Company law Question and Answer

ONE SENTENCES
1. What is the meaning of company?
2. What is meant by ‘Limited Liability’?
3. Who is a proxy?
4. What is meant by ‘Perpetual succession”?
5. What is an authorized capital of a company?
6. What do you mean by ‘Compounding of offences’?
7. State the difference between merger and amalgamation.
8. What is a producer company?
9. Who are First Director of a company?
10. What is the restriction laid down on the private company?
11. Who can form a OPC?
12. What is meant by company limited by shares?
13. What is the legal position of a promoter?
14. Is issue of a prospectus compulsory on the part of a company?
15. What is the golden rule or golden legacy?
16. Write the meaning of amalgamation?
17. What are dividends?
18. What is MOA?
19. Define member?
20. 2 powers of director?
21. What is mean by promoter?
22. Types of company?
23. What do u mean by Reconstruction of company?
24. What is Mis Statement?
25. Mention 2 types of Debentures?
26. What is Debenture stock?
27. What is Subsidiary Company?
28. What do u mean by Novation of contract?
29. What do u mean by charge?
30. What is an authorized capital of company?
31. What is Share Warrant?
32. What is Illegal association?
33. What do u mean by comprise and arrangement?
34. What is limited laid down on Private Company?
35. What class of company shall appoint Women Director?
36. Define Debenture
37. What is remuneration of director?
38. Who is registrar?
39. Define foreign Company.
40. When did company act, 2013 came into force?
 41. Define sweat equity shares.
42. List of kinds of director.
43. Define office liquidator
44. What do u mean by winding of company?
45. Give 2 difference between company and partnership firm
46. What is pre – incorporation contract?
47. What is doctrine of ultra-virus?
48. Who is shareholder?
49. What are the qualification of shares?
50. What do u mean by forfeiture of shares?
51. What is buy back of shares?
52. What is fix and floating charges
53. What is majority rule?
54. Who is director?
55. Define the term proxy.
56. What is doctrine of constructive notice?
57. 2 types of winding up company.
58. What is One Person Company?
59. What is ordinary resolution?
60. Who can be appointed as the director?
61. Define holding and subsidiary company
62. What do u mean by special resolution and ordinary resolution?
63. Explain lien on shares
64. How many minimum director to be there in private company must have?
65. Explain Foreign Exchange?
66. What is the quorum?
67. What are the cumulative and non - cumulative preference share?
68. What is call on shares?
69. What do you mean by uncalled capital?
70. Define Contributory.
71. Define ‘Intra – Virus’
72. What do you mean by ‘redemption of shares’.

SHORT NOTES
1. Who is Promoter? What is the legal position of Promoter?
2. Doctrine of ultra- virus.
3. Pre- Incorporations Contracts
4. Bonus Shares.
5. Difference between Sole Proprietorship and OPC.
6. Further issue of Shares.
 7. Vacation of office of director.
8. Corporate Social Responsibility.
9. Articles of Association
10. Types of Shares.
11. Company Secretary.
12. Kinds of Debentures.
13. Shares with Differential Voting Rights
14. Independent directors.
15. Winding up of Companies
16. Corporate personality.
17. One person Company
18. Promoters
19. Voting Rights
20. Prospectus
21. Lifting of corporate veil
22. Notice of Meeting
23. Doctrine of constructive notice
24. Duties of an auditor
25. Foss vs Harbottle
26. Current account transaction under FEMA
27. Prevention of oppression and mismanagement.

Protection of oppression and

mismanagement under company law
A company which is a legal institution comprising of individual running a business
together is maintained by appropriate management and ownership. But as it is an
institution run by individuals and humans are not infallible, errors are bound to be
committed. It may happen that the interests of some members of the company are
being overlooked and compromised by the action of directors or any authority
which may lead to oppression and mismanagement. Therefore to strike a balance
between the interests of various individuals involved in managing a company,
Chapter XVI of Companies Act, 2013 deals with prevention of oppression and
management. Earlier in the Companies Act there were well defined different
sections of possible oppression and mismanagement in the company but now they
have been combined in chapter XVI with sections 241-246 of the Act dealing with
the same.

Apart from provisions in the Act, active role is also been played by Judiciary in
mandating some guidelines that are requirements for a case of oppression and
mismanagement taking place in a company. [i]Moreover the Courts have helped in
distinguishing between acts of oppression and mismanagement and the ones which
are not. For instance, in case of ‘Sidhartha Gupta and Ors Vs. Getit Infoservices
Private Limited and Ors’[ii]it was held that only violation of rules and articles of
the company is not act of oppression and management.

The Act and Courts try to strike a balance between right of majority rule and right
of shareholders who are in minority as laid down in Foss v. Harbottle[iii].

Oppression and mismanagement

Oppression refers to subjecting someone (generally a minority) to maltreatment

and abuse and burdening them with troubles. It is the exercise of authority or
power in a burdensome, cruel, or unjust manner.[iv] It is a situation in which the
person is troubled mentally or physically which lead to adverse condition and
anxiety. Mismanagement, on the other hand, refers to poor management of the
affairs of the company with inclusion of possible favouritism and bias. The
Companies Act 2013 does not clearly define two terms but states it as the situation
when “the affairs of the company have been or are being conducted in a manner
prejudicial to public interest or in a manner prejudicial or oppressive to him or
any other member or members or in a manner prejudicial to the interests of the
company.” [v]If the conduct of the officials of the company is arbitrary and
prejudiced it is oppression and mismanagement. 

The judiciary has defined oppression in Supreme Court’s judgement as “lack of

probity and fair dealing in the affairs of the company to the prejudice of some
portion of its members. A clear illustration of mismanagement was
in Rajahmundary Electric Corporation v. Nageshwara Rao where the vice
chairman mismanaged affairs and drew amount from company for his personal
use. [vi] To prevent such misuse of powers the Act lays down various guidelines.

Application to tribunal to seek relief

Section 241and 242 of the Act provides for relief in cases of oppression which is
done by making application to the tribunal. [vii]The Act provides that under
section 241 of the Act an application can be made to the tribunal in case one of the
following conditions is fulfilled[viii]:
  If a member complains that affairs of the company are being conducted
in manner prejudicial to public interest or interests of a particular
member of the country.
 There is a material change in interests of creditors, debentures, or any
shareholders of the company by action of board of directors which is
likely to be arbitrary and prejudiced. One of the landmark cases which
expanded the scope of rights of shareholders who are oppressed by
other shareholders was Vikram Bakshi and Ors. Vs. Connaught Plaza
Restaurants Limited and Ors[ix].it was one of the major cases involving
oppression and mismanagement in companies.
 The central government believes that the interest of general public is
thwarted by the conduct of company.
These conditions are necessary to be fulfilled to prove oppression and
mismanagement.[x]

Powers of tribunal

The tribunal has been granted with powers under section 242 of the act to act and
solve matters on its own discretion if it thinks that company affairs are prejudiced
in any manner. [xi]. The reliefs are only provided depending on exigencies of the
situation.[xii]

Reliefs granted by the tribunal –

The tribunal might take following steps against oppression of interests and might
give orders which are as follows[xiii]:

 It might instruct the company to regulate it’s affairs in future.

 It might put restrictions on transfer or allotment of shares of the

company.
 It may provide for purchase of shares or interests and consequent
reduction of share capital.
 It may terminate or set aside an agreement between company and
directors after obtaining consent of the concerned party.
  It might provide for removal of managing directors or any directors.
Cyrus Mistry on the order of NCLAT lost his position as chairman of Tata
sons as his shareholders lost trust in him. [xiv]
 It may set aside transfer, delivery of goods, payment, execution or any
other activity related to property within 3 months of the application
made.
 It might provide for recovery of undue gain by any director or managing
director of the company which can include utilisation of protection
funds or payment to identifiable victims.
 It might provide for appointment of such number of people as directors
who have to report to tribunal as required.
 It may impose costs and fines as deemed fit.

Aftermath of order of tribunal 

After the tribunal pronounces a verdict, there are certain steps that have to be
followed by the company which are as follows[xv]:

1. The company has to file a certified copy of the order given by tribunal with the
registrar within 30 days of the order.

2. If the order of the tribunal makes an alteration in rules of the company than the
company cannot make any alteration inconsistent with the order given without
seeking permission of tribunal.

3. The alteration made by tribunal in memorandum and rules shall have same force
and effect as made by the company and has to compulsorily follow.

4. The order altering the companies’ memorandum should be registered with the
registrar within thirty days.

5. If the company alters without the permission, than it is likely to be penalised for
its conduct extending from 1 lakh to 25 lakh. Also the officer responsible is likely
to be imprisoned or penalised with a fine or might face both.
Consequences of order given under section 242(2)

After the tribunal grants these orders there are some consequences of the same
which the company has to strictly adhere to[xvi] –

 The order set aside has no claims against the company or whatsoever by
a person who has lost his office or severely affected by it.
 The MD or director who has been terminated from his position does not
have any claim and cannot be appointed back to the position before 5
years.
 But if the central government claim any right to be heard related to
order given, then it is granted the permission for the same.
 If the directors contravene with the order given and continue to hold
position, then they and other people involved are punishable with
imprisonment or fine whatever is suitable.
Apart from all these the tribunal may also make an interim order in order to
regulate the affairs of the company which it may deem fit. [xvii]

Right to apply- Individual action

The Act specifies on who can apply under section 241 individually against the
oppression and mismanagement of the company[xviii]:

If the company has share capital, than –

 Not less than one hundred or not less than 1/10 of total members
whichever of two is less.
 The members having share in the capital of company not less than 1/10
of issued share capital.
 The members have paid their dues and calls on their shares obediently.
If the company does not have share capital, than –

 Not less than 1/5 of the total members.

 Tribunal waves off the requirements mentioned earlier to apply for the
application.

Class action

The Act provides that all the members may appoint their representative who on the
behalf of others makes application for the benefit of all.[xix]

Entitlements to one or all order[xx] –

The individuals can seek one or all orders from the tribunal in case of oppression
and prejudice which are as follows –

 Restraining the company from committing act which is ultra vires to the
articles or memorandum of company
 Restraining the company from breaching the rules in memorandum of
the company
 If any alteration in articles of the company is made by suppression of
facts or mis-statement, such amendment is said to be declared void
 Refrainment on the action by the company and its directors.

 Restraining company from doing an act contrary to the provisos of

Companies Act 2013
 Restraining the company from performing against the resolution passed
by the members
 Claim damages or compensation against the conduct of the company.

 The tribunal may pass any other order it deems fit.

Who can apply?[xxi] –
The Act lays down guidelines for people who are entitled to apply under this
section-

 Members in case of company having share capital-Not less than 100

members or not less than per cent of total members as prescribed.
 Member holding not less than per cent  of issue capital as prescribed

 Members in case of company does not have share capital- not less than
1/5 of total members
 Depositors – not less than 100  or not less than such percentage of
depositors as may be prescribed
 Any depositors to whom the company owes such percentage of total
deposits of the company.

Procedure after admission of complaint[xxii]–

A public notice has to be serving to all concerned members and depositors after the
admission of complaint.

 Similar applications shall be taken as one and the class members have to
select a representative who would be the lead applicant. If no decision
can be made than the tribunal may appoint one.
 If there is same cause of action, there cannot be more than one
application.
 The cost is to be borne by company or the person responsible for
committing oppression and mismanagement.
 All orders passed by tribunal are enforceable and binding. If a company
fails to comply it is punishable with a fine or imprisonment.
 This section is not applicable to banking companies.
Important aspects to be considered by tribunal[xxiii]–
The tribunals are required to keep in mind some aspects while admission
complaints of class action:

 Whether the application is made in good faith.

 Whether it is made by some other person rather than the directors. It

was observed in one of the cases that “That the oppression complained
off must affect a person in his capacity…a director or a creditor is
outside the purview of the section.” [xxiv]
 Whether the matter is to be taken as right of the depositor or member.

 Whether there is possibility of some personal interest of member

making application.
 Whether the cause of action is yet to occur and has the scope of being
ratified or authorised. Mere declaration of low dividend which does not
affect the value of the shares of the petitioner was neither oppression
nor mismanagement in the eyes of law.[xxv]

Closing note

Oppression and misconduct are bound to occur and are part and parcel of business.
It is not uncommon in corporate world. In order to prevent the same and facilitate
smooth functioning of the companies, the provisions have been made in the Act to
save the members from oppression and mismanagement. The provisions are
powerful tool to prevent and punish for the same.

Reference

[i]S. P. Jain vs. Kalinga Tubes Ltd[1965],  AIR 1535, 1965 SCR (2) 720

[ii]Sidhartha Gupta and Ors vs. Getit Infoservices Private [2014], CA. No. 128/C-II of 2014 &
CP. No. 64(ND) of 2014

[iii]Foss v. Harbottle(1843) , 67 ER 18
[iv] Available at https://www.merriam-webster.com/dictionary/oppression, (last visited on 24
January, 2020)

[v] Section 241(1), Companies Act 2013

[vi]Rajahmundary Electric Corporation v. Nageshwara Rao [1956],  AIR 213, 1955 SCR

(2)1066

[vii] Section 241, Companies Act 2013

[viii] Supra, note 7

[ix] [2017]140CLA142, [2017]143SCL37

[x]Shanti Prasad Vs. Kalinga Tubes Ltd[1965], AIR 1535, 1965 SCR (2) 720

[xi] Section 242(1) ), Companies Act 2013

[xii]Sangramsinh P. Gaekwad& Ors.VsShantadevi P. Gaekwad [2005]6360 AND 6361 OF 2001

[xiii] Section 242(2), Company Act 2013

[xiv]Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd[2016],C.P. Nos. 82/241, 242,244/NCLT

[xv] Section 242(3-8)) , Companies Act 2013

[xvi] Section 243), Companies Act 2013

[xvii] Section 242(4), Companies Act 2013

[xviii] Section 244 , Companies Act 2013

[xix] Section 245, Companies Act 2013

[xx]Section 245(1), Companies Act 2013

[xxi]Section 245(3), Companies Act 2013

[xxii]Section 245(5), Companies Act 2013

[xxiii]Section 245(6-10), Companies Act 2013

[xxiv]Rao (V.M) v. RajeswariRamakrishnan [1987], 61 CompCas 20 Mad

[xxv]JaledharChakraborty v. Power Tools Appliances Co. Ltd.,(1994) 79 Comp. Cas. 505

28. Company and Partnership firm

29. Statement in line of prospectus.
30. Transfer of shares
31. Indoor Management.
32. Annual General Meeting
33. Resolutions
34. Reconstruction and Amalgmation
35. Directors of Company
LONG ANSWER
1. Explain the procedure for Incorporation of a company under the Companies Act,
2013?
2. Discuss the various kinds of Share Capital. How is the Preference share capital
distinguished from equity share capital?
3. Define a ‘Member’. Distinguish him from a shareholder. In what ways a person can
become and cease to be a member of the company?
4. Explain in detail, the provisions as regards Buy-Back of securities by the companies.
5. Name the difference types of prospectus and explain red Herring Prospectus and
Shelf Prospectus
6. State the provisions of the companies Act, 2013 relating to issue of Sweat Equity
Shares
7. State the purpose of Memorandum of association and explain its contents and
differentiate between two
8. What are the qualifications of a director? When is a person disqualified for
appointment as a director of the company? What are the rules as regards
disqualifications of Directors?
9. Explain the nature and characteristics id a company with the relevant case laws.
10. Explain Memorandum of association and articles of association
11. What do you understand by the corporate veil and when is it disregarded? Explain
with the relevant case laws.
12. Discuss in details the contents and the types of prospectus
13. Explain in detail the essential steps in the formation of a company and the role of a
promoter? Discuss in detail pre- incorporation contracts.
14. Define Shares of a company. Discuss in detail kinds of shares, allotment, transfer,
transmission and forfeiture of shares.
15. Give a detailed analysis of the various kinds of the company
16. Explain in details the legal provisions: 1 Articles of association 2. Prospectus
17. The memorandum of association is foundation of company and limiting the power of
company - explain
18. Define ‘company’ and describe the characteristics of company. Explain the doctrine
of lifting of the corporate veil
19. Explain the Principle involved in case laws:
1. Royal British Vs Turquand
2. Salomon Vs Salomon & Co. Ltd
20. Define prospectus. When a company does not required to issue prospectus? Explain
in detail.
21. Explain the essential step in the formation of a company & role of Promoter. Discuss
the pre- incorporation contracts.
22. Elaborate the terms :
1. Debenture
2. Dividends
3. Charge
4. Borrowing power of the company
23. What are the different kinds of meeting of the shareholders of a company? When and
how are these meetings held?
24. What do you understand by the winding up of a company? What are the different
modes of winding up?
25. Elaborate the concept and modes of winding up of companies
26. Write an essay in Board of directors and its committees
27. Explain the role of auditors mentioned as under the companies act
28. Define prospectus. Explain in detail registration, effects if misstatement and penalties
of the same
29. Explain the doctrines of Ultra – virus, constructive notice and Indoor Management
30. Define Majority power and Minority Rights. Explain the principle of non –
interference supported by relevant case law
31. Define Body corporate. Describe provisions relating to formation of companies
32. Explain in details about membership in a company
33. Details types of company meetings of a company. Explain the provision related to the
meeting of a company
34. What is a company? Examine in detail the types of companies
35. Various kinds of companies and distinguish between partnership firm and company
36. Discuss in details about the position of promoter their duties and liabilities
37. Explain the provisions relating to audit and accounts under Indian companies act,
1956
38. Explain legal contents of memorandum o association and doctrine of constructive
notice and indoor management?
39. Define corporation, discuss the various kinds of companies. Differentiate partnership
firm and company.