What is the majority required for approving the scheme of amalgamation

What is the majority required for approving the scheme of amalgamation

in a meeting of members of a company called as per directions of the court?

Is the scheme to be approved by preference shareholders?

(iii) When will the court order dissolution of the transferor company?

[May, 2000]

Explain clearly the meaning of ‘compromise’. What procedure must a company

adopt to give effect to a compromise, when such a company is a goinfj (.oncern?

fC.A. (Final) November, 1986J

OR

Explain the terms ‘Compromise’ and ‘Arrangement’. Who can apply to court for compromise or arrangement? What are the powers of the High Court with regard to enforcement of an Arrangement.[C.A. (Final) May 1989. Nov. 1994]

XYZ International Limited goes into liquidation by an order of the Court

XYZ International Limited goes into liquidation by an order of the Court. The Official Liquidator is appointed as liquidator of the company. The Official Liquidator of the company decides to continue to carry on a business which is beyond the ‘objects’ as stated in the Memorandum of Association of the company, for the beneficial winding up of the company. The Official Liquidator took this step on his own; without consulting the members of the Company and without seeking the approval of the Court. The business was going on well. The shareholders of the company challenge the liquidator’s decision, on the ground that the business so started was ‘ultra vires’ the ‘objects clause’ and no sanction of the Court was obtained by the liquidator.

Considering the provisions of the Companies Act, 1956 decide giving reasons whether the contention of the shareholders is tenable, and the liquida

tor’s action for the beneficial winding up is in order? [November, 19911

18. XYZ Company Limited has DEI Limited as its subsidiary company, which is formed to carry out some of the objectives of XYZ Company Limited, by passing a resolution at its Extraordinary General Meeting, with effect from 1^st January 1990. The business so suspended continues to be suspended until 31^st March

1991. On 1^st April 1991, a group of shareholders of XYZ Limited file a petition. in the Court for winding up of the company on the ground of suspension of business by the compaI).Y.

(i) Would the shareholders’ contention be tenable?

(ii) What would be the answer in case XYZ Limited suspends all its business? Can shareholders of DEI Limited filE; a petition in the Court for winding up of their company (i.e., DE/ Limited), though DE/Limited has not suspended

its business. [May, 1991]

RECTIFICATION OF REGISTER OF MEMBERS

Since the register of members of a company contains names, addresses, occupations, if any, etc., of the members of the company and is a prima

facie evidence of matters which by laws must be entered therein, it is quite like that injustices may result from omissions or commissions in it. The power

of rectification of Register of Members is conferred on the Company Law Board under Section III of the Companies Act.

Section 111 (4) of the Companies Act provides that in case of a private company any person or member of the company or the company itself may apply

to the Company Law Board for rectification ofthe register of members on any of the following grounds:

.1. Where the name of any person is, without sufficient cause, entered in the register of members; or . .

2. Where the name of any person, after having being entered in the

Register, is without sufficient cause, omitted therefrom; or

3. Where .default is made; or unnecessary delay takes place, in entering in the Register the fact of any person having become, or ceased to be, a

member; or In case of a public company, the compa.ny must registertransfer within two months. Transfer can be refused only if it is against the provisions

of the Companies Act, SICA, FEMA, SEBI and other laws. Tlms, application for certificate of Register of Member can be made to CLB only if the company

refuses to register the transfer and n6t on any other ground [Sec. IlIA]

The Company Law Board may, after hearing the parties, either reject the application, or by order direct rectification of the Register and also direct the

company to pay damages, if any, sustained by any party aggrieved [Section 111(5)). The above provisions shall also apply in relation to the rectification of

the register of debentureholders.

Under Sectiori 467, the Court is also empowered to rectify the Register of Members on the winding up of a company in order to settle the list of

contributories.

Discuss the Rights and Liabilities of the Members of , Company.

When a person becomes a member of the company and his name is recorded in the register of members, he is entitled to several rights which can be

exercised by him either individually or collectively i.e. along with other members. These rights may be summed up as under:

1. Right to alter memorandum and articles of association of the

company.

2. Right to receive copies of certain documents, namely.

(i) Memondum of Association.

(ii) Articles of Association.

(iii) Balance Sheet and Profit and Loss Account of the company. (iv) Resolutions and Agreements (Section 192).

(v) Minutes of Proceedings of General Meetings (Section 196). (vi) Trust Deed (Section 118). 3 Right to inspect certain books or register’s, namely,

(i) Register of members and the index thereof.

(ii) Register of debenture-holders and the index thereof. (iii) Copies of all Annual Returns (Section ]63). (iv) Register of charges [Section 144(2»). (v)

brief note on ‘Undenniting Commission’

In order to ensure against tile risk that shares or debentures offered

to the public for subscription may not be taken up, it has become customary now-a-days for public companies to get their shares or debentures

underwritten before they arc offered for public subscription in return for a commission. An underwriter, therefore, is a person who agrees to take a

specified number of shares or debentures in the event of the public not subscribing for them in consideration of a commission which is called

‘Underwriting Conmlission’.

Section 76 prescribes certain conditions subject to which underwriting

commission may be paid. These are:

1. The payment of commission must be authorised by the articles.

2. The rate of commission should not exceed 5% of the price at which

the shares are issued. In case of debentures it should not exceed 2.5%.

3. The amount or rate per cent of the underwriting commission must be disclosed in the prospectus or statement in Iku of prospectus or in the st:1tement

filed with the Registrar (in case of a private company), as the case may be.

4. The number of shares or debentures which the underwriters have agreed for a commission to subscribe absolutely or conditionally must also be

disclosed in the prospectus or in the statement in lieu of prospectus.

5.A copy of the contmct for the payment of the commission shall be delivered to the Registrar at the time of delivery of the prospectus or the

statement in lieu of prospectus for registmtion. .

The underwriting agreement apart from being a !,’Uamntee to purchase unsold shares or debentllTes. is also an application for shares which are not taken

by the public.

6. Underwriting commission can be paid only in respect of shares or debcntllTcs which have becn offered to the public for subscription in the first

instance. Thus. if shares or debentures are not offered to the public for subscription.

If default has been made in complying with any provisions discussed abovc, the comprll1Y, and evcI)’ defaulting officer of the company shall be punishable

with a fine which may extend to Rs. 5,000.

A new Section 79 A has been added to the Companies Act

Companies (Amendment) Act 1999 authorizing the companies to issue equIty shares of

the companies to the employees and directors of the company at a price lower than the market price. Such shares are called ‘Sweat Equity

Shares’. Explanation second to Sec. 79 A defines the sweat equity shares as “equity shares issued by the company to employees or directors at a

discount (to market price) or for consideration other than cash for providing knowhow or making available rights in the nature of intellectual property right

or value additions by whatever name called”. Thus, these are not an independent class of shares. They are a kind of equity shares and all provisions

relating to equity shares shall be applicable to these shares.

A company may issue sweat equity shares subject to the following conditions- .

(i) The shares must be of a class already issued by the company.

(ii) The sweat equity shares can be issued only one year after the

company was entitled to commence business.

(i i i) The issue must be authorised by a special resolution by the company in general meeting. The resolution must specify thel1umber of shares, their

current market price, consideration, if any, and the class or classes of directors or employees to whom such shares are issued.

(iv) The sweat equity shares must be issued in accordance with the guidelines issued by the SEBI in case of listed shares and Central Government

guidelines in case of unlisted companies.

(v) A subsidiary of an Indian company can issue sweat equity shares to its Indian employees even if the subsidiary is incorporated outside India.

The issuer company shall forward a certificate duly signed

company and countersigned by the company auditor or a secretary in practice to the effect that the terms and conditions as issued by SEBI in this regard

have been complied with.

6. No bonus issue shall be made which will dilute the value or right of the holders of debentures, convertible fully or partly.

7. Bonus issues are not permitted unless the partly paid shares, if any are made fully paid-up.

8. The company-(a) has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on

redemption. thereof, and

(b) It has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund gratuity, bonus. etc.

9. A company. which announces its bonus issue after the approval of the Board of Directors. mut implement the proposals within a period of six months

from the date of such approval and shall not have the option of changing the decision.

10. The Articles of the company must contain a provision. for capitalisation of reserves or profits. If not, the company should get a resolution passed in

general meeting making such provision in the articles.

II. If, as a result of bonus issue. the subscribed and paid-up capital exceeds the authorised capital of the company, there is a need for a resolution in

general meeting for increasing the authorised capital of the company.

illegal association and its consequences

Combination of persons for the achievement of some common objective is called an .association. Sec. 11 of the Act 1956 provides the
maximum statutory limit of members who may run their business as a business of the association. Otherwise, they must get their business registered
under the Companies Act or under any other law of the country. The main aim of this provision is to put check on the large size of partnership firms
because such finn may invite confusion and uncertainty concerning the rights and liabilities of members and their relations with others. It is therefore
necessary to provide that every business association having a certain number of members must be registerd either as a company or a society or any
other corporate body, failing which it shall be regarded as an illegal association.An illegal association means an association formed in contravention of
Sec. II of the Companies Act, 1956. The said section states that 'no company association or partnership consisting of more than 20 persons (10 persons
in case of banking business) shall be formed to carry on any business for gain unless it is registered under the Companies Act or under any other Indian
law. It should be noted here that an association having number of its members below the statutory maximum need not be required to be registered under
any of the Indian law.Thus, an illegal association means an association which consists of more than 20 persons (10 in case of a banking
company) as its members, which is conned to carry on any business for gain (i.e. the main object of such an association should be to earn profits)
which is neither registered under the Companies Act 1956 nor has been conned in pursuance of any other Indian law.