Bl Companies Act

8/6/2019 Bl Companies Act

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Module 6

Companies Act.

1956


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MEANING OF COMPANY

It is an artificial person created by law, formed forthe purpose of business, registered under law

having an independent legal entity, a distinctive

name, common seal and perpetual succession


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Characteristics of a company

Incorporated association.

A company comes under existence on

incorporation under the companies act.Minimum no. of persons required is 7 in case

of public company and 2 in case of private

companies.

Separate legal entity


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Free Transferability of Shares

OtherFeatures:

Perpetual Succession: Separate property and

Common Seal.


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Types of Companies

Private Company

Public Company


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Private Company[Section 3(1)(iii)]

A private company means a company whichhas a minimum paid up capital of one lakhrupees or such higher paid-up capital as may

be prescribed and by its articles(a) restricts the right to transfer its shares, ifany;

(b) limits the number of its members to 50,not including:


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Private Company contd.

persons who are in the employment of thecompany, and

(ii) persons who, having been formerly in the

employment of the company, were membersof the company while in that employmentand have continued to be members after theemployment ceased;

(c) prohibits invitation to the public to subscribefor any shares in or debentures of thecompany and


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Private Company contd.

(d) prohibits any invitation or acceptance of

deposits from persons other than its

members, directors or their relatives.

Where two or more persons hold one or

more shares in a company jointly, they shall,

for the purposes of membership, be treated

as a single member.


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Public Company[Section 3(1)(iv)]

A public company means a company which:

(a) is not a private company [In other words, itshould not have the restrictions of Section3(1)(iii) in its articles

(b) has a minimum paid-up capital of five lakhrupees or such higher paid-up capital, as may

be prescribed; and(c) is a private company, which a subsidiary of a

company, which is not a private company.


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Public Company[Section 3(1)(iv)]

A public company means a company which:

(a) is not a private company [In other words, itshould not have the restrictions of Section3(1)(iii) in its articles ];

(b) has a minimum paid-up capital of five lakhrupees or such higher paid-up capital, as may

be prescribed; and(c) is a private company, which a subsidiary of a

company, which is not a private company.


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How to form a company?

The whole process of formation of a

company may be divided into four stages,

namely:

(i) Promotion

(ii) Registration

(iii) Floatation/Raising of Capital

(iv) Commencement of Business.


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Promotion

Who is a Promoter?

Bowen, L.J.

The term promoter is a term not of law but ofbusiness, usually summed up, in a single wordpromotion, a number of business operationsfamiliar to the commercial world by which acompany is brought into existence.

However, thepersons assisting the promoters byacting in a professionalcapacitydo not therebybecome promoters themselves.


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LegalPosition of a Promoter

Promoter stands in a fiduciary position

towards the company.

In other words, he is not allowed to makesecret profits.


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Pre-incorporation contracts

Void- abinitio.

However, pre-incorporation contracts shall

be valid if: The contract is made for the purpose of the

company and the contract is warranted by

the terms of incorporation. The company adopts the transactions after

incorporation.


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Registration/Incorporation

Private Company

Minimum Number of Members required

2.

Public Company

Minimum Number of Members required 7.


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Steps

1. Application for availability of name:

Three names in order of priority conformingto the provisions of the Act and the

Guidelines issued by Department ofCompany Affairs in this regard:

Name to end with the word(s) Limited orPrivate Limited, as the case may be, except:

(i) Section 25 Companies

(ii) Govt. Companies (need not use Pvt. Ltd.)

(iii)Producer Companies.


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Steps contd.

Name should not be identical or too similar to

the name of an already existing company.

Should not include the name of a registered

trade mark.

2. Preparation of Memorandum and Articles

of Association

Memorandum defines and limits the scope ofactivities of a company.


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Steps contd.

Contents of Memorandum

1. Name clause

2. Registered office clause3. Object clause

Doctrine ofultra-vires

1. Liability clause2. Capital clause


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Steps contd.

Preparation of other documents

Power of Attorney in favour of a professionalto effect registration.

Consent of Directors (in case of a PublicCompany)

Particulars of Directors, Manager, Secretary,etc. in the prescribed form.

Notice of registered address

To be supplied within 30 days of incorporation.


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Steps contd.

StatutoryDeclaration

To the effect that all requirements of law withrespect to incorporation have been duly complied

with. The declaration to be signed by:

Advocate of Supreme Court or High Court; OR

C.A../C.S. practicing in India and associated with theformation of the company; OR

Director, Manager, Secretary of the company (as namedin the Articles)

4. Filing of documents with ROC


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Certificate of Incorporation

Effect of Certificate of Incorporation(Section 34)

On incorporation, the association of personsbecomes a body corporate by the namecontained in the memorandum, capableforthwith of exercising all the functions of anincorporated company and having perpetualsuccession and a common seal but with suchliability on the part of the members to

contribute to the assets of the company in theevent of its being wound-up as is mentioned inthe Act.


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Conclusiveness of Certificate of

Incorporation (Section 35)

Conclusive to the effect that all requirements

of law relating to registration and matters

precedent and incidental thereto have been

duly complied with.

Case Laws:

Moosa v. Ibrahim

Jubilee Cotton Mills Ltd. v. Lewis


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ProvisionalContracts

Contracts entered into by company afterincorporation but before getting thecertificate to commence business are called

provisional contracts. Provisional contracts are, therefore, relevant

to public companies only.

Such contracts become void, if company fails

to obtain certificate to commence businessand automatically become valid, and bindingif company obtains the certificate.


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Raising of Capital

A company may raise capital through

Private placement

Issue of Prospectus

Private placementmeans raising of

capital from friends, relatives and

through brokers.


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Commencement of Business (Section149)

Where Company has issued a Prospectus

a company cannot commence business or

exercise borrowing powers unless:(a) shares up to the amount of the minimum

subscription have been allotted by the company

(b) every director of the company has paid to the

company, on each of the shares taken orcontracted to be taken by him and for which he is

liable to pay in cash


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Commencement of Business

contd.the same proportion as is payable on

application and allotment on the shares,

offered for public subscription;

(c) no money is, or may become, liable to be

repaid to the applicants for shares or

debentures offered for public subscription, for

failure to obtain permission for the shares tobe dealt in on any recognised stock exchange;


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Commencement of Business

contd.(d) there has been filed with the Registrar a dulyverified declaration by one of the directors or thesecretary or, where the company has not

appointed a secretary, a secretary in whole timepractice in the prescribed form that clauses (a),(b) and (c) (mentioned above) have beencomplied with.

Penalty: Every person at fault may be fined upto

Rs.5,000/- for every day of default.


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Memorandum of Association

Every company has to have a Memorandum ofAssociation.

It contains, besides other significant

information, the objects for which thecompany is formed.

Object clause defines as well as confines the

powers of the company. Anything done beyond these objects is ultra-

vires the company and void.


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1. Name Clause: It contains the name with whichcompany is proposed to be registered.Companies Act requires that:

(a) The name chosen should end with the wordLimited or the words Private Limited, as thecase may be.

(b) The name should not be undesirable i.e., itshould not be identical or too similar to the

name of an already existing company ORincludethe name of a registered trade mark unlessconsent of the owner of the trade mark isobtained.


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2. Registered Office Clause:

This clause states the name of the State in whichregistered office of the company is to be

situated.3. Objects ClauseThis clause is to be divided into:

(a) Main objects and objects incidental or ancillary to mainobjects

(b) Other objects

A company cannot commence any businessstated under other objects unless special


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Doctrine ofUltra-Vires

Effects ofUltra-vires transactions

(i) void-ab-initio

(ii) Injunction(iii) Personal liability of directors

towards the company

towards the outsiders


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4. Liability Clause

5. Capital Clause

This clause states the authorized capital andthe number of shares into which the same

shall be divided.


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Alteration of Memorandum

Various clauses of memorandum of association

can be altered by following the procedure laid

down in the Act. Different requirements are

prescribed for different clauses:

1. Name Clause: can be altered by:

(a) Passing a special resolution; and

(b) Obtaining the approval of the Central Govt.


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2. Registered Office Clause: may be shifted:

(a) within the same city by passing DirectorsResolution;

(b) From one cityto anothercity within the sameState:

by passing special resolution only, if nochange in jurisdiction of Regional Director

by passing special resolution, and

Obtaining the approval of Regional Director.


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3. Objects Clause

Special Resolution

Only on Grounds stated in Sec.17(1).

4. Liability Clause

Cannot be increased without written consent ofeach and every member.

Can be reduced: by passing special resolution

Confirmation of court


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5. Capital Clause

Authorized capital may be increased by

passing an ordinary resolution at ameeting of the shareholders.


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Articles of Association

The articles of association of a company are its bye-laws or rules and regulations that govern themanagement of its internal affairs and the conduct ofits business.

The articles regulate the internal management of thecompany. They define the powers of its officers. Theyalso establish a contract between the company and themembers and between the members inter se. Thiscontract governs the ordinary rights and obligations

incidental to membership in the company [NareshChandra Sanyal v. Calcutta Stock Exchange AssociationLtd. (1971)].


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Companies which must have Articles

Unlimited Companies:

The Articles of such a company must state:

Total number of members; and Share capital.

Companies limited by Guarantee:

Articles of such company must state totalnumber of members.


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Alteration of Articles

Articles may be altered by a company by

passing special resolution at a general body

meeting of shareholders.

However, where alteration has the effect of

converting a public company into a private

company (i.e., introduction of restrictive

clauses of Section 3(1)(iii), approval of CentralGovernment must be obtained.


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Doctrine of Constructive Notice

According to Section 610, every persondealing with the company is deemed to haveread M/A and A/A and understood the

contents thereof in the correct perspective.

Doctrine of IndoorManagement The rule was first laid down in RoyalBritish

Bankv. Turquand. Rule of Indoor Management is an exception

to the Doctrine of Constructive notice.


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Exceptions of IndoorManagement

1. Knowledge of irregularity: Case: Howardv.PatentIvoryCo.

2. Negligence : Case:Anand Behari Lal v. Dinshaw

& Co. (Bankers) Ltd.3. Forgery: Case: Ruben v. Great Fingal

Consolidated[Secy. Forged signatures of twodirectors]

4. No knowledge of articles : Case: RamaCorporation v. Proved Tin & GeneralInvestmentCo.


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Prospectus

A prospectus, as per Section 2(36), means any

document described or issued as prospectus

and includes any notice, circular,

advertisement or other document inviting

deposits from the public or inviting offers from

the public for the subscription or purchase of

any shares or debentures of a body corporate.


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Prospectus contd.

Thus, a prospectus is not merelyan

advertisement; it maybe acircular or even a

notice. A document shallbe calleda

prospectus if it satisfies two things:

(a) It invites subscription to shares or debentures

or invites deposits.

(b) The aforesaid invitation is made to the public.


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Remedies

Criminal Liability (Sec. 63)Civil Liability (Sec.62 & 56)

BothFine upto

Rs.50,000

Imprisonment

upto 2 years

Compensation under

Sections 62 and 56

Damages

Liability for Mis-statements in a Prospectus

DamagesCompensation

under Sections 62

and 56

Imprisonment

upto 2 years

Fine upto

Rs.50,000Both

Rescission of

Contract

Claim for

Damages Fine upto Rs. 50,000

Against the Promoters,Directors and Other officers

(not available against

experts)

Against the

Company

Against the Promoters,Directors, other Officers

and Experts

Against the

Company

Civil Liability (Sec.62 & 56) Criminal Liability (Sec. 63)


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What constitutes Invitation to Public

As per Section 67, Invitation to publicincludes:

invitation to any section of the publichowsoever selected provided the invitation ismade to all the members of that section ofpublic indiscriminately.

Invitation calculated to be made available evento those who do not receive the same.

Invitation to 50 or more persons.


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Mis-statement in a Prospectus and its

consequences

What is Mis-statement?

According to Section 65(1) of the Act:

(a) a statement included in a prospectus shall be

deemed to be untrue, if the statement is misleading in

the form and context in which it is included; and

(b) where the omission from a prospectus of any matter

is calculated to mislead, the prospectus shall be

deemed in respect of such omission, to be a

prospectus in which an untrue statement is included.

Case: Rexv. Kylsant


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Share andShare Capital

According to Section 2(46), A Share represents aunit into which capital of a company is divided.However, courts have held that a share is notmerely a unit of capital, it represents a bundle of

rights and obligations. Holder of a share isentitled to certain rights (say, right to receivedividends, to receive notice of meetings, toparticipate in the proceedings of a meeting, to

elect directors) and is also subjected to a numberof obligations (say, to abide by Articles ofAssociation, to maintain decorum of themeetings).


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Kinds ofShares

The following kinds of shares may be issued

by a company:

1. Equity shares carrying voting rights.

2. Equity shares carrying differential rights as to

voting or dividend (commonly called Non-

Voting Equity Shares)

3. Preference Shares

4. Cumulative convertible Preferable Shares


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Kinds ofShares contd.

Preference Shares carry preference with

respect to two things:

1. Preference with respect to dividend at afixed rate or of a fixed amount.

2. Preference with respect to return of

capital in case of winding up.

EquityShares means a share which is not

a preference share.


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Allotment ofShares

Allotment is an acceptance to an offer for

purchase of shares.

Where allotment does not conform to the

statutory requirements, it is called irregular

allotment. For allotment to be valid, following

requirements must be satisfied:

1. A copy of prospectus or statement in lieu ofprospectus must have been delivered to

Registrar of Companies.


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Allotment ofShares contd.

2. Application money must not be less than 5%of the nominal value.

3. Minimum subscription (i.e., at least 90% of

the issue) must have been received.4. Application money must be kept deposited in

a Scheduled Bank till the minimum

subscription has been received.5. Shares must have been listed on the stockexchange(s) mentioned in the Prospectus.


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Administration/Management of a

company

A company functions through the medium ofBoard of Directors. However, certain powershave been reserved to be exercised byshareholders in general body meetings. Section

291 of the Companies Act, 1956 confers generalpower on the Board of Directors. It provides:Subject to the provisions of the Act, the Board ofDirectors of a company shall be entitled to

exercise all such powers, and to do all such actsand things, as the company is authorised toexercise and do.


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Powers which are exercisable onlyby

the shareholders.

. Sell, lease or otherwise dispose of the whole,substantially the whole, of the undertaking ofthe company, or where the company owns morethan one undertaking, of the whole or

substantially the whole, of any suchundertaking.

2. Remit or give time for the repayment of any debtdue by a director except in the case of renewal

or of continuance of an advance made by abanking company to its directors in the ordinarycourse of business.


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Powers contd.

3. Invest, otherwise than in trust securities, theamount of compensation received by thecompany in respect of compulsory acquisition ofany property or fixed assets of the company.

4. Borrow monies exceeding the aggregate of thepaid-up capital of the company and its freereserves. Borrowing does not includetemporary loans (i.e., loans payable on demandor within six months but excluding loans for

capital expenditure) obtained from thecompanys bankers in the ordinary course ofbusiness.


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Powers contd.

The resolution passed at the general meeting mustspecify the total amount upto which moneys maybe borrowed by the Board of directors in any

financial year.5. Contribute in any year, to charitable and other

funds not directly relating to the business of thecompany or the welfare of its employees any

amount exceeding Rs. 50,000 or five per cent ofits average net profits of the last three financialyears, whichever is higher.


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Powers contd.

However, the resolution must specify the total

amount that may be contributed by the Board

of directors in any financial year.

However, contributions to National Defence

Fund, the Prime Ministers National Relief

Fund or any other fund approved by the

Central Government* for the purpose areexempted from the above provisions.


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Qualifications andDisqualifications

forDirectors

Qualifications

A public company cannot prescribe anyqualifications for directorship except share

qualification. Again, share qualificationrequirement cannot exceed holding of sharesexceeding Rs. 5000/- in nominal value or value ofone share where nominal value of one share

exceeds Rs.5000/-. A director may obtain hisshare qualification within 2 months after hisappointment.


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Disqualifications

Section 274 of the Companies Act, 1956provides that the following persons shall notbe capable of being appointed as directors of

any company :(a) a person found by a competent court to be ofunsound mind and such finding remaining inforce;

(b) an undercharged insolvent;

(c) a person who has applied to be adjudged aninsolvent;


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Disqualifications contd.

d) a person who has been convicted by a Court ofan offence involving moral turpitude andsentenced in respect thereof to imprisonment fornot less than six months, and a period of five

years has not elapsed from the date of the expiryof the sentence;

(e) a person who has not paid any call in respect ofshares of the company held by him, whether

alone or jointly with others and six months haveelapsed from the last date fixed for the paymentof the call; and


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Disqualifications contd.

(g) a person who is already a director of a publiccompany which,

(i) has not filed the annual accounts and annual

returns for any continuous three financial yearscommencing on and after the first day of April,1999; or

(ii) has failed to repay its deposit or interest

thereon on due date or redeem its debentureson due date or pay dividend and such failurecontinues for one year or more.


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NumberofDirectorships

Whole-time Directorship

A person cannot be appointed as a whole-

time director in more than one company.

Part-time Directorship

Not more than 15 companies excluding the

directorships of,


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No. ofDirectorships contd.

i. private companies [other than subsidiariesor holding companies of publiccompany(ies)].

ii. unlimited companies,iii. associations not carrying on business for

profit or which prohibit payment of adividend, and

iv. alternate directorships (i.e., he is appointedto act as a director only during the absenceor incapacity of some other director).


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MEETINGS AND PROCEEDINGS

Meeting:

an occasion when people come together todiscuss or decide something


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Meetings:

MEETINGS

Meetings of shareholders:

General meetings

Extra ordinarymeetings

Annual generalmeetingsStatutory meetings

Class meetings

Meetings ofdirectors

Meetings ofcreditors anddebenture

holders


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Meetings of share holders

Statutory meeting(Section 165)

Statutory meeting is the first meeting of the shareholders of a

company. This meeting is held only once in the life time of the company.

Objectives:

To approve the preliminary contracts specified in the prospectus of the

company with modification if any.

To discuss the success of floating the project of the company.

Provisions:

1. Time: Every company , shall , within a period of not less than ONEmonthand not more than SIX months from the date on which the company is

entitled to commence the business, hold the Statutory meeting


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contd..

2. Notice: The company must give notice to its member at least 21clear days before holding the statutory meeting stating time, dateand place of meeting.

3. StatutoryReport: The Directors of the co., are required to send areport called statutory report to every member of the company

along with the notice of the meeting at least 21 days before the dateof the meeting.

CONTENTS:

Allotment of Shares: The total number of share allotted,distinguishing fully paid or partly paid up and the extent to whichthey are so paid up, shares issued otherwise than for cash.

Cash Received: Total amount of cash received by the company inrespect of all the shares allotted.

Abstract ofReceipt and Payment Account


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contd..Names, addresses and occupations of the companys

Directors, Auditors and all other managerial personnel.

To approve the preliminary contracts specified in the

prospectus of the company with modification if any.

The extent to which the Underwriting Contracts has been

carried out and the reasons thereof.

The calls in arrears, if any, due from any Director and the

Managers of the co.

Commission and brokerage paid to any Director or Manageron the issue of shares or debentures of the company.


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contd..

4.Certification of Statutory report: By not less than two directors

, one of whom shall be the Managing Director. The Auditor ofthe co shall certify the particulars regarding the issue of

shares, receipts and payment etc. And a copy of certified

statutory report must be sent to the Registrar of company

immediately after it is sent to the members of the company.

5. Penalty: Maximum of Rs. 5000/-


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SHAREHOLDERS Vs MEMBERS

ANNUAL GENERAL MEETING (SECTION 166)

Objectives:

1

.P

resenta

tion of Annual

Acc

ou

nts for theappro

val

2. Declaration of Dividend

3. Appointment of Auditors

4. Appointment of Directors in place of retiring byrotation.

5. SpecialBusiness


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Provisions:

1. First Annual General Meeting of the co should be held withina maximum period of 18 Months from the date of its

incorporation

2. Subsequent AGM: There cannot be a gap more than 15

months between the dates of two AGMs.

3. Power to convene the AGM: Only Board of Directors of the

company has to power to convene AGM of the company

4. Notice: Atleast 21 days prior notice must be sent to all the

member of the company. However, if all the members having

the voting rights gives their consent, the meeting can becalled at a shorter notice.

5. Date, Time and Place of holding AGM:

(


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ANNUAL GENERAL MEETING (SECTION

166)6. Postponement: where an AGM is convened for a particular

date and notice is issued to the members, the Board ofDirectors may cancel or postpone an AGM provided that it isbeing done for bonafide reasons.

7. Adjournment: An AGM can be adjourned by chairman forbonafide reasons only. Where a meeting is adjourned, theadjourned meeting shall be held on the same day next weekat the same place at the same time.

8. Where a company fails to hold its AGM within theprescribed period of time, The National Tribunal on the

application of any member, may either call or direct the coto call its AGM.


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Contd.

. Penalty: If Director of officers of the co who is indefault is made in complying with the provisionsof Sec 266 the co and its default shall be

punishable with a fine which may extend to Rs.50,000/-

10. Even when the Annual Accounts are not ready,co should held AGM to transact all other business

and then to adjourn the meeting to some futuredate when the accounts will be ready forshareholders approval.


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EXTRA-ORDINARY GENERAL MEETING

Any general meeting other than an annual general meeting iscalled an Extra-ordinary General Meeting. A statutory Meeting

and annual general meeting of company are called Ordinary

meetings.

OBJECTIVE: Meeting is called for transacting some urgent or

special business of the co for which it is not advisable to wait

till the next AGM of the company. Hence, Extra-ordinary

general meeting is a meeting which is held between two

consecutive annual general meetings.

An Extra-ordinary general meeting can be convened.

By the Board of Directors, OR

on the Requisition of Members OR

By the National Tribunal


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REQUISTIES OF A VALID MEETING

yA general meeting of the shareholders of thecompany must be called and held in the mannerwhich is provided in the Articles of Association ofthe company must follow the procedure laid

down in the Indian companies Act,1956.1. Meeting must be Convened by Proper Authority

i.e., Board of Directors or The National Tribunalsmay also call the meeting.

2. Members are served with Proper Notice ( Atleast 21 days prior notice)

3. Quorum must be present


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QUORUM FOR A MEETING

Dictionary least number of members required tocarry on a meeting or for doing business.

Minimum number of members required in orderto consider a meeting valid.

Generally, Articles provide for larger quorum. But

not smaller than statutory minimum ,i.e., Fivemembers personally present in case of PublicLimited and two for a Private limited.


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Resolutions

Questions which generally come for consideration atthe general meeting of a company are presented in theform of proposals called Motions.

A motion proposed by the chairman of themeeting/any other member . After discussions put tovote, final result accepted becomes Resolutions.

Kinds of resolutions; Ordinary resolution[sec.189(1)]..,Special resolution[sec189(2)].., Resolutions requiringspecial notice[sec190].

Wh i O di l ti


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When is an Ordinary resolutions

required? Is passed in a general meeting by a simple majority of

votes. Votes cast in person/by proxy , and required notice ofresolution duly given.

It is required for.., matters concerning with Name Clause,Capital Clause.., for appointing auditors and fixation oftheir remuneration., appointing of first directors who areliable to retire by rotation.., for increasing/decreasing innumber of directors.., appointment of managing director,removal of a director , for winding up of a company

voluntarily in certain events, appointing and fixing ofremuneration of liquidators


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Resolutions requiring special notice

y Its only a different kind of ordinary resolutions of which notice ofthe intention to move a resolution has to be given.

Notice shall be given not less than 14days before the meeting

to the members as notice of meeting is given/by advertisement.

y Is required for appointment of an auditor other than retiring ones.., to

re-appoint the retiring auditor, for removal of a director beforeexpiry of his period.., for appointment of a director in place of who isremoved.

y Passing of Resolutions by Postal Ballot[sec.192-A]a listed companymay conduct it by postal ballot. It has send a notice along with adraft resolution explaining the reasons, which should be returned

within a period of 30days from the date of posting of the ballot.


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Auditor

QUALIFICATIONS: As per Sub Section (1) of Section 226 providesthat member of Institute of Chartered Accountant of India andholding practicing certificate name as a Auditor of a Company.

Two or more chartered accountants can be appointed by its firm

name as a Auditors of a company if

All the partners are members of Institute of Chartered Accountantof India

All of them practice in India.


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DISQUALIFICATIONS: As per Sub section (3) of Section 226 ,

none of the following persons shall be qualified for

appointment as Auditor of a Company.

a) Body corporate

b) An officer or employee of the company

c) A person who is a partner, or who is in the employment, of

the officer or employees of the company

d) A person who indebted to the company for an amount of

more than Rs.1000/-


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e) A person who has given any guaranteeor provided any security in connection with theindebtness of any third person to thecompany for an amount exceeding Rs,1000/-

f) A person holding any security of that company( After a period of one year from the date ofcommencement of the Companies (Amendment

) Act, 2000)For the purpose of security means an instrument

which carried voting rights.


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According to Sub section (4 ) of Section 226 providesthat if a person disqualified as a Auditor forthe reasons enumerated in sub section (3) of Section226 then he cannot be appointed as Auditor of any

body corporate which is

1) A subsidiary of that company or

2) Holding company of that company or

3) A subsidiary of that companys holding company


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Appointment ofFirst Auditor:

According to sub section 5 of Section 224, theboard has vested with power to appoint first

auditor within one month of incorporation ofthe company. The date of appointment to bewithin one month from the date mentioned inCertificate of incorporation issued by

Registrar of Companies i.e. existence of thecompany from date i. e legal entity.

Certificate to be obtained under


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Section 224 (1B) :

This provision will not be applicable to Private company on and after thecommencement of Companies (Amendment) Act, 2000 . Thepublic limited companies are supposed to receive the certificate from theAuditor before appointment that if they are appointed as a Auditor of theCompanies the appointment will be within limits specified in sub section(1B) of Section 224 of the Companies Act, 1956.

Explanation to Specified number

There are two categories

a) A person or firm can audit twenty such companies have paid up capitalof less than Rs.25 lakhs

b) In any other case in the specified limit, out of twenty companies notmore than 10 shall be companies each of which has a paid up sharecapital of Rs.25 lakhs or more.


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Rights of Auditors of the Company:


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Rights of Auditors of the Company:

a) Rights to collect information to be given inBalance Sheet and Profit and Loss Account (Section 211 of the Companies Act, 1956)

b) Right of access to books and vouchers (subsection (1) of Section 227 of the Companiesact, 1956)

c) Right to obtain information andexplanations (sub section (1) of Section 227of the Companies act, 1956)


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d) Right to visit branch office and access to

branch accounts sub section (2)

of Section228 of the Companies Act, 1956

e) Right to signature for authentication (

Section 229 of the Companies Act, 1956)

f) Right to receive notice ( Section 231 of the

Companies Act, 1956)

g) Right to attend general meeting ( Section

231 of the Companies Act, 1956)

Auditors Liability


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Auditors Liability

The liability of Auditors is unique from that of otherwhite collar professionals in so much as they areliable not only to the who has appointed them.Another noteworthy fact is that there have been

far lesser cases against accountants than anyother professionals.[100]

The liability of Auditors may be classified under thefollowing heads:

(1) Negligence;(2) Misfeasance; and

(3) Criminal liability.

Negligence


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Negligence

Nature of negligence liability

The first and foremost issue which arises as far asthe liability of the auditors are concerned is withregard to the nature of their liability. They may

arise from either:(1) Negligent Acts, that is, where the acts of the

auditors lead to the damage being suffered bythe plaintiffs, or

(2) Negligent Statements, that is, the incorrectnessof a statement given to the client causing loss ordamage to the clients interests.

MEANING OFWINDING UP: UP:


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MEANING OFWINDING UP: UP:

INDING UP:

Process of putting an end to the life of acompany.

In the course of such a dissolution, its assets arecollected and debts are paid off.

Winding up is the prior stage and dissolution isthe next.


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Types ofWinding up

1. Compulsory2. Voluntary


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CIRCUMSTANCES FORWINDING UP

ON PASSING OF A SPECIAL RESOLUTION.

FAILURE TO HOLD STATUTORY MEETING.

FAILURE OF THE COMPANY TO COMMENCEBUSINESS.

REDUCTION IN NUMBER OF MEMBERS BELOWMINIMUM.


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CIRCUMSTANCES FORWINDING UP

COMPANY ACTING AGAINSTTHE INTEREST OF

SOVEREIGNTY AND INTEGRITY OF INDIA.

WHEN SICK INDUSTRIAL COMPANY IS UNABLE

TO MAKE ITS NETWORTH EXCEED ITS

ACCUMULATED LOSSES WITHIN A

REASONABLE TIME.


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WHO CAN FILE WINDING UP


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WHO CAN FILE WINDING UP

PETITION?

COMPANY

CREDITORS

CONTRIBUTORY

REGISTRAR OF COMPANIES

CENTRAL GOVERNMENT

WHO CAN BE APPOINTED AS OFFICIAL


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WHO CAN BE APPOINTED AS OFFICIAL

LIQUIDATOR A MEMBER FROM THE PANEL OF THE

PROFESSIONAL FIRMS OF CHARTEREDACCOUNTANTS, ADVOCATES, COMPANYSECRETARIES, COST AND WORK ACCOUNTANTSWHICH THE CENTRAL GOVERNMENT MAYCONSTITUTE.

BODY CORPORATE APPROVED BY CENTRALGOVERNMENT.

WHOLE-TIME OR PART-TIME OFFICER APPOINTEDBY THE CENTRAL GOVERNMENT.


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DUTIES OF LIQUIDATOR

To submit preliminary report

To takeover companys assets

To convene meetings of creditors and

contributories

To keep proper books

To submit accounts

To submit information in pending

liquidation


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To be exercise without the sanctionf h ( )


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of the court(457.2)

Do all acts & execute in the name of the company alldeeds, receipts and documents

Inspect records & returns on the files of the Registrar

Draw, accept, make & endorse bill of exchange

To appoint agents where necessary


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II. VOLUNTARY WINDING UP

MEMBERS VOLUNTARY WINDING UP.

CREDITORS VOLUNTARY WINDING UP.


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