalf of both parties, specifying the transferee's name, address and occupation, delivered to the company within sixty days of execution, with the certificate or letter of allotment.

The proviso permits registration on such terms as to indemnity as the Board thinks fit where the instrument is lost or was not delivered in time. Section 56(3) requires notice to the transferee, with two weeks to object, where the application relates to partly paid shares and is made by the transferor alone. And a private company's articles restrict transfer by force of section 2(68), so the transfer is only as good as the articles allow, while section 58(2) declares the securities of a public company freely transferable.

Question three: what happens when I die

Nothing that requires an instrument, because there is no transferor left to execute one. Title passes by operation of law, which is transmission, and it operates on death, on insolvency, on a finding of unsoundness of mind, and, where the holder is a body corporate, on its amalgamation or dissolution.

The two events distinguished: a transfer is voluntary, needs a stamped instrument and consideration and passes liability for calls to the transferee once registered; a transmission operates by law, needs neither instrument nor stamp, is initiated by the person on whom the title devolves, and leaves the estate liable for calls, the representative not being personally liable beyond the assets that come to his hands.

Question four: what do I do when the company will not act

First the time limits, because the delay is usually the complaint. Section 56(4) requires the certificate to be delivered within two months of incorporation for a subscriber, within two months of allotment, within one month of receipt of the instrument of transfer or of the intimation of transmission, and within six months of the allotment of debentures; and where the securities are dealt with in a depository, the company must intimate the details of allotment to the depository immediately. Section 56(6) makes default punishable with a penalty of fifty thousand rupees on the company and on every officer in default.

What has been gained and what has been moved

Dematerialisation ended forgery, theft, bad delivery on a signature mismatch and the weeks a physical transfer used to take, and it made the register of members accurate for the first time. But it moved the dispute rather than ending it. Because holdings are fungible under section 9 of the Depositories Act, no claimant can assert title to identified shares; because the depository is the registered owner under section 10 while the beneficial owner holds the rights, a wrongful debit is corrected through the depository's own mechanism and the Securities and Exchange Board rather than by rectification of the company's register; and section 56(7) exists precisely because an electronic transfer can be effected faster and more quietly than a paper one ever could.

Where the electronic system has created new questions of law

Three questions have arisen since dematerialisation became compulsory, and an LLM answer is expected to know them.

Second, what happens to a lien or a restriction that the articles create. A private company's articles restrict transfer under section 2(68), and a company may have a lien on partly paid shares. Neither travels with an electronic holding automatically, which is why Rule 9B, in extending dematerialisation to private companies other than small companies from 30 June 2025, has required those companies to work their restrictions through the freeze facilities the depositories provide rather than through the register. A restriction that cannot be enforced at the point of transfer is not a restriction at all, and this is the practical difficulty the 2023 amendment created for closely held companies.

Third, the quarterly reconciliation. Regulation 76 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 requires a reconciliation of share capital audit every quarter by a practising company secretary or chartered accountant, comparing the issued and listed capital with the aggregate of the dematerialised and physical holdings. It exists because the one risk the electronic system introduced, an excess credit, would otherwise be invisible: a forged certificate can be detected on inspection, and an excess electronic credit cannot.

World Wide Agencies (P) Ltd. v. Margarat T. Desor, (1990) 1 SCC 536, is the transmission case. The widow and children of a deceased controlling shareholder applied for relief against oppression although they had not been registered as members. The Supreme Court held that legal representatives may maintain such a petition without registration, because title devolves by operation of law and the company cannot defeat their rights by declining or delaying to register the transmission. It is the reason section 56(2) is not a discretion the board may exercise at leisure.

One consequence of dematerialisation for all three should be noticed. Where the securities are in a depository, the company is no longer the gatekeeper: transfer is a book entry under section 7 of the Depositories Act, 1996, the depository is the registered owner under section 10, and there is nothing for the board to refuse. Bajaj Auto therefore matters today chiefly for unlisted and private companies, whose articles still restrict transfer and whose boards still register it, and that is exactly the class Rule 9B has now brought into the demat regime from 30 June 2025.

For full marks, cover: three of the five at roughly eight marks each. This notes question differs from the one on the other paper of this scan in a single item: item (d), majority powers and minority rights, replaces the appointment and disqualification of directors, and item (e), kinds of prospectus, replaces the distinction between shares and debentures. All five are written below, and the three that recur are given a different organising idea from their counterparts.

Failure three, the company keeps the money that belongs to the investor. The answer is sections 124 and 125: unpaid dividend goes to the Unpaid Dividend Account within thirty seven days, with details on the website and interest at twelve per cent for delay, and after seven years the money and, under section 124(6), the shares themselves go to the Investor Education and Protection Fund, from which the owner may claim at any time under section 125(9), while the income funds investor education and the legal expenses of class actions.

Failure four, the company is run against those who financed it. For the investor, sections 241, 242 and 245 and, in a listed company, the Securities and Exchange Board under sections 11, 11B and 15I of its Act. For the creditor, who has no vote at all, the protection is structural rather than participatory: capital maintenance under sections 66, 68 and 123, so that what he relied on is not given away; publicity under sections 77 to 80, an unregistered charge being void against the liquidator under section 77(3) and registration being deemed notice under section 80; participation in a scheme under section 230, requiring a three fourths majority in value of each class of creditors; and, on default, the Insolvency and Bankruptcy Code, 2016, section 7 for a financial creditor, section 9 for an operational creditor and section 53 for the order of distribution.

Decision three, how to price transactions between its own entities. The income tax law with its transfer pricing provisions and the general anti-avoidance rule, and Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613, in which the Supreme Court held the transfer of a Cayman Islands company holding Indian assets not taxable in India, an answer the legislature reversed retrospectively and then withdrew by the Taxation Laws (Amendment) Act, 2021.

Decision four, who pays when something goes wrong, which the law has still not answered satisfactorily, because each company in the group is a separate person. Indian law's response has come from tort rather than company law: M.C. Mehta v. Union of India, (1987) 1 SCC 395, after the oleum leak at Shriram Foods and Fertiliser Industries in December 1985, laid down absolute liability for hazardous enterprises with damages correlated to their magnitude and capacity; and Union Carbide Corporation v. Union of India, (1991) 4 SCC 584, upheld the Bhopal settlement of 470 million United States dollars while restoring the prosecutions, the curative petition for enhancement being dismissed in March 2023.

Is the auditor independent of the people he is checking. That is section 141, disqualifying an officer or employee, a person having a business relationship, a person indebted beyond five lakh rupees or holding any security, and a person whose relative is a director or key managerial personnel, and capping him at twenty companies; section 144, forbidding accounting, internal audit, systems design, actuarial, investment advisory and banking, outsourced financial and management services; section 139(2), requiring rotation; and section 140(1), requiring a special resolution and the previous approval of the Central Government for removal before the term expires.

Who is told when something is wrong. That is section 143(12), requiring a suspected fraud to be reported, with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 sending it to the Central Government where the amount is one crore rupees or more and a smaller one to the audit committee or the Board; section 177(4), allowing the audit committee to call for the auditors' comments and to investigate any matter referred to it; and section 177(9), requiring a vigil mechanism with protection against victimisation.

(d) Majority powers and minority rights

The rule is majority rule and the reason is Foss v. Harbottle, (1843) 2 Hare 461: where a wrong is done to the company, the company is the proper plaintiff, and where the act complained of can be ratified by a 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.

The four common law exceptions are an act ultra vires or illegal; an act requiring a special majority done by a simple one; an invasion of the individual membership rights of the plaintiff, such as the right to vote or to have a transfer registered; and a fraud on the minority by those in control.

Section 245, the class action against the company, its directors, its auditors including the audit firm and its experts and advisers. Section 213, investigation. Sections 235 and 236, the acquisition of dissenting shareholders' shares and the buy-out of a minority once ninety per cent is held, which also entitles the minority to offer its shares at that price. And section 271(e), winding up on the just and equitable ground, of which Ebrahimi v. Westbourne Galleries Ltd., [1973] AC 360, is the leading case.

The limits. Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535, requires conduct that is burdensome, harsh and wrongful and continuing, directed at the member as a member. Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333, makes the relief equitable and discretionary and requires clean hands. And Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, holds that removal from an office is not oppression, that the Tribunal cannot reinstate, and that winding up cannot be the substantive prayer in a section 241 petition.

A red herring prospectus, section 32, which does not carry the quantum or the price of the securities and is used in a book-built issue. It must be filed with the Registrar at least three days before the opening of the subscription list, carries the same obligations and liabilities as a prospectus, and, on the closing of the offer, must be followed by the prospectus stating the total capital raised and the closing price, filed with the Registrar and the Securities and Exchange Board, with the variations highlighted.

A shelf prospectus, section 31, which may be filed by such class of companies as the Securities and Exchange Board provides by regulations, at the stage of the first offer, indicating a validity of not more than one year from the opening of the first offer, during which no further prospectus is needed for a second or subsequent offer of the same securities. Section 31(2) requires an information memorandum of new charges and changes in the financial position to be filed before each subsequent offer, with a refund to any applicant who wishes to withdraw, and section 31(3) provides that the memorandum together with the shelf prospectus constitutes the prospectus. In practice it is a debt device, used under the Board's Issue and Listing of Non-Convertible Securities Regulations, 2021.

Conclusion. The five notes are five answers to the same question, which is how a legal system lets strangers finance an enterprise they cannot control. Investors and creditors are protected against four predictable failures, from the false prospectus to the abuse of control; the multinational is regulated at each of the four decisions it makes and, for the harm it causes, by tort rather than company law; the audit answers four questions and is itself audited under section 132; the majority's power is real but bounded by Allen v. Gold Reefs and by sections 241 to 245; and the five kinds of prospectus are five ways of telling the public the truth before it parts with money.

As an agent, for the purpose of binding the company: Ferguson v. Wilson, (1866) LR 2 Ch App 77, holds that the company has no person and no hands and acts only through directors, so the case is the ordinary one of principal and agent. He incurs no personal liability on a contract made within his authority, but he does where he contracts personally, or where the company does not yet exist, subject to sections 15(h) and 19(e) of the Specific Relief Act, 1963. Where the analogy breaks down is that he is not the agent of the shareholders individually and cannot be told by his principal how to exercise his own discretion.

As a trustee, of the company's money and property that comes into his hands and of the powers entrusted to him, which must be used for the purpose for which they were given: A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185, where directors who applied Rs. 75,000 of the company's funds to a purpose outside the memorandum were held personally liable to restore it. Where it breaks down is that the property is vested in the company and not in him, and a trustee must preserve while a director must take commercial risks.

(i) Rights

The Board's powers are collective and no individual director can bind the company: section 179(1) vests in the Board all the powers the company may exercise, section 179(3) lists the twelve powers exercisable only at a Board meeting, and section 180 reserves four decisions to the members. An individual director's rights are the right to notice of every Board meeting under section 173(3); the right to inspect the books of account under section 128(3); the right to sitting fees under section 197(5) and to remuneration approved under sections 196 and 197 within the eleven per cent ceiling; the right to participate by video conferencing under section 173(2) except for the matters in Rule 4; and, most valuable of all, the right to have his dissent recorded in the minutes under section 118, which is what protects him under section 149(12).

(i) Liabilities

To the company, for breach of fiduciary duty, negligence and misfeasance, enforced by the company, by the Tribunal under section 242, by a class action under section 245, and in a winding up by an application under section 340 for misfeasance.

To outsiders, under section 35 for a misstatement in a prospectus, personally on pre-incorporation contracts, and personally for acts beyond the company's capacity, as in Lakshmanaswami Mudaliar.

Statutory penalties, imposed on an "officer who is in default" as defined in section 2(60), which expressly includes a whole-time director, a key managerial personnel and, in their absence, such director or directors as the Board has specified.

Criminal liability for fraud under section 447, punishable with imprisonment of six months to ten years and a fine of one to three times the amount involved, with a minimum of three years where the fraud involves the public interest; and, in a winding up, personal responsibility without any limitation of liability under section 339 for a person knowingly party to the carrying on of business with intent to defraud creditors.

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 by paid-up capital. Section 249 bars the application in five situations, including a change of name or an inter-State shift of the registered office in the previous three months, a disposal of property held for value, and a pending compromise or winding up. Section 250 keeps the liability of every director, manager, officer and member alive as if the company had not been dissolved, and section 252 permits restoration by the Tribunal on appeal within three years or on the application of the company, a member, a creditor or a workman within twenty years.

A sick undertaking is not wound up either; it goes to the Insolvency and Bankruptcy Code. The Sick Industrial Companies (Special Provisions) Act, 1985 and the Board for Industrial and Financial Reconstruction stood dissolved on 1 December 2016, when the Eighth Schedule to the Code brought the Repeal Act of 2003 fully into force; and sections 253 to 269 of the Companies Act, 2013, its own never-notified chapter on the revival of sick companies, were omitted by section 255 read with the Eleventh Schedule.

An unregistered company is genuinely wound up, and only under Part XXI. The Explanation to section 375 defines an unregistered company to include a partnership firm, a limited liability partnership, a cooperative society, a society or any other association of more than seven persons, but not a railway company incorporated by statute, a company registered under Indian company law, or an illegal association.

Section 375(1) applies the winding up provisions with three modifications: section 375(2) forbids voluntary winding up; section 375(3) confines the grounds to dissolution or cessation of business, inability to pay debts, and the just and equitable ground; and section 375(4) defines inability to pay debts by an unsatisfied statutory demand exceeding one lakh rupees unpaid for three weeks, a suit against a member with no payment or stay within ten days, an execution returned unsatisfied, or proof to the Tribunal's satisfaction. The comparison is the sharpest point in this answer: inability to pay debts was removed as a ground for winding up a registered company when the Code substituted section 271 on 15 November 2016, and it survives untouched in section 375(3)(b) for an unregistered one.

Conclusion. A director acts as agent, trustee, directing mind and sometimes employee, and section 166 has replaced the argument about which he is with a list of what he must do; his rights are collective as a Board and procedural as an individual, and his liabilities run to the company, to outsiders and to the State, limited for an independent director by section 149(12) and unlimited under section 339 for fraudulent trading. Of the four kinds of company named in the second part, the defunct one is struck off under section 248 and not wound up, the sick one goes to the Insolvency and Bankruptcy Code and not to Chapter XX, and only the unregistered company under section 375, on grounds that still include inability to pay debts, and the foreign company under sections 375 and 376, even after dissolution abroad, are wound up in the sense the question assumes.