Chapter 1 Merged

Chapter 1
Concept and Nature of Company
1.1Objects andpurposes ofintroducing

law relating to companies
To encourage investments in companies by providing certain
(i)
facilities eg. limited liability, easy transferability of shares;
To ensure due and proper administration of the funds and assets
(i) of companies in the interest of the investors;
(ii) To prevent malpractices by directors and managers
(iv) To provide
mechanism for investigation into the affairs of
companies and also provide for effective audit in dealing with
cases of dishonesty and fraud in the corporate sector.
Bangladesh law in
1.2 Origin and development of company
law relating to companies is known as the
In Bangladesh the present
The present Act is based on the
Companies Act, 1994{Act No.18 of 1994).
structure of the Companies Act 1913.
Indian sub-
The efforts to make statutory laws relating to companies in the
Act
continent actually started from 1850 with the passing of the Companies
made and ultimately the
in that year. There after several amendments were
Indian Companies Act, 1913 was passed consolidating
the laws relating to
Act of 1908. The 1913
companies and associations, based on the English
Act was amended in 1914, 1915, 1920, 1926, 1930, and 1932. Major
1946,Thereafter the law continued
amendments were made in 1936 and in
0 remain in force with amendment only. The word 'India' in the name of
omitted and thus the name of thelaw as changed into simply
ACt was the Companies
une CompaniesAct, 1913. After liberation of Bangladesh
the Companies Act, 1956
remained in force. However, in India
was
adopted replacing 1913 Act.
The Companies Act, 1994 was passed by the Parliament on 12 September
1994
* 0n the basis of the recommendations of the Law Reforms Committee
Set
na . The recommendations were to remove the vacuum in the law
and to foreign
surge especially with regard
of problems
the
stments. The Act came into force with effect from the 1"day of January
1995 . It i to be
to note that through out the discussion, Sections,
referredortant
shall mean
an Sections of the Companies
Act 1994.
428 Text Book of Commercial Law
1.3 The salient features ofthe Companles Act 1994
The Companies Act 1994 underscores some features, which are as follow
ws:
1. It provides provisions for the effective maintenance
of
accountability on the working of the Board of directors;
2. It provides provisions preserving the rights of the
minority
shareholders;
3. It provides provisions to safeguard the interest of theinvestors
4. It contains provisions to open the affairs of the company to
the
public regarding the relation between the holding company and
subsidiary company;
5. It lays down provisions removing the disparity between the
companies in the private and public sector; and
6. It states the provisions allowing the formation and dissolution of
the companies more easily and to remove
govermmental control
over the affairs of the management of the company.
1.4 What is company?
The word 'company' has strictly legal meaning. The dictionary meaning
no
of 'company' is assembly i.e. gathering of a number of persons together. The
word company is traced from 1150 A.D (CE) from French
term campaignie
or body of soldiers and from
Latin companio (companies). The use of the
word in a sense of "business association" was first recorded
in 1553, having
earlier been used in reference to trade
guilds (1303) i.e. an association of
craftsmen in a particular trade.
Generally speaking, a
company is a
voluntary association of number of
persons or individuals or people formed for some common
of economic objects in terms
reality i.e. to carry on a business for profit or gain.
Lindley, Lord Justice: defines a company as:
an association of many
persons who contribute money to a common stock
and employ it in some common trade
or business. The
common stock so
contributed is denoted in money and is the
persons who contribute it or to whom it
capital the Company. The
of
proportion of capital to which each member isbelongs

are members. The
are always transferable

entitled is his share. Shares
less restricted".
although right transfer them is often more or
the to
A more
comprehensive legal definition of a company giving its main
essentials has been given by
Haney: as "A company is an incorporated
association, which is an artificial person created
entity, with a by law, having a separate
perpetual succession and a common seal."
Company Law 429
According to the Companies Act, 1994:
Company' means a company formed and registered under the Companies
Act or an existing company [Sec. 2 (1)(c).
Thus the word 'company' may be described as association of a number of
persons, formed for some common purpose and registered according to the
Companies Act, 1994 usually having the word Limited' e.g. Beximco
Phamaceuticals Limited, Dhaka', The Structural Design & Engineering
Ltd, Dhaka etc.
An 'existing company' means a company formed and registered under any
ofthe former Companies Acts" [Sec. 2(1(h)].
The Act excludes unregistered companies within the meaning of the Act,
1994. So, in our study we will make focus on registered companies.
1.5 Characteristics of a registered company
I. Legal personality distinet from its members: A company is regarded
as an entity separate from its members. In other words, it has an
independent existence. Any of its members can enter into contracts with t
in the same manner as any other individual can and he cannot be held liable
for the acts of the company even if he holds virtually the entire share
capital. The company's money and property belong to the company and not
to the shareholders (although the shareholders own the company).
The importance of the separate entity of a company was very well brought
out in the following English cases:
Salomon v. Salomon & Co. Ltd., (1897) A.C. 22. One

Aaron Salomon, an
established leather and boot manufacturer, together with six other persons
four limited company, namely
sons) registered a
(his wife, one daughter and
Salomon & Co. Ltd. Salomon sold his leather boot business to a newly
His wife, one daughter and four
formed a limited company for £ 30,000.
sons took up one share of £ l
each. Salomon took 23,000 shares of£ l each
The debentures gave Salomon a
and £ 10,000 debentures in the company.
assets of the company as
the consideration for the transfer
charge over the
was wound up, its assets
of the business. Subsequently when the company
and its liabilities anounted to £ 17,000 of
were found to be worth of f 6,000
and f 7,000
Salomon (secured by debentures)
which f 10,000 was due to
were insufficient
to neet both the secured
due to unsecured creditors and credtors claimed that
and unsecured creditors in
full. The unsecured
same person and that the
were one and the
Salomon and the company should be paid in
Salomon and hence they
a mere agent for
Company was secured debt postponed
tried to have the
priority to Salomon. The liquidator
creditors. The House of Lords unanimously held
To theclaims of unsecured the company was duly
also that as soon as
against the liquidator and held
430 Text Book on Commercial ILaw
Incoporated it became, in the eyes of the
law, a separate nes.
ndependent from Salomon and was not his agent. Although Salomoncrseon
virtually the holder of all the shares in the company
yet he was also
creditor secured by its debentures and was therelore entitled a
pnority to the unsecured creditors.

to
repaye nt n
The decision of Saloon case was followed in the United

numerous cases. In latest Kingdom in
English
a of J.H. Rayner (
case
Mincing Lanei
Lrd Department of Trade and Industry. ( 1989) 3 WLR 969 which
out of the
collapse of the International Tin Council in l985 and left it arose
millions of pounds to a number of metal traders and banks. owing
The Council had
been formed by several states and the Council's creditors
its debts from those sought to recover
member states. The House of Lords first decided
the Council was a corporate that
body with its own separate legal personality
distinct from its members and held that
only the Council and not its
members could be liable for the debts. The creditors were
left to the
repeated exhortations in the various judgments to the member Governments
to meet their moral
obligations.
IL. Limited liability: A
company may be a company limited by shares or a
company limited by guarantee. In a company limited by shares, the liability
of members is limited to the
unpaid value of the shares. For example, if the
face value of a share in a company is Tk. 10 and a member has
Tk. 7 per share, he can be called already paid
upon to pay not more than Tk. 3 per share
during the lifetime of the company. In a company limited by guarantee, the
liability of members is limited to such amount as the members may
undertake to contribute to the assets of the
company, in the event of its
being wound up.
In the of
case
company limited by shares, the liability of members is
a
limited to the unpaid value of the shares. For

example: if the face value of'a
share of a company is Tk. 100 and a member has
already paid Tk. 90 per
share, he can be called upon to pay not more than Tk. 10 per share
the lifetime of the company. In the case
during
of company limited by guarantee
a
the liability of menmbers is limited to such
amount as the members may
undertake to contribute to the assets of the
con1pany in the event of its being
wound up.
II. Perpetual succession and a common seal: A company is a juristic
person with a perpetual succession and a comon
seal. AS such it never
dies; nor does its life depend on the life of its
manner affected
members. Iu is not in any
by bankruptcy, mental disorder or retirement of any ot S
members. It is
created by a process of law and can be
a
process of law. Members may come and put an end to only y
go but the company can go
ever (until
dissolved). It continues to exist even if all on 0
its human members
Company Law 431
Even where during the war a bomb killed all the members of a
are dead.
private company, while in general meeting, the company survived, not even
a hydrogen bomb could have destroyed it. Since a company has no physical
entered into
existence, it must act through its agents and all such contracts
be under the seal of the company. The agents of the
by its agents must
are the
company must use seal of the company. For example: Five persons
only members of a private company. All of them go in a boat on a pleasure
drowned.
trip into the open sea. The boat capsizes and all the five die being
Is the private company no longer in existence? Held, the private company
will continue a legal entity as it has a perpetual succession.
Iv. Separate property: A company is a legal person distinct from its
members. It is therefore, capable of owning, enjoying and disposing of
property in its own name. Although its capital and assets are contributed by
its shareholders, they are not the private and joint owmers of its property.
The company is the real person in which all its property are vested and by
which it is controlled, managed and disposed of.
V. Transferability of shares: The capital of a company is divided into
parts, called shares. These shares are, subject to certain conditions, freely
transferable, so that no shareholder is permanently or necessarily wedded to
a company. When the joint stock companies were established the great
object was that the shares should be capable of being easily transferred
(Sec. 38).
VI. Capacity to use and to be sued: A company can sue and be sued in its
corporate name. It my also inflict or suffer wrongs. It can in fact do or have
done to it most of the things which may be done by or to a human being.
VIL. Borrowing powers: The company can borrow loan in its name.
1.6 Different types of companies
Companies can be classified into various kinds from different basis. They
are as follows:
1.6.1 Classification on the basis of incorporation
I. Chartered companies: These are the companies, which are
incorporated under a special Charter granted by King or Queen in
England (known as Royal Charter). Example: The East India
Company, The Bank of England. These are no longer in existence in
Bangladesh.
II. Statutory companies: These are the companies which are created by
a special Act of the Parliament. Companies intending to carry on
some business of national importance are formed in this way e.g.
Bangladesh Bank, Jiban Bima Corporation etc.
Text Book on Commercial Law
432
III. Registered companies: These are the companies, which are forn
and registered under the Companies Act 1994 or earlier Act. It ma
however be noted that Insurance and Banking companies thoh
incorporated under the Companies Act are also govened for most of
their operative matters by the provisions of the special Acts, viz..The
Insurance Act, 2010, The Bank Companies Act 1991. The provisione
of the Companies Act will be applicable to these companies only to
such extent as these are not inconsistent with those contained in the
special Acts governing them.

1.6.2 Classification on the basis of liability
I. Companies limited by shares;
II. Companies limited by guarantee;
II. Companies with unlimited liability.
1.6.3 Classification on the basis of number of members
I. Private company;
IL. Public company.
the Companies Act, 1994 there are mainly three kinds of
According to
companies:
I. Companies limited by shares [Sec. 5(a)];
II Companies limited by guarantee [Sec. 5(b)]:
II. Companies with unlimited liability [Sec. 5(c)]
Company limited by shares: those companies in which the capital is of
are
fixed amount divided into number of shares and in which the liability of the
members is limited to the face value of his shares. This is the most common
form of company [Sec. 5(a)].
Companies limited by guarantee: are those companies in which the
liability of the members is limited to a fixed amount, which he/she
guarantees or undertakes to contribute to the assets of the company in case
of the company is wound up during his membership or within a year ater
conclusion of his membership [Sec. 5{5)).
the
Companies with unlimited liability: are those companies where
liability of the members is not limited. Such company may or may not have
a share capital. The members of such company are not exempted from
personal liability of different acts [Section 5(¢)].
Private company: A private company is a company which by its Articles
of association:
() Restricts the right to transfer its shares, if any;
o
(1) Prohibits any invitation to the public to subscribe for its shares
debentures, if any;
Wno
(11) Limits the number of its members to fifty not including persons
are in its employment [Sect. 2(10q).
Company Law 433
In America a private company is commonly known as 'close corporation.

loint holders of shares e.g. two or more persons holding shares in a private
company are treated as a single member.
The word "limited' must end with the name of the company e.g., "Private
Limited or Ltd".
Public company: A public company means company, which is not a
private company [Sec. 2(1T)).

In other words, it is a company, which can be formed by at least seven
persons as members and does not by its Articles limit the maximum number
of its members (i.e. membership is open to the public) and can invite public
for the subscription of its shares and debentures.
Thus the minimum number of members required to form a public company
is seven.
The word "limited" must end with the name of the company e.g., "Public
Limited or Ltd".
1.6.3.1 Distinction between private company and public company
be distinguished from a public company on the
A Private company can
following points:
1. Minimum num ber of member_: The minimum number of persons
case of a
to form a
required company is seven. It is two in
public
private company.
2. Maximum of members: There is no restriction of
number
whereas the
maximum number of members in a public company,
maximum number cannot exceed fifty in a private company.
must have at least three
3. Number of directors: A public company
at least two
directors. Whereas,
a company must have
private
of a public
directors. But where a private company is a subsidiary
a private company must
have three directors
company, in that case,
(Sec. 90).
directors: In the case of a
4. Restriction on appointment of
the directors must file with the Registrar
public company,
to take up
director or sign an undertaking
consent to act as need
shares. The directors of a private company
qualification
not do so (Sec. 92).
the shares are
Transferability of shares: In a public company,

shares
5. to transfer
In a private company the right
freely transferable.
is restricted by the Articles.
434 Text Book on Commercial Law
6. Restriction on invitation to subscribe for for shares: A

company invites the general public to subscribe for the shar public
debentures of the company. A private company or t
by its Arti the
prohibits any such invitation to the public [Sec.2(1 )(q1
7. Prospectus: A public company must issue prospectus
allowing allotment of shares. A private company may allot before
without issuing a prospectus or delivering to the Register a shares
stateme
ment
in lieu of prospectus. (Sec. 138)
8. Commencement of business: A private company can commenee
business immediately on incorporation. Whereas, a public company
can not do so (Sec. 150).
9. Statutory meeting and report: A private company need not hold

statutory meeting or file with the Registrar the statutory report. A
public company is required to hold statutory meeting and file with
the Registrar statutory report (Sec. 83).
10. Special privileges: A private company enjoys some special
privileges. A public company enjoys no such privileges.
Classification of a limited company at a

glance
Company
Company Limited
Company Limited Company with
by Shares by Guarantee Unlimited Liability
Private
Public
Company Company
It is
important to note that all these
according to the
Companies Act, 1994. companies should be stered
regisei
Company Law 435
1.6.3.2 Conversion private company into public company and vice

of
231 and 232)
versa (Secs.
Conversion of private company into public company (Sec.231): If a
private company, having least seven members alterS its

at
company being a
include the provisions which,
Articles in such manner that they no longer
to be included in the Articles of a company
in order to
are required
constitute it a private company, the company-
(a) shall as on the date of the alteration cease to be a private company;
and
after the said date, file with the
(b) shall within a period of thirty days
of prospectus
Registrar prospectus or a statement in lieu
either a
and the reports specified
containing the particulars set out in Part I have
Parts I and II shall
in Part II of Schedule IV and the said
in Part III of that
effect subject to the provisions contained
Schedule to the Companies Act.
and
If default is made in complying with above
requirements, the company,
who is in default, shall be punishable
also every officer of the company or with fine
which may extend to two years,
a term
with imprisonment for
or with both.
which may extend to five thousand taka,
statement in lieu of prospectus
filed under this
Where any prospectus or authorised the filing
person who
section includes any untrue statement, any for a
shall be punishable with imprisonment
of such prospectus or statement which may extend to five
extend to two years, or with fîne
term which may
unless he proves either that the
statement was
thousand taka, or with both,
reasonable ground to believe, that
the statement
immaterial or that he had
was true.
conversion-
For the purposes of this
statement in lieu of
statement included prospectus or a
in a
(a) a
deemed to be untrue if it is misleading
in the
prospectus shall be
which it is included; or
form and context in
or a statement in lieu of
(b)
(6) where the omission from prospectus
the prospectus or
matter is calculated to mislead,
prospectus of any
shall be deemed, in respect of such
statement in lieu of prospectus
or a statement in
lieu
of prospectus in
omission, to be a prospectus
is included.
which an untrue statement
reference to a prospectus or
The expression "included" when used with
means included in the prospectus or
statement in lieu of prospectus,
itself or contained in any report or
statement in lieu of prospectus,
the face thereof, or by relerence incorporated
Memorandum appearing on
therein.
1.6.3.3 Conversion of a public company into private company (Se.-

A public company, having not more than fifty members at the im
conversion, may be converted into a private one by passing a
resolution altering its Articles so as to exclude provisions, if any, special
in s
Articles of association applicable to public company and include therei
provisions applicable to a private company. the company has secured
creditors, their written consent shall have to be obtained before passing a
resolution and the shares enlisted with the Stock Exchange shall have to he
delisted.
1.6.4 Others: classification on the basis of control
I. Holding company: A company is known as the holding
company of
another company if it has control over that other company.
1. Subsidiary company: The Companies Act, 1994 provides elaborately
for the definition of subsidiary company. This definition of a
subsidiary
company follows the definition given in section 4 of the Indian Companies
Act 1956.The definition intends to capture the spirit of the
relationship
between a company and another. The Companies Act,1994 defines
'subsidiary company' in the following terms:
A company shall be deemed to be a subsidiary of another, if-
(a) that other controls the composition of its Board of directors of the
first mentioned company; or
(b) the first mentioned company, being an existing company, has
before the commencement of this Act, issued preference shares the
holders of which have the same voting rights in all respects as the
holders of equity shares and that the other company exercises or
controls more than half of the total voting power of the first
mentioned company; or
(C) the frst mentioned company is not a subsidiary but that other
company holds more than half in nominal value of its equity share
capital; or
(d) the first mentioned company is a subsidiary of a third company
which is that other's subsidiary [ Sec.
2(2)].
The composition of a company'sBoard of directors shall be deemed to be
controlled by another company if, that other
company, by the exercise or
some power exercisable
by it at its discretion without the consent or
concurrence of any other person, can appoint or remove the holders of all or
a
majority of the directors. In this regard, other
have power to company shall be deemea
appoint to directorship with respect to which any or
"
following conditions is satisfied, that is to say-
Company Law 437
favour of
(a) that power of appointment cannot be exercised except in
an individual;
from his
(b) that an individual appointment thereto follows necessarily
appointment director, managing agent, secretary or manager o1,
as
or
or to any other office of employment in, that other company,
that the directorship is held by an individual nominated

by that
c)
other company or a subsidiary thereof [ Sec.2(3)]. the
whether one company subsidiary of another
is a
In determining
following conditions shall be applicable namely:- in a
that other company
power exercisable by
(a) any shares held or
exercisable by it;
capacity shall be treated as not held
or
fiduciary be the
held or power exercisable
shall be deemed to
shares
(b) any
that other company, i1
shares held or power exercisable by as a
the is exercisable by a person
held or power
(1) the shares are that other company.
But it shall not
nominee and on behalf of
exercise of such
the of such shares or to the
holding
apply to is concerned
such person where that other company
powers by
in a fiduciary capacity; subsidiary
held or the power is
exercisable by a
(ii) the shares are
of such subsidiary.
But
or by a nominee
of that other company of such shares or
to the
not apply to the holding
it shall its nominee
such by the subsidiary or by
exercise of powers
is concerned in a fiduciary capacity
where the subsidiary virtue of
power
exercisable by any person by
shares held or
company
(c)
(c) Any debentures of the
first-mentioned
the provisions of any of such debentures shall

deed for securing any issue
or of a trust
be disregarded, exercisable, not being held or

shares are held or power is
(d) if any
exercisable -
nominee
by its subsidiary by and
or a
or
that other company
(i) by its subsidiary, as
the case may be,
of that other or
he case may
business of that
other company or as
(i) the ordinary of money and such
includes the lending
be of its subsidiary is exercisable by way
of security
held the power
treated as being held
or
shares are
shall not be
such power
of the loan then its nominee [Sec.2 (4)].
company or
exercisable by such
or another if, and
the holding company of
deemed to be
A company shall be
is its subsidiary [Sec. 2(5)) another company when
only if, that other subsidiary of
is known as
the former
Thus in hort a company holding company over
the latter (called controls the
control is exercised by latter company
i.e. where the
(called subsidiary company
30-
438
directors, holds the majority shares of fo
composition of Board of mer
company and the former company is itself the subsidiary of ther
company.
Example: Company S subsidiary of a Company H and Company Sti
is a
of company H 1
subsidiary of a Company S. Company S1 is a subsidiary
the Company $2 is a subsidiary of Company S1 Company S2 will be a
subsidiary of Company S and consequently also of Company H. The
following chartexplains the point
Company H( Holdingcompany)
Company S1 (Subsidiary of Company H)
Company s2 (Subsidiary of Company S1)
Company S3 (Subsidiary of Company S2)
Company S3 and Company $2 are subsidiaries of Company H.

The concept of holding company and subsidiary companies is legacy of
English law which requires the preparation and publication of a set of group
accounts. Section 186 of the
Companies
Act 1994 requires a holding
company to file certain documents relating to the subsidiary companies. The
Courts in other countries have viewed the
group as a 'single unit."([See,
also M. Zahir, Companies and Securities Laws,
UPL, (2005) p. 10]
1.6.5 One man company or family
company
It is usually private company. When a single person holds
a
shares of a company, and in order to practically the
meet the legal requirements ot
minimum members few nominees or
dummy members who are mostly his
relatives or friends holds one or two shares.
Such a company can be callea
one man
company or family company or individual
company This company has also legal entity separate and ownership
of a
distinct from the
owner of the majority of the shares.
Company Ltd. Example: Salomon . Salomon and
Illustration: Share capital of Tk.

took 499 shares, one held 5,00,000 divided into 500 shares. Mr. s
by his wife.
Company Law 439
1.6.6 Classification the basis of ownership
on
1. Government company: A Government company is one in which not

less than 51% of the paid up share capital is held by the Government.
The Subsidiary of such company is also a Government company.
2. Non-government company: are other than those Government
companies.
1.7 Joint stock company
Definition of joint-stock'company (Sec. 355)
For the purpose of registration of companies limited by shares, a joint-stock
company means-
(a) a company having a permanent paid up or nominal share capital of

fixed amount divided into shares, also fixed amount, or held and
transferable as stock or divided and held partly in one way and
partly in the other; and
(b) formed on the principle or having only for its members as the
holders of those shares or that stock and for no other person.
Such a company, when registered with limited liability under this Act, shall
be deemed to be a company limited by shares.
Requirements for registration ofjoint-stock companies (Sec.356)
Before the registration of a joint-stock company, there shall be delivered to
the Registrar the following documents, that is to say-
(a) alist showing the names, address and occupations of all persons
who on a day named in the list not being more than six clear days
before the day of registration, were members of the company with
the addition of the shares or stock held by them
respectively
distinguishing in the case where the shares are numbered, each
share by its number;
(b) a copy of deed of settlement, contract of co-partner or other
instrument constituting or regulating the
company;, and
(c) if the company is intended to be
a statement
registered as a linmited company,
specifying the following particulars, that is to say-
(i) the nominal share capitaï of the company and the number of
shares into which it is divided or the amount of stock of
which it consists;
(ii) the number of shares taken and he amount paid on each
share;
(i) the name of. the conmpany with the addition of the word
"Limited'" as the last word thereof, and
(iv) in the case of a company intended to be registered as a
company limited by guarantee, the resolution declaring the
amount of the guarantee.
1.8 Foreign company

These are foreign companies, incorporated outside Bangladesh which, has
a place of business within Bangladesh. For example, where representative
of a foreign company frequently come and stay in a hotel in Bangladesh for
purchasing raw materials e.g., jute etc., the foreign company has place of
business in Bangladesh.
Rules applicable to foreign companies
Sections 378 to 387 of the Companies Act apply to foreign companies.
Documents, etc. to be delivered to Registrar by foreign companies
carrying on business in Bangladesh (Sec.379): Every foreign company,
shall, within one month of the establishment of the place of business in
Bangladesh, deliver to the Registrar for registration-
(a) a certified copy of the charter or statutes or Memorandum and
Articles of the company or other instrument constituting or
defining the constitution of the company; and if the instrument is
not written in Bengali or English language, a certified Bengali or
English translation thereof,
(6) the full address of the registered or principal office of the
company
(c) a list of the directors and secretary, if any, of the company;
(d) the name and address or the names and addresses of one or more
persons resident in Bangladesh, authorised to accept on behalf of
the company service of process and any notice or other
documents required to be served on the company;
(e) the full address of the office of the company in Bangladesh
which is to be deemed its principal place of business in
Bangladesh.
If any alteration is made or occurs in-
(a) the charter, statutes, or memorandum and articles of a foreign
company or other instrument constituting or defining the
constitution of a foreign company, or
(b) the registered or principal office of a foreign company, or
(c) the directors or secretary, if any, of a foreign company, or
(d) the names and addresses of the persons authorised to accept
service on behalf of a foreign company, or
(e) the principal place of business of a foreign company in
Bangladesh, the company shall, within the prescribed time, file
with the Registrar a return containing the prescribed particulars
of the alteration.
Company Law 441
Accounts of foreign company (Sec.380): Every foreign company shall, in

every calendar year
balance sheet and profit and loss account or in the
(a) make out a
an income and,
for profit,
case of company not trading
a
group
expenditure account the company 1s holding company, and
a
accounts, in such a form,

and containing such particulars
under the provision of the Act it
including such documents, as
within the meaning of this Act,
would, ifit had been a company
have been required to make out
and lay before the company in a
general meeting; and.
to the Registrar.
(b) deliver three copies of those documents
the official Gazette, direct that
But the Government may, by notification in the
class of foreign companies
in the of a foreign company or
case
shall apply subject to such
of clause (a) shall not apply, or
requirements
in the notification.
and modifications as may be specified
exceptions
not written in Bengali
or English language, there
If any such document is
certified translation thereof.
shall be annexed to it a
(Sec.381): Every
Obligation to state name, etc. of foreign company
foreign company shall-

subscription in Bangladesh for its
prospectus inviting
(a) in every
state name
which the
of the country in
shares or debentures,
company is incorporated;
the outside of every
office or place
(b) conspicuously exhibit on
the name of the
business in Bangladesh,
where it carries on in the
and the country in which it is incorporated,
company
character,
letters easily legible in Bengali or English
in which the
the of the company and of the country
name
(c) cause
to be stated in legible Bengali
or
company is incorporated,
and in all
characters in all bill heads and letter paper,
English
notices and other official publications
of the company; and
of the company is limited, cause
a
(d) if the liability of the members
notice of that fact-
as aforesaid and in all
i) to be stated in every such prospectus
advertisements and other
bill heads, letter paper, notices,
in legible Bengali or
official publications of the company,
English characters;
exhibited on the outside of every office
(ii) to be conspicuously in
or placewhere it carries on business in Bangladesh,
characters.
legible Bengali or English
Service of notice on foreign company (Sec.382): Any process, notice

other document required to be served on a foreign company shall
de
deemed to be sufficiently served, if addressed to any person resident
in
Bangladesh authorised to accept on behalf of the company and left at.
or
sent by post to the address which has been so delivered under that section
to
the Registrar.
But
(a) where any such company makes default in delivering to the
in pursuance of that section the name and address ofa
Registrar
person, or
(b) if at any time all the
person whose names and address have been
delivered to the Registrar are dead, or ceased or have ceased
to so
reside at those addresses, or refused to
accept on behalf of the
company any process, notice or other document, or, those
cannot be
served or sent for any other reason, such
document may be served on
the company by
leaving it at, or
sending it by post to, any place of
business established by the
Notice of ceasing place of business Bangladesh.
company in
foreign company ceases to have a placeofof business
a
company (Sec. 383): If any
in
forthwith give notice of the fact to the Bangladesh, it shall
which notice is so given, the Reg1strar, and as from the date on
document to the
obligation of the company to deliver any
Registrar shall cease,
provided it has no other
business in Bangladesh. place of
Failure to
comply with
fails to comply requirements( Sec.384): If any foreign
with the
requirements of law laid down in in Part company
Act ( Sections 378-392), the X of the
company shall be punishable with
may extend to one thousand taka, or, in a fine which
the case of a
with an additional fine of five hundred continuing offence,
taka for
during which the default continues; and everyday after the first day
every
company who is knowingiy and wiluly, makesofficer or agent of the
punishable with the same fine. such default,
shall be
However, any failure by a toreign
company to comply with
foregoing provisions of this Part sail any of the
dealing or transaction entered into by not aiect the
validity any contract
of
in respect thereof. But the tne company
or its
liability to be sued
company shall not be
entitled to
institute any bring any suit,
claim any set off, make any counter claim or
transaction untillegal
in respect of any such contract, dealing or
with the provisions of this Part ( Sec. 385).
it proceeding
complied
Fees for registration of documents under this Part
be paid to the Registrar for registering (Sec.386):
documents shall The fees
be a The fees to
as
Schedule Il to the Comnpanies Act. specified in
Company Law 443
Restriction on sale and offer for sale of shares (Sec.388): (1) It shall not
be lawful for any person-
(a) to issue, circulate or distribute in Bangladesh any prospectus offering to
the public for subscription to shares in or debentures of a company
incorporated or to be incorporated outside Bangladesh whether the
company has or has not established, or when formed will or will not
establish, a place of business in Bangladesh, unless-
(1) before the issue, circulation or distribution of the prospectus
in Bangladesh a copy thereof, certified by the chairman and
two other directors of the company as having been approved
by resolution of the managing body, has been delivered for
registration to the Registrar;
(i) the prospectus states on the face of it that the copy has been
so delivered;
(ii) the prospectus is dated; and
(iv) the prospectus otherwise complies with this Part; or
of application for
(b) to issue to any person in Bangladesh a form
shares in debentures of such a company or intended company as
or
which
aforesaid unless the form is issued with a prospectus
complies the requirements of this
Part.
form of application was issued

But it shall not apply if it is shown that the
invitation to a person to enter into an
in connection with a bonafide
debentures.
underwriting agreement with respect to the shares or
existing members or debentures
apply to the issue to
(2) This shall not
or form of application relating
holders of a company of a prospectus
to shares in or debentures of
the company, whether an applicant for
the right to renounce in favour of
shares or debentures will not have
to a prospectus or form of
other persons. But, it shall apply
to the formation of a
application whether issued or with reference
company or subsequently.
shares in or debentures of a
which any
(3) Where any document by sale to the
outside Bangladesh are offered for
company incorporated
concerned had been a company within the
public would, if the company to be a
142
of the Act, have been deemed by virtue of section
meaning
that document shall be deemed to be,
prospectus issued by the company,
issued by the company.
for the purposes of this section, a prospectus
or sale to any person
(4) An offer of share or debentures for subscription
whose ordinary business or part of whose ordinary business is to buy
or sell shares or
whether as principal or agent, shall not
debentures,
be deemed an offer to the public.
444
(5) A person who is knowingly responsible for the issue, circulation or
distribution of any prospectus, or for the issue of a form
bf
application for shares or debentures, in contravention of the
provisions of this section shall be liable to a fine not exceeding ten
thousand taka.
(6) The expression "prospectus" "shares" and "debentures" have the
same meaning as and when used in relation to a company
incorporated under the Companies Act.

Requirements as to prospectus (Sec.389): (1) In order to comply with this
Part a prospectus, must-
(a)
(a) contain particulars with respect to the following matters,
namely-
i) the objects of the company;
(ü) the instrument constituting or defining the constitution of
the company;
(1in) the enactments, or provisions having the force of an
enactment, by or under which the incorporation of the
company was effected;
(iv) an address in Bangladesh where the said instrument,
enactments or provisions, or copies thereof, and if the same
are in a foreign language other than English a translation
thereof in the Bengali or English certified in the
be
prescribed
manner can inspected;
(v) the date onwhich and the country in which the
was incorporated; company
(vi) whether the company has established a
place of business in
Bangladesh.
But the of sub-clause (i), (ii) and (i) of this
provisions clause shall not
apply in the case of a prospectus issued more than two years after the date
at which the company is entitled to commence business;
(b) state the matters specified in sub-section (i) of section
135 and set
out the reports specified in that section.
But
(i) where any prospectus is published as a newspaper
advertisement, it shall be a sufticient compliance with
reauirements that the prospectus
must specity
the objects of
if the advertisement specified of
the
the company
with which the company was formed, and
primaryohiec
(ii) in section 135 of the Act, a reference to the Aticl
of the
company shall be deemed, to be a reference to the c
of the company.
Company Law 445
(2) Any condition requiring or binding any applicant for shares or
debentures shall be void, if the acceptance thereof has the effect of
(a) waiving compliance with any requirements of this section; or
(b) serving him with notice of any contract, document or matter not
specifically referred to in the prospectus.
Consequence in default
In the event of non-compliance with or contravention of any of the
aforesaid requirements, a director or other person responsible for the

of the non-compliance or
prospectus shall not incur any liability by reason
contravention, if-
(a) as regards any matter not disclosed, he proves that he was not
cognizant thereof; or
contravention arose from an
b) he proves that the non-compliance or
honest mistake of fact on his part; or
or contravention in respect of matter
was
(c) the non-compliance
with the case, were
which, in the option of the Court dealing
otherwise such as ought, in the option of
that
immaterial or were
all the circumstances of the case,
Court, having regard to
reasonably to be excused.
a statement with
But in the of failure to include in a prospectus
event
Schedule-l or
specified in clause 18 in the Part-I of
respect to the matters
no director or other person
of sub-section (I) of section 135,
in pursuance that he
in respect of the failure unless it be proved
shall incur any liability
matters not disclosed [Sec.
389(3)].
had knowledge of the
may
diminish any liability which any person
However it shall not limit or
the Companies Act.
incur under the general law or shall be an
sale of shares ( Sec. 390): It
Restriction on canvassing for
house to house of the public
or any
from
offence of any person going outside
shares of a company incorporated
member of public offering
or sale of such
shares.
Bangladesh for subscription to for business
include an office used
The expression "house"
shall not
purposes. fine not

contravention of it
shall be liable to a
acting in
Any perSon
exceedingfive hundred taka.
and 392)
Charges and receiver (Sec. 391 and 171 to 176,
both
168 both inclusive,
The provisions of sections 159 to
foreign companies on property
inclusive, shall extend to charges created by
in Bangladesh.
But where charge is created outside Bangladesh or the completion of

the
requisition of property takes place outside Bangladesh, sub-clause (i) of the
proviso to sub-section (i) of section 159 and the proviso to sub-section1
of section 160 shall apply as if the property wherever Sifuated were situated
1ated
outside Bangladesh. (Sec.391).
If a receiver is appointed by foreign companies, the provisions of sections
169 and 170 shall apply.
1.9 Prohibition of large partnerships (Sec. 4)
Megal association: A company, association or partnership consisting of
more than 10 persons for the purpose of carrying on banking business and
of more than 20 persons for the purpose of carrying on any other business
with the object of earning profits can be legally tormed only when it is
registered under the Companies Act, 1994 or is formed by or under any
other Act of Parliament carrying on business as such. If the number of
members in an association or partnership exceeds this statutory limit and it
is not registered under the Companies Act, it is an illegal association and
has no legal existence.
The object of prohibiting formation of large unincorporated business
associations (where the number of members exceeds the statutory limit) is
to
prevent the mischief arising from large trading undertakings being
carried in by large fluctuating bodies so that persons dealing with them
could not know with whom they were contracting.
However, an association of more than 20 persons, which exists not for
acquisition of gain but for some other purpose such as the promotion of art,
charity, religion, science, etc, does not require registration. It shall not apply
to joint family carrying on joint family business or trade.
Penalty f o r improper use oJ words ' Limited" and Private Limited
(Sec.400): If any person or persons trade or carry on business under any

name or title of which the word, "Limited' or the words 'Private Limited' is
or are the last word or words, that person or each of
these persons shall,
unless duly incorporated as public or private company, as the case
may be,
be punishable
with fine which
may extend to Tk. five hundred for every day
upon which that name or title has been used.
1.10 Registration office
Section 347 of the Companies Act, 1994 provides that for the
purposes of
the registration of companies under i e
ACt, there shall be
and regional offices at such places as the Government thinks, fit. It also
a central office
provides no company shall be registered except at an office within the
the
territorial jurisdiction in which by the Memorandum, the registered ofice
of the company is declared to be established. In Bangladesh
with the Registrar's office in either Dhaka or panies
may be registered
depending on their location.
Chittagong
Company Law 447
The Government may appoint such Registrar, Additional Registrar, and
Assistant Registrar as it thinks necessary for the registration of companies
under the Act and may make regulation rule with respect to their duties.
The salaries of the persons appointed under this section shall be fixed by
the Government. The Government may direct a seal or seals to be prepared
for the authentication of documents required for or connected with the
registration of companies.
Any person may inspect the documents kept by the Registrar on payment of
such fees as may be specified by the Government, not exceeding the fee
specified in Schedule Il for each inspection. Any person may require a
certificate of the incorporation, or certificate of commencement of
business, of any company, or a copy or extract of any other document or
for
any part of other document, to be certified by the Registrar on payment
the certificate, certified copy or extract, of such fees as the Government
Schedule.
may specify not exceeding the fee specified in the said
Whenever any act is by the Companies Act directed to be done to or by the
Registrar it shall until the Government otherwise directs, be done to or by
in the case of the central office the existing Registrar or in his absence to or
authorise and in
by such person as the Government may for the time being
the case of a regional office be done to or by such Additional Registrar or
is appointed as
Registrar or Deputy Registrar or Assistant Registrar
as
Joint
the chief officer of that office.
Fees for registration (Sec.348) of the several matters shall be

All fees to be paid to the Registrar in respect
or such
the several fees mentioned in Schedule II to the Companies Act,
All fees paid to the Registrar in
smaller fees as the Government may direct.
accounted for to the Government.
pursuance of the Act shall be
returns and documents to Registrar ( Sec. 349):
Enforcing submission of
file with, deliver or send to the
If a company, having made default to
other document, or to give notice to him of
Registrar any return, account or
the default within fourteen days after the
any matter fails to make good it to do so, the Court may, on
service of a notice on the company requiring
an application made to
the Court by any member or creditor of the
make an order directing the company and any
company or by the Registrar,
delault within such time as may be
officer thereof to make good the
specified in the order. of and incidental the
that all cost to
Any such order may provide the or the concerned officer in
company
application shall be borne byaforesaid.
default as
respect of any such
or return which has not been filed in proper time.
However, any document
on payment O1 late lees specified in the said
may be filed with the Registrar
Schedule I.
448
Companies authorised to be registered:
Section 354 of the Companies Act lays down the type of companiee
ies
capable of company formed whether before or
being registered. Any
in pursuance of any Act of
after the commencement of the Act
Parliament other than this Act or being otherwise duly constituted
law and consisting of seven or more members, may, at anv

according to
time register under the Act as an unlimited company or as a company
limited by shares or as a company limited by guarantee. The registration

shall not be invalid by reason that it has taken place with a view to the
company being wound up.

1.11 Jurisdiction of the Court over company matters (Sec.3)
The High Court Division of the Supreme Court exercises special statutory
original jurisdiction to try matters under the Companies Act. Whenever the
Companies Act mentions the word 'Court' the High Court Division of the
to entertain the In Jute
Supreme Court will have jurisdiction
Fibres Industries v. Ashraf Jute Mills Ltd, 44 DLR 452,
case.
Utra
it was observed
that "the Court" means the Court having jurisdiction under the Act and
according to section 3 the Court having jurisdiction under this Act shall be
the High Court Division.
But the Government may also empower the District Judge's Court to
exercise any jurisdiction over matters under the Act. But this power has not
yet been given.
1.12 Distinction between company and partnership
The principal differences between a company and a partnership are as
follows:
1. Regulating Act: A company Is Tegulated by the
Companies Act, 1994,
while a partnership is governed by the Partnership Act, 1932.
2.Mode of creation: A company comes into existence after
1nder the Companies Act, 1994,. Kegistration is not
registration
compulsory in the case
of a partnership.
Leoal status: A company 1s a
boay corporate, whereas
association of
a partnershio is
an unincorporated individuals.
In other
words, a company
a legal personality distinct from that of its members à Company has
A firm is
made up of the several not a person
in the eyes of the law, it is
persons who
From the above it
follows: compose it.
(a) The members of company are not

a
contracts, debts or for Wrongs done by it, personally

while
wnile
liable for its
the
partnership firm are personally liable. members of a
Company Law 449
(b) The property and rights of a partnership are vested in its
members, so that on a change in its membership its assets must
be transferred to the new partners; the property and rights are
vested in it, so that it is never necessary to transfer its assets
when there is a change in its membership.
(c) The property ofa company belongs to the company and notto
its individual members or shareholders (although they own the
company) whereas the property of a partnership firm is the joint
property of the partners who are collectively entitled to it.
4. Liability of members: The liability of the members of a company
(except an unlimited company) to contribute towards satisfaction of the
company's debts and liabilities is limited, whereas partners are liable
without limit to contribute towards payment of the partnership's debts and
liabilities. Again in the case of the partnership firm and a creditor obtaining
judgment against the firm can proceed against and attach the property of the
partners in the firm. But the creditor of a company is the creditor not of
shareholders but if the company and cannot proceed against and attach the
property the shareholders, who are not directly liable to him. He can do
of
so only against the property of the company.
5. Management: The affairs of a company are managed by its directors, or
managing director manager and its members have no right to take in the
or
of a firm may take part in its

management. On the other hand, every partner
otherwise.
management unless the partnership agreement provides
6. Transferability of interest: Shares in a company are freely transferable,
unless its Articles otherwise provide. A partner cannot transfer his share
without the consent of other partners.
7. Authority of members: Each partner is an agent of the partnership firm
to make contracts and incur liabilities so long as he acts in the ordinary
course of the firm's business. On the other hand, a shareholder is not an
agent of the and has no such power to bind the company by his
company
acts.
8. Powers: A partnership for example, can do anything which the partners
limit to its activities; a company's powers are
agree to do and there is no
clause in its Memorandum of
limited to those allowed by the objects
association.
9. Restrictions on powers: In a partnership, restrictions on the powers of a
agreement will not avail
particular partner contained in the partnership
against outsiders, but those in the Articles of assoclation of a conmpany are
effective as against the public because it is a pubiic document and anyone
can inspect it to find out what is in it.

10. Bankruptcy of firm and winding up of company: The bankruptcy of

a partnership firm means bankruptcy of all the partners, whereasthe
winding up of a bankrupt company does not make the members bankrupt.
11. Debts: If a company owes a debt to any of its members he can claim
payment out of its assets when it is wound up rateably with its other
creditors, whereas a partner who is owed money by his firm cannot usually
prove against the firm's assets in competition with its other creditors.
12. Dissolution: Unless a partnership is entered into for a fixed period,it
may be dissolved at any time by any partner. It is also automatically
dissolved by the death or bankruptcy of a partner. A company has a
perpetual succession. No personal circumstance affecting a member, such as
death, bankruptcy or unsoundness of mind, will affect its existence. It
comes to an end only when it is wound up according to the provisions of the
Companies Act, 1994.
13. Number of members:
(a)
(a) minimum: The minimum number of partners in a firm is 2
whereas the minimum number of members in a
private company is
2( two) and in the case of a public company 7( seven).
(b) maximum: The minimum number of partners in a firm
carrying on
banking business can be 10(ten) and in any other business 20
(twenty). The maximum number of shareholders in a private
company is 50(fifty). There is no limit to the maximum number in
the case of a public company.
1. A
TEST QUESTIONS
company is an
artificial personcreated by law with a
succession and a common seal." Do you agree with this perpetual
a company? definition of
2. Discuss the notion of corporate
given in Salomon v. Salomon &personality
in the light of the decision
Co. Ltd.
3. What is a corporate veil? When can it
4. "A company is a
be pierced?
legal entity distinct from its members." In what
cases do the Courts
ignore this
5. Name the different kinds of principle?
the Companies Act. companies that may be registered
under
6. What is
7.
a
private
company? When does it become a public
Describe briefly the
procedure for effecting the company
private company into a conversion or
public company. How does
company differ from a public a
priva
Explain what is meant by a company?
company'. Give examples. "holding company' and a 'subsidialy
9. What is the
advantage of
consequences would flow if a incorporation of a company! haat
members exceeds the large partnership (where he numbe
statutory limit) is not
registered?
Chapter 2
Formation of a Company
2.1 Different phases or stages of formation
Normally before a company comes into existence it has to under go three
importantphases or stages. They are as follows:
1. First phase: promotional stage
This is the very beginning stage of formation of a company. In this stage
some ground works or preliminary works are done. They include:
a) building up the idea of business through company:
b) choice of name i.e. whether it should be public or private company;
c)nature of capital;
constitutional documents i.e. Memorandum and
d) preparation of
Articles of association by experts or legal advisors.
known as
All these preliminary works are done by certain persons
members or shareholders of the
"promoters" or interchangeably subscribers,
newly formed company.
and
Promotion may be defined as "the discovery of business opportunities
into a
the subsequent organization of funds, property and managerial ability
business concern for the purpose of making profits therefrom."
After completing the promotional work and before getting the proposed
the following
company actually registered the promoters also take
preparatory steps:
(i) To ascertain from the Registrar of companies whether the name by
which the new company is to be started is available or not;
Cii) To get permission from Board of Investment, if the company's
business comes within the purview of the Companies Act.
(iii) To fix up underwriters, brokers, bankers, solicitors, auditors and

signatories to the Memorandum.
2. Second phase: submission of documents
documents
After completion of the preliminary works then the following
the prescribed fees (See Schedule II of the Act)
duly stamped together with stock under the
arepresented to the Registrar of
the joim companies
registration.
Ministry of Commerce,for
association duly singed by the subscribers;
a) The Memorandum of
signed by the subscribers to the
b)The Articles of association
Memorandum of association;
on Commercial
Law
452 Text Book
proposes to enter into with
c) The agreement if any, which the company
as its managing director, managing
any individualfor appointment
in full time basis;
agent or manager
issues if the capital exceeds
d) The sanction of the Controller of capital
Tk. 1(one) crore;
to become the first directors off
e)
c) A list of directors who have agreed
limited by shares and
the company in the case of a public company
directors and to take up qualification
their written consent to act as
shares;
of the Companies
1 A declaration stating that all the legal requirements
formalities for registration have been
Act and other necessary
must be signed by an advocate of
complied with. Such declaration chartered accountant in full
the Supreme Court of Bangladesh or a
or a person named in the
Articles of association as
time practice
director.
3. Third phase: registration stage
After the submission of the aforesaid documents to the Registrar of joint
under
stock companies, if he satisfies himself that all the legal requirements
he
the Companies Act regarding registration have been duly complied with,
retains and registers the Memorandum of association and Articles
and other
necessary documents submitted to
him and issues a certificate of
registration of the company. If he refuses, he must inform within 10 days
(Sec. 23).
2.2 Mode of forming incorporated company (Sec. 5)
The mode of forming a company under the Companies Act, 1994 is very
of the Act. Under section 5 any seven or
simple which is one objects of the
more person or, where the company to be formed will be a private
company, any two or more persons associated for any lawful purpose may,
by subscribing their names to a Memorandum of association and otherwise
complying with the requirements of the Act in respect of registrationlor
incorporated company, with or without limited liability. that is to say
either
(a) a company limited by shares that is to say, a company having tne
liability of its members limited by the Memorandum to the
amount, if any, unpaid on the share respectively held by them, or
(b) a company limited by guarantee, that is to say, a company having
the liability
of its members limited by the Memorandum to suc
amount as the members may respectively thereby undertake o
contribute to the assets of the company in the event of its beng

wound up; or
(c) an unlimited company, that is to say, a company having no limit on
the liability of its members.
Company Law 453
The Act only prohibits an association of more than 10 persons in the case of
banking business or 20 persons in the case of other business without
registration.
2.3 Effects of registration (Sec.24)
By issuing certificate of registration, the Registrar certifies "under his
hand that the company is incorporated and in the case of a limited
company, that the company is limited". This follows three important
consequences:
(1) The company becomes a distinct legal personality. Its life
commences from the date mentioned in the certificate of
incorporation (except private Itd. company);
i) It acquires a perpetual succession and common seal;
(il) The members who formed the company may come and go but it
goes on forever, unless it is wound up;
(iv) Its property is not the property of the shareholders, although they
have a right to share in the profits of the company. The liability
of the members depends on the extent they have agreed to
contribute to the assets of the company.
2.4 Evidentiary value of "certificate of incorporation" (Sec.25)
Conclusive evidence as to registration:
A certificate of incorporation issued by the Registrar in respect of a
company carries conclusive evidence that all the requirements of the
Companies Act in respect of registration have been complied with and
be ingquired into as to the regularity of the prior proceedings and
nothing can
the certificate can not be called in question on any grounds whatsoever. It
also bears conclusive that the declaration made by an advocate or by a
person named in the Articles is a sufficient evidence of compliance of all
requirements of registration under the Act.
The following cases illustrate the point:
Jubilee Cotton Mills Ltd. v. Lewis, (1924) A. C. 958. On 6th January the
necessary documents were delivered to the Registrar for registration. Two
days after, he issued the certificate of incoporation but dated it 6th January
instead of 8th January i.e. the day on which the certificate was issued. On
6th January some shares were allotted to L, i.e., before the certificate of
incorporation was issued. The question arose whether allotment was void.
Held, the certificate of incorporation is concusive evidence of all that it
contains. Therefore, in law the company was formed on 6" January and,
therefore, the allotment of shares was valid.
31
The certificate of incoporation has been held to be conclusive on the

following points:
1. That requirements of the Act in respect of registration of matters
precedent and incidental thereto have been complied with. If after the
receipt of certificate of incorporation by a company it is discovered
that there were certain irregularities with regard to its
registration,
these will not affect the validity of the company.
2
2. That the association is a company authorised to be registered under
the Act, and has been duly registered.
3. That the date borne by the certificate of
incorporation is the date of
birth of the company, i.e., the date on which
company comes into
existence.
In Chalna Fibre Co. Ltd., Abdul Jabbar 20 DLR (S.C)335, The
v.
Court of Pakistan in an Supreme
appeal from the then East Pakistan High Court, held
that under section 24
(now section 25) of the Companies Act a certificate of
incorporation granted by the Registrar is conclusive evidence of the
the requirements of the Act in fact that
of
respect registration and matters
and incidental thereto have been precedent
complied
company authorized to register under the Act.
with and that the association is
even a certificate
But this does not mean that
obtained fraudulently can not be
The conclusiveness attaches cancelled or set aside.
only to a
validly obtained certificate and not to
any and every kind of certificate
declaration was sought that the granted by the Registrar. In this case a
Ltd. and its reconstitution of Messrs. A. Jabbar and Co.
change
of name to Messrs.
and inoperative. The Court held that Chalna Fibre Co. Ltd. was
there was no illegal
Companies Act, 1913 whereby the relief provision in the
11,12 and 20 could be claimed.
of the Companies Act Sections 10,
company, its Memorandum and provide
for changes in the
name of the
Articles
prescribed therein was not followed, of association. If the procedure
being illegal, but there was no the change could be challenged as
such relief. provision the Companies Act for
in
2.5 Promoters
obta1ning
Who is promoter?
The term
a
promoter has not been defined in the
person who does the Companies Act. Promoter 15
necessary preliminary works
company and brings it into for the
company. According to existence. A promoter is also calledformation orof aa
for the Palmer, "promoter is sponsor
formation
executed
of the
company, has the
a
person who originates a
and
registered and finds the Memo and the Articles plan
first directors, prepared,
settles the terms of the
Company Law 455
preliminary contracts and prospectus (in the case of a public company) and
makes arangements for advertising and circulating the prospectus and
placing the capital" [See, Palmer's Company Law, 20" edt., (1959)].
Functions of promoters
The promoter settles the company's name and ascertains that it will be
details of the
accepted by the Registrar of companies. He also settles the
company's Memorandum and Articles, the nomination of directors,
solicitors, bankers, auditors and secretary and the registered office of the
Memorandum and Articles, the
company. He arranges for the printing of the
where a public issue is
registration of the company, the issue of prospectus,
the company into
necessary. He is, in fact, responsible for bringing
existence for the object which he has in view.
Legal status of promoters
The Act is silent regarding the legalstatus of the promoters. However, a
trustee of the company. The promoter
promoter is neither an agent nor a
stands purely in fiduciary relation to the company, which he has promoted.
This fiduciary position of the promoter includes the following
consequences:
He/she must not make any profit at the expense of the company,
1.
which is being promoted (i.e. in the process of formation);
He must give all benefit of negotiations to the company;
ii. He must bear the liability for non-disclosure of interest or profit;
iv. He must not make unfair use of position.
Remuneration of promoters
the
The promoters have no right to get any kind of remuneration from
unless there is a
company for their services in promoting the company
remuneration for his
contract to that effect. But in practice, a promoter takes
service but it has to be disclosed in the prospectus.
Preliminary contracts
The promoters of a company usually enter into contracts to acquire some
for the company which is yet to be registered. Such

property or right
contracts are called preliminary or pre-incorporation contracts. Normally
the promoters for the company about to be formed are personally liable for
preliminary contracts because before registration the proposed company is a
non-entity and two consenting parties are necessary to a contract, and the
company was not party to those contracts. The promoters can not, therefore,
act as agents for a company which has not yet come into existence. As such
the company is not liable for the acts of the promoters done before its
incorporation.
Position of promoters as regards pre-incorporation contracts:

1. Company not boumd by preliminary contract
A company when it comes into existence is not bound by a preliminary
contract even where it takes the benefit of the contract made on its behalf,
Thus A, solicitor prepared the Memorandum and Articles of association and
paid the necessary registration fees and other incidental expenses to obtain
the registration of a company. He did this on the instruction of certain
persons who later became directors of the company. Held, the'company was
not liable to pay the solicitor's cost, although the company had taken the
benefit of his work as the company could not be sued in law for those
existence at the time when the
expenses in as much as it was not in
expenses were incurred [English and Colonial Produce Co. Ltd. Rel (1906)
2 Ch. 435]
2. Similarly, the company cannot after incorporation, enforce the contracts
made before its incorporation
Thus, the N Company agreed with an agent of the P Syndicate Ltd. before
its formation to grant a mining lease to the Syndicate. The Syndicate was
registered and discovered a seam of coal. The N Company refused to grant
the lease. Held, there was no binding contract between the N Company and
the Syndicate.
3. The promoters stand personally liable on a contract made on behalf of
the company not yet in existence. Such contract is deemed to have been
entered into personally by 1he promoters.
In Kelner v. Baxter, (1966) L.R. 2 C.P. 174, a hotel company was about to
be formed and persons responsible for the proposed company signed an
agreement on 27h January 1866 for the purchase of stock on its behalf,
payment to be made on 28 January 1866. The company was incorporated
on 20h February 1866. The goods were consumed in the business and the
company went into liquidation before the debt was paid. The persons
signing the agreement were sued on the contract. Held, the persons signing
the agreement were promoters and personally liable on their signatures and
not the company.
2.6 Lifting or píercing the corporate veil
Legally speaking, a company is a legal person distinct from its members or
shareholders. This principle may be referred to as "the veil of
incorporation". In general, the Courts consider themselves bound by this
principle on which the corporate business is based. The effect of such
principle 1s that there is a fictional veil (and not a wall) between the
company and its members.
Company Law 457
In reality, the business of the company is always carried on by and for the
benefit of some individuals who are the real owners and the beneficiaries of
corporate property.
However, ingenuity of such human being stared using this veil of corporate
personality blatantly as a clock for fraud or for improper conduct. It
therefore became necessary for the Courts to lift the corporate veil and look
at the persons behind the company who are the real beneficiaries of the
corporate fiction.
Exceptions: There are some exceptional circumstances in which such
corporate veil may be lifted by the Courts. These exceptions have been set
up by the Court decisions as well as by the Companies Act
Exceptions under case law:
I) Protection of tax or revenue: The Courts may ignore the corporate
entity of a company where it is used for tax evasion or to circumvent
tax obligation. The following case illustrates the point: Sir Dinshaw
Maneckjee Petit, Ref. A.LR. (1927) Bom. 371. D, an assessee, who
was receiving huge dividend and interest income, transfered his
investments to four private companies formed for the purpose of
reducing his tax liability. These companies transferred the income to
D purely and simple as a means of avoiding tax obligation and the
companies were nothing than the assessee's himself. They did

more
no business but were created simply as legal entities to ostensibly
receive the dividends and interest and to hand them over to D as
pretended loans.
II) Prevention of fraud or improper conducts: The legal personality
of a company may also be disregarded in the interest of justice where
the machinery of incorporation has been used for some fraudulent
purposelike creditors or defeating or circumventing law.
defrauding
The following case illustrates the point:
342, L, agreedsell a certain land toJ
to
InJones v. Lipman, (1962) AIl E.R.
for f 5,250. He subsequently changed his mind and to avoid the specific
performance of the contract, he sold it to a company with a capital of £ 100
which was formed specially for the purpose. The company had L and a
clerk of his solicitors as the only member. J brought an action for the
specific performance of contract against L and the company. The Court
looked to the reality of the situation, ignored the transfer, and ordered that
the company should transfer the land to J.
III) Company avoiding legal obigations: Where the use of an
incorporated company is being made to avoid legal obligations, the
Court may disregard the legal personality of the company and
proceed on the assumption as of no company existed.
IV) Company acting as agent or trustee of the shareholders: Where

a company is acting as agent for its shareholders, the shareholders
will be liable for the acts of the company [Smith Stone & Knigh
Lrd v. Birmingham Corp.. (1939) Al E.R. 1167. It is a question of
fact in each case whether the company is acting as agent for its
sharcholders. There may be an express agreement to this effect or
an agreement may be implied from the circumstances of each
particular case.
Determination of character of a company whether it is enem
company may assume an enemy character when persons in de facto
(in actual fact) control of its affairs are residents in an
enemy
country. In such a case, the Court may, in its discretion, examine the
character of persons involved in real control of the
company,
disregard the corporate fiction and declare the company to be an
enemy company. In Daimler Co. Lid. v. Continental Tyre and
Rubber Co. Ltd. (1916) 2 A.C. 307, a
company was incorporated
in
England for the purpose of selling in
England tyres made in Germany
by a German company, which held the bulk of shares in the
English
company. The remaining shareholders, except and all the
one,
directors German residents. During the First World War the
were
English cornpany commenced an action for recovery of a trade debt.
Held, the company alien company and the
was an
it would amount to payment of debt to
trading with the enemy, and therefore the
company was not allowed to proceed with the action.
VI) Where the company is a sham: The Court also
a
lifts the veil where
company is a mere cloak or sham. The
the point: Gilford Motor Co. following case illustrates
Lid. v. Horne, (1933) Ch. 935 C. A.
Horne, a former
employee of a company, had
solicit its customers. He formed a agreed
with the
company not to
on a business
which, if he had done so company to carry
a breach of
the personally, would have been
agreement,
An
injunctiou was granted against both
him and the
company to restrain them from carrying on the
business. The conpany was
deseribed in this
device, stralagem", and as "a mere cloak or shamjudgment
a as *a
of enabling the defendant to commit a breach offor the purpose

against solicitation". his covenant
VIl) Where the doctrine conflicts
with public policy: Where the
doctrine of corporate veil conflicts
with public
lift the corporate veil for protecting the public policy,
the Court can
policy.
Company Law 459
allowed under the
Statutoy erceptions: The following exceptions
are
Companies Act 1994:

Number of members below statutory minimum: If a company
)
carries on business for more than 6
months after the number of its
of a public company or 2
members has been reduced below 7 in case
who knows this fact and
in case of a private company, every person
on business
is a member during the time that the company so carries
severally
after the 6 months, is liable for the whole of the debts of the
that time, i.e., after 6 months (Sec.222).
company contracted during
The directors of a company
II) Failure to refund application money: with
are jointly and severally
liable to repay the application money
of those
to refund the application money
interest if the company fails
within 130 days of the
applicants who have not been allotted shares,
date of issue of the prospectus
Where an officer of a
name:
of company's
m) Misdescription enters into a
on its behalf does any act or
company or any person and the
contract without fully or properly mentioning its name
shall be personally liable (Sec.78
address of its registered office, he
and 79).
Sometimes in the course of the winding up of a
V Fraudulent trading:
that s o m e business of
the company has been
company it may appear the Court
defraud creditors. In such case,
carried on with intent to to the
that persons who were knowingly parties
may declare any
responsible
of the business in this way are personally
carrying on
or other
limitation of liability for all or any of the debts
without any
the Court may direct.
liabilities of the company as
In the eyes
V) Determination of holding and subsidiary companies:
and its subsidiaries are separate
of the law, the holding company
a subsidiary company
following two cases,
legal entities. But in the
extent:
identity to a certain
may lose its separate
financial year, a company
has
the end of its
(1) Where at before its members in general meeting
subsidiaries, it must lay
set of group accounts,
accounts, but also a
not only its own
or sutfered by the holding
or loss earned
showing the profit
subsidiaries collectively, and their
collective
company and its
at the end of the year
(Sec.186).
state of affairs
on the facts of a case, treat asubsidiary
(2) The Court may,
as merely a branch or department of one large
company
undertaking owned by the holding company (Sec.187).
Chapter3
Memorandum and Articles of Assoclatlon of a Company
3.1 Deflnition and importance of Memorandum of aelatlon

is its principal document.
The Memorandum of Association of a company
in relation to the proponed company"
"It is a document of great importance
No comnpany can he
Palmer's Company Law, 2n edt., (1959) p.36|. and that is why it is
Mcmorandum of association
registered without the
sometimes called a life-giving document.
Definition means
Act,1994, "Memorandum"
Under Section 201)(n) of the Companies frarned or as
Memorandum of association of a company as originally
the Act.
of the provisions of the Companies
altered in pursuance
Importance called
of association of a company, often simply
The Memorandum the
document that governs the relationship between
Memorandum, is the documents required to
the outside world. It is one of the
company and in many of
India, Pakistan and also
in Bangladesh,
incorporate a company
the modern world.
is a fundarmental document
The Memorandum of association of a company
the
of the company. It
consists
constitution
of the company. It is a
be allowed
conditions upon which the company c a n
"fundamental rules and for
of the company
and defines its r e a s o n s
is the charter
to be registered." It of business operation
of the
the areas and scope
existence. It lays down of the company in
contains the rules of cxternal affair
company. It
also to
Memorandum of association is designed
relation to outsiders. and its purpose of being
to the state of affairs of the company
communicate (creditors,
of the company
shareholders
operating. This aids various of
and risk and also possibilities
to evaluate the extent of their
shareholders etc.) Its purpose s to enable
overcome them at a future date.
the company to know what its
who deal with the company to
shareholders and those the fornation of
It not only shows the object of
permitted area to enterprise. business activities
also maximum possible range of
the company but
beyond which the company cannot go.
(Secs. 6, 7 and 8)
3.2 Requirements of Memorandum
must contain the lollowing clauses
The Menorandum of every company
one by o n e and it must
be dralled accordingly:
I. The name clause: The first clause of a Memorandum

shall state the .
name of the
proposed company. The name of a
company establishea
its identity and is the
symbol of its existence. The word 'compan
need not form
part of the company. Example: Akij Textiles Ltd. Eu
the word Limited' or "Ltd' as the last word of the
name in the
case of
public or private company limited by shares or guarantee should
inserted. But a company should not be
adopt a name, which is identical
with the name of an already
existing company or must not use a
misleading or undesirable name (Sec.11).
Publication of name by a limited
company (Sec. 78)
Every limited company-
(a) shall paint or affix, and keep painted or affixed, in letters
legible and in Bengali or English characters, its name easily
nspicuous position on the front side of every office or in a
which its business is carried on; place in
(b) shall have its name
engraved in legible characters on its seal;
(c) shall have its name mentioned in
characters in all bill-heads,
legible Bengali or English
letter, papers and in notices,
advertisements and other official
in all bills of publications of the company, and
exchange, hundis, promissory notes, endorsements,
cheques and order for
money or goods purporting to be
or on behalf of the
company, and on signed by
all bills of
receipts and leters of creditt of the parcels, invoices,
Penalties for non-publication company.
of name (Sec.79)
If a limited company makes
section 78 (a), it shall delault in
complying with the provisions of
be
everyday during which liable to fine not exceeding five hundred taka for
a
the default continues and
company, who every officer of the
shall be liable to
knowingly
a
and
like penalty.
willully authorizes or
permits the default,
I. The registered office clause: Memorandum nmust state
office where it will carry business or the registered
maintain
time to time. Notice of the communication from
chanee shall be situauon the registered office and every
or
given to the Registrar wilhin 30 days

registration of the after the date of
company or after the date of
change
UL. The objects clause:
The objects o he conpany
shall be
out in the Memorandum to define the
scope of
clearly set
company. The object clause n tne Memorandum of business
of a
shall be of three types everv con
(a) Main objects of the company;
(b) Objects incidental or ancillary to the attainment of the main
(c) Other objects of the company. objects
cts;
Company Law
463
in the Memo of a company, having

IV. The capital clause: The capital with which
a share capital, shall
state the amount of the share capital
shares of a
is to be registered and division thereof into
the company is
amount. The capital with which a company is registered
fixed A company
or nominal capital.
called 'registered, or authorisd
shares than are authorized
for the time being by
can not issue more
the Memorandum.
a company limited by
V. The liability clause: The Memorandum of of members is
also state that the liability
shares or by guarantee shall to pay
members can only be called upon
limited. This means that the amount on the
time the uncalled or unpaid
to the company at any which they
maximum of the amount
them or upto the
shares held by Memorandum must
Each subscriber of the
have guaranteed to pay.
must wTite opposite
to his name the
take at least one share and
number of shares he takes.
association clause states: "We, the
association clause: The
VI. The and addresses are subscribed, are
several persons whose
names
in of pursuance
formed into a company
desirous of being to take the
Memorandum of association,
and we respectively agree
to our
shares in the capital of this company set opposite
number of least 7
to be signed by at
names." The Memo has at least 2
respective company and by
subscribers in the case of public
subscribers in the case of a private company.
(Sec. 9)
3.3 Printing and signature of Memorandum
shall-
The Memorandum of every company
(a) be printed;
numbered consecutively; and
(b) be divided into paragraphs and
each subscriber, who shall add his address
(c) be signed by witnesses who shall
in the presence of at least two
description
attest the signature.
3.4 Forms of Memorandum
of a company shall be
in forms prescribed
The Memorandum of association to
and 7 to the Companies Act, 1994, as may be applicable
in Schedule 6 circumstances admit.
or in a form as near thereto as
the case of the company
Memorandum of Association of a Company Limited

by Shares
Schedule-VI
(See section 6 and 226)
Ist.- The of the company is *
name e.g. The Eastern Steam Packet
Company Limited".
2nd.- The registered office of the company shall be situated in Bangladesh.
3rd.- The objects for which the company is established are as follows:-
passenger, and goods in ships or boats between such places as the company
may from time to time determine, and the doing all such other things as are
incidental or conducive to the attainment of the above
object".
4th.- The liability of the members is limited.
5th- The share capital of the company is
hundred thousand taka
two
divided into one thousand shares of two hundred taka each.
We the several persons, whose names and addresses are subscribed are
desirous of being formed into a company in pursuance of this Memorandum
of association and we respectively agree to take the number of shares in the
capital of the company set opposite to our
respective names and here under
subscribe to the Memorandum.
Names, addresses, Numbers of shares taken

nationality descriptions by each subscriber
of subscribers
(in figures and words) Signatures
1.
2.
3.
4
5.
6.
7.
Total shares taken.

Names, addresses and signatures of witnesses attesting the above signature
2.
Dated...
Dated...
Company Law 465
Memorandum and Articles of association of a company limited by
guarantee and not having share capital
Schedule VII
(See section 7 and 226)
1st.- The name

of company is . .
e.g. ("The Mutual (Dhaka) Marine
Association Limited")
be situated in Bangladesh.
2nd.- The registered office of the company shall
is established are The mutual
"
3rd.- The objects for which the company

of the company, and the doing
insurance of ships to belonging to members
or conducive to the
attainment of the
all such other things as are incidental
above object".
4th.- The liability of the members is limited.
undertakes to contribute to the assets of
5th.- Every member of the company
wound up while he is a member
or
the company in the event of its being the
afterwards, for payment of the debts and liabilities of
within one year
the costs, charges
before he ceases to be member, and
company contracted of the
of winding up and for the adjustment of the right
and expenses not
such amount as may be required
contributories among themselves,
taka.
exceeding one hundred
are subscribed, are
whose names and addresses
We, the several persons of this
formed into a company, in pursuance
desirous of being
Memorandum of association.
and signatures of the
nationality, descriptions
Name, addresses,
subscribers
1.
2
3.
4.
5.
6.
7.
the above signatures
Name addresses and signatures of witnesses altesting
1.
Dated..
Dated....
Articles of association of a company to be attached with
Memorandum of association the
Number of members
1. The company for the purpose of registration is declared to consist ae
f
five hundred members.
2. The directors, hereinafter mentioned, may, wherever the business
or
the association requires it, register an increase of members.
Definition of members
3 Every person shall be deemed to have agreed to become a member of
the company who insures any ship or share of a ship in pursuance of
the regulations hereinafter contained.
General meeting
4. The first general meeting shall be held at such time not
than one month and not more than three months after the
being less
incorporation of the company, and at such place, as the directors may
determine.
5. A general meeting shall be held once in every year at such
time, not
being more than fifteen months after the holding of the last
general meeting, and place as may be prescribed by the company preceding
in
general meeting or, in default, at such time and in the month
following that in which the anniversary of the company's
incorporation occurs, and at such place, as the directors shall appoint
in default of a general
meeting being held, a general meeting shall be
held in the month next following, and
be called by any
members in the same manner as nearly asmay two
meetings are to be called by the directors. possible as that in which
6. The above mentioned

general meeting shall be called ordinary
meetings; all other general meetings shall be called
7. The directors may,
wherever think fit, and extraordinary.
made in writing by one tenth or more shall, in a requisition
general meeting
members, call an extraordinary
8. Any requisition made by he members
must state the object of the
meeting proposed to be
called, and must be signed
reauisitionists and deposited at the
registered office of the by the
9. In receipt of the
requisition, company.
the airectors shall forthwith proceed to
meeting held Within
to be
the requisition being so depositedtwenty-one daysthefrom the date of
failing which
may themselves call a meeting. requisitionists
10. Fourteen day's notice at the least, specifying the place
th
the hour of meeting, and in case of special busine ne
the day
general
and
of the business, shall be ven to the
given
nature members in a
manner
Company Law 467
hereinafter mentioned or in such other manner if any as may be

prescribed by the company in general meeting, but the non-receipt of
such a notice by any member shall not invalidate the proceedings at
any general meeting.
11. All business shall be deemed special that is transacted at any
extraordinary meeting and all that is transacted at an ordinary
meeting with the exception of the consideration of the accounts,
balance-sheets and the ordinary reports of the directors and auditors,
the election of directors and other officers in place of those retiring
by rotation and the fixing of remuneration of the auditors shall be
deemed ordinary.
12. No business shall be transacted at any meeting except the declaration
of a dividend, unless a quorum of members is present at the
commencement of the business, if the members of the company at
the time of the meeting do not exceed ten in number, the quorum
shall be five and if they exceed ten, there shall be added to the above
quorum one for every five additional members with the limitation so
that no quorum shall in any case exceed ten.
13. If within one hour from the time appointed for the meeting quorum
of members is not present, the meeting, if called on the requisition of
the members, shall be dissolved; in any other case, it shall stand
adjourned to the same day in the following week at the same time
and place; and if at such adjourmed meeting a quorum of members is
not present, it shall be adjourned sine die.
14. The chairman of the Board of directors shall preside as chairman at
every general meeting of the company.
15. If the chairman at any meeting is not present at the time of holding
the same, the members present shall choose some one of their
members to be chairman of that meeting.
16. The chaiman may, with the consent of the meeting, adjourn the
meeting from time to time and from place to place, but no business
shall be transacted at any adjourned meeting other than the business
left unfinished at the meeting from which the adjoumment took place.
17. At any general meeting unless a poll is demanded by at least three
members, a declaration by the chairman that a resolution has been camied
and an entry to that effect in the book of proceedings of the company, shall
be conclusive evidence of the fact, without proof of the number of
proportion of the votes recorded in favour of or against theresolution.
18. If a poll is demanded by at least three members the same shall be
Taken in such manner as the chairman direct and the result of the poll
shall be deemed to be the resolution of the meeting at which the poll
is demanded.
Votes of members
19. Every member shall have one vote and no more.
20. If any member is a lunatic or idiot, he may vote through the
committee appointed for this purpose or through other legal guardian.
21. No member shall be entitled to vote at any meeting unless all moneys
due from him to the company have been paid.
22. On a pol, votes may be given either personally or by proxy. But a
proxy must be appointed in writing under the hand of the appointer
and if the appointer is a body corporate, under its common seal. It is
further that a company must not vote by proxy so long there is a
resolution of its directors in accordance with the provisions of section
86 ofthe Companies Act, 1994.
23. (1) No person shall act as a proxy unless he is appointed to act att the
meeting as such.
(2) The instrument appointing a proxy shall be deposited at the
registered office of the company not less than forty-eight hours
before the time of holding the meeting at which he proposes to vote.
24. Any instrument appointing a proxy shall be in the following form
....Company,Limited.
1,... . o f
...being a
member of the . ****

Company, Limited hereby appoint as my proxy, to
vote for me and on my behalf at the ordinary extraordinary general
meeting of the company, to be held on the day of
.. and at any adjournment thereof.
Signed this ..... day of...
Directors
25. The number of the directors and the names of the first director shall
be determined by the subscribers of the Memorañdum of association.
26. Until directors are appointed the subscribers of the Memorandum of
association shall for all the purposes of the Companies Act 1994 be
deemed to be directors.
Powers of directors
27. The business of the company shall be managed by the director who
may exercise all such powers of the company as are not by the
Companies Act, 1994, or by these articles, required to be exercised
by the company in general meeting; but no regulation made by the
company in general meeting shall invalidate any prior act of the
directors which would have been valid if that regulation had not been
made
Company Law 469
Election of directors
28. The directors shall be elected annually by the company in general
meeting.
Business of company
(Here insert rules as to mode in which business of insurance is to
be conducted).
29. Auditors shall be appointed and their duties regulated in accordance
with sections 210 and 213 of the Companies Act, 1994 and for this
p u r p o s e the s a i d s e c t i o n s shall h a v e e f f e c t a s i f the word " members
were substituted for "shareholders, and as if" first general meeting"

were substituted for "statutory
meeting"
Notice
30. A notice may be given by the company to any member eitherT
personally, or by sending it by post to him to his registered address.
31. Where a notice is sent by post, service of the notice shall be deemed
to be effected by properly addressing, prepaying and posting a letter
containing the notice and unless the contrary is proved, and the same
shall also be deemed to have been effected at the time at which the
letter would be delivered in the ordinary course of post.
Name, addresses and descriptions of subscribers.

1. A. B. Of
2. D. D Of
3 E. F. Of
A G H. Of
5. I. J. Of
6. K. L. Of
M. N. Of
.. day of. . . 19..

Dated the
Witness to the above signatures.
S. Y of
Dated the . . day of ...
19
32
470 Text Book on Commercial Lawv
Memorandum and Articles of association a company limited by

guarantee and having a share capital
Schedule- VIII
(See Sections 7 and 226)
Memorandum of association
Ist. The name of the
Company is . . .Company Limited, e.g. ("The
Snowy Range Hotel Company, Limited")
2nd. The registered office of the
company shall be situated in Bangladesh.
3rd.. The objects for
which the company is established are as follows- e.g.
providing facilities in the Snowy Range, by
conveyances by sea and by land for the
providing hotels and
accommodation of travellers and the
doing of all such other things as are
incidental or conducive to the
attainment of the above
objects".
4th. The liability of the
member is limited.
5th. Every member of the
the company in the event company undertakes to contribute to the assets of
of îts
within one year being wound up while he is a member, or
afterwards, for payment of the debts and
company, contracted before he ceases to be liabilities of the
and expenses of
winding
a
member, and the cost, charges
up the same and for the
the contributories adjustment
amongst themselves, such amount of the
rights of
exceeding fifty taka 50 (fifty taka). as
may be required, not
6th. The share
capital of the
company is
thousand taka, divided into ...
. g . five hundred
(one hundred) taka each.
e.g,
. .
e.g, five thousand

shares of .
We the several
persons whose
signed the documents and we are names and addresses are set forth
below
in
pursuance of this Memorandumdesirous of being
formed into a
to take the of
number of shares in the association and we company,
our respective names: capital of the respectively agree
company
set
opposite to
Names, Address, Nationality and descriptions and

Signatures af
subscribers.
***
*******
2. ****°****s.i.
4.
5.
7.
Dated the .... day of.. 19
Name, addresses and signature of attesting witnesses.
1.
2.
Dated the.. . day of. 19
3.5 Alternation of Memorandum (Sec.10)
Sometimes, after the formation of a company, it requires to alter its
different clauses for certain purposes to meet the demand of time and
situation. If a company desires to
change its name or objects or liability
clause, that can be done by taking special resolution (i.e. a resolution
by three fourth majority of those present and voting at a meeting of the passed
company) and must be confirmed by the Court (Sec.13).
Normally, the company can change its objects for the following
(a) To cary on its business more economically or more purposes
efficiently;
(b) To attain its main purposes by new or
improved means;
(c) To enlarge or change the local area of its business
(d) To carry on some business which under
operations;
conveniently be combined with other existing circumstances may
objects mentioned in the
Memorandum.
(e) To amalgamate with any other company
(Sec.12).
Company Law 473
Procedure on confirmation of the alteration (See.15)

A certified copy of the order confirming the alteration, together with a
printed copy of the Memorandum as altered, must be filed by the company
with the Registrar within ninety days from the date of the order or within
such time as may be extended by the Court. Then the Registrar shall register
the same, and shall certify the registration under his hand, and the certificate
shall be conclusive evidence that all the requirements of this Act, with
respect to the alteration and the confirmation thereof, have been complied
with, and henceforth the memorandum so altered shall be the Memorandum
of the company.
3.6 Doctrine of ultravires
Memorandum of
A company has the power to do all things authorized by
association. Ultra' means eyond' and 'vires' means 'power'. The term
ultravires a company' means that the doing of the act is beyond the power
and authorty of the company.
The purpose of these restrictions is fold: two
First, to protect investors of the company so that they may know the objects
in which their money is to be used;
Secondly, to protect creditors by ensuring that the company's funds are not
Iron Co
wasted in unauthorized activities [Case, Asbury Rely. Carriage &
Lud v Riche (1875)]
such an act
If an ultravires the company (i.e. objects of the company)
act is
Is absolutely void and even the
whole body of shareholders can not approve
But there is nothing to prevent a
it and make it binding upon the company.
company from protecting

its property. The leading case on this point is
317 In
National Telephone St. Peter Port Constables. (1900) 4 C
Co v
The
wires in a certan area.
this case, a telephone company put up telephone
in the Memorandum to put up wiues there. The
company had no power
them down. Held, thecompanycould sue for damages to the
defendants cut
wifes done by the defendants
HoweveI, if an ultravises the powers of duector as detined by the

act is
ulavues the Atuc kes of assoNialion
Artcles of association or if the act is
resolution
the shareholders can approve il by passing special
3.7 Articles of association
often simply retered to as the
The Asticles of assoC1ation of a company
c ontrolled by the
Articles are nexI m nportance to the Memorandum, and
Memorandum The Atucles of assux 1ation are the rules. Iegulations and
bye-laws for nternal manayenent of th altairs of a conpany They are
drafted and framned with the objects as set oul in the Memotandun of
association Articles are the ules of internal governance in detailed nature
Commercial Law
474 Text Book on
Memorandum, they form the constitutin

of a company. Together with the
in the United States is Articles e
of a company. The equivalent
incorporation.
Definition
Act 1994, "Articles" means the
Companies
Under section 2(1)(a) of the
Articles of association of a company including so far as they apply to the
in Schedule I to this Act.
contained
company, the regulations
But the Articles of association of a company framed under any law relatíng
to companies at any time in force before the commencement of this Act
shall, so far as they are not inconsistent with the provisions of this Act, be
deemed to be the Articles of association of that company framedin
accordance with the provisions of the Act.
3.8 Contents of Articles
Articles usually contain provisions relating to the following matters:
(1) Share capital;
(2) Lien on shares;
(3) Calls on shares;
(4) Transfer and issuing of shares;
(5) Transmission of shares;
(6) Forfeiture of shares;
(7) Conversion of shares into stock;
(8) Share warrants;
(9) Alternation of capital;
(10) General meetings and proceedings thereat,
(11) Different voting rights of members, voting and poll, proxies;
(12) Directors, their appointment, remuneration, qualifications, powers
and proceedings of Board of directors;
(13) Manager,
(14) Secretary
(15) Dividend right attached to different class of share and reserves;
(16) Accounts, audit and borrowing powers;
(17) Capitalization of profits;
(19) Winding up.
3.9 Forms and signatures of
Articles (Sec. 19)
The Articles shall be-
(a) printed;
(b) divided into paragraphs, and
(c) signcd by cach subseriber of the Memorandum (who shall add his
address, description and
occupation,
if any) in the presence of at
one witness who will attest the least
address, description and
siguature and likewise and n
occupation, if any.
Company Law 475
3.10 Alternation of Articles (See. 20)
Companies have been given very wide powers to alter their Articles. It is a
statutory power and any provision in the Articles making the Articles
unalterable is regarded as bad in law. If, for example, the Articles ofa
company contain any restriction that the company shall not alter its Articles
it will be contrary to the Companies Act and thereforeinoperative
Procedure for alteration (Sec.20)
A company may by passing a special resolution, alter regulations contained
in its Articles anytime and must be confirmed by the Court. But the
alteration is subject to following limitations:
(1) Must not be inconsistent with the Act;
(2) Must not conflict with the Memorandum;
(3) Must not sanction anything illegal;
(4) Must be for the benefit of the company;
(5) Must not increase liability of members
(6) Alteration must be by special resolution only.
3.11 Effect of alteration in Memorandum or Articles (Sec. 21)
Notwithstanding anything in the Memorandum or Articles of a company, no
member of the company is bound by an alteration. made in the
Memorandum or Articles after the date on which he becomes, member, il
and so far as the alteration requires him to take or subscribe for more shares
than the number held by him at the date on which the alternation is made, or
in any way increases his liability as at that date to contribute the share
capital of, or otherwise to pay money to the company.
3. 12 Articles and Memorandum- their relation
(1) The Articles are subordinate to Memorandum. They cannot give
powers to the company which is not conferred by the Memorandum
nor can they create rights which are inconsistent with the
Memorandum. This is so because the object of the Memorandum is
to state the purposes for which the company has been established.
While the Articles provide the manner in which the internal
management of the company is to be carried out.
(2) The Memorandum must be read in conjunction with the Articles. This is
he case when it is necessary to explain any anmbiguity in the ters of the
Memorandum, or to supplement the Memorandum upon any atter
about which it is silent except as regards matters which must by statute
be provided by the Memorandum. The Articles may explain or
supplement the Memorandum, but cannot extend or enlarge its scope.
(3) The terms of the Memorandum cannot be modified or controlled by
the Articles. However, if there is any ambiguity in the Memorandum,
the Articles may be referred 1o for clarification. But so far as the
fundamental conditions in the Memorandum are concerned, they
cannot be explained with the aid of the Articles.
3.13 Legal effect of Memorandum and Articles (Sec. 22)
The registration of Memo and Articles follows the following
consequences:
(1) The Memorandum and Articles must bind the company and the
members thereof to the same extent as if they respectively had been
signed by each member. It creates a covenant on the part of each
member, his heirs and legal representatives, to observe all the
provisions of the Memorandum and of the Articles subject to the
provisions of this Act; and
(2) All money payable by any member company under the to
Memorandum or Articles shall be a debt due from him to
the
company.
3.14 Articles and Memorandum: distinction
I. Memorandum is the charter of the
its
company indicating the nature of
business, its nationality, and its capital. It also defines the
company's relationship with the outside world.
Articles are regulations for the internal
and are subsidiary to Memorandum. management of the company
II. Memorandum defines the scope of the activities of the
the beyond which the actions of the company cannotcompany, or
area
Articles are the rules for go.
as set out in the
carrying out the
objectives the company
of
Memorandum.
III. Memorandum, being the charter of the
document. company, is the supremne
Articles are subordinate to the
between them, the Memorandum. If there is a conflict
Memorandum prevails.
3.15 Doctrine of indoor
There is
management
one limitation tothe doctrine of constructive
Memorandum and the Articles of a
notice of the
company are entitled to assume
company. The outsiders dealing with the
that as far as the
company concerned, everything has been internal proceeding of the
are
with the
requirements of Memorandum and regularly done in accordance
need not inquire into the Articles of association.
regularity of the internal They
company. management the of
The gist of the ule is that
are not bound persons dealing with linmited
to
inquire into their indoor liability companies
affected by irregularities of which management and will not be
public convenience and justice. The they had no notice.
The rule is based on
public documents. They are Memorandum and the Articles are
open to
is
presumed to know the constitutioninspection
of the
by every body. An outsider
may not have taken
place within the doors thatcompany, but not what
may or
are closed to him.
Company Law 477
Exceptions to the doctrine of indoor management
The doctrine of indoor management is subject to some important
exceptions. If any of the following circumstances exists the persons dealing
with the company are bound to inquire into the internal affairs of the
company before they engage in any dealing with the company.
1. Knowledge of irregularity: Where a person dealing with a company has
actual or constructive notice of the irregularity as regards internal
management, he cannot claim the benefit under the rule of indoor
management. He may in some cases be himself a part of the internal
procedure.
In Howard v. Patent Ivory Co.. (1888) 38 Ch. 156, the directors of a
company could borrow upto £ 1,000 without the approval of shareholders in
a general meeting. But for any amount beyond £1,000 they had to obtain the
consent of the shareholders in a general meeting. The directors themselves
lent to the company an amount in excess of the borrowing powers of the
company without the consent of the shareholders in a general meeting.
Held, the directors had the notice of the internal irregularity and hence the
company was liable to them only for £ 1,000.
2. Negligence: Where a person dealing with company could discover the
irregularity if he had made proper inquiries, he cannot claim the benefit of
the rule of indoor management. The protection of the rule is also not
availablewhere the circumstances surrounding the contract are so
suspicious as to invite inquiry, and the outsider dealing with the company
does not make proper inquiry.
In A.L. Underwood v. Bank of Liverpool, (1942) I K.B. 775, the sole
director of a company paid onto his own account cheques drawn in favour
of the company. Held, the bank was liable as it ought to have made proper
inquires before crediting the account of the director.
3. Forgery: The rule does not apply where a person relies upon a document
that turns out to be forged since nothing can validate forgery. A company
can never be held bound for forgeries committed by its officers.
In Ruben v. Great Fingall Consolidated Co.. (1906) A.C. 439, a share
certificate was forged by the secretary of a company. The secretary then
issued it to Runder the seal of the company. R, the holder of the certificate,
claimed to be entitled to be registered as the holder of the shares. Held, the
cetificate did not confer any right on the sharcholder.
4. Acts outside the scope of apparent authority: If an officer of a
company enters into a contract with a third party and if the act of the officer
is beyond the scope of his authority, the company is not bound.
Chapter 4
Prospectus
In order to finance its activities, a company necds to have
capital. This is
raised by a public company by the issue of a prospectus inviting deposits or
of the
offers for shares and debentures from the public. The central theme
money raISing pont of view, is that it sets out the
prospectus, from the
prospects of the company and the purpose for which the capital is required.
which the prospective investors form their
The prospectus is the basis on
take decisions as to the worth and prospects of the company.

opinion and
4.1 Definition
In our Companies Act 1994 there is no definition of the word "Prospectus."
But in the Indian Companies Act, 1956 there is a definition in section 2(36).
Prospectus is defined as "any document described or issued as a prospectus
and includes any notice, circular, advertisement or other document inviting
from the or inviting offers from the public for the
public
deposits
subscription or purchase of any shares in or debentures of, a body
from the
corporate." In simple words, any document inviting deposits
debentures
public or inviting offers from the public for purchasing shares or
of a company is a prospectus.
Invitation to public: A document is not a prospectus unless it is an
invitation to public to subscribe for shares in, or debentures of, a company
Thus an advertisement which stated that " some shares are still available for
sale according to the terms of the company which may be obtained on

application" was held to be a prospectus as it invited the public to purchase
shares.
4.2 Issue of
prospectus
The legal requirements as to the issue of a prospectus are as follows:
0) Consent of Securities and Commission must have been

Exchange
obtained for the proposed capital issue, if it exceeds Tk. I (one) crore
during the year.
(1) A copy of the prospectus, duly dated and signed by all the directors,
must have been registered with the Registrar of Joint Stock
Companies.
4.3 Dating of prospeetus (Sec.134)
in relation to a
A prospectus issued by or on behalf of a company or
ntended company must be dated and that date is, unless the contrary is
Commercial Law
480 Text Book on
of the prospectus. In case an

proved, taken the date of publication
as
it has to be signed by the proposed
intended company issues the prospectus
in writing. In case of
airectors of the company or by
their agents authorized
has to be signed by every person who is
existing companies, the prospectus
director of the company or by his
named therein as director or proposed
agent authorized in writing.
4.4 Registration of prospectus (Sec. 138)
behalf of a company or in relation to an
A prospectus can be issued by or on
thereof has been delivered to the
intended company only when a copy
must be made on or before the
Registrar for registration. The registration
be signed by every person who
date of publication thereof. The copy must
director of company, or by his
IS named therein as director or proposed
the prospectus must state on the face
agent authorized in writing. Further,
for registration. It
of it that a copy of it has been delivered to the Registrar
must also specify that necessary documents
and consent of the experts have
been attached to or indorsed on the copy so delivered.
The prospectus must be issued within 90 days of the date on which a copy
this
thereof is delivered for registration. If a prospectus is not issued within
period, it is deemed to be a prospectus, a copy of which has not been
delivered to the Registrar [Sec. 138 (5)
Penalty for non-registration of prospectus: If a prospectus is issued
without a copy thereof being delivered to the Registrar for registration, or
without the necessary documents or the consent of the experts, the company
and every person, who is knowingly a party to the issue of prospectus, shall
be punishable with fine which may extend to Tk. 5,000 [Sec.138 (6)].
Objects of registration: These are:
1. to keep an authenticated record of the terms and conditions of issue
of share or debentures, and
22. to pinpoint the responsibility of the persons issuing the prospectus for
statements made by them in the prospectus.
The object of the promoters or directors in issuing a prospectus is to make it
as attractive as possible. The object of the Legislature is to prevent the
public from being misled and defrauded.
4.5 Allotment of shares and debentures to be dealt on stock exchange
(Sec. 140)
(1) Where a prospectus, whether issued generally or not, states that an
application has been,
will be, made for
or
debentures offered thereby to be dealt inpermission
for the shares
or
stock exchanges, such

one or more
recognised
prospectus shall state the name of the stock
exchange or, as the case may be, each such stock
exchange. An
Law of Insurance 481
allotment made on an application in pursuance of the prospectus shall
be void. if the permission has not been applied for before the tenth
day after the first issue o t the prOspectus, or where such permission
has been applied for before issue of prospectus, if the permission has
not been granted by the stock exchange or each such stock exchange.
as the case may by, within six weeks after the date of the closing f
the subscription.
(2) Where the permission has not been applied for such permission
or,
the company shall
having been applied tor, has not been granted,
repay without
interest all moneys received from applicants in
If any such money is not repaid within
pursuance of the prospectus.
after the tenth day or as the case may be, the six weeks as
thirty days be
specified in that sub-section, the directors of the company shall
to that money with interest at the
jointly and severally iable repay
rate of five percent above the bank rate.
that the default in the payment
But adirector shall not be liable if he proves
misconduct or negligence on his part
of the money was not due to any
allotment of shares or
received as subscription for the
(3) All moneys bank account and shall be
debentures shall be kept in a separate
and if default is
within the time and the m a n n e r specified
repaid
sub-section, the company and every
made in complying with this
and wilfully in default shall
officer of the company who is knowingly
five thousand taka
be punishable with fine not exceeding
to accept a
for shares or debentures is required
4) Where an applicant with any
of waiving compliance
condition which has the effect
shall be void.
requirement of this section
to be refused if it
is indimated
not be deemed
) The permission shall
further consideration.
that the application for it will be given for
application has been made for permission
vO prospectus shall state that there by for being dealt in an stock
offered
uC
Shares or debentures
Exchange, unless it is a recognised stock exchange.
4.6 Contents of
prospectus which an investor
can look into
the
ectus is the window through investors must,

therefore, be given
of a company's venture. The position.
aa Comel activities and its
intended
complete
Thie is donepicture of the
company's
secure the fullest disclosure
of
his
all mate
through prospectus, which must same in full view of all the
me ine
material and essential particulars and lay the
udownwn prospectus
that a prospectus
that
intendi of shares. Section-135 lays
shallasers
issuedshall.
SSued
.
() state the matters specified in Part I of Schedule II, and

() set out the reports specified in Part II of Schedule II
The povisions as stated above have effect subject to the prrvisione
ns
contained in Part 1 of Schedule I1
contents of prospectus are as follows:
The important
Part 1 of Schedule 1
Matters to be set out
General information
addresses, descriptions and occupations of the
I. (a) The names,
the Memorandum
to and the number of shares
signatories
subscribed for by them.
the and
The number and classes of shares, if any, and
nature extent
b)
property and profits of the
of the interest of the holders in the
company.
shares intended to be issued.
(c) The number of redeemable preference
fixed the period of
with the date of redemption or, where no date is
method
notice required for redeeming the shares and the proposed
of redemption.
fixed by the Articles as the
(1) The number of shares, if any,
qualification of director.
to the remuneration of the
(2) Any provision in the articles as
directors whether for their services to the company as directors
managing directors or otherwise.
3. (1) The names, addresses, descriptions and occupations of
(a) The directors or proposed directors;
(b) The managing director or proposed managing director, if any
(b)
(The managing agent or proposed managing agent, if any:
(d) The manager or proposed manager, if any
where any such person is already a director, managing director
(0)
or manager of any other conpany, or
»
(i) where any such person, including a firm or body coporale,
already a managing agent if any other company.
The namnes of all the companies in which such person is a director
sucn
managing director or manager, and where any
managing agent or
person is a firm or a body corporate, the said particulars shall also be giv
in respect of every partner of the fiwn or, as the case may be, in respect o
every director of the body corporate
Company Law 483
(2) Any provision in the Articles or in any contract which has been entered
into as to the appointment of a managing director, managing agent or
manager, the remuneration payable to him or them, and the compensation,
if any, payable to him or them for loss of office.
4. In the case of a company managed by a managing agent which is a body
corporate, the subscribed capital of that body.
5. Where shares are offered to the public for subscription, particulars as to
if the
(a) The minimum amount which, in the opinion of the directors or
signatories of the Memorandum must be raised by the issue of th0se
in
shares in order to provide the sums, required to be provided
the amount
respect of each of the following heads and distinguishing
required undereach head:
The purchase price of any property purchased or to be purchased
(i)
which is to be defrayed in whole or in part out of the proceeds of
the issue
and any
(11) any preliminary expenses payable by the company,
commission so payable to any person in consideration ot his
agreeing to subscribe for, or of his procuring or agreeing to

procure subscriptions for, any shares in the company
in
(ii) The repayment of any money borrowed by the company
sub-clause (i) and (ii)
respect of any of the matters specified in
(iv) working capital;
the nature and purpose thereof and
(v) any other expenditure, stating
the estimated amount in each case;
in any
(b) If any part of the amount specified in clause (a) is defrayed
manner otherwise than those specified in that clause, then the
amount so defrayed and the balance.
amounts to be in respect of the matters specified in
provided
(c) If the
of the issue then
clause (a) and (b) otherwise than out of the proceeds
the sources out of which those amounts are to be provided.
6. The time of the opening subscription lists.

and in
7. The amount application and allotnment in each share,
payable on
the amount offered for
the case of a second or subsequent offer of shares,
made within the two preceding
subscription on each previous allotment
and the amount, if any paid on the
years, the amount actually allotted,
shares so allotted.
or proposed contract
8. The substance of any contract or arrangement
of kind has been
arrangement, whereby any option or preferential right any
subscribe for any share, in or
or is proposed to be given to any person to
Commercial Law
Text Book on
484
giving the number, description and amount ae
debentures or, a company,
debentures shall and including the following particular
any such shares
or
of the option or right-

which the option or right is exercisable;
(a) the period during subscribed for under the
(b) the price to be paid for shares or debentures
option of right;
(c) the consideration, if any, given or to be given for the option or for the
right thereto;
of the person to
(d) the names, addresses, descriptions and occupations
whom the option or the right thereto has been given or, is proposed
to be given, if given to existing shareholders or debenture holders as
number of the relevant shares
such, the descriptions and the or
debentures
(e) any other material fact or circumstances relevant to the grant of the
option or right.
for the purpose of
Explanation: Subscribing for shares ot debentures shall,
this clause, including acquiring them from a person to whom they have been
allotted or agreed to be allotted with a view to his offering them for sale
shall be deemed to subscription for such share or debenture.
9. The number description and amount of shares and debentures which
within the two preceding years have been issued, or agreed to be issued as
fully or partly paid up otherwise than in cash, and in the latter case the
extent to which they are so paid up, and in either case the consideration for
which those shares or debentures have been issued or agreed to be issued.
10. The amount paid or payable by way of premium, if any, on each share
which has been issued within the two years preceding the date of the
prospectus, or is to be issued, stating the dates or proposed dates of issue
and, where some shares have been or are to be issued at a premium and
other shares of the same class at a lower premium, or at a discount, the
reasons for the differentiation and how any premiums received have been o
are to be disposed of.
11. Where any issue of shares
debentures, is underwritten, the name o
or
the underwriters, and the opinion of the directors that the resources of the
underwriters are sufficient to discharge their obligations.
Particular as respect property
12. (1) The following particular as lause
respect any property to which this cla
applies is specified in sub-clause (2):
(a) the names, addresses, descriptions and the
vendors, occupations of tne

Company Law 485
(b) the amount payable in cash, shares or debentures to the vendor and,
where there is more than one separate vendor, or the company is a
sub-purchaser, the amount so payable to each vendor specifying
separately the amount, if any, paid or payable for goodwill;
(c) the nature of the title or interest in such property acquired or to be
acquired by the company;
(d) short particulars of any transaction relation to the transaction of the
property completed within the two preceding years in which any vendor
of the property to the company or any person who is, or was at the time
of the transaction, a promoter or a director or proposed director or the
company had any interest direct or indirect specifying the date of the
transaction and the name of such promoters, director for proposed
director and stating the amount payable by or the such vendor, promoter,
director or proposed director in respect of the transaction.
(2) The property purchased or acquired, by the company or proposed so to
be purchased or acquired, which is to be paid for wholly or partly out of the
proceeds of the issue offered for subscription by the prospectus or the
purchase or acquisition of which has not been completed at the date of the
issue of the prospectus, other than property.
(a) The contract for the purchase or acquisition whereof was entered
into in the ordinary course of the company's business, the contract
not being made in contemplation of the issue nor the issue in
consequence of the purchase of the contract; or
(b) as respects which the amount of the purchase money is not material.
13. The amount, if any, paid within the two preceding years, or payable as
commission to any person including commission to sub-under writers who
is a promoter or officer of the company, for subscribing or agreeing to
subscribe, or procuring or agreeing to procure subscription, for any shares
in or debentures of the company, and giving also the following particulars
namely:
(a) the name, addresses, description and occupation of each person;
(b) particulars of the amounts which each has underwritten or sub-
underwritten as aforesaid;
(c) the rate of the commission payable to each for such underwriting
or sub-underwriting;
(d) any other material term or condition of the underwriting or sub
underwriting; contract with-each such person; and
(e)where any such person is a company or a firm, the natures of,any
interest, direct, in such company or firm if any promoter or officer
of the company in respect of which the prospectus is issued.
33
Commercial Law
on
Text Book
486
of preliminary expenses and
ethe
.
estimated amount
14. The amount or been paid o r are payable
have and
those expanses
persons by whom any of of the issue and
the persons
eTsons by h
amount of the expenses
estimated
amount or or are payable.
have been paid
expenses
whom any ofthose within the two preceding years or
given
amount or benefit, paid or
for the
15. Any and the consideration he
be paid or given to any promoter,
intended to
of the benefit.
payment or the giving nature of every contract
of, parties to and general
(1) The dates
16.
the remuneration of a managing director
appointing or fixing whenever entered into, that is to sav
managing agent or manager date of the
than two years before the
whether within, or more
prospectus;
of every other material,
nature
(2) The dates, parties and the general course of
contract entered into in the ordinary
contract, not being a
intended to be carried on by the
the business carried on or
entered into more than two years
before the
company or a contract
date of issue of the prospectus.

at which any such contract or a copy
(3) A reasonable time and place
thereof may be inspected.
17. The names and addresses of the auditors, if any, of the company.
if any, of
18. (1)Full particulars of the nature and extent of the interest,
every directors or promoter of the company; or in any property
the date of
acquired by the company within two years of
prospectus or proposed to be acquired by it.
Where the interest of such director or promoter consists in being
a
(2)
member of a firm or company, the nature and extent of the interest
of the firm or company, with a statement of all sums paid or
agreed to be paid to him or to other firm or company in cashor
shares or otherwise by any person either to induce him to become
or to qualify him as, a director or otherwise for services rendered
by him or by the firm or company in connection with the
promotion or formation of the company.
19. If the share capital of the company is divided into different classes of
shares, the right of voting at meeting of the company conferred by, and the
rights in respect of capital and dividends attached to, the several classes o
shares respectively.
20. Where the Articles of the company impose any restrictions
upon n
members of the company in respect of the right to attend, speak or vote
meetings of the company or of the right to transfer or shares, upon
directors of the
companyrespect of
in
nature and extent of those restrictions. their powers
of managemen,
Company Law 487
been carrying on business, the
21. (1) In the case of a company which has
length of time during which the business of the company has been
caried on.
to business which has been
acquire a
(2) If the company proposes
which
caried on for less than three years, the length of time during
the business has been carried on.
subsidiaries
22. (1) If any reserves or profits of the company or any of its
have been capitalised, particulars of the capitalisation.
assets of the
(2) Particulars of the surplus from any revaluation of the
the two years preceding
company or any of its subsidiaries during
the date of the prospectus and the manner in which such surplus
has been dealt with.
of all balance sheets and
23. A reasonable time and place at which copies
the report of the auditors is based,
profit and loss accounts, if any, on which
may be inspected.
under part
Explanation: In this regulation "report" means report prepared
a
balance sheet
lI of the Schedule and on the basis of which the company's
and profit and loss account is prepared.
Part II of Schedule III
Reports to be set out

on the following,
(1) The auditors of the company shall prepare report
a
24.
namely
(a) Profits and losses, and assets and liahilities, as the case may be;
the company in respect of
(b) the rates of the dividends, if any, paid by
for each of the five financial
each class of shares in the company
the issue of the prospectus, giving
years immediately preceding
which the dividend bas
particulars of each such class of shares on
and also of the cases in which no dividend
particulars
been paid shares for any of those
has been paid on any of those classes of
years
in respect of any of the said
(c) if no accounts have been made-up
financial years, or part thereof ending on a date immediately
preceding three months prior to the issue of the prospectus
nereinafter referred to as the said period), then the following
matters
(i) a statement that such accounts have not been made up;
(i) an profit and loss of the conmpany up to a date
account of the
which date is not beyond
prior to the issue of the prospectus
one hundred and eighty days including the said period (three
months);
Commercial
Law
on
Text Book
488 sub-clause (i) may indicate as to
referred to in
the accounts made or yet to be made
(i)
ii)
whether any adjustment
has been
and the nature

of the adjustment;
and loss a c c o u n t and the assets
certificate that the
profit examined by the
(iv) a have been
of the company
and liabilities them.
found to be
correct by
auditors and
the report shall as regards,
has no subsidiaries,
(2) If the company losses of the company,
deal with the profits or
(a) profits and losses, of a item of a
non-recurring nature,
in respect of
distinguishing it the issue of
preceding
the five financial years immediately
each of
the prospectus; and
liabilities of the
deal with the assets and
assets and liabilities,
(b) which the accounts of the company
company at the last date to
were made up.
the report shall as regards,
(3) If the company has subsidiaries,
with the company's profits or
(a) profits and losses, deal separately
losses and in addition, deal either-
or losses of its subsidiaries,
(i) as a whole with combined profits
so far as they concern members of the company;
or
far
(ii) individually with the profits or losses of each subsidiary,
so
as they concem members of the company; or
i ) instead of dealing separately with the company's profits or

losses, deal as a whole with the profits or losses, of the
company and, so far as they concem members of the
company, with the combined profits or losses of its
subsidiaries; and
(b) assets and liabilities, deal separately with the company's assets and
liabilities as provided and, in addition, deal
either
as a whole with the combined assets and liabilities of its
subsidiaries, with or without the company's assets and liabilities; or
(i) individually with the assets and
liabilities of Cach subsidiary
(c) the assets and liabilities of the subsidiaries
indicate the allowance
to be made for persons other than
members of the company.
25. If the proceeds, or any part of the
debentures are or is to be
proceeds, of the issue of the shares or
applied directly or indirectly
(i) in the
purchase of any business; or
(ii) in the purchase of an
interest in any business and
purchase by reason of that
or, anything
connection therewith, the
to be done in
consequence thereof, or "
interest as respect either the company will become entitled to a"
such business capital or
profits and losses or both, "
exceeding fifty per cent thereof,
Company Law
489
A report shall be made by accountants, who shall
be named in the
prospectus, upon the profits or losses of the business for each
financial years immediately of the five
assets and liabilities of the
preceding the issue of the
prospectus; and the
business at the last date to which the accounts if
the business where made
up.
26. (1) If-
(a) The proceeds, or any part of the
or debentures are or is
proceeds, of the issue of the shares
to be applied
directly
or
indirectly in any
manner resulting
in the acquisition by the company of shares in
any other body coporate; and
(b) by reason of that acquisition or anything to be done in
thereof or on connection therewith that consequence
become a
body corporate will
subsidiary
of the company;
report made by accountants who shall be named in the
a
upon the profits or losses of the other body

prospectus
the five financial years corporate for each of
immediately preceding the issue of the
prospectus; and the assets and liabilities of the other
corporate at the last date to which the account of the body
corporate were made up. body
(2) The said report shall-
(a) indicate how the profits or losses of the other body
with by the report would, in corporate dealt
respect of the shares to be acquired,
have concerned members of the
company and what allowance
would have fallen to be made, in relation to assets and
liabilities so
dealt with, for holders of other shares, if the
company had at all
material time held the shares to be
acquired; and
(b) where the other body corporate has subsidiaries, deal with the
profits or losses and the assets and liabilities of the body corporate
and its subsidiaries in the manner
provided in relation to the
company and its subsidiaries.
Part I of Schedule III

Provisions applying to Part I and II of this Schedule
27. Clause 1 so far as it relates to
particulars of the
Memorandum and the shares subscribed for by them, andsignatories
of the
clause 14, so far
as it relates to
preliminary expenses, of this Schedule shall not apply in the
case of a
prospectus issued more than two years after the date at which the
company is entitled to commence business.
28. Every person shall be deemed to
be a vendor who has entered
contract, absolute or conditional for the sale or into any
purchase, for any option
or
Commercial Law
Text Book on
490
the company, in any
case
to be acquired by
of purchase, or any property
of the
where at the date of the issue
the purchase money is not fully paid
(a)
prospectus; or in part, out
or satisfied, wholly
is to be paid the
(b) the purchase money
issue offered for subscription by
proceeds of the
of the
prospectus or fulfillment
on the result of
(c) the contract depends for its validity
that issue.
the is to be taken on
29. Where any property

to be acquired by company
included
effect as if the expression "vendor"
its Schedule shall have
lease, included the consideration for
the lessor, the expression "purchase
money"
"sub- purchasee" included a sub- lessee.
the lease, and the expression
business for
company which
of has been carrying on
30. If, in the case a
which has been carried on
five or in the case of a business
less than years have
five years, the accounts
of the company or the business
for less than five year
number of years or period less than
been accordingly made for any
II of this Schedule
(e.g. four/three/two/one etc.) then, the provisions of part
in that Part were the
shall have effect as if any references to five years
references to the said less number of years or to the
said period less than
five years.
31. Where the five financial years immediately preceding the issue of the
this Part
propectus which are referred to in part II of this Schedule or in
cover a period of less than five years, reference to the said five financial
years the aggregate period covered by which is not less than five years
immediately preceding the issue of the prospectus were substituted for
reference to the five financial years aforesaid.
32. Any report required by Part II of this Schedule shall either-
(a) indicate by way of note any adjustments as respects the figures of
any profits or losses or assets and liabilities dealt with by the report
which appear of the persons making the report necessary; or
(b) make those adjustments and indicate that adjustment have been
made
33. Any report by accountants required by P'art II of this Schedule-
(a) shall be made by accountants qualified under the
1994 for appointment as auditors a Companies Act,
of company; and
(b) shall not be made by accountant who is an
officer or servant, or a
partner or in the employment of an officer or
company or of the servant, of the
company's subsidiary or
holding company or a
subsidiary of the company's holding company.
Company Law 491
Explanation: For the purpose of this clause, the expression "officer" shall
include a proposed director but not an auditor.
4.7 The Golden Rule' for framing prospectus
A prospectus is a document which holds out to the public as to what a
company is, what it proposes to do and what its prospects are. It invítes
deposits from the public or invites offers from the public to subscribe to the
share capital and debentures of the company. It is therefore, but reasonable
facts with
that there must be full frank and honest disclosure of all material
fact should be miss-
scrupulous accuracy in a prospectus and no material
material facts in a
stated or withheld. Misstatements and non-disclosure of
prospectus fatal
are the contract for the purchase of shares and
to
The
debentures. As such the greatest care is necessary in its preparation.
imposed on those responsible for the issue of a prospectus
are
obligations
not only to state accurately all the relevant facts, but also not to omit any
rule as to framing of
fact which may be relevant. This is the golden
Brunswick & Canada Rly. & Land
prospectus which was laid down in New
Co. (1860) 1 Dr. and Sm. 363.
v. Muggeridge,
The prospectus as a whole must not give a misleading impression, even
though on analyzing the statements separately, a true sense could be made
if the
If there is any mis-statement of a material fact in prospectus
a or
out.
arise:
prospectus omits any material fact, there may
I. Civil liability.
II. Criminal liability.
I. Civil liability (Sec. 145)
for shares on the faith of a
A person who has been induced to subscribe
statement in a prospectus that is untrue has remedies against the company,
and its directors, promoters, and experts.
1. Remedies against the company
If there is a mis-statement of a material information in a prospectus, and if it
has induced an shareholder to purchase shares he can-
(1) rescind the contract, and

(2) claim damages from the company whether the statement is
fraudulent or an innocent one.
i) Rescind the contract: Any person, who takes shares on the faith of
statements of fact contained in a prospectus, can apply to the Court for the
rescission of the contract if those statements are false or fraudulent or if
some material information has been withheld. He must, however, apply for
the rescission within a reasonable time and before the company goes into
liquidation (Shiromani Sugar Mills Ltd. v. Debi Prasad. (1950) 20 Comp.
Cas. 226] But he will have to surrender the shares allotted to him to the
492
name is then removed
from the register to members and he
company. His
him to the company along with interest. The
gets back the money paid by
conditions are satisfied:
contract can be rescinded if the following
be a material misrepreseniation of fact. The
i) The statement must
to influence
misrepresentation is material when it is likely
reasonable man in his judgment whether or not to apply for the
shares.
must be distinguished from
Misrepresentation of facts in a prospectus
the subscribers of the
misrepresentation of law. Whereas the former gives
to rescind the contract, the
shares on the faith of such a prospectus a right
latter gives no remedy.
take the shares. Whether or
(i) It must have induced the shareholder to shares by reason of the
not an applicant has been induced to take the
the
misrepresentation is a question of fact depending
on
circumstances of each case. If the statement would

influence a
reasonable man, the Court will readily infer that it
influenced the
applicant.
(ii) It must be untrue. A statement included in prospectus is deemed to
a
be untrue of it is misleading in the form and context in which it is

included. Again, where the omission from a prospectus of any matter
is calculated tomislead, the prospectus is deemed, in respect of such

omission, to be a prospectus in which an untrue statement is
included.
In Rer v. Lord Kylsant, (1932) I K.B. 442, a prospectus was issued by a
between 1921
company stating that the company had a dividend every year
and 1927 (years of depression) thus giving the misimpression of
a
those
finanvially stable compaby. However, the company had in each of
loses and was able to dividends
years incurred considerable trading pay
only out of past reserves. This fact was suppressed. Held, the prospectus
was 'false in a material particular' in that it conveyed a
false impression. A
statement could be false not only because of what was said but also because
of what was concealed, omitted or implied.
iv) The shareholder must have relied on the statement in the prospectus
while applying for shares and he is not bound to verify the statement
before relying upon it. If a person purchases shares in open market,
for
the prospectus ceases to be operative. He cannot, therefore, sue
rescission on the ground of untrue statement in the prospectus.
In Peek v. Gurney. (1872) LR. 6 HL. 377, a company issued a prospect
containing false statements. A, relying on the prospectus, applied for ana
wouna
was allotted shares. Later he sold these share to P. The company was
Company Law
493
up and P had to pay nearly 100,000 as a
indemnity for his loss from the directors at thecontributory.
P sought an
time of the issue of the
prospectus. Held, the directors were not liable to P.
( The omission
of a material fact must be misleading hefore rescission
isgranted. If a person relies on a ground for the rescission of a
contract the omission of a statement, he must show that
on
the
omission of the statement makes what is stated
misleading
In Coles v. White City Greyhound Assn., Ltd., (1929) 45 T.L.R. 230, a
prospectus described land as 'eminently suitable" for
greyhound racing.
However, before any buildings such as kennels or stands for the
could be erected, local authority's public
approval was necessary as a result of a
town-planning resolution. The local authority refused approval. Held, the
description of land was misleading and rescission was granted.
(vi) The proceeding for rescission must be started as soon as the allottee
comes to know of a misleading statement in the
prospectus on the
faith of which he had subscribed for shares and before the
company
goes into liquidation. Delay may defeat this right of the allottee.
(ii) Damages for deceit: Any person induced by a fraudulent statement in a
prospectus to take shares is entitled to sue the company for damages. He
must prove the same matters in
claiming damages for deceit as in claimingg
rescission of the contract. He cannot both retain the shares and
get damages
against the company. He must show that he has repudiated the shares and
has not acted as a shareholder after discovering the
misrepresentation.
(2) Remedies against the directors, promoters and experts
The persons who are liable to pay compensation for any loss or damage to
subscribers for any shares or debentures on the faith of a prospectus
containing untrue statements are the-
(a) directors at the time of the issue of the prospectus
(b) persons who have authorized themselves to be named as directors
inthe prospectus;
(c) promoters ; and
(d) persons who have authorized issue of the prospectus [Section
145(1))
Their liability may be studied under the following heads:
(i) Liability for damages for misstatement in prospectus (Sec. 145)
very director, promoter and every person who authorises the issue of
prospectus (no matter whether he has seen it or not) is liable to pay
compensation to the aggrieved party (who subseribes for any shares or
debenturcs on the faith of the prospectus) for loss or
incurred by reason of any untrue statement in the
danage he nay have
prospectus [Sec. 145(1)
Commercial Law
494 Text Book on
etc.: Section 145(2) provides that a
Defenses of directors, promoters
who authorises the iSSue of the prospectus.
director, promoter, or any person
which contains untrue statements, is not liable to pay compensation to the
aggrieved allottee provided:
(a) he withdrew his before the issue of the prospectus and that it
consent
was issued without his authority or consent;
(b) the prospectus was issued without his knowledge or consent and that
on becoming aware of its issue, he forthwith gave reasonable public
notice that it was issued without his knowledge or consent;
(c) after the issue of the prospectus and before allotment there under, he,
on becoming aware of any untrue statement therein, withdrew his
consent to the prospectus and gave reasonable public notice of the
withdrawal and of the reason therefor;
(d) he had reasonable ground to believe that the statement was true and
he, in fact, believed itto be true;
(e) the statement wascorrect and fair representation or extract to copy of
the statement made by an expert who was competent to make it and
had given his consent and had not withdrawn it ; and
(1) the statement was a correct and fair representation or extract or copy
of an official document based the
or was on authority of an official
person.
(i) Liability for damages for non-compliance with section 135: The
omission from the prospectus ofa matter
135 may give rise to an action for
required to be included by section
for shares who has suffered loss
damages at the instance of a subscriber
make the prospectus false or
thereby, even if the omission does not
misleading. The Act does not say that the
directors will be liable, but this seems to be
implied from section 135.
(ii) Liability under the general law: Under the
can hold all or any of the general law, a shareholder
persons responsible for the issue of a
liable for any misstatement or fraud on their
or his
prospectus
deceived by reason of his part if he was actually
having acted the faith of the misstatement o
on
fraud in the prospectus. According to section 17
of the Contract Act, 1872,
fraud' means and includes, inter alia, the
which is not true by one who does not suggestion, as a fact, of that
believe
concealment of a fact by one having knowledge or it to be true and active
A person can only be liable in
belief of the fact.
fraud in a
statement 1o be acted upon by others, which prospectus where he makes a
is false and is
knowingly; or (b) wilhoul beliel in its made (a)
whether it was true or lalse |Derry v. Peek,truth; or (c) recklessly, not caring
The remedy under general law Is also
(1889) 14 pp. Cas. 337).
rescission as against the company 1s lost available (a) where the right of
the company goes into liquidation. through negligence, and (b) where
Company Law 495
I1. Criminal liability

() Penalty for untrue statement in prospectus (See. 146)
Where a prospectus contains any untrue statement, every person who
authorised the issue of the prospectus is punishable with imprisonment,
which may extend to 2 (two) years or with fine, which may extend to Tk
5.000 or with both. He will be acquitted if he provescither
(1) that the statement was immaterial, or
(2) that he had reasonable ground to believe upto the time of the issue of
the prospectus that the statement was true.
The punishment for issuing an application for shares or debentures that
is not accompanied with the prospectus is a fine, which may extend to
Tk. 5,000.
Meaning of untrue statement (Sect. 143): A statement included in the
prospectus is considered to be untrue if
(a) the statement is misleading in the form and context in which it is
included; and
(b) where the omission from a prospectus or any matter is calculated
to mislead, the prospectus in respect of such omission.
(i) Penalty for fraudulently inducing persons to invest money (Sec.147)
A person shall not, either knowingly or recklessly by making any statement,
promise or forecast which is false, deceptive or misleading or by an
dishonest concealment of material facts, induces or attempts to induce
another person to enter into, or to offer to enter into any-
(a) agreement for acquiring, disposing of, subscribing for, or
underwriting shares or debentures;

(b) agreement, the purpose or pretended purpose of which is to secure a
profit to any of the parties from the yield of shares or debentures, or
by reference to fluctuations in the value of shares or debentures
If he does that, he shall be punishable with imprisonment for a term which
may extend to 5(five) years, or with fine which may extend to Tk. 15,000 or
with both.
Secton 147 is expected sullicient detenent to unscrupulous
to serve as a
COmpany promoters against making untrue and deceptive statements in a

prospectus with a view to obtaining capital fiom the publie
4.8 Statement in lieu of prospectus (Sect.
TH)
Where a public company ha ving a share capital does nol nvite publie to
Subscribe for its shares but arranges to get 1oney fOm puvste sources, l
need not ssue a
prospectus to the public. In such a case the pronoters are
requircd to prepare a drafi prospectus known as 'statement n leu of
prospectus', which should contan the nformation set out n Schedule IV of
the Act [Sec 141(1)]
496
A company having a share capital, which does not issue a prospectus, can
allot any of its shares or debentures only when at least 3 days before the
allotment of shares or debentures there has been delivered to the Registrar
for registration a statement in lieu of prospectus. The statement shall be
therein director or
every person who is named proposed
as a
signed by
director of the company or by his agent authorized in writing. It shall be in
the form and contain particulars set out in Part-I of Schedule IV and the
reports set out in Part-II of Schedule IV of the Act. But this requirement
does not apply to a private company [Section 141 (3)].
If shares or debentures are allotted without a statement in lieu of prospectus
being filed, or when the filed statement omits some information required by
Schedule IV, the company and every director or the company, who willfully
authorizes or permits the contravention, shall be punishable with the fine
which may extend to Tk. 5,000 [Section 141 (4)].
Where a statement in lieu of prospectus includes any untrue statement, any
person who authorized the delivery of the statement in lieu of prospectus for
registration shall be punishable with imprisonment for a term which may
extend to 2(two) years or with fine which may extend to Tk 5,000 or with
both. He can avoid liability if he proves either that the statement was
immaterial or that he had reasonable ground to believe, and did up to the
time of the delivery for registration of the statement in lieu of
that the statement was true [Section 141
prospectus
(5)]
An allotment made in contravention of Section 141 is
voidable at the option
of the applicant provided the
option is exercised-
(1) within 2(two) months of the holding of the statutory
meeting; or
(2) where the company is not
required to hold a statutory meeting or
where the allotment is made after the
holding of the
meeting, within 2(two) months after the date of allotment. statutory
The iregular allotment is voidable even if the
company is being wounded up.
Restrictions on alteration of terms of
prospectus or statement in lieu of
prospectus (Sec. 144)
A company shall not, at
any time, vary the terms ofa contract referred to in
the prospectus or statement in lieu of
of, or except under an authority
prospectus, except with the approval
given by
the company in
general meeting.
4.9 Document deemed to be
prospectus (Sec. 142)
Document containing offer of shares or debentures for sale
a prospectus
to be deemed
(1) Where a company allots or

agrees to allot any shares in or debentures of
the company with a view to all or any of those
shares or debentures being
offered for sale to the public, any document by which
the offer for sale to
Company Law 497
the public is made shall, for all purposes be deemed to be a prospectus

rules of law as to the contents of
issued by the company. All enactments and
of statements in and omission from
prospectus and as to liability in respect
shall apply and have effect
prospectus, or otherwise relating to prospectus,
had been offered to the public for
accordingly as if the shares or debentures
the offer in respect of any
subscription and as if the persons accepting
shares or debentures were subscribers for
those shares or debentures but
whom the offer is
without prejudice to the liability, if any, of the persons by
in the document or otherwise in
made in respect of misstatements contained
respect thereof.
evidence that an allotment
(2) It shall, unless the contrary is proved, be
debentures was made with a view to
or an agreement to allot shares or
the shares or debentures being offered for sale to the public if it is
shown
that offer of the shares or debentures or of any of them for sale
(a) an
after
to the public was made within one hundred and eighty days,
the allotment or agreement to allot; or
whole consideration
(b) that at the date when the offer was made, the
of the shares or
to be received by the company in respect
debentures had not been so received.
135 shall
(3) In case document, mentioned in sub-section (1), Section
of the
addition to the matters
have effect as if it required a prospectus to state, in
required by that section to be stated, in a prospectus-
(a) the of the consideration received or to be received by
net amount
to which the
the company in respect of the shares or debentures
offer relates; and
time at which the contract under which the said
(b) the place and
debentures have been or are to be allotted may be
shares or
inspected.
(4) Section 138 shall apply to the person or persons making the offer
mentioned in sub-section (1) as though they person named in were a
prospectus as directors or proposed directors of a company.
(5) Where the persons making offer mentioned in sub-section (1) is a

an
document referred to in sub-
company or firm, it shall be sufficient if the
section (1) is signed on behalf of the company or firm by two directors of
the company or by not less then one-half of the partners in the firm, as the
case may be, and any such director or partner may sign by his agent
authorised in writing.
4.10 Minimum subscription (Sec. 148)

Allotment only when minimum subscription received: No allotment of anv
share capital of a company offered to the public for subscription can be
made unless the following amount and at least 5% of that amount have been
paid in cash to the company, namely-
(a) the amount stated in the prospectus as the minimum amount which
in the opinion of the directors, must be raised by the issue of share
capital as the minimum subscription; or
(6) if any part of the minimum amount is to be defrayed in any other

manner, the balance of the minimum amount after deducting the
amount required to be defrayed [ Sec.148(1)].
The matters for which provision for the raising of a minimum amount of
share capital must be made by the directors are the following namely-
(a) the purchase price of any property purchased or to be purchased
which is to be defrayed in whole or in part out of the proceeds of
the issue;
(b) any preliminary expenses payable by the companytand any
commission so payable to any person in consideration of this
agreeing to subscribe for or of his procuring or agreeing-to
procure subscriptions for any shares in the company;
c) the repayment of any moneys borrowed by the company n
respect of the foregoing matters; and
(d) workingcapital [Sec. 148(2)]

4.11 Commencement of business (Sec.
150)
All kinds of private companies, whether limited
by shares, limited by
guarantee or unlimited can commence business immediately after their
incorporation. Whereas a public company can do so only after it obtains a
certificate of commencement of business'.
Public company issuing a
prospectus: Where a company having a share
capital has issued a
prospectus inviting the public to subscribe for its shares,
it can commence business or exercise borrowing powers if the following
conditions are satisfied:
(a) Shares payable in cash have been allotted
the minimum subscription.
up to an amount equal to
(b) Every director of the company has
paid to the company, on tne
shares taken or contracted to be
taken by him for cash, th
application and allotment money.
Company Law 499
(c) No money is, or may become, Iiable to be repaid to applicants for
any shares or debentures which have been offered for public
subscription by reason of any failure to apply for, or to obtain,
permission for the shares or debentures to be dealt in on any
recognized stock exchange.
(d) There has been filed with the Registrar a duly verified declaration
by one of the directors or the secretary or where a company has not
appointed a secretary, a secratary in whole-time practice, in the
prescribed form, that the aforesaid conditions have been complied
with (Sec. 150(1)).
Ifa pubic company enters into a contract with a third party before obtaining
a certificate of commencement of business, the rights of the third party are
protected and the contract is valid as against the company. Such a contract
IS known as a provisional contract.
Public company not issuing a prospectus: Where a company having a

share capital has not i5Sued a prospectus inviting the public to subscribe for
its shares. it can commence business or exercise borrowing powers if the
following conditions are fulfilled:
1) There has been filed with the Registrar a statement in lieu of
prospectus.
2) Every director of the company has paid to the company, on the
shares taken or contracted to be taken by him for cash, the
application and allotment money.
(3) There has been filed with the Registrar a duly verified declaration by
one of the directors or the secretary or where a company has not
appointed a secretary, a secratary in whole-time practice, in the

prescribed form, that the above provisions have been complied with
(Sec. 150(2)
The Registrar shall, on the filing of a duly verified declaration in
accordance with the above provisions, certify that the company is entitled to
commence business. The certificate shall be conclusive evidence that the
company is so entitled [Sec. 1S0(3)]).
The provisions contained in section 150 do not apply to a private company
or to a company limited by guarantee and not having share capital [Section
150(6)).
Chapter6
Share Capital
6.1 What is share capital?
Share capital means the capital raised by a company by the issue of shares
The word 'capital' in connection with a company may be used in the
following senses:
1. Authorizcd, nominal or registered capital

Nominal capital or authorized capital is the total face value of the shares
which the company is authorized to issue byits Memorandum of
association. In the case of a company limited by shares, the Memo must
state the amount of capital with which the company is proposed to be
division thereof into shares of a fixed amount. This is the
registered and the
maximum capital, which the company will have during its lifetime unless it
is increased. The total share capital of a company is also called its registered
capital.
2. Issued and subscribed capital
Issued capital is that part of nominal or authorized capital which is actually
offered to the public for subscription or purchase. A company does not
So issued capital in such a case is less
normally issue all its capital at once.
than the nominal The issued capital can never exceed the authorized
capital.
capital.
are not taken
Sometimes, all the shares offered to the public for subscription
which is taken up by the
up. In such a case that part of the issued capital,
public, is called the subscribed capital.
which has been
It is that part of the issued capital
.
Calied-up capital:
called up on the shares.
which has been
aid-up capital: This is that part ofthe issued capital on the
which is credited
as pad up
the share holders or
pid up by
shares. issued
remainder/unpaid portion ot the
.Uncalled capital: This is the call his amount at any
company a y
pal which has not been called. The
ime.
resoluton determine
limited company may by speeil
eserve capital: A not been callcd-up shall not be
that d portion 'of share capital, which has
called up except in the event for the purposes of
winding up of the
company. Such uncalled capital is called reserve capital. It is available only
for the ereditors on the winding up of the company (Sec. 74).
6.2 Kinds of share capital
Share capital of a company may be of two kinds, namely:
1. Preference share capital; and
2. Equity share capital
1. Preference share capital: It means in the case of a
company limited by
the shares, that part of the share
capital, which carries or bears a preferential
ights as to
a) payment of dividend during the lifetime of the company; and
b) return of capital on
winding up.
2. Equity share capital: With regard to a company limited by shares, it
means all share capital which is not preference share capital i.e. which
does not carry preference as to payment of dividend; and repayment of
capital
6.3 Alteration of
capital (Sec. 53))
A limited company having a share
Articles. alter its share capital as capital, may if so authorized by its
follows, i.e. it may
a) increase its authorized share
capital by issuing new shares;
b) consolidate and divide all or
any part of its share
of larger amount, capital into shares
c) convert fully paid up shares
into stock or vice
versa;
d) sub-divide its shares into
shares of smaliler
e) cancel shares, which
have not been taken
amount
The up.
company must give notice of such alteration
days of the alteration. But
the Court need
to the
registrar within 15
shares is not however deemed not confirm it. A
to be
reduction of
cancellation of
6.4 Reduction of share capital.
share capital (Secs. 59
A and 70)
company limited by shares or
capital may, if so authorized by its limited by guarantee and having a share
share capital. Articles, by special resolution, reduce sS
But the
company hasapply by to
confirming
the reduction (Sec.60). Thepetition to the Court for an order
the
objection of every creditor of theCourt, if satisfied, with respect to
confirming the reduction on such company may make an order
(Sec.64). terms and
conditions as it thinks In
Conpany Law 513
T nmny may rdce its share capital in any of the following manners:
may extingunsh or reduce
the liability on any of its shares in
(a)
wspot of share capital not paid up.
Fx exampe: Share capital 100000 shares
and face value of cach share is
of cach share is "Tk. 4.
1.10 and Tk. 6 per share paid. Uncalled amount
the remaining liability of
n r h a case the conpany may extinguish
share.
ancalld share capital at the rate of Tk. 4 per
without extinguishing or reducing liability
on
6) t may, either with or
share capital, which is lost or is
any of its shares, cancel any paid up
anrepresented by available assets.
without extinguishing or reducing liability on
(c)t may either with or of
capital, which is in excess
any of its shares. pay off any paid up
the
the wants of company
by reducing the amount of its
share
Memorandum
d) lt may alter its
capital and ofits shares accordingly [Sec.59 ()].
Addition to name of company of "and reduced" (Sec. 61)
for reducing share
On and from the passing by the company ofa resolution
of the order by the Court confirming
capital, then on and from the making the words "and
the reduction, the company must add to its name
by shall be deemed to
reduced" as the last words in its name and
those words,
be part of the name of the company
minutes of reduction (Sec. 65)
Registration of order and
the following documents,
The Registrar shall, on production to him, register
namely
order of the Court;
(a) the certified copy of the
the Court, showing the
(b) a copy of the minutes approved by
folowing:
share capital;
() the amount of the reduced
which it is be divided;
(i) the number of shares into
to
(ii) the nominal value ofeach share;

of registration,, deemed to be
(iv) the amount, if any, at the time
on cach share[ Sec. 65(1)].
paidup
Notice of the registration be published in such manner as the Court
must
directs (Sec.65 (3)). The Court may also require the company to publish the
reasons for reduction with a view to giving proper infomation to the public
(Sec. 69).
Conclusive evidence as to reduction
The Registrar shall certify under his hand the registration of the order and
minutes and his certificate shall be conclusive evidence that all the
requirements of this Act with respect to reduction of share capital have hea.
been
complied with and that the share capital of the company is such as is stated
in the minute [ Sec. 65(4)].
The minutes when registered must be deemed to be substituted for
the
corresponding part of the Memorandum of the company, and shall be valid
and alterable as if it has been originally contained therein and shall
be
embodied in every copy of the Memorandum issued after its
registration
[Sec. 66(1)]
Consequences in default
Ifa company makes default in complying with the above requirements, it
shall be liable to a fine not exceeding Tk.100 for each copy in
respect of
which default is made, and every officer of the who
company knowingly
and willfully authorises or permits the default shall be liable to the
like
amount of fine [Sec. 66(2)]
TEST QUESTIONS
. Explain the concept of 'capital 'in relation to a limited company and state
the various senses in which the term
'capital' is used in company law.
2. How can the share capital ofa
company be reduced?
3 How and in what circumstances can a
company reduce, increase and
reorganize its share capital?
4. In what circumstances can a
company reduce its share capital? Describe
the formalities to be
complied with and the procedure to be followed.
5. Discuss the voting rights of members in a
with reference to both
public company limited by share
equity and preference share capital.
6. Write a short notes no:
(a) Conversion of debentures issued to
Government into shares: (0)
Procedure to be followed for reduction
of capital:(¢) Reserve
Capital;(d) Variation of sharcholders'
rights.
Chapter 9
Management and Administration of a Company

9.1 Directors/Board of Directors
A company though a legal entity in the eye of the law, is an artificial
It being a creation of law lacks both body and mind. It cannot act in
person.
its own person; it can do so only through some human agency. The persons,
through whomcompany acts and does its business, are termed as
a
directors. They are collectively known as Board of directors or simply

Board.
The directors are the brain of a company: They occupy a pivotal position in
the structure of the company. They are in fact
the mainsprings of the
of directors is the brain and the only brain of the
company. The Board
the body, and the company can and does act only
company, which is
that the corporation is
through them. It is only "when the brain functions
said to function".
Definition: Section 2(1) defines a "director' as any person occupying the
the direction, conduct,
position of directors having control
over
affairs of a company. The important

management or superintendence of the
to refer to the
factor to determine whether a person is or is not a director is
nature of the office and his duties.
A company, association or firm cannot be appointed director of a company.
of a company. The idea
Only individuals or natural persons can be directors
an office of
behind this is that as the office of a director is to some extent
who can be held
trust, there should be somebody readily available
be difticult to
responsible for the failure to carry out the trust and it might
11x that responsibility if the director was a corporation or an association of
persons [Sec. 90(3)].

Number of directors: Every public company and a private company,
at least 3
is the
Wnich company, must have
subsidiary company of a public
must have at least 2
CCLOrs and a private company other than the above, shall preseribe
rectors.(Sec.90). The Articles of association of a company directors.
Board of
nimum and maximum number of directors for its
.1.2 Appointment of directors (Sec.91)
Notwithstanding anything contained in the Articles of a company

-
(a)the subscribers of the Memorandum shall be deemed to be the

alrectors of the company until the first directors are appointed.
(b) the directors of the company shall be elected by the members fro
om
and
among their number in general meeting;
(c) any casual vacancy occurring among the directors may be filled in
by the other directors but the person be appointed shall be a person
qualified to be elected a director under clause

be (b) and shall
subject to retirement at the same time as if he had becomea
director on the day on which the director in whose place he is
appointed was last appointed a director.

contained in the Articles of company other
(2) Notwithstanding anything
than a private company not less than one third of the whole number of
directors shall be persons whose period of office is liable to determination
rotation.
at any time by retirement of directors in
1. First directors
(a) The Articles of a company usually name the first directors by their
respective names or prescribe the method of appointing them.
(b) If the directors are not namedthe Aticles, the number of directors
in
and the names of the first d1rectors are determined in writing by the
subscribers of the Memorandum who are individuals become
directors of the company. They hold office until directors are duly
appointed in the first annual general meeting
2. Appointment of directors by the company
Directors must be appointed by the company in general meeting. In the case
of a public company and a private company which is a subsidiary of a
public company, not less than 1/3 of the total number of directors must De
appointed by the company in general meeting. However, the Articles may
provide for the retirement of all directors at an annual general meeting&
These directors are liable to retire by rotation and such directors are called
rotational directors. The remaining 1/3 directors in the case of any such
company and all the directors in the case of a private company not being
subsidiary of any public company are, subject to any regulations in the
Articles, also to be appointed by the company in general meeting.
3. Appointment of directors by the Board of directors
The Board of directors may appoint directors-
(a) As additional directors: Such additional directors hold office only uy
to the date of the next
annual general meeting of the company.
number of directors and additional directors must not exceed
maximum strength fixed for the Board by' the Articles of
company. Additional directors are not to be counted
wn
determining the number of directors who are to retire by rotation
the annual general meeting.
Company Law 547
(b) In a casual vacancy: In the case of a public company, or a private

company which is a subsidiary of a public company, the officeis
vacated before his term of office expires in the normal course. In
such a case, the resulting casual vacancy may be filled by the Board
of directors at a meeting of the Board.
(c) As alternate director: The Board of directors of a company may, if
so authoresed by its Articles or by a resolution passed by the
director. He is to act
company in general meeting appoint an alternate
for a director, called 'the original director', during his absence for a
periodof at least 3 months from the state in which meet1ngs of the

Board are ordinarily held. An alternate director is not included in
determining the maximum number of directorships a person may
hold at a given time.
9.1.3 Restrictions on appointment of director (Sec.92)
director of a company
(1) A person shall not be capable of being appointed
director of
the Articles, and shall not be named as a director or proposed
by
a company in any prospectus
issued by or on behalf of the company or in
relation to any intended company or in any statement in lieu of prospectus
before the registration of the
filed by or on behalf of a company, unless
the filing of the statement
Articles or the publication of the prospectus, or
as the case may be, he has by
himself or by his agent
in lieu ofprospectus,
authorised in writing
in writing to act as
(a) signed and filed with the Registrar a consent
such director ; and
(b) in the case of companies having a share capital-

number of shares not less
(i) signed the memorandum for a
than his qualification shares; or
to pay for his
(ii) taken from the company and paid or agreed
qualification shares; or
writng to
a contract in
(i) signed and filed with the Registrar
shares;
take from the company and pay for his qual1tication
or
affidavit to the effect
(v) made and filed with the Registrar an
that a number of shares not less than his qualitications share

are registered in his name.
4 On the application for registration of the Memorandum and Articles, if
list of the
y, of a company, the applicant shall file with the Registrar
a
Persons who have consented to be directors of the company. If this list

d n s the name of any person who has not so consented, the applicant
a
hall b l e to a fine not exceeding two thousand taka. But it shall not
apply the appointment of the chief executive, by whatever name

to
called
of any insurance company or a banking
company as a director of that
companyif the Article thereof provides for such appointment
9.1.4 Disqualifications of directors (Sec.94)
(1) A person shall not be capable of being appointed director
ofa company, if
(a) he has been found to be of unsound mind
by a
competent Court
and the finding is in force; or
(b) he is an undischarged bankrupt; or
(c) he has applied be
to adjudicated as a
bankrupt and his
application is pending; or
(d) he has not paid any call in
respect of shares of the company held
by him, whether alone or jeintly with others, and six months have
elapsed from the last day fixed for the payment of the call; or
() he is a minor.
(2) A company may in its Articles provide additional
disqualification of a director. grounds for
Consent of candidate for
directorship (Sec.93)
(1) Every person, proposed as a candidate for the office of a director shall
sign, and file with the company, his consent in writing to act as a
appointed.
director,if
(2) A person shall not act as a director of the company unless he has, within
thirty days of his appointment, signed and filed with the
consent in writing to act as such director. Registrar his
9.1.5 Qualification of director (Sec.97)

(1) Without prejudice to the restrictions
imposed by section 92, it shall be
the duty of every director to hold
Articles and, if he is not already
qualification share to be specified in the
within sixty days after his
qualified,
he shall obtain his qualification
fixed by the Articles.

appointment, or such shorter time as may be
(2), If, after the expiration of the said

period any
a director ofthe company, he shall be liable to unqualified
a fine not
person acts as
hundred taka for every day between the exceeding two
last day on which it is expiration of the said period and the
proved that he acted as a director (both days
inclusive).
Validity of act of director (Sec.98)
The acts of a director shall be valid
notwithstanding any defect that may
afterwards be discovered in his appointment
be deemed to give
or
qualification. But it shall no
validity to acts done by a director after the
of such director has been shown to
be invalid. appointmen
Company Law 549
Ineligibilin ofbankrupt to act as director (Sec. 99)
director or
(1) If any person being an undischarged bankrupt acts as
heshall be liable to
managing agent or manager of any company,
imprisonment for a term not exceeding two years or to a fine not exceeding
five thousand taka or to both.
(2) The expression "company" includes a company incorporated outside

within Bangladesh.
Bangladesh which has an established place of business
Prohibition of assignment of office by director (Sec.100): Any assignment
of his office made after the commencement of the Act by any director is
void and shall be of no effect.
9.1.6 Appointment and terms and office of alternate directors (Sec. 101)
authorised by its
(1) The Board of directors of a company may, if so
Articles or by a resolution passed by the comnpany in general meeting,
alternate director, to act for a director hereinafter called the
appoint an
director during his absence for a continuous period of not less than
original
three months from Bangladesh.
not hold office as such for a
(2) An alternate director so appointed shall
the original director in whose place he
period longer than that permissible to after he
has been appointed and shall vacate the office, immediately
receives information that the original director has returned to Bangladesh.
term of office of the original director is
determined before he so
(3) If the
of
returns Bangladesh any provision for automatic re-appointment
to
another appointment shall apply to the
retiring directors in default of
original, and not to the alternative director.
Avoidance of provisions relieving liability of directors (Sec. 102): Any
of a company or in any contract
provision, whether contained in the Articles
with a company or otherwise, for exempting any director, manager
or
officer of the company or

officer of the company or any person, whether an
auditor from, or for indemnifying him
not, employed by the company as
rule of law would otherwise
against, any liability which by virtue of any
breach of duty or breach
attach to him in respect of any negligence, default,
shall be void
of trust of which he may be guilty in relation to the company
subject to the following conditions:
of any
(a) nothing in this section shall operate to deprive any person
exemption or to be indemnified in respect of anything done or
right
omitted to be done by him while the sajd provision was in force
before the commencement of the Act; and
a
company may, in pursuance of indemnify any
the said provISion
0 Such director, manager, officer or auditor against any liability
Incurred by him in defending any proceedings, whether civil or
criminal, in which judgment is given in his favour or in which he is
acquitted, or in connection with any application under section 396
of the Act in which relief is granted to him by the Court.
Commercial Law
550 Text Book of
9.1.7 Loan of director (Sec. 103)

hereinafter referred to the lending company, shall make
as
() No company, in connection with a
provide any security
any loan or give any guarantee or
loan made by a third party to-
(a) any director of the lending company;
of the lending company is a partner;
(b) any firm in which any director
director of the lending company
(c) any private company of which any
is a director or member; or
manager or director
(d) any public company, the managing agent,
with the directions
whereof it is accustomed to act in accordance
or
instructions of any director of the lending company.

But it shall not apply to the making of a loan or giving any guarantee or
providing any security by a lending company, it-

private company not
) such company is a banking company or a
being a subsidiary of a public company, or if such company as a

holding company makes the loan or gives the guarantee or provide
the security to its subsidiary; and
(ii) the loan is sanctioned by the Board of directors of any company
and approved by the general meeting and, in the balance sheet,
there is a specific mention of the loan, guarantee or security, as the
case may be.
It is further that, in no case the total amount of the loan shall exceed 50% of
the paid up value of the shares held by such director in his own name.
It shall apply to any transaction represented by a book debt, which was from
its inception in the nature of a loan or an advance.
Penalty
In the event of any contravention of above provision, every person who is a
party such contravention including in particular
to
any person to whom a
loan is made or on whose behalf a guarantee is given to or
security provided
shall be punishable with the fine which extend to five thousand taka or
simple imprisonment for six months in lieu of fine and shall be liable jointly
and severally to the lending company for the
repayment of such loan or tor
making good any sum which the lending company may be called up to
under the guarantee given or security pa
provided by the lending company
(Sec.103(2).
Directors not to hola office of profit
(Sec.104): No director or firm ot
which such director is a partner of private
company of which such director
is a director shall, without the consent of the
hold any office of profit under the company in general meeting
company thhat of a managing
director or manager or a legal or technical adviserexcept
or a banker.
Company Law 551
For this purpose, the office of managing agent shall not be deemed to be an
office ofprofit under the company (Explanation to Sec. 104).
Sanction of directors necessary for certain contracis (Sec. 105): Except
with the consent of the directors, a director of the company, or the firm of
which he is a partner or any partner of such firm, or the private company of
which he is a member or director, shall not enter into any contract for the
sale. purchase or supply of goods and materials with the company.
9.1.10 Removal of directors (Sec.106)

(1) The company may by extraordinary resolution remove any share-holder
director before the expiration of his period of office and may by ordinary
resolution appoint another person in his stead and the person so appointed
shall be subject to retirement at the same time as if he had become a director
was last
on the day on which the director in whose place he is appointed
elected director.
(2) A director so removed shall not be re-appointed a director by the Board
of directors.
Restrictions on powers of directors (Sec.107): The directors of a public
shall not, except
company or of a subsidiary company of public company
a
with the consent of the company concerned in general meeting-

and
(a) sell or dispose of the undertaking of the company;
remit any debt due by a director.
(b)
9.1.11 Vacation of office of director (Sec.108)
(1) The office ofa director shall be vacant, if-
his appointment or at any
(a) he fails to obtain within 60 days after
time thereafter ceases to hold, the qualification-shares, if any.
necessary for his appointment; or

(b) he is found to be of unsound mind by a competent Court; or
(c) he is adjudged a bankrupt; or
him
(d) he fails to pay calls made on him in respect of shares held by
within six months from the date of such calls being made; or
of
(e) he or any firm of which he is a partner or any private company
which he is a director, without the sanction of the company in
the
general meeting accepts or holds any office of profit under
or a
company other than that of a managing director or manager
legal or technical adviser or a banker; or
) he absents himself from three consecutive meetings of the directors
or from all meetings of the directors for a continuous period of
three months, whichever is the longer, without leave of absent
from the Board of director, or
(g) he or any firm of which he is a partner or any private company of

which he is a director accepts a loan or guarantee from the
contravention of section 103; or
company in
(h) he acts in contravention section 105.
of
(2) A company may its Articles that the office of director
provide by shal
be vacated on grounds additional to those specified in sub-section (1).
9.1.12 Restriction on managing director (Sec.109)
No public company and no private company which is a subsidiary of public
company shall, after the commencement of the Act, appoint any person as
managing director, if he is a managing director or manager of other
company.
But no appointment under this section shall be made without the consent of
the company in a general meeting.
to be
However, the Government may, by order, permit any person
if the
appointed as a managing director of more than two companies
Government is satisfied that it is necessary that the companies should, for
their proper working, function as a single unit and have a common
managing director.
to than five years at a time
Managing director not to be appointed more
(Sec.110)
No company shall, after the commencement of the Act, appoint or employ
a
any individual as its managing director for a term exceeding five years at
time. It shall not be deemed to prohibit the re-employment or the extension
of the term of office of any person as managing director for a further pernod
not exceeding five years on each occasion.
But no such re-appointment, re-employment or extension of term of ottice
shall be made without the consent of the company in general meeting.
the
Any individual holding, at the commencement of this Act, the office of
be
managing director in a company shall, unless his term expires earlier,
deemed to have vacated his office immediately on the expiry of five yeal
from the commencement of this Act.
9.1.13 Compensation for loss of office
ole
Compensation for loss of office not permissible to managing or wo
time directors or directors who are managers (See. 111): Payment ma
made by a company, to a managing director, or a director holding the oft
of manager or in the whole time employment of the company, by way
compensation for loss of office, or as consideration for retirement
office, or in connection with such loss of retirement.
Company Law
553
No such payment shall be made by the company to any other director. But
na Dayment shall be made to a
managing or other director in the
cases, namely: following
(a) where the director resigns his office in view of
the reconstruction
of the company, or of its
amalgamation with any other body
corporate or bodies corporate, and is as the appointed
director, managing agent, manager or other officermanaging
of the
reconstructed company or of the body corporate
amalgamation;
resulting from the
(b) where the director resigns his office otherwise than on the
reconstruction of the company its
amalgamation as aforesaid.
or
(c) where the office of the director is vacated by virtue of
any of the
provision of the Act;
(d) where the company is being wound up, whether by or subject to
the supervision of the Court or
voluntarily, provided the winding
up was due to the negligence, or default of the director;
(e) where the director has been guilty of fraud or breach of trust in
relation to, of gross negligence in, or gross
or
mismanagement of,
the conduct of the affairs of the company or any subsidiary or
holding company thereof;
()where the director has instigated, or has taken part directly or
indirectly in bringing about, the termination of his office.
However any payment made to a managing or other director shall not
exceed the remuneration which he would have earned if he had been in
o11ice for the unexpired residue of his term or for three years, whichever is
shorter, and such remuneration shall be calculated on the basis of-
(a) the average remuneration received by him during the period of
three yearsimmediately preceding the date on which he ceased to
hold that office; and
(b) where he held that office for a period of less than three years, the
average remuneration received by him during the period for which
he held the office.
Bu
Dut no such payment shall be made to the director in the event of the
ommencement of the winding up of the company, whether be fore, or at

uy ime within twelve months after, the date on which he ceased to hold
E, 1 the assets of the company on the winding up after deducting the

ses thereof, are not sufficient to repay to the share holders the share
apital including the premiums, if any, contributed by them.
d not be deemed to prohibit the payment to a managing director, or a
Keor the office of manager, of any remuneration for service

rendered holding
by him to the company in any other capacity.
9.1.14 Register of directors, managers and managing agents (Sec.115)

(1) Every company shall keep at its registered office a register of its
directors, manager and managing agents containing with respect to each of
them the following particulars, that is to say-
(a) in the of an individual, his present name in full, any formner

case
name or surname in full, his usual residential address, hi_
nationality and, if that nationality is not the nationality of origin
his, nationality of origin and his business, occupation, if any, andif
he holds any other directorship or directorships the particulars of
such directorship or directorships;
(b) in the case of a body corporate its corporate name and registeredor
principal office, and the full name, address and nationality of each
of its directors; and
(c) in the case of a firm, the full name, address and nationality of each
partner, and the date on which each became a partner.
(2) The company shall within the period specified below send to the
Registrar a return in the prescribed form containing the particulars specified
in the said register and a notification in the prescribed form of any change
among its directors, managers or managing agents or in any of the
particulars contained in the register-
(a) in the case of the particulars specified in sub-section (1), within a
period of fourteen days from the appointment of the first directors
of the company;
(b) in the case of any change in such particulars, within a period of
fourteen days from the day change takes place.
(3) The register to be kept shall, during business hours and subject to such
reasonable restrictions as the company may by its Articles or in general
meeting impose so that not less than two hours in each day be allowed for
inspection, be open to the inspection of any member of the company
without charge and of any person on payment of ten taka or such less sum
as the company may impose for each inspection.
(4) If any inspection required is refused or if default is made in complying

with or sub-section (2) of this section, the
sub-section (1) company
every officer of the company who is knowingly and wilfully in default shall
be liable to a fine of five hundred taka.
(5) In the case of any such refusal, the Court, on application made by the
person to whom inspection has been refused and upon notice to the
company, may by order direct an immediate inspection of the register.
Company Law 555
9.2 Powers of Board
The Board of directors of a company is entitled to exercise all powers and
to do all acts and things, which the company is authorized to exercise. This
is however subject to the provisions of the Act. This means that the powers
The
of the Board of directors are co-extensive with those of the company.
proposition is, however, subject to two conditions:
done by the company in
First, the Board shall not do any act, which is to be
general meeting.
to the provisions
Second, the Board shall exercise its powers subject
Memorandum or the
contained in that behalf in the Companies Act, or the
made by the company in
Articles of the company or in any regulations
made by the company in general
general meeting. Further, no regulation which would have been
meeting shall invalidate any prior act of the Board,
made.
valid, if that regulation had not been Board of
Notice of every meeting of the
Notice of meetings (Sec. 95): for the
in writing to every director
Directors of a company shall be given
and at his address in Bangladesh.
time being in Bangladesh
a meeting of
directors (Sec. 96): In the case of every company
Meeting of threemonths and at
Board of directors shall be held at least once in every
its
shall be held in every year.
least four such meetings
9.2.1 Powers to be
exercised only at meeting
must
as well as private)
directors of a company (public
The Board of of the company by means of
on behalf
exercise the following powers
of the Board, viz., the power to
resolutions passed at meeting
make calls on shares;

(a)
(b) issue debentures;
otherwise than on debentures (say public deposits);
(c) borrow moneys
and
invest the funds of the
company;
(d)
(e) make loans. at the meeting
which must be exercised only
There are certain other powers
are:
of the Board. These powers
Board;
(a) to fill vacancies in the contracts in which particular
consent to certain
(6) to sanction or give are interested;
relatives and firms
directors, their directors interest in any contract
disclosure of
(C)to receive notice of
with the company;
arrangement
or of directors;
disclosure of shareholdings
to receive notice of is
(d) a person who
director or manager
as managing
()to appoint of another company.
or manager
acady managing director
Law
Text Book on Commercial
556
9.3 Duties of directors and administration a f
position in the management of a
Directors occupy key a
Articles of the comna
company. Their
dutics are usually regulated by
the
pany
on the directors. These statutos
There are also some statutory
obligations tory
at appropriate places. Again, there aete
obligations have been discussed
certain duties of a general nature.
be classified as (1) fiduciary duties, ( 2
The general duties of directors may
and (3) other duties.
duties of care, skill and diligence,
duties of directors are basically identical
1. Fiduciary duties: The fiduciary
They must exercise their
with those of any person in a fiduciary position.
the company and
and (b) in the interest of
powers (a) honestly, themselves in a position in
shareholders. As fiduciaries they must not place
duties to the company and their
which there is a conflict between their
personal interests.
These fiduciary duties are owed to the company and not to the individual
shareholders [Percival v. Wright, (1902) 2 Ch. 421].
As the directors owe a fiduciary duty to the company, they must not make a
secret profit out of their position. If they do so, they have to account for it to
the company [ Boston Deep Sea Fishing & lce Co. v. Ansell, (1888) 39 Ch.
D. 339.
2. Duties of care, skill and diligence: Directors should carry out their
duties with such care, skill and diligence as is reasonably expected from
persons oftheir knowledge and status. If they fail to exercise due care in the
exercise of their duties, they are guilty of neglignce. The standard of care.
skill and diligence would, however, vary with-
(a) the type and nature of work ;
(b) the division of power between directors and other officers;
(c) the general usages and customs of that type of business; and
(d) whether directors work gratuitously or
There is
remuneratively.
a brilliantexposition of director's duties in relation to
affairs the
a companys
in
following leading case:
City Equitable Fire Ins. Co., Re
(1925) Ch. 437. The directors of an
insurance company left the
management of the company's affairs alm0
entirely in the hands of B, the
managing director. Owing to B's fraud,
large amount of the company's assets
he was a partner had taken a disappeared.
B and the firnm in whie
huge loan from the company and the cash
bank or in hand included £7,300 in the a
stockbrokers, in which B was a partner. The hands of the companyato
how these items directors never inquirea aent.
were made up. Held, the
directors were neglige
Company Law 557
the Articles protected the directors from liability

(However, in this case,
the directors
exceptin case of willful neglect or default and consequently
were not
held liable).
observed in this case as following:
Romer, L.J.
duties of a director it is necessary to consider the nature
In ascertaining the
business and manner in which the work of the company is
of the company's
with the Articles
reasonably in the circumstances and consistently
other officials of the company. In
distributed between the directors and
discharging these duties a director-
(a) must act honestly;

would amount to
(b) must exercise such degree of skill and diligence as
be expected to take
the reasonable care which an ordinary might man
in the circumstances on his own behalf; but

his duties a greater degree of
(c) need not exhibit in the performance of
of a person of his
skill than what can reasonably be expected
not liable for mere
knowledge and experience; in other words, he is
errors of judgment;
continuous attention to the affairs of
his
(d) is not bound to give at
of an intermittent nature to
be perfornmed
company, his duties
are
of any committee to
periodical board meetings and the meetings
not bound to attend all such
which he is appointed and though
them when reasonably able to do s o ;
meetings, he ought to attend
and
to the exigencies of
(e) in respect of all duties which, having regard
be left to
business and the Articles of Association, may properly
some other official, he is in
the absence if suspicious grounds
justifiedin that official, to perform such duties honestly."
trusting
3. Other duties: The other duties of a director are-
(1) to attend Board meetings,

extent authorized by the
(2) not to delegate his functions except to the
Act is the constitution of the company, and
(3) to disclose his interest.
9.4 Statutory duties
9.4.1 Director's duty of disclosure
Disclosure ofinterest by director in respect of contract etc (See. 130)
(1) Every director who is directly or indirectly concerned or interested in
ny contract or arrangement entered into by or on behalf of the company
shall disclose the nature of his interest at the meeting of the directors at
C n the contract or arrangement is determined on, of his interest then
exists, or, in any other case, at the first nmeeting of the directors after
acquisition of his interest or the making of the contract or arrangement
But a general notice that a director is a director or a member of a
specified company or of any specified firm, and is to be regarded any
interested in any subsequent transaction with such firm or company, shall.
regards any such transaction be sufficient disclosure and after such genera
eral
notice, it shall not be necessary to give any special notice relating to an
particular transaction with such firm or company. any
(2) Every director who contravenes the provisions of sub-section (1) shall
be liable to a fine not exceeding five thousand taka.
(3) A register shall be kept by the company in which shall be entered
particulars of all contracts or arrangements and which shall be open to
inspection by any member of the company at the registered office of the
company during business hours.
(4) Every officer of the company who knowingly and wilfully acts in
contravention of the provisions of sub-section (3) shall be liable to a fine
not exceeding one thousand taka.
9.4.2 Prohibition of voting by interested director (Sec. 131).
(1) No director shall, as a director, vote on any contract or arrangement in
which he is either directly or indirectly concerned or interested, nor shall his
presence count for the purpose of forming a quorum at the time of any such
vote, and if he does so vote, his vote shall not be counted.
But the directors or any of them may vote on any contract of indemnity
against any loss which they or any one or more of them may suffer by
reason of becoming or being sureties or surety for the company.
(2) Every director who contravenes the provision of sub-section (1) shall be
liable to a fine not exceeding five thousand taka.
(3) The above provisions shall not apply to a private company.
But where a prívate company is a
subsidiary company of a public company
this section shall apply to all contracts or arrangement made on behalt ol
subsidiary company with any person other than the holding conmpany.
9.4.3 Disclosure to members in of contract ger
(Sec. 132)
case
appointing a a
Where acompany enters into a contraci for the appointent of a
managing agent of the company in which contact any
nlIang the
direeto
company is directly or indirectly concemed or
interested, vaie
or
ae
existing contract, the company shall, within
twenty one days
Iiom
entering into thhe contract or the varying of he contract, sehu n
abstat
of the terms of such contract or
variation, as the case may be, toge wi
,logether
memorandum clearly indicating the natlure of the interest of he

Company Law 559
in such contract, or in such variation, to every member; and the contract
shallbe to inspection of
open member at the
any ofice of the registered
company.
If a company makes delault in with the above requircments, it

complying
officer
shall be liable to a fine not exceeding five thousand taka; and every
be liable to
of the company, who is knowingly and wilfully in default, shall
the like penalty.
Contracts by agents of company in which company is undisclosed
principal (Sec. 133)
a private
or other company other than
agent of a
(1) Every manager
whoo
the subsidiary company of a public company,
company, not being contract the
enters into a contract for or on behalf of the company in which
principal shall, at
undisclosed the time of entering into the
company is an
and
memorandum in writing of the
terms of the contract,
contract, make
whom it has been made.
specify therein the person with
shall forthwith deliver the
(2) Every manager or other agent
such
office of company and send copies
memorandum aforesaid to the registered
shall be filed in the office of
the
memorandum
to the directors, and such
directors meeting.
before the directors at the next
company and laid
other agent makes default in complying with the
(3) If any such manager or
section-
requirements of this
contract shall, at the option
of the company, be void as against
(a) the
the company; and
other agent shall be liable to a fine not exceeding

or
(b) such manager
five hundred taka.
9.5 Liability of directors
discussed under the following heads:
The liability of directors may be
arise-
1. Liability to third parties: This may
arise in connection with
() Under the Act: Liability to third parties may
which does not contain the particulars
the issue of a prospectus
material misrepresentations.
required the Act, or which contains
by
They may also incur such liability-
application money if minimum
(a) where they fall to repay
not been subscribed.
subscription has
has been irregular.
(6) where the allotment of shares
(c)where they fall to repay application money ifthe application for
the securities to be dealt in on a recognized stock exchange is
not made or is refused.
(ii) Independently of the Act: Directors, as agents of a company, are not

personally liable on contracts entered onto as agents on behalf of the
company. For whatever an agent is liable, those directors would be
liable; where the liability would attach not the principal only, the
liability is the liability of the company [Ferguson v. Wilson, (1866)
L.R. 2 Ch. App. 77]. In general, the directors, who contract as
agents,
incur no personal liability, but there are a number of
exceptions to
this rule. If they fail to exclude personal liability, for instance, while
signing a negotiable instrument without mentioning the company's
name, they are personally liable to the holder of such instrument.
They are also personally liable if they act in their own name.
If directors wish to avoid personal
liability on negotiable instruments, they
must sign in such form as to exclude
personal liability. It is necessary in
such a case to sign 'for', or 'account
of, or 'on behalf of, or'perpro' (as an
agent). the company, as the mere word "director after the personal
signature of a person is not sufficient to exclude personal liability.
2. Liability to the
company: The liability of directors towards the
company may arise from-
(1) Ultra vires acts: Directors are
personally liable to the company in
respect of ultra vires acts and it is not
such cases, e.g., when
necessary to prove fraud in
they pay dividends out of capital or when they
dissipate the funds of the company in ultra vites transactions.
are liable They
jointly and severally and, inter se (among
have a right to rateable themselves), they
contribution.
(2) Negligence: A director may incur
exercise of his duties. There is no liability
for negligence in the
and as such each case has to statutory definition of negligence,
be decided after due
particular facts thereof. The onus of consideration of the
act in proving that the directors did not
good faith lies on the person who
directors. But if they are challenges the acts ot
even if the
guilty of
negligence they would be liable
Articles otherwise
(3) Breach of trust: Directors provide.
of a company hold
as
regards its money and the position of trustees
of the powers property which comes into their hands anu
entrusted to them by the Articles. They must
their duties as such dischargc
trustees in the best
are liable to the interest of the
company for any loss company. 1ney
They are also accountable to resulting from breach of trus
the
might have made in company for
transactions on behalf of theany secret profits
company.
Company law 561
(4) Misfeasance: Directors are also liable to the company for

misfeasance which means 'misconduct' of directors for which they
may be sued in a law Court /Kingston Cotton Co., Re (No 2)
(1896) Ch. 331]. But in order to amount to misfeasance, he
misconduct must be willful. Where any director, or for that matter
any ofticer of the company (and alsopromoter or liquidator) has

retained money has
misapplied or or property of the company or
been guilty ot breach of tnust or misfeasance, the Court may examine
into his conduct and order him to repay or restore the money or
property or to pay compensation.

3. Liability for breach of statutory duties: There are numerous provisions
of the directors to carry out.
of the Companies Act in which it is the duty
accounts, filing of
Most of these duties relate to maintenance of proper
returns or observance of certain statutory formalities. If they fail to perform
these statutory duties, they render themselves liable to penalties.
director is not liable for the acts
4. Liability for acts of his co-directors: A
and in which he has taken
of his co-directors of which he has no knowledge
no part [Perry'sCase. (1876) 34 716]. This is because his co-directors
L. T. him.
are not his servants or agents who can by their acts impose liability on
9.6 Managerial personnel
9.6.1 Managing director
a managing
In addition to the Board of directors, a company may employ
a public company or a
director or a manager. According to section 109,
of a public company must not
private company which is a subsidiary
who is already a mnanaging director
appoint a person as managing director
of at least another company. But no person
shall be appointed as managing
director without approval of the general meeting of the company.
more than five
appointed managing director for
years
person shall not be
on renewal subject to
Consecutively or at a time. But he shall be reappointed
the approval of the general meeting of the company (Sec.110).
the Government appoint a person as managing director of at

However, can
Government is satisfied that the two
east two companies at a tinme if the
companies shall run simultaneously.
Fowers of managing director
A with the substantial powers of
managing director is entrusted
conferred upon him by
Lnagement of the company. These powers may be
by the
ue of an agreement with the company or of directors orpassedvirtue of
a resolution
pany in general meeting or by its Board by

Memorandum or Articles of association.
i s important to note that the term "managing directors" includes a director
oCCupying the position of a managing director, by whatever name called.
9.6.2 Managing agent (Sec.116)

The managing agency system is a distinctive feature of company
management in the sub-continent. This unique institution has no parallel in
any other country and is product of circumstances peculiar to the Indian
sub-continent. It suited so well the needs of the commercial classes after the
abolition of the East India Company's monopoly that it flourished and
became embedded in the industrial structure of our country. The East India
Company's servants were allowed to augment their paltry salaries by
carrying on private trade in India. This they did through representatives,
agents, or agency houses, which subsequently came to be knowm as
mercantile houses. In due course of time the bulk of business controlled by
the Englishmen came to be entrusted to mercantile houses in India which
later on came to be called managing houses or firms [See, M. Zahir,
Company and Securities Laws, UPL (2005) p.200].
Under the Companies Act, 1994, apart from managing director, a company
may appoint managing agent for not more than 10 years at a time and a
managing agent must not act for more than 20 years in a company. But such
restrictions shall not apply to a private company other than a
private
company which is a subsidiary of another public company (Sec.116).
The Companies Act 1994 defines
"managing agent" as a person, firm or
company by whatever name called, who or which is entitled to the
management of the whole affairs and business of a company by virtue of an
agreement with the company, and under the control and direction of the
directors except to the extent, if
any, otherwise provided for in the
agreement [Sec.2 (i)].
A managing agent is also entitled to charge
a
upon the assets of the
company by way of indemnity for all liabilities or
incurred by the managing
obligations, property
agent on behalf of the company
existing charges and encumbrances, subject to
Thus, the managing agent has a
if any [Sec.16(3)).
very high contractual status and assumes all
powers of management of the
The difference between company.
agent derives his or its managing
a
agent and a
manager is that
powers under a
a managing
be contract with the
a
person, firm or
company. But a
company and may
subject to the manager is an individual who may act
directors under asuperintendence, control and direction
contract of service of the Board or
greater power and autonomy than a [Sec. (2(k)]. A managing agent enjoys
Conditions applicable to manager.
managing agent (See.117)
Notwithstanding anything to the
company or in any agreement withcontrary
the
contained in the Articles of the
company
Company Law 563
(a) a company may, by resolution passcd at a general mecting of which
notice has been given to the managing agent in the same manner as
to members of the company, remove a manaying ayent if he is
convicted of an offence in relation to the affairs of the company and
the offence is non-bailable within the mcaning of the provis1ons of
the Code of Criminal Procedure, 1898 (Act No. V of 1898).
But where the managing agent is a firm or company an offence committed
by a member of such firm or a director or an officer holding a general
be offence
power of attorney from such company shall be deemed
to an
committed by such firm or company.

removed under
It is further that a managing agent shall not be liable to be
the provisions thereof if the offending member, director or officer
as
aforesaid is expelled or dismised by the managing agent within thirty days

from the date of his conviction or if his conviction is set aside, on appeal
(b) the office of a managing agent shall be deemed to be vacant if he is

adjudged bankrupt.
transfer of his office by a managing agent shall be void unless
(c) a
approved by the company in general meeting.
But where a managing agent is a firm, a change in the partners thereof shall
not be deemed to operate as a transfer of the office of managing agent, so
long as one of the original partners shall continue to be a partner of the

managing agent's firm.
(d) a charge or his remuneration or any part thereof

assignment of
effected by a managing agent shall be void as against the company.
(e) if a company is wound up either by the Court or voluntarily, any
contract of management made with a managing agent shall be there
to the right of the
upon determined without prejudice, however,
managing agent to recover any moneys recoverable by the manag1ng
agent from the company.
But where the Court finds that the winding up is due to the negligence or
default of the managing agent himself, the managing agent shall not be
entitled to receive any compensation for the premature termination of his
contract of management
()the appointment ofa managing agent, the removal ot managing agent
and variation of a managing agent's contract of management shall
not be valid unless approved by the company by a resolution at a
general meeting of the company notwithstanding anything to the
contrary in section 104.
But it shall not apply to the appointment ofa company's first manag1ng
gent made prior to the issue of the prospectus or statement in lieu of

prospectus where the terms of the appointment of such managing agent are
setforth therein.
Investigation and removal ofmanaging agent (Sec.118)
If theGovermment is satisfied or there are reasons to believe
thae
managing agent is conducting the affairs or management of the comma
fraudulently or illegally or against the interest of the
shareholders, th
Govemment shall after giving that managing
agent an
opportunity of
hearing appoint an
investigator to investigatethe affairs of that
and shall direct him to make report compan
about the conduct
agent. of the managing
If the managing
agent is removed, Government can
appoint an administrator
for the time being until and unless new
managing agent is appointed.
Remuneration of managing agent (Sec.119)
Where a
company appoints a managing agent, it shall, in the documents of
appointment specify the following -
(a) the remuneration of the managing
on fixed
agent which shall be a sum based
percentage of the net annual profits of the
(b) a minimum payment, in the case of absence or company; and
together with office allowance. inadequacy of profits,
Any stipulation for remuneration additional
the remuneration to, or in any form other than,
specified above shall not be binding on the
unless sanctioned by a company
special resolution of the company.
For the purpose 'net
profits' means the profits of the company calculated
after allowing for all the usual
working charges, interest on loans and
advances, repairs and outgoing, depreciation, bounties or subsidies received
from Government or from
public statutory body profits by way
a
of
premium shares sold, profits on sale
on
profits from the sale of the whole or part ofproceeds

of forfeited shares, or
the
undertaking the company,
of
but without any deduction in
respect of income-tax or
other tax or duty on income or
for expenditure
super-tax, or any
debentures or otherwise on by way of interest on
capital account or on account of
any sum which
may be set aside in each year out of the
special fund. profits for reserve or any other
It shall not
apply to
private company except a private company which s
a
the subsidiary company of a public company or to
principal business is the business of insurance. any company whose
Restrictions on managing agent
Loans to managing agent (Sec.1 20):
No company shall make to a
managing agent of the
company
or to any
managing agent partner of the firm, if tne
is a firm, or to
any member of director of the
company if the managing agent is a privac
moneys of the company or guarantee
private company, any loan out
of
any loan made to a managing agent.

Chapter 10
Meetings of the Company

10.1 Types of Meeting
The meetings of a company may be classified as follows:
1. Meeting of shareholders: This meeting may be-
i) General meeting of the shareholders. This meeting may be (a)
statutory meeting, (b) annual general meeting, and (c)
extraordinary meeting.
ii) Class meeting: In addition to the above three types of meetings
which may be attended by all the shareholders, there are class
meetings of shareholders of different classes of shares.
2. Meeting of creditors and debenture holders: This may beheld (a)
during the lifetime of the company, and (b) at the time of winding
up of the company. 3. Meeting of directors.
10.2 Statutory meeting (Sec.83)
This is the first meeting of the shareholders of a public company. It must be
held within a period of not less than I (one) month nor more than 6 (Six)
months from the date at which the company is entitled to commence
business. It is held only once in the lifetime of a company. A private
and not having a share
company and a company limited by guarantee
capital need not hold such a meeting.
Example: PL Limited obtained certificate to commence business on 31
December, 1990. It can hold the statutory meeting any time between 1*
February, 1991 (i.e. not earlier than 1 month from the date the company is
entitled to commence business) and 30 June, 1991 (i.e. not later than 6
months from the date the company entitled to commence business).
Statutory report (Sec. 83(3)|
The statutory report must set out the following information namely:
a) Total shares allotted: The total number of shares allotted
distinguishing shares allotted as fully or partly paid-up otherwise
than in cash and stating in the case of shares partly paid-up, the
extent to which they are so paid up, and in either case, the
consideration for which they have been allotted.
b) Cush received: The total amount of cash received by the company in
Tespect of all the shares allotted, distinguished as aforesaid.
c)Abstract of receipts and payments: An abstract of the receipts of the
company and of the payments made thereout, up to a date within 7
days of thhe date of the report.
Example: Pharma Ltd., company limited by shares, sent a notice of the

a
statutory meeting along with statutory report on 8 march, 1991.

abstract of the receipts and the payments made thereouf should be for Thee
the
period ending within 7 days before 8th March, 1991.
d) Directors and auditors: The names, addresses and occupations of
the
directors, auditors and secretary.
e) Contracts: The particulars of any contract to be submitted to the
meeting for its approval and proposed modifications in it, if any.
Underwriting contract: the extent to which each underwriting
contract has not been carried out
and the reasons therefor.
g) Arrear of calls: The arrears due on calls from every director and
from the manager.
h) Commission and brokerage: The particulars of any commission or
brokerage paid or to be paid to any director in connection with the
issue of shares or debentures.
Object of the meeting and report
The purpose of a statutory
meeting with its statutory report is to put the
shareholders of the company in possession of all the
to the
important facts relating
new
company, what shares have been taken up, what
been received, etc. This also moneys have
provides opportunity to the shareholders of
an
gathering and discussing the whole situation, the management and
of the company. prospects
Consequences in default: It default is made in
complying with the
provisions of section 83, every director or any other officer of the company
who is in default is
punishable with fine which may extend to Tk. 5000
Sec.83(11)
10.3 Annual
general meeting (AGM)
Every company must in each year
(i.e. calendar year) hold,
any other in addition to
meetings, a general meeting as its annual
must specify the meeting such in the notices
as
general meeting and
more than 15 months calling it. A peripd ot no
should pass between the date of
meeting of a company and that of the next. one annual genera
hold its first annual The company may, howevets
general meeting within a maximum
from the date of its period of 18 montns
incorporation.
company to hold annual general
In that event it is not
necessary for tn
in the next year meeting in the year of its incorporation
(Sec. 81).
However the Registrar, may, for any special reason
holding annual meeting
by a period not extend the time
extension of time is extending 3 months. But
granted for holding the first annual general meeting-
Company Law 569
Example: The accounting year of a company ends on 31s mach, 1991. The
company is required to hold its second annual general meeting latest by 30
to hold this
June, 1991. The Registrar may, on application, grant time
meeting by 30 September, 1991.
as there are
There should be one meeting per year and as many meetings
years. This point was very well brought out in the following
case:
Shri Meenakshi Mills Co. Ltd. v Assistant Registrar of Joint Stock Companies,
called in
A.I.R (1983) Mad 640. The annual general meeting of a company
The next meeting
December, 1934 was adjourned and held in March, 1935. The
was held in February, 1936; other meeting being held in 1935.
no
was prosecuted for failure to call the

annual general meeting in
company
in the year 1935.
1935. The company contended that it did hold a meeting
of 1934.
Held, the meeting of March, 1935 was the adjourned meeting
be called during business hours
on a
Every annual general meeting must
at least 21 days notice in writing.
day that is not a public holiday by giving to all the members entitled
A shorter notice may be given if it
is agreed by
office of the
vote at the meeting. It must be held either at the registered
to the
at some other place within
the city, town or village in which
company or
is situate.
registered office of the company
Importance of annual general meeting shareholders
of a company that the
It is only at the annual general meeting
control over its affairs.
The shareholders also get an
can exercise any
review the working of the company.
opportunity to discuss the affairs and
interests.
the steps for the protection of their
They can also take necessary
Annual
of auditors is also made at the annual general meeting.
Appointment the shareholders and dividends
consideration of
accounts are presented for other
declared in this meeting. The shareholders can take up any
are
the company for discussion.
business relating to the affairs of
hold the annual general
in default: If a company fails to
Consequences
two consequences
follow:
meeting, and the
the
to Court for calling the meeting,
(1) Any member can apply
directions as it thinks fit [Sec.
81(2)].
Court may, give such
are punishable with fine
The and its every officer who is in default
2) company with a
which may extend to Tk.10,000 and
in the case of a continuing default,
Turther fine up to Tk. 200 for every subsequent
day of default (Sec.82)
10.4 Requisites of a valid meeting (Sec.85)
1. Proper authority
a general meeting of a company is the
convene
e proper authority to
resolution to call the meeting at a duly
50ard of directors who should pass a the
directors do not call the meeting,
convened Board meeting. If the
can direct to hold
the meeting.
imbers or the Court on application
Law
570
appointment qualification of the directore
or
If there is some defect in
after the Board has
and this comes to light
present at the Board meeting, to the validity of their
such defect is not necessarily fatal
acted bona fide, a
resolution.
2. Minutes of the meeting (Sec. 89)
proceedings of every gencral
record of all
Every company must keep a
or extraordinary general
meeting, annual general meeting
meeting (statutory Board of directors and
and of proceedings of every meeting of its
meeting) done by making, within 14 days of
of the Board. This is
committee
ofevery such meeting concerned,
entries of the proceedings
the conclusion of every
for that purpose. These records are known as minutes and
in the books kept the minute book pasting of
the book in which the record is kept is known as
papers.
which records proceedings of a Board
Each page of the minute book
must be initialed or signed by
the chairman of the same meeting or
meeting record of proceedings of
of the
the succeeding meeting. The last page
next
dated and signed.
each meeting in a minute book must be
a fair and correct summary
of the
The minutes of each meeting must contain
absentee shareholders may be in a
proceedings at the meetings so that the
some reliable idea of what transpired
at these meetings. All
position to form
aforesaid must also be
appointments of officers made at any of the meetings
included in the minutes of the meeting.
value of minutes: Minutes of meetings kept accordingly

are
Evidentiary
of the
evidence of the proceedings recorded thereon. Where minutes
1s
proceedings of a meeting have been kept acordingly, the meeting
deemed to have been duly called and held [Sec.89 (3)].
Location and inspection of minute books: The books containing the minutes
of proceedings of any general meeting of a kept at the
company shall be
registered office of the company and shall during business hours subject to
Such reasonable restrictions as the company may by its Articles or
general meeting impose so that not less than two hours in each day D
allowed for inspection, or be open to the inspection of any member withou
charge [Sec.89 (4)].
Supply of minutes [Sec. 89(5)]: Any member shall at any time after fourtecu
days from the meeting, be entitled to be furnished within seven days at
he has made a request in that behalf to the company with a copy of any
minutes at a charge not exceeding ten taka for every hundred words.
red
Consequences in default /Sec. 89(6) and (7)): 1f any inspection requret
ion
under sub-section (4) is refused, or if any copy required under sub-secto
the
(5), is not furnished within the time specified in sub-section (5).
Company Law 571
and wilfully
company and every officer of the company who is knowingly of
who authorises or permits default shall be liable in respect
in default or
hundred and to a further fine
each offence to a fine not exceeding taka one
one hundred taka for every day during which
the default
not exceeding
continues.
In the case of any such refusal or default the by order compel

Registrar may
an immediate inspection
of the books in respect of all proceedings of
be sent to the person
general meeting or direct that the copies required shall
requiring them.
3. Proxies [Sec. 85 (2)1

at a meeting may vote either person
or
A member entitled to attend and vote
to and vote for another person at
by proxy. A proxy 1s an authority represent
a meeting. It is als0 an
instrument appointing a person as proxy. The person
at the
so appointed is also called a proxy. A proxy has no right to speak
meeting.
If the Articles do not otherwise provide-
(a) A proxy can vote only on poll.

appoint more than one proxy
(b) A member of a private company cannot
to attend the same meeting.
not having a share capital cannot appoint a
(c) A member of company
proxy.
It should also be
The instrument appointing a proxy must be in writing.
authorized in writing. or of the
Signed by the appointer or his attorney duly
either under seal or under the
appointer is a corporation or a company,
should be, in order to be
hands or an officer or an afterly duly authority. It
before the meeting.
effective, deposited with the company 48 hours
A proxy is revocable: It can be revoked before the proxy has voted. Where
a shareholder who having appointed a personally attends and votes at
proxy
the meeting, the proxy is revoked thereby [Cousins v. International Brick
Co. Ltd., (1931)2 Ch. 90]. Again the death of a shareholder, after he has
appointed a revokes the authority of the proxy, but not until the
proxy,
company has notice of the death.
share capital
Every notice calling a meeting of a company, which has a or
the Articles of which provide for voting by proxy at the meeting, must
mention with reasonable
prominence
(a) that a member entitled to attend and vote is entitled to appoint a
proxy to attend and vote instead of himself, and

(6) that a proxy need not be a member.
Every member entitled to vote at a meeting of a company is entitled

inspect the proxies lodged at any time during the business hours oft
company. This can be done any time during the period beginning 24 h.
before the time fixed for the commencement of the meeting and ending wi
the conclusion of the meeting. But at least 3 days notice in writing of
intention so to inspect the proxies must be given to the company.
the
4. Voting and poll
The resolutions proposed in a general meeting of a company are decided on
the votes of the members of the company. Every member whose nam
appears in the register of members has a right to vote at a general meetina
A shareholder's vote is a right of property. He may use it in any manner he
likes. He is not bound to exercise it in the best interests of the company.
The voting may be by show of hands or by taking a poll.
Voting by show of hands: At any general meeting resolutions put to vote
are first decided by a show of hands. In taking a vote by show of hands, the
duty of the chairman is to count the hands held up and to declare the result
accordingly. This is without regard to the number of votes that a member
raising the hand possesses, and without regard to proxies whether held by
members or by non-members for members. However, the Articles may
otherwise provide.
Voting by poll: Before or on the declaration of the result of the voting in
any resolution on a show of hands, a poll may be taken by the chairman of
the meeting of his own motion. It must also be taken on a demand made on
that behalf by the persons specified below
Representation of companies at meetings of other companies of which
they are members (Sec. 86)
A company which is a member of another company may, by resolutiono
the directors, authorise any of its official or any other person to act as ld
representative at any meeting of that other company, and the person sS
authorised shall be entitled to exercise the same powers on behalf of tne
company which he represents as if he were an individual shareholder ot tna
other company.
5. Resolutions
eral
The which generally come for consideration at the
questions genets
meetings of a company are presented in the form of motion. A motionnu
f the
be proposed by
the chairman
of the meeting or by any other memberen
Then
company. It is then placed before the meeting by the chairmal
otion
discussion in the motion takes place. But before this is done the
must be seconded by someone. The
motion, after the close of discuss.
formally put to vote by show of hands. It may either be carried or
re
Company Law $73
f a sufficient number of members demand, the motion may be put to po
*
The final result is declared after the poll is taken. If the motion is carries,
becomes a resolution of the company.
6. Kinds of resolutions (Sec. 87)
There are two kinds of resolutions under the Companies Act, 194, narsely
Extra-ordinary resolution (Sec. 87(1)1: A resolution shall be

an
1.
of
extraordinary resolution when it has been passed by a majority
vote as are
not less than three fourths of such members entitled to
proxy, where proxies are allowed,

at a
present in person or by
intention to
general meeting of which notice specifying the
been
propose the resolution as an extraordinary resolution has
duly given.
majority of
Special resolution (Sec. 87(2)]: The object of requiring
a
2.
3/4ths of the votes for a special resolution is to protect the minority
affairs.
interests in important matters relating to the company's
the following among other
Special resolution is necessary for
purposesS:
the place of registered
(a) Alteration of Memorandum for changing
of objects with the
office from one place to another or alteration
leave of the Court.
with the consent of the Court
(b) Change of name of the company
(c) Alteration of the Articles of the company.
of the uncalled capital into reserve
(d) Conversion of any portion
capital.
(e) Reduction of share capital.
( Variation of shareholders' rights.
(g) Payment of interest out of capital

director to hold an oilice of profit under the
(h) Allowing a
company.
Memorandum to render the liability of d1rectors
(1) Alteration of
unlimited
voluntarily
0) Winding up a company
Onclusive evidence of voting ISec. 87(3)
resolution or a special resolution
any mecting at which an extraordinary
chauman on a show of hands
umited to be passed a declaration of the
a t the resolution is carried shall, unless a poll is demanded, be conclusive
ence of the fact without proof of the number or proportion of the votes
recorded in favour of or against the resolution

Law
574
Demand of poll (Sec. 87(4), (5), (6)1
resolution or a special resolution
At any meeting at which an extraordinary
be demanded.
is submitted to be passed a poll may
the poll may be in accordance with the Articles.
Where poll
a is demanded,
chairman may direct; and if the chairman so
be taken in such manner as the
which it is demanded.
directs it be taken at the meeting at
the majority on the poll, reference
Where a poll is demanded, in computing
to which each member is
entitled by the
shall be had to the number of votes
Act.
Articles of the company or under the
resolution (Sec. 88)
Registration of special and extra-ordinary
resolution shall, within 15
(1) A copy of every special and extraordinary
be printed or typewritten and duly
(fifteen) days from the passing thereof,
and filed with the
certified under the signature of an officer of the company
Registrar who shall record the same.
resolution
(2) Where Articles have been registered, a copy of every special
of
for the time being in force shall be embodied in or annexed to every copy
the Articles issued after the date of the resolution.
(3) Where Articles have not been registered, a copy of every special
resolution shall be forwarded in print to any member at his request, on
direct.
payment of fifty taka or such less sum as the company may
Consequence in default (Sec. 88(4), (5) and (6)]
Ifa company makes default in so filing with the Registrar copy of a special
or extraordinary resolution it shall be liable to a fine not exceeding one
hundred taka for every day during which the default continues.
If a company makes default in embodying or n complying with the above
provisions it shall be liable to a fine not exceeding fifty taka for each copy
in respect of which default is made.
Every officer of a company, who knowingly and wilfully authorises or
permits any default by the company in complying with the requirements
shall be liable to the like penalty as is imposed by this section on the
company for that default.
10.5 Extra-ordinary general meeting ( Sec.84)
Any general meeting other than an annual general meeting is called an
extraordinary general meeting. It is called for transacting some urgent or
special business which cannot be postponed till the next annual general
meeting. This may be convened.
1. by the Board of directors on its own or on the requisition or
members;
2. by the requisitionists themselves on the failure of the Board to call
the meeting.
Company Law 575
The Board of directors may call such a meeting whenever it thinks fit.
Further. it must proceed duly to call such a meeting of the company on the
requisition of members which is signed:
a) In the case of a company having a share capital, by holders of at
least 1/1Oth of the paid-up capital of the company carrying voting
rights in regard to the matter of requisition;
b)In the case of a company not having a share capital, by members
representing at least 1/10th of the total voting rights in regard to
the matter of requisition.
The Board must proceed to call a meeting within 21 days from the date of
45 days
deposit of a valid requisition. The meeting must be held within
from the date of the deposit of requisition.
Example: The holders of 15 per cent paid-up share capital of a public
limited company deposited a requisition at the company's registered
office for an extraordinary general meeting. The requisition was deposited
of 28" February, 1991. The Board of directors must call the meeting by
within 21 days from 28 February). The said
21 March 1991 (i.e.,latest from
meeting must be held by 14" April 1991 (i.e., within 45 days
28h February, 1991).
the meeting and must be signed by
The requisition must state the objects of
office of the company, and
the requisitionists and deposited at the registered
documents in like form, each signed by one or
more
may consist of several
requisitionists.
the requisitionists by reason of the failure
Any reasonable expenses incurred by
the directors duly to call a meeting
shall be repaid to the requisitionists by the
of shall be retained by the company,
out of any sums
company. Any sum so repaid
of fees or other remuneration
due or to become due from the company by way
directors as were in default.
for their services to such of the
TESTQUESTIONS
meetings of the shareholders of a company? When
The different kinds of
and how these meetings held?
Whal S a statutory report and what are its
2. What is a statutory meeting?
contents?
the holding of an annual
3. What are the statutory provisions regarding
business is transacted at such a meeting?
general meeting? What
Companies Act, 1994 which particularly
4 What are the provisions of the
a geeral meeling of acompuny on
rclate to the convening and holding ol
a requisition'? a quorum be present
What do you understand by quorum? Must t a quorum is never fornmed?
What is the procedure
meeting?
throughout a
valid neeting?
What arc
What do
the requisites of a
you understand by a proxy? Wnat are tne Statutory provisions
1
regarding
What arc proxies?
the different types ol resoluions which niay be passed in the
nicetings of shareholders?
Chapter 14
Winding up of Company
14.1 What is winding-up?
Winding-up or liquidation of a company represents the last stage in its life.
It means a process by which a company is finally dissolved and the assets
and property of the company is redistributed. According to Professor
Gower, "winding-up of a company is the process whereby its life i5 ended
and its property administered for the benefit of its creditors and members.
An administrator, called official liquidator is appointed by the Court from
among the list of persons or from panel of administrators and he takes the
control of the company provisionally, collects its assets, pays its debts to the
creditors and finally distributes surplus (if any) among the members in
accordance with their rights" (See, L.C.B Gower, The Principles of Modern
Company Law, 2nd edt., (1957) London, Stevens & Sons Ltd.).
Having wound -up the company's affairs, the liquidator must call a final
meeting of the members (if it is a members' voluntary winding up),
creditors (if it is a compulsory winding-up) or both (if it is a creditors
voluntary winding-up). The liquidator is then usually required to send final
accounts to the Registrar and to notify the Court. The company is then
dissolved.
14.2 Modes of winding up (Sec.234)
The Companies Act, 1994 recognises three modes of winding up of a
company. They are:
(i) Winding up by the order of the Court or compulsory winding up:
(i) Voluntary winding up which includes-
(a) Members' voluntary winding up by resolution on the
declaration of solvency by a majority of the directors at a
meeting of the Board; or
(b) Creditors' voluntary winding up by resolution in the case or
bankruptcy of the company.
(iii) Winding up subject to the supervision of the Court, i.e. voluntary
(i)
Winding up but a request is made to the Court for supervision ol
the winding up for the interest of the creditors as well as members
or contributories.
It is important to note that the provisions of the Copmanies Act with respect
to winding up are equally applicable to the winding up of a company in any
of these modes.
Company Law 615
14.2.1 Compulsory winding up

Grounds for compulsory winding up by the order of the Court: (Sec.241)
A company may be compulsorily wounded up by the Court in the following
cases:
1. Special resolution for the up of the company by Court:

winding
members would
Winding up under this head is not common because the
to wind up the company voluntarily for in such a case they shall
have
prefer
a voice in its winding up.
2. Default in holding statutory meeting or in delivering statutory report
by the public company to the Registrar of joint stock companies: In
contributor can file a petition to the Court to
such a case, the Registrar or a
that effect.
3. Failure to business within a year from the date of

commence
if there are reasonable

incorporation: But the company may be excused
within a reasonable time and there
grounds of the company starting business
are good reasons for the delay, for example, when the company is waiting
for the trade depression to pass.
4. Reduction in membership below the statutory minimum: If at any
time the number of members of a company is reduced, in the case of public
case of private company below 2, the company
company below 7 or in the
be ordered to be wounded up.
to pay debts to the creditors: A company may
be ordered to
5. Inability
deemed to be
be wound up, if it is unable to pay its debts. A company is
unable to pay its debts-
whom the company is
(a) ifa creditor by assignment or otherwise, to
then due, has
indebted for a sum exceeding five thousand taka
served on the company, by causing the same to be delivered by
otherwise at its registered office, a demand
registered post or
the sum so due and
under his hand requiring the company to pay
to pay the
the company has for three weeks thereafter neglected
to the reasonable satisfaction
sum or to secure or compound for it
of the creditor, or
(6) if execution or other process issued on a decree or order of any
returned
Court in favour of a creditor of the company is
unsatisfied in whole or in part; or
is
(C)if it is proved to the satisfaction of the Court that the company
is
unable to pay its debts, and in determining whether a company
the
unable to pay its debts, the Court shall take into account
contingent and prospective liabilities of the company.
The demand referred to above shall be deemed to have been duly give.
under the hand of the creditor if it is signed by an agent or legal advise
duly authorised on his behalf, or in the case ofa firm, if it is signed by such
agent, or by a legal adviser or by any one member of the firm on behalf of
the firm (Sec. 242).
6. Just and equitable grounds: Generally, application for just and
equitable winding up are brought by a member of the company who alleges
that the affairs of the company are being conducted in a prejudicial manner
and asking the Court to bring an end to the company's
existence
The term "just and equitable" is of very widest significance and do not limit
the powers of the Court. There is no hard and first rule in this regard. What
is "just and equitable" cause depends upon the facts and circumstances of
each particular case. However, the Editors of the Palmer's Company Law,
20h ed, p.698 state that the Court may order winding up of the company
nder this ground in the following cases:
1. When the substratum of the company is gone i.e. when-
(a) the object for which the company was incorporated has substantially
failed.
This was illustrated in German Date
Coffee Co., Re (1882) 20 Ch. D. 169.
The object clause of a company stated that it was formed for
the working of
a German
patent which would be granted for making a partial substitute for
coffee from dates and also for the
acquisition of inventions incidental
thereto, and to acquire other inventions for similar
purposes. The German
patent was never granted but the company did acquire and work a Swedish
patent and carried on business at Hamburg where coffee was made from
dates, but not under the protection of a
patent. Held, on a petition by
2
shareholders, that the main object could not
be achieved and it was,
therefore, just and equitable that the
company should be wound up.
(b) it is impossible to carry on the business
of the company except at
loss, which means that there is no reasonable
trading at profit can be attained. hope that the object o
(c) the existing and probable assets are
liabilities. insufficient to meet the existing
2. When the
majority of the shareholders is using their
has adopted an oppressive policy towards the powers unfarly o
management is carried on against the interest ofminority shareholders or u
the minority.
3. When there is a dead
lock in the
sense that it is management of the company I" the
not possible for the company
was ilustrated in to carry out its This
the following cases: business.
Yenidje Tobacco Co. Ltd, Re
shareholders and directors of a (1916) 2 Ch. 42. W
and R were the
S0
company with equal rights of ment
managem
Company Law 617
and voting power. After a time they became bitterly hostile to each other
and disagreed about the appointment of important servants of the company.
All communications between them were made through the secretary as they
were not on speaking terms with each other. The company made large
profits in spite of the disagreement. Held, there was a complete deadlock in
the management and the company should be wound up.
Similarly, if a person has subscribed to the company's share on the
understanding that he would be made a director a failure to appoint him so
by the majority shareholders may justify a winding up order [ re Zinoty
properties Ltd., (1984) 3 lI ER 754).
In Bashati Property Development Ltd. and others v. Younus Bhuiyan and
others, 4 BLC ( 1999) (AD) p.236, where an application by which one
faction offered to let the other faction run the company and thus save the
deadlock was rejected.
There must be a justifiable lack of confidence in the management grounded
on the conduct of the directors, not in regard to their private life or affairs,
but in regard to the companies business.
4. When the public interest is likely to be prejudiced by the business of the
company.
5. When the company was formed to carry out fraudulent or illegal business
or when the business of the company becomes illegal.
6. When the company is a more bubble and it does not carry on any
business or does not have any property.
7. When the petitioner is excluded from all participation in the business.
8. The principles which would justify the dissolution of a partnership can be
applied in case of small private company.
14.2.2 Applicatíon for winding up (Sec. 245)
An application to the Court for the winding up of a company is made by
petition. Under section 245, a petition for the winding of a company may be
presented by any of the following:
B y the company (245): A company may itself present a petition to the
Court for winding up. But it can do so only when it has passed a
special resolution to that effect.

2 filed by any creditor
petition may be
By any creditor [Sec.245(d)]: A
or creditors, including any contingent or prospective creditor or
Creditors. Creditor includes a secured creditor and the holder of any
includes the
debentures (including debenture stock). Creditor also
of debentures, but not
assignee of a debt and the equitable mortgagee
a creditor for unliquidated (unascertained) damages.
The Court shall not give a hearing to a petition for winding up of acomn
by a contingent or prospective creditor
until such security for costs has
given as the Court thinks reasonable and until a prima facie case
the satisfaction of the Court.
winding up has been established to
3 contributory' mean
By any contributory /Sec.245(a)]: The term contributory' means
every person liable to contribute to the assets of the company in the
event of its being wound up. It includes the holder of fully paid.
shares also (Sec.237). A contributory is entitled to present a petition
for winding up if-

(a) the membershipP is reduced below the statutory minimum ie
either the number of members is reduced, in the case ofa private
company, below two, or in the case of any other company
below seven; or
(b) he is an original allottee of shares;or
(c) he has held his shares for at least 6 (six) out of the previous 18
months of commencement of winding up; or
(d) the shares have devolved on him through the death of a former
holder.
4. By all or any ofthe prior parties [Sec. 245(d)].
5. By the Registrar [Sec. 245(1)(6)): The Registrar can not present a
petition for winding up a company-
() except on the ground that from the financial condition of the
company as disclosed in its balance sheet or from the report of
an inspector appointed under section 195, or in a case falling
within section 204, it appears that the company is unable to pay
its debts; and
i ) unless the previous sanction of the Government has been
obtained to the presentation of the petition.
But no such sanction shall be given unless the company has tirst ben
afforded an opportunity of being heard.
6 By any person (Sec.245(¢)}: Any person who is share holder ca
of
only present petition for winding up of a company on the grouna
default in filing the statutory report or in holding the statutou
meeting. But the petition must not be presented before the espiral
of fourteen days after the last day on which the meeting ougn
have been held.
14.2.3 Effeet of winding up order (See. 246)
the
An order for winding up of a conpany sluall operate in lavour ofalli
creditors and of all the contributories of the company as ifmacle on ine
petition ofa creditor and ofa contributory.
Company Law 619
Commencement of nvinding up by Court (Sec. 247)
A winding up of
a company the Court shall be deemed to
by commence at
the time of the presentation of the petition for the winding up.
14.2.4 Powers of Court

of Court to stay or restrain proceedings against the company
1. Power
(Sec.248)
The Court may, at any
time after the presentation of the petition for winding
making order for
under the Companies Act and before an
up of a company of any
winding up the company, upon the application of the company or
restrain further proceedings in any

creditor or contributory of the company,
and may also pass other similar
suit or proceedings against the company
order upon such terms as the Court thinks fit.
2. Powers of Court on hearing petition (Sec. 249)

the Court may-
On hearing winding up petition,
without cost; or
(a) dismiss it, with or
or unconditionally; or
(b) adjourn the hearing conditionally
order that it thinks fit; or
(c) make any interim or
order for winding up the company with or without costs,
(d) make an
order as it deems just.
any other
on the ground
make a winding up order
But the Court shall not refuse to an amount
have been mortgaged to
that the assets of the company
only has no assets.
those assets, or that the company
equal to, in e x c e s s of,
on the ground
of default in filing the
Where the petition is presented
meeting, the Court may order the
the statutory
statutory report or in holding in the opinion of the
Court, are
who,
COsts to be paid by any persons
responsible for the default. shall,

winding up of a company, it
Where the Court makes an order for the
forthwith cause
simultaneously,
except where a liquidator is appointed
intimation thereof to be sent to
the official receiver.
contributories (Sec. 254):
Court may have regard to wishes of creditors o r to the
to a winding up, have regard
all matters relating
ne Court may, as to contributories as proved to it by any
sutficient
wIshes of the creditors or
evidence.
3. order (Sec. 250)
Stay of suits on winding p
liquidator has
h a winding up order has
been made or a provisional with or
C proceeding shall be proceeded
other legal
appointed, no suit or leave of the Court,
and subject
the company except by
nenced against
O Such term as the Court may impose.
Commercial
Law
Text Book on
620
the Court (Sec. 251)
attached to
4. Oicial receiver the Court, the
term "offcia
up of companies by if there is
In relation to the winding to the Court or,
receiver attached
receiver" means the
official
as the
Governmen may, bu
ent may, by
receiver. then
such person
such official for the purpose.
in the official Gazette, appoint
notification forthwith take into hie
the official liquidator,
receiver shall, as assets of the company
The official documents and the any.
and control al the books, as the Cour
custody such remuneration
receiver shall be entitled so
The official
shall fix.
to be liquidator
Oficial liquidator receiver shall become the
winding up order the official
On the making of a
act as such until his
of the company and shall continue to
oficial liquidator terminated of the Court.
by an order
further continuance is deemed to be
winding
of up order filed with the Registrar
5. Copy
notice of discharge (Sec. 252)
it shall be the duty of the petitioner
On the making of a winding up order,
in the winding up proceedings and
of the company to file with the Registrar
date of the making of the
a copy of the order
within thirty days from the
order.
the Registrar shall register a
On the copy of a winding up order,
filing of a
to the company, and shall notify n
summary thereof in his books relating
the official Gazette that such an order has been made.
Such order shall be deemed to be notice of discharge to the servants of the
company, except when the business of the company is continued
14.2.5 Procedure of winding up by the Court
. Official liquidator (Sec.257): For the purpose of winding up ot
companies by the Court Division ot tne

Court there is attached to High
Supreme Court appointed by the Government, who is a whole-time oficet.
The official liquidator shall be described by the style of the otfical
liquidator of the particular company in respect of which he is appointed, anu
not by his individual name.
Liquidator
On the making of a winding up order the official receiver shall become the
official u
liquidator of the company and shall continue to act as such il his
further continuance is termunated un
by an order of the Court |Sec. 251(291
Provisional liquidator
At any time after the
making of an order for presentation of a winding up petitio an be fore
tion and
the
winding up,the Court may ul officu

liquidator,
to be
liquidator provisionally. appoint nc
Company Iaw 621
Before making such an appointment provisionally, the Court must give
notice to the company, and give opportunity to it to make its
not
representations, if any. If the Court thinks fit, it may dispense with such
notice but in that case the Court must record reasons for not giving the
notice in writing [Sec.255 (2)].
On a winding up order being made by the Court, the official liquidator
ceases to hold office as provisional liquidator and becomes the liquidator of
the company.
2. Appointment of official liquidator (Sec.255)
For the purpose of conducting the proceedings in winding up of a
company and performing such duties in reference thereto as the Court may
impose, the Court may appoint a person or persons, other than the official
receiver, to be called an official liquidator or official liquidators.
If more persons than one are appointed to the office of official liquidator,
the Court shall declare whether any act, by the Act required or authorised,
to be done by the official liquidator is to be done by all or any
one or more
of such persons.
The Court may determine whether any and what security is to be given by
any official liquidator on his appointment.
defect
The of an official liquidator shall be valid notwithstanding any
acts
that may afterwards be discovered in his appointment.
to acts done by official
But nothing shall be deemed to give validity an
be invalid. A receiver
liquidator after his appointment has been showm to
shall not be appointed of assets in the hands of an official liquidator.
3. Resignations, removals, vacancies etc. of official liquidator (Sec.256)
Court on due
Any official liquidator resign, or may be removed by the
may
cause shown. Any vacancy in the office of an official liquidator appointed
is filled
by the Court shall be filled by the Court and until the vacancy
up
so
up the official receiver shall act as the official liquidator.

There shall be paid to the official liquidator such salary or remuneration, by
and if more
ay of percentage or otherwise, as the Court may direct,
quidators than one are appointed, such remuneration shall be distributed
anongst them in such proportions as the Court directs.
IL. Duties of official
liquidator
1. Statement by liquidator (Sec. 259)
Case where a winding up order is made, the official liquidator shall, as
Soon
as practicable after receipt of the statement to be submitted under
Section 258, and not later than one hundred and twenty days or with the
caV OT ne Court one hundred and sixty days from the date of the order, or
Commercial Law
622 Text Book on
no statement shall be submitted

in a case where the Court orders that
order, submit a preliminary reportto
Soon as practicable after the date of the
the Court
of capital issued, subscribed,
and paid up, and the
to the amount
(a) estimated amount of assets and liabilities giving separately under
as
the heading of-
(i) cash and negotiable securities;

(i) debts due to from securities;
if available of the company;
(ii) debts due to and securities, any,
belonging to the company;
(iv) movable and immovable properties
(v) unpaid calls; and
has failed, as to the causes of the failure; and
(b) if the company
to
(c) whether in his opinion further inquiry is desirable as any matter
relating to the promotion, formation, or failure to the company, or
the conduct of the business thereof.
also, if he thinks fit, make a further report or
The official liquidator may
further reports, stating the in which the company was formed and
manner
in its
whether in his opinion any fraud has been committed by any person
of the company
promotion or formation or by any director or other officer
matter
in relation to the company since the formation thereof, and any other
which in his opinion it is desirable to bring to the notice to the Court.
2. Custody of company's property (Sec.260)
The official liquidator, whether appointed provisionally not, shall takeor
into his custody, or under his control, all the property, effects and actionable
claims to which the company is or appears to be entitled.
All the property and effects of the company shall be deemed to be in the
n
custody of the Court from the date of the order for the winding up ot
company.
3. Maintenance of proper books and accounts (Sec.265)
The official liquidator of a company which is being wound up by the Cou
shall keep, in the manner prescribed, proper books in which he shall caus
to be made entries or minutes of proceedings at a meeting and of such on
matters as may be prescribed. Any creditor or contributory may,subje
the control of the Court, personally or by his agent, inspect any such boos
Every official liquidator shall, at such times as may be prescribed but n
less than twice in each year during his tenure of ofice, present to theo
an account of his receipts and payments as such liquidator.
The liquidator shall prepare the account in the prescribed form in duplica
and shall verify it by a declaralion im the prescribedform.
Company Law 623
The Court shall cause the account to be audited in such manner as it thinks
it. For the purpose of the audit the liquidator shall furnish the Court with
such vouchers, and information as the Court may require. The Court may at
any time require the production of and inspect any books or accounts kept
by the liquidator.
When the account has been audited, one copy thereof shall be filed and kept
by the Court, and the other copy shall be delivered to the Registrar for
filing. Each copy shall be open to the inspection of any creditor or of any
person interested.
4. Exercise and control of liquidator's powers (Sec.266)

The official liquidator of a company which is being wound up by the Court
shal, in the administration of the assets of the company and in the
distribution thereof among its creditors, have regard to any directions that
may be given by resolution of the creditors or contributories at any general
meeting or by the committee of inspection. Any directions given by the
creditors or contributories at any general meeting shall, in case of conflict
be deemed to override any directions given by the committee of inspection.
The official liquidator may summon general meeting of the creditors or
contributories for the purpose of ascertaining their wishes, and it shall be his
dutyto summon meetings at such times as the creditors or contributories, by
resolution, may direct, or whenever requested in writing to do so by one
tenth in value of the creditors or contributories, as the case may be.
The official liquidator may apply to the Court in the manner prescribed for
directions in relation to any particular matter arising in the winding up.
The official liquidator shall
his own discretion in the administration of
use
the assets of the company and in the distribution thereof
among the
Creditors.
any person is aggrieved by any act or decision of the official liquidator,
tnat person
may apply to the Court, and the Court may confirm, reverse or
dity the act or decision complained of, and make such order as it thinks
Just in the circumstances.
Appointment of Committee of Inspection in compulsory winding
up Sec. 262(1)1
De official liquidator shall, within a month from the date of the order for
winding up of a company, convene a meeting of the creditors of the
pany, as ascertained from the books and documents of the company, for
the
purpose of determining whether or not a committee of inspection shall
c nted to act with the 1liquidator, and who are to be members of the
committees, if appointed.
on Commercial
Law
Text Book
624
(Sec. 262)
III Powers of official liquidator
The official liquidator shall
have power, with the of the Court
sanction
dothe following things-

to institute or defend any suit or prosecution, or other legal proceetin
(a) on behalf of the company;
ding
civil or criminal, in the name and
(b) to carry on the business of the company so far as may de
necessary, for the

beneficial winding up of the same;
of the company by publi
(c) to sell the immovable and movable property
auction on private contract, with power to transfer the whole thereof to
or to sell the same in parcels
or organisation or company,
any person
the and behalf of
to do all acts and to execute, in the
name on
(d) company, all deeds, receipts, and other documents, and for that
common seal;
purpose to use, when necessary the company's
(e) to prove, rank and claim in the bankruptcy of any contributory, for
and to receive dividends in the
any balance against his estate,
bankruptcy, in respect of that balance, as a separate debt due from
the bankrupt, and rateably with the other separate creditors;
() to draw, accept, make and endorse any bill of exchange, hundi or
promisory note in the name and on behalf of the company, with the
same effect with respect to the liability of the company as if the
bill, hundi, or note had been drawn, accepted, made or endorsed by
or on behalf of the company in the course of its business;
(8 to raise on the security of the assets of the company any more requisile;
(h) to take out, in his official name, letters of administration relating to
the estate of any deceased contributory, and to do in his offica
name any other act necessary for obtaining payment of any money
due from a contributory or his estate which cannot be convenientuy
done in the name of the company. In all such cases the money due
shal, for the purpose of enabling the liquidator to take out tne
letters of administration or recover the money be deemed to be du
to the liquidator himself.

It shall not be deemed to affect the rights, duties and privileges
the Administrator General appointed under the Administra
General's Act, 1913 (Act No. III of 1913).
the
(i) to do all such other things as may be necessary for winding
affairs of the company and
distributing
its assets.
Limt of direction of official
liquidator (Sec.263) may
The Court may provide by or
any order that the official liquidatothe
exercise any of the above powers without the sanction or
interventioCol
Court. Where an official liquidator is provisionally appointed, n Co
may limit and restrict his powers by the order appointing him.
Company Law 625
Provision for legal assistance to official liquidator (Sec.264)
The Official liquidator may, with the sanction of the Court, appoint an
advocate or attorney entitled to appear before the Court to assist him in the
performance of his duties.
But where the official liquidator is an advocate or attorney, he shall not
appoint his partner, unless the latter consents to act without remuneration.
Statement of affairs to be made to the liquidator (Sec.258)
Where the Court has made a winding up order or appointment of an official
liquidator provisionally, there shall, unless the Court thinks fit to order
otherwise and so orders, be made out and submitted to the official liquidator
a statements as to the affairs of the company verified by an affidavit and
containing the following particulars, namely:
(a) the assets of the company, staying separately the cash balance
in hand and in the bank, if any;
(b) the debts and other liabilities;
(c) the names, residences and occupations of the creditors stating
separately the amount of secured debts and unsecured debts,
and in the case of secured debts, particulars of the securities,
their value and the dates when they were given;
(d) the debts due to the company and the names, residences and
occupations of the persons from whom they are due and the
amount likely to be realised therefrom.
The said statement shall be submitted and verified by one or more of the
following persons.-
(a) the persons who were at the relevant date the directors and the
person who was at that date the secretary, manager or other chief
officer of the company; or
(b) such other person as the official liquidator may, subject to the
direction of the Court, require to submit and verify the statement,
and the said other persons are the persons:
(i) who were had been directors or officers of the company;
i) who have taken part in the formation of the company at any

time within one year before the relevant date;
(ii) who are in the employment of the company or had been in
the employment of the company within the said year
referred above, and are, in the opinion of the official
liquidator, capable of giving the information required,
)(iv) who are or had been within the said year to which the statement
Telates officers of or in the employment ofa company.
Commercial Law
on
Text Book
626 statement shall be submitted within twenty-one days from the reles.
The Court
the official liquidator or the

cxtended time as
within such
date, or
reasons appoint. and afid
may, for special it
the statcment
in inaking
o r concurring d the ofe
and shall be paid by
the offici
Any person making shall be allowed,
section be. out of the assetsof.
required by this liquidator as the case may
provisional about the preparatic
liquidator or incurred in and
the company,
such costs and expenses
affidavit as the official liquidator ma
statement and
the
and making of to the Court.
consider reasonable. subject to an appeal
258(5), (6) and (7I
(Sec.
Comsequences in default make
knowingly and willfully
without reasonable excuse, shall be liable to a
If any person, requirements, he
with the above
default in complying during which the defaut
hundred taka for everyday
fine not exceeding five
continues.
creditor or contributory of the
himself in writing to be a
Any person stating himself or his agent at all reasonable times,
by
company shall
be entitled by statement submitted in
on payment of the prescribed fee, to inspect the
or extract therefrom.
this section and to copy thereof
a
pursuance of
so stating himself to
be a creditor or contributory
Any person untruthfully Penal Code, 1860 (Act
under section 182 of the
shall be guilty of an offence
on the application of
the liquidator or of the
No. XLV of 1860), and shall,
official Receiver be punishable accordingly.
in a case where a provisIonal
The expression "the relevant date" means, case where
o
his appointment, and, in a
liquidator is appointed, the date of
order.
such appointment is made, the date of the winding up
IV.Committee of inspection (Sec. 261)
Appointment for
The official liquidator shall, within a month from the date of the order
f the
the winding up of a company, convene a meeting of the creditors o
company, as ascertained from the books and documents of the companyshall
the purpose of determining whether or not a committee of inspection "the
act with the liquidator, and who are to be membets
De appointed to
committees, if appointed. redhtor
The official liquidator shall, within a week from the date of the c
meeting convene a meeting of the contributories to consider the dee
the creditors and to accept the same with or without modification
creditors n 1
If the contributories do not accept the decision of the cred C o u t
entirety, it shall be the duty of the official liquidator to apply to the

applyto tiona.n d
for directions as to whether there shall be a committee of inspechall shall&

so, what shall be the composition of the committee, and wno
members thereof.
Company Law 627
Constitution and proceedings of the committee
C
mitteeof
mmittee of inspection so
appointed shall consist of not more than
A members being creditors and contributories of the company or
we holding general or
special powers of attorney from creditors or
Pihutories in such proportions as may be agreed on by the meetings of
contri
ors
itors and contributories, or as,
and ccon in case of difference,
may be determined
by the Court.
The committee of inspection shall have the right to inspect the accounts of
the official liquidator at all reasonable times.
The committee shall meet at such times as they may from time to time
anpoint, and, fail1ng such appointment, at least once a month, and the
iauidator or any member of the committee may also call a meeting of the
committee as and when he thinks necessary.
The committee may act by a majority of their members present at a
meeting, but shall not act unless a majority of the committee are present.
A member of the committee may resign by notice in writing signed by him
and delivered to the liquidator.
If a member of the committee becomes bankrupt, or compounds or
arranges, with his creditors, or is absent from five consecutive meetings of
the committee without the leave of those members who together with
himself represent the creditors or contributories, as the case may be, his
office shall thereupon become vacant.
A member of the committee may be removed therefrom by an ordinary
resolution at a meeting of creditors if, he represents creditors, or of
contributories, if he represents contributories, of which seven days, notice
has been given, stating the object of the meeting.
On a vacancy occurring in the committee, the liquidator shall forthwith
Summon a meeting of creditors or of contributories, as the case may require,
to fill in the vacancy, and the meeting may, by resolution, re-appoint the
ame or appoint another creditor or contributory to fill in the vacancy.
e Continuing members of the committee, if not less than two, may act
wIthstanding any vacancy in the gommittee.

14.2.6 General powers of the
Court
To facilitat the winding up of a company by the Court, the Companies Act,
1994 gives the following powers to the Court. These powers are in addition
the
1.
powers conferred on the Court by section 249 on hearing the peition.
D
Power of Court to stay winding up proceedings (Sec. 253)
The Court may, on the application
may, at any time after an order for winding up,
of
any T to the satisfaction of the
Court
creditor
allOtor
thatall proceedings in relation
and on proof
or contributory,
or
to be stayed, make
an ordereedings to the winding up ought
order staying the proceedings, either altogether
or for a limited time, on
such terms and
g conditions as the Court thinks fit.
n s and
2. Settlement of list of contributories and application of assets (Sec. 2c

As soon as may be after making a winding up order, the Court, shall settl
(Sec. 267)
le a
list of contributories, shall have power to register of members in all ca
where rectification is required in pursuance of this Act, and shall cause
ase
assets of the company to be collected and applied in discharge of the
iabilities.
In settling the list of contributories, the Court shall distinguish
betwen een
persons who are contributories in their own and persons who
right are
contributories as being representatives of or liable for the debts ofothers
3. Power to require transfer, delivery etc. of property (Sec. 261)
The Court may, at any time after making a winding up order,
require anv
contributory for the time being settled on the list of contributories and any
trustee, receiver, banker, agent, or officer of the company to pay,
surrender or transfer forthwith, or within such time as the Court
deliver,
directs, to
the official liquidator any money, property or documents in his hands
to
which the company is prima facie entitled.
4. Power to order payment of debts by contributory (Sec. 269)
The Court may, at any time after making a
winding up order, make an order
any contributory for the time being settled on the list of contributories to
pay, in the manner directed by the order, any money due from him or from
the estate of the person whom he represents to the company exclusive of
any money payable by him or the estate by virtue of any call in pursuance
of the Act.
The Court in making such an order
may, in the case of an unl1mitea
company, allow to the contributory by way of set-off any money due to him
or to the estate which he
represents from the company, on any indepenac
dealing contract with the company, but not any
or
member of the company in
money due to him a
respect of any dividend or profit, and may,
the case of a limited
company, made to director whoOSe nao
unlimited or to his estate the like allowance. any
But in the case of
any company, whether limited or unlimited, when I the
creditors are paid in full, a to
any money due to any account
contributory from the company may be allowed to him whate ovef set-otl
against any subsequent call. by way o
Order on contributory conclusive
evidence (Sec. 273)
An order made by the Court on a o
any right
be conclusive evidence thatcontributory shall, subject
ubject to
to any
appeal, the money, if any, thereby
be due or ordered to be appea
paid is due. to be truly
All other
pertinent matters stated in the order shall be taken to
stated as against all
persons, and in all proceedings whatsoever.
Company Law 629
contributories (Sec. 275)
Adjustment of right of
The Court shall adjust the rights of the contributories among themselves,
the persons entitled thereto.
and distribute any surplus among
5.Power of Court to make calls (Sec.270)
The Court may, at any
time after making a winding up order, and that is
either before or after it has
ascertained the sufficiency of the assets of the
calls on and order payment thereof by all or any of the
company, make
contributories for the time being settled on the list of the contributories to
which the Court
the extent of their liability, for payment of any money
considers necessary to satisfy the debts and liabilities of the company, and
the costs, charges and expenses of winding up, and for the adjustment of the
rights of the contributories among themselves.
In making the call the Court may take into consideration the probability that
some of the contributories may partly or wholly fail to pay the call.
6. Power to order payment into bank (Sec.270)
The Court may order any contributory, purchaser or other person from
whom money is due to the company to pay the same into the account of the
official liquidator in any scheduled banks as defined in the Bangladesh
Bank Order, 1972 (President's Order No. 127 of 1972), instead of to the
official liquidator and any such order may be enforced in the same manner
as if it had made direct payment to the official liquidator.
7. Regulation of account with Court (Sec.272)
All moneys, bills, hundis, notes and other securities paid and delivered into
the bank where the liquidator of the company may have his account, in the
event of a company being wound up by the Court, shall be subject in all
Tespect to the orders of the Court.
8. Exclusion of creditors (Sec.274)
The Court may fix a time or times within which creditors are to prove their
debis or claims, or to be excluded from the benefit of any distribution made
before those debts are proved.
9.Order for cost (Sec.276)
he Court may, in the event of the company's assets being insufficient to
satisfy the liabilities, make an order as to the payment, out of the asset, of
e costs, charges and expenses, incurred in the winding up in such order of
priority as the Court thinks just.
10. Order of
dissolution of company (Sec.277)
wnen the affairs of a company have been completely wound up, the Court
make an order that the company be dissolved from the date of the
oer, and the
company shall be dissolved accordingly.
42
of the making thereof by .

he order shall be reported within fifteen days
liquidator to the Registrar, who shall record in his
books a minute of
oicial
the dissolution of the company.
Consequences in defaul
It the official liquidator makes default in complying with the requirements
of this section i.e fails to report to the Registrar within prescribe time limit
he shall be liable to a fine not cexceeding one hundred taka for everyday
during which he is in default [Sec. 277(3)].

14.2 7 Extra-ordinary powers of Court
Act, 1994, gives the
Apart from ordinary or general powers, the Companies
Court some special powers wlhich are necessary for or incidental to the
are as follows:
proceedings for winding up of a company. There
1. Power to summon persons suspected of having property (Sec. 278)
Court may, after it has made a winding up order, summon before it any
oficer of the company or person known or suspected to have in his
possession any property of the company, or supposed to be indebted to the
company, or any person whom the Court deems capable of giving
information concerning the trade, dealings, affairs or property of the
company.
The Court may examine him on oath concerning the same, either by word
of mouth or on written interrogatories, and may reduce his answers to
writing and require him to sign them
The Court may require him to produce any documents in his custody or
power relating to the company but where he claims any lien on documents
produced by him, the production shall be without prejudice to that lien, and
the Court shall have
jurisdiction in the winding up to determine al
questions relating to that lien.
If any person so summoned, after being tendered a reasonable sum for his
expenses, refuses to come before the Court at the time
appointed,
having a lawful impediment made known to the Court at the time otno
Sitting and allowed
by it the Court may cause him to be apprehende a
brought before the Court for examination.
2. Power to order
public examination of promoters, directors e
(Sec. 278)
When an order has been made for
the official liquidator has
winding up a
company by the Court,
fraud has been committed by
applied
the Court
to
stating that in his opinio
any person in the of
the company or by any director
or other
promotion or formauo
to the officer of the company, in
companysince its formation,the Court may, after rela of
person who has taken consideraio the
the application, direct that any
any part "
Company Law 631
nroniotion or formation of the company, or has been a director, manager or
ather officer of the company shall attend before the Court on a day
appointed by the Court for that purpose, and be publicly examined as to the
pronmotion or formation of the conduct of the business of the company, or as
to his conduct and dealings as director, manager or other officer thereof.
The ofticial liquidator shall take part in the examination, and for that
purpose may, if specially authorised by the Court in that behalf, employ
such legal may be sanctioned by the Court.
assistance as
Any creditor or contributory may also take part in the examination either
personally or by any person entitled to appear before the Court.
Conduct of proceedings
The Court may put such questions to the person examined as the Court
thinks fit. The person examined shall be examined on oath, and shall answer
all such questions as the Court may put or allow to be put to him.
A person ordered to be examined under this section may at his own cost
employ any person entitled to appear before the Court, who shall be at
liberty to put to him such questions as the Court may deem just for the
purpose of enabling him to explain or qualify any answers given by him.
But if he is, in the opinion of the Court, exculpated from any charges made
or suggested against him, the Court may allow him such costs as, in its
discretion, it may think fit.
Notes of the examination shall be taken down in writing, and shall be read
over to or by and signed by, the person examined, and may thereafter be
used in evidence against him in civil proceedings, and shall be open to the
inspection of any creditor or contributory at the reasonable times.
The Court may, if it thinks fit, adjourn the examination from time to time.
The examination may, if the Court so directs, be held before any District
or before any officer of the High Court Division being an official
udge
referee, master, Registrar or Deputy Registrar and the powers of the Courts
under this section as to the conduct of the examination, but not as to costs,
may be exercised by the person before whom the examination is held.
3. Power to arrest absconding contributory (Sec. 280)
The Court, at any time either before or after making a winding up order and
believing that a contributory about to
is or
proof of probable cause for
conceal any of
ut Bangladesh or to abscond, or to remove or
otherwise
property, for the purpose of evading payment of calls or of avoiding
the affairs of the company, may cause the

ation respecting
Contributory to be arrested and his books and papers and movable property
such times as the
CSeLZed, and him and them to be safely kept until
Court may order.
14.2.8 Contributory
Meaning of contributory (Sec.237)
The term "contributory" means every person liable to contribute to tha
ne
assets of a company in the event of its being wound up,
and, in all
proceedings for determining and in all proceedings prior to the final
determination of the persons who are to be deemed contributories, includes
any person alleged to be a contributory.
Nature of liability of contributory (Sec.238)
The liability of the contributory shall create a debt
payable at the time
specified in the calls made on him by the liquidation. No claim founded on
the liability of a
contributory shall be cognizable by any Court of Small
Causes.
Contributories in case of death of
If a
member (Sec.239)
contributory dies either before or after he has been placed on the list of
contributories, his legal representatives and his heirs shall be liable in the
due course of administration to contribute to the assets of
the company in
discharge of his liability and shall be contributories
accordingly.
If the legal representatives or heirs make default in
ordered to be paid by them, paying any money
proceedings may be taken for administering the
property of the deceased contributory, whether movable or
both, and for compelling payment thereout of the immovable, or
money due.
For this purpose, the
surviving coparceners of a
contributory who is a
member of a Hindu Joint Family governed by the Mitakshara School of
Hindu Law shall be deemed to be his
legal representatives and heirs.
Contributories in case of bankruptey of member
If
(Sec.240)
a
contributory is adjudged bankrupt either before or after he has been
placed on the list of contributors, then-
(a) his assignees shall represent him for
all the purposes of the
winding up, and shall be contributories accordingly, and maybe
called on to admit to
prove against the estate of the
otherwise to allow to be paid out of his bankrupt, or
assets in due course of law,
any money due from the
bankrupt in respect of his liability to
contribute to the assets of the
company; and
(b) there may be proved
against the estate of the bankrupt tne
estimated value of his
liability to future calls as well as cai
already made.
Liability as contributorles of present and past members
In the event of a company being wound (Sec.235)
up, nber
every present and past memo
shall, be liable to contribute to the assets of the company to an
amou
Company Law 633
and
fficient forpayment of its debts and liabilities and the costs, charges the
of
of the winding up. The adjustment of the rights
nenses qualifications, that
ributories among themselves subject following
is to
is tosay:
not be liable to contribute if he
has
(1) a past member shall
upwards before the
ccased to be a member for one year or
commencement of the winding up;
past member shall notbe liable to contribute in respect of

(i) a
any debt or liability of the company contracted after he

ceased to be a member;
member be liable to contribute unless it
shall not
(ii) a past
the existing members are unable to
appears to the Court that
contributions to be made by them in
required
satisfy the
pursuance of the Act;
contribution
(iv) in the case of a company limited by shares, no
the amount, if
shall be required from any members exceeding
which he is liable as a
any, unpaid on the shares in respect to
present or past member
no
(v) in the of a company limited by guarantee,
case
contribution shall be required from any member exceeding
contributed by him to the assets
the amount undertaken to be
wound up;
of the company in the event of its being
invalidate any provision contained in
(vi) nothing in the Act shall
or other contract whereby the liability
any policy of insurance
contract is restricted
of individual members on the policy or
alone made liable in
or whereby the funds of the company are
respect ofthe policy or contract;
character of a
(VIn) a sumdue to any member of a company in his
shall not
member, by way of dividends, profits otherwise,
or
to that
be deemed to be a debt of the company payable
member in a case of competition between himself and any
other creditor who is not a member of the company.
In limited by guarantee which has a share
ninding up of a company
member thereof shall be liable to pay the following
amounts
aelry
Tamely:
4)the amount undertaken to be contributed by him to the assets of
the company in the of its being wound up; and
event
(b) an amount to the extent of any sums unpaid on any shares held
by him.
on Commercial
Law
634 Text Book
is unlimited (Sec.236)
whose liability
Liability of directors director whether past
limited company, any
In the winding up of a
Act, unlimited, shall in
or
present, whose liability is, in pursuance of thisas an

to contribute ordinary member
addition to his own liability (if any)
if he were at commencement of
as the
liable to make a further contribution,
But-
a member of an unlimited company.
the winding up not be liable to make such further
(i) a past director shall hold office for a year
contribution if he has ceased to
upwards before the
commencement
of the winding up;
not be liable to make such further
(ii) a past director shall
contribution in respect of any debt or liability of the company
contracted after he ceased to hold office;

to the Articles, a director
shall not be liable to make
(iii) subject
such further contribution unless the Court deems it necessary to
require contribution in order to satisfy the debts and liabilities

of the company and the costs, charges and expenses of the
winding up
14.2.9 Enforcement of orders of Court
1. Power to enforce orders (Sec.282)
All orders made by the Court under the Companies Act may be enforced in
the same manner in-which decrees of such Cöurt made in any suit pending
therein may be enforced.
2. Order made in any Court to be enforced by other Courts (Sec.283)
in the course of the winding up of
a
Any order made by the Court for or
other Cout
company shall be enforced in any place in Bangladesh by any
that would have had jurisdiction in respect of such company r
registered office of the company had been situated at such place and in
same manner in all respect as if such order had been made by the Court tha
is hereby required to enforce the same. But in relation to the place where u
ng
registered office of the company is situate, only the Court a
jurisdiction over such place shall enforce such orde.
c.28-4)
3. Mode of dealíng with orders to be enforced by other Courts (Sec
Where any order made by one Court is to be enforced by another Cou officer
certified copy of the order so made shall be produced to the proper o o fs u c h
ofthe Court required to enforce the same, and the produclion m a d e :
certified copy shall be sufficient evidence of such order having

bec hal
s
and thereupon the last mentioned Court to
required to execute o. sa s a n e
take the requisite steps in the matter for the order, in

enforcing u
manner as if it were the order of the Court enforcing the same.
Company Law
635
14.2.10 Appeal
Appeal from orders (Sec.285)
Hearing of, an appeal from order or decision made
or
given in the matter of
the winding up of
company by the Court may be had in the
same manner
and subject to the same conditions in and
had from any order or decision of the same
subject which appeals may be
to
Court in cases within its
ordinary jurisdiction.
14.3 Voluntary winding up
Voluntary winding up a company means winding up
by the members or
creditors of the company without interference by the Court. The
object of a
voluntary winding up is that the company, i.e., the members as well as the
creditors left free to settle their affairs without
are
going to the Court of law.
They may, however, apply to the Court for any directions, if
any, when
necessary.
14.3.1 Cireumstances in which company may be wound up
voluntarily (Sec.286)
A company may be wound up
voluntarily-
(1) By passing an ordinary resolution: When the period, if any, fixed for
the duration of a company by the Articles has expired, the company in
general meeting may pass an ordinary resolution for its voluntary winding
up. The company may also do so when the event, if any, in the occurrence
of which the Articles provide that the company is to be dissolved, has
occurred [Sec.286 (1)(a)].
(2) By passing a special resolution: A company may at any time pass a
special resolution that it be wound up voluntarily [Sec.286 (1) (b)]. No
reasons need be given where the members pass a special resolution for the
voluntary winding up of the company. Even the Articles of the company
Cannot prevent the exercise of this statutory right.
5) By passing extra-ordinary resolution: If the company resolves by
extraordinary resolution to the effect that it cannot by reason of its liabilities
continue its business, and that it is advisable to wind up, then the company
1s allowed to
be wounded up [
Sec.286(1)©)
143,2 Notice of resolution on wind up voluntarily (Sec.289)
nin 10 of the passing of the special resolution by the company for

days
Is voluntary winding up, it shall give notice of the same resolution by
advertisement in the official Gazette, and also in some newspaper
in the district where the registered office of the company is
aing
situate.
If a compa
company makes default in complying with the said requirements it shall
be liable
c
taka for everyday duringg
to a fine not exceeding one hundred
which the default continues; and also every officer of the
company wh who
knowingly and willfully authorises or permits the default shall be liable to
a
like penalty.
14.3.3 Commencement of voluntary winding up (Sec.287)
A voluntary winding up shall be deemed to commence at the time of the
ne
passing of the resolution for voluntary winding up.
14.3.4 Effect of voluntary winding up on status of company
(Sec.288)
When a company is wound up voluntarily, the company shall, from
the
commencement of the winding up, cease to carry on its business,
except so
as may be required for the beneficial to winding up thereof.
But the corporate state and corporate powers of the company shall,
notwithstanding anything to the contrary in its Articles, continue until it is
dissolved.
14.3.5 Distribution of property of company (Sec.307)
Subject to the provisions of this Act as to preferential payments, the
property of a company shall, on its winding up, be applied in satisfaction of
its liabilities pari passu and, subject, to such application, shall unless the
Articles otherwise provide, be distributed among the members according to
their rights and interest in the company.
14.3.6 Appointment of liquidator (Sec.309)
The liquidator shall, within twenty-one days after his appointment, deliver
to the Registrar for registration notice of his in the form
a
appointment
prescribed.
If the liquidator fails to comply with the said requirements, he shall be
liable to a fine not exceeding one hundred taka for everyday during which
the default continues.
Power of Court to appoint and remove liquidator in voluntary winding p
(Sec.309)
If, from any cause whatever, there is no
liquidator acting,
t the Court
appoint liquidator, The Court may, on any cause shown,
a
remo
liquidator and appoint another liquidator, and, in case of such removal.,
immediately send a copy of the removal order to the removed liquidator.
sua
Powers and duties of liquidator in
voluntary winding up (Sec.308)
The liquidator may-
(a) in the case of
members voluntary winding up, with tne
a
n c t i o n
of an extraordinary af
resolution of the company, and in the c the
creditors voluntary
winding up, with the sanction ot powes
Court or the committee of
inspection, exercise any
given by clauses (d), (e). () and
ot the
ny of n dlo q u i d a t o r
(h) of section
262 to a
Company Law 637
in a winding up. But the exercise by the
liquidator of the
given by this clause shall be subject to the control of powers
the
Court and
any creditor or contributory may apply to the Court with respect to
any exercise or proposed exercise of any of these powers;
(b) without the sanction referred to in clause (a), exercise any of the
other powers by the Act given on the
liquidator in a winding up by
the Court;
(c) exercise the power of the Court under this Act of settling a list of
contributories, and the list of contributories shall be prima facie
evidence of the liability of the persons named therein to be
contributories;
(d) exercise the power of the Court of making calls on shares or
otherwise,
(e) summon general meetings of the company for the purpose of
obtaining the sanction of the company by special or extraordinary
resolution or for any other purpose he may think fit.
The liquidator shall pay the debts of the company and shall adjust the rights
of the contributories among themselves.
When several liquidators are appointed, any power given by this Act may
be exercised by such one or more of them as may be determined at the time
of the appointment, or, in default of such determination, by any number not
less than two.
14.3.7 Cost of voluntary winding up (Sec.313)
All costs, charges and other expenditure properly incurred in the winding
up including the remuneration of the liquidator, shall, subject to the rights
of secured creditors, if any, be payable out of the assets of the company in
priority to all other claims.
14.3.8 Saving for rights ofcreditors and contributories (Sec.314)
he winding up of a company shall not bar the right of any creditor or
but in the of an
apply for a winding up by the Court,
case
contributory to
satisfied that the rights of
Ppication by a contributory, the Court must be
C Contributories will be prejudiced by a voluntary winding up.
1 9 Power of Court to adopt proceeding of voluntary winding up
(Sec.315)
and order is made for
company is being wound up voluntarily
an
a
e
the Court if it think fit, by the same or
ng up by the Court, may
of the proceedings
sut for the adoption of all or any
in uent order, provide
incidental on consequential
ntary winding up and also for any
situati
situation.
14,4 Types of voluntary winding up

A voluntary winding up may be a-
14.4.1 Members' voluntary winding up
A winding up. in which a declaration has been made and delivered in
accordance with Section 290, is in this Act referred to as "members
voluntary winding up".
i) Declaration of solvency (Sec.290)
Where it is proposed to wind up a company voluntarily, the directors of the
company or, in the case of a company having more than two directors, the
majority of the directors shall, at a meeting of the directors held before the
late on which the notice of the meeting at which the resolution for the
winding up, the company is to be proposed are sent out, make a declaration
verified by an affidavit to the effect that they have made a full inquiry into the
affairs of the company, and that, having so done, they formed the opinion that
company will be able to pay its debts in full within a period, not exceeding
three years, from the commencement the winding
of up.
Such declaration shall be supported by a report of the company's auditor on
the company's affairs, and shall have no effect for the purposes of the Act
unless it is delivered to the Registrar for registration before the date
mentioned above.
ii) Provisions applicable to members' voluntarý winding up:
The provisions contained in sections 292-296 apply in relation to a
members' voluntary winding up. They are discussed below:
1. Appointment of liquidator (Sec.292)
The company in general
meeting shall appoint one or more liquidators for
the purpose of winding up the affairs and
distributingthe assets of the
company and may fix the remuneration to be paid to him or them.
On the appointment of
liquidator, all the powers of the directors shall cease,
except so far as the company in general meeting or the
the continuance thereof. liquidator, sanctios
2. Fill up vacancy in the office of
If a vacancy occurs by
liquidator (Sec.293)
death, resignation or otherwise in the office of
liquidator appointed by the company, the company in the tne
may, subject to any agreement with its general meenng
creditors, fill the vacancy.
For the purpose of filling in the
said vacancy, a
convened by the contributory or, general meeting may
the continuing liquidator,
if there were more liquidators than one
The meeting shall be held in the manner
provided the Companies AC
by Articles, or in such manner as may, on by the
application
contributory or by the continuing liquidators, be determined the
made by
by Cour
Company Law 639
accept shares
liquidator to etc. as consideration for sale of
Power of
property of company (Sec.294)
where a copany proposed to be, or is in course of being, wound up
Is
of its business or property is

atogether voluntarily, and the whole or part whether a company
nroposed to be transfeTed or sold to another company,
in this section called "the transferee
within the meaning of the Act or not,
in this section
conpany", the liquidator of the first-mentioned company
"the transferor company," may with the sanction of special
a
called the
company conferring either a general authority
on
resolution of that
arrangement, receive,
liquidator or an authority in respect of any particular
or sale, shares,
or part compensation for the transfer
in compensation
or compensation or part compensation
for the transfer or sale,
policies,
shares, policies, other like interests in the transferee company., for
or
or may enter
distribution among the members of the transferor company,
the members of the transferor
into any other aTangement where by
other like
lieu of receiving cash or shares, policies or
company may, in
interests or in addition thereto, participate
in the profits of or receive any
other benefit from, the transferee company.
this section shall
Any sale other transfer or arrangement in pursuance of
or
be binding on the members of the transferor company.
If any member of the transferor company who

did not vote in favour of the
therefrom in writing addressed to
special resolution expresses his dissent
of the company within seven
the liquidator and left at the registered office
the liquidator
days after the passing of the special resolution, may require
he
into effect or to purchase his
cither to abstain from carrying the resolution
arbitration in
ilerest at a be determined by agreement or any
price opto
manner hereafter provided.
member's interest, the purchase
theJiquidator elects to purchase the
is dissolved, and
be raised by the
ICy must be paid before the company
resolution.
quidator in such manner as may be determined by special
only that it is
special resolution shall not be invalid, by reason
for voluntary wInding

Pabsed concurrently with a resolution
before or
F OI Jor appointinent of liquidators. But if an

order is made within a
to the superviSion ot
orwinding up the company by or subject sanctioned by
not be valid unless
athe u , the special resolution shall
Court.
the
The than those restricting
provIsions of the Salish Ain, 2001, other
natter of the
arbitratio,
hat Ain in respect of the subject
shall
apply to all arbitration in pursuance of this section.
4. Duty of liquidator (Sec. 295)
In the event of the winding up continuing for more than one
year, the
liquidator shall summon a general meeting of the company at the end of the
first year from the commencement of the winding up and of each
succeeding year, or as soon thereafter as may be convenient within ninety
days of the close of the year and shall lay before the meeting an accountof
his acts and dealings and of the conduct of the winding
up during the
preceding year and a statement in the prescribed form containing the
prescribed particulars with respect to the position of the liquidator.
If the liquidator fails to comply with these
requirements, he shall be liable
to a fine not exceeding five hundred taka.
5. Final meeting and dissolution (Sec.296)
As soon as the affairs of the company are
fully wound up, liquidator shall
make up an account of the winding up
showing how the winding up has
been conducted and the property of the has been
company disposed of, and
thereupon shall call a general meeting of the company for the purpose of
laying before it the account, and giving any explanation thereof.
The meeting shall be called by advertisement specifying the time, place and
object thereof, and published one month at least before the meeting in the
form of notice by advertisement in the official
Gazette, and also in the
newspaper as specified in section 289.
Within one week after the meeting, the
liquidator shall send to the Registrar
a copy of the account and shall make a return
to him of the holding of the
meeting and of its date.
If the copy is not sent the return is not made in accordance with the
or
above requirements, the liquidator shall be liable to a fine not exceeding one
hundred taka for everyday during which the default continues.
But, if a quorum is not present at the meeting the liquidator shall in lieu of
the said return make a return that the
meeting was duly summoned and that
no quorum was present thereat, and upon such a return being made the
provisions as to the making of the return shall be deemed to have been
complied with.
The Registrar on receiving the account and either of the returns
mentioned
in above shall forthwith register them and on the
expiration of three months
from the registration of the return the company shall be deemed to be
dissolved.
But the Court may, on the application of the liquidator of of any other
person who appears to the Court to be interested, make an order deferring
the date at which the dissolution of the company is to take effect for
time as the Court thinks fit.
suc
Company Law 641
1 shall be the duty of the person on whose
application an order of the Court
made, within twenty-one days after the
making of the order, to deliver to
the Registrar a certified copy of the order for
registration. If that person fails
to do so he shall be liable to a fine not
everyday during which the default continues.

exceeding one hundred taka for
14.4.2 Creditors' voluntary winding up
A voluntary winding up in which a declaration of the
solvency of
company is not made and delivered in accordance with section 290,
a
is
referred to as a creditors voluntary" winding up [Section 290 (3)]. The
provisions contained in sections 298 to 305 apply to such winding up.
Provisions applicable to creditors" voluntary winding up are discussed
below:
1. Meeting of creditors (Sec.298)
(1) The company shall cause a meeting of the creditors of the company to
be summoned for the day, or the day next following the day, on which there
is to be held the meeting at which the resolution for voluntary winding up is
to be proposed. It shall cause the notices of the said meeting of creditors to
be sent by post to the creditors simultaneously with the sending of the
notices of the said meeting of the company at which such resolution will be
proposed.
(2) The company shall also cause notice of the meeting of the creditors to
be advertised in the manner specified in section 289 for the publication of a
notice under that section ie., publication by advertisement in the official
gazette and also in the newspaper.
(3) The directors of the company shall-
(a) cause a full statement of the position of the company's affairs
together with a list of the creditors of the company and the
estimated amount to their claims to be laid, before the meeting of
creditors to be held as aforesaid; and
(6) appoint one of their member to preside at the said meeting.
4) It shall be the duty of the director appointed to preside at the meeting of
creditors to attend the meeting and to preside thereat.
t h e meeting of the company at which the resolution for voluntary
winding up is to be proposed is adjourned and the resolution is passed at an
oumed meeting, any resolution passed at the meeting of the creditors,
al have effect as if it had been passed immediately after the passing of
the
resolution for winding up of the
(6) 1f defaults be company.
made-
4) by the company in complying with sub-sections (1) and (2);
(b) by the Board of directors of the company in complying wiu

subsection (3);
(c) by any director of the company in complying with sub-section (4
the company, every member of the Board of directors or direes.
as the case may be, shall be liable to a fine not exceeding f
ctor,
thousand taka and, in the case of default by the company every
officer of the company who is in default shall be liable to the tiike
penalty.
2. Appointment of liquidator (Sec.299)
The creditors and the company at their respective meetings mentioned in
section 298 may nominate a person to be liquidator for the purpose of
winding up the affairs and distributing the assets of the company. If the
creditors and the company nominate different persons, the person
nominated by the creditors shall be the liquidator, and if no person is
nominated by the creditors the person, if any, nominated by the company
shall be liquidator.
But in the case of different persons being nominated, any director, member
or creditor of the company may, within seven days after the date on which
the nomination was made by the creditors, apply to the Court for an order
either directing that the person nominated as liquidator by the company
shall be liquidator instead of or jointly with the person nominated by the
creditors, or appointing some other person to be liquidator instead of the
person appointed by the creditors.
3. Appointment of committee of inspection (Sec.300)
The creditors at the meeting to be held in pursuance of section 298 or at any
subsequent meeting may, if they think fit, appoint a committee of inspecto
consisting of not more than five persons. If such a committee is appointedd
the company may, either at the meeting at which the resolution o

voluntary winding up is passed or at any time subsequently in genet
meeting, appoint such number of persons as they think fit to act as memoe
of the committee not exceeding five in number.
Sons
But the creditors may, if they think fit, resolve that all or any of the persor
so appointed by the company ought not to be members of the
commi the
inspection. And, if the creditors so resolve, the persons mentioned n
resolution shall not, unless the Court otherwise directs, be qualineu
tion
remain or to act as members, of the committee, and on any
appnthet
the Court under this provision the Court may, if it thinks fit, appoint
other
the
"
persons to act as such members in place of the persons mentioned
resolution.
Company Law 643
4.Liquidator's remuneration (Sec.301)
The committee of inspection, or if there is no such committce, the creditors

fix the remuneration to be paid to the liquidator or liquidators. Where
the remuneration is not so fixed, it shall be determined by the Court.
On the appointment ofa liquidator, all the powers of the directors shall
cease, except so tar as the committee of inspection, or if there is no such
committee, the creditors sanction the continuance thereof.
5. Power of liquidator (Sec.303)
If a vacancy occurs by death, resignation or otherwise, in the office of a
liquidator then the vacancy may be filled in by the Court when the
liquidator was appointed by the Court or by the creditors where the
liquidator wvas appointed by creditors.
6. Duty of liquidator (Sec.304)
(1) In the event of the winding up continuing for more than one year, the
liquidator shall summon a general meeting of the company and a meeting of
creditors at the end of the first year from the commencement of the
winding
up, and of each succeeding year, or as soon thereafter as may be convenient
and shall lay before the meeting an account of his acts and dealings and of
the conduct of the winding up during the preceding year and a statement in
the prescribed form containing the
prescribed particulars
with to the
respect
position of the winding up.
(2) If the liquidator fails to comply with above the requirements, he shall be
liable to a fine not exceeding five hundred taka.
7. Final meeting and dissolution
(Sec.305)
(1) As soon as the affairs of the company are fulily wound
up, the liquidator
shall make up an account of the
has been conducted and the
winding up showing how the winding up
and
property of the company has been disposed of,
thereupon shall call a general meeting of the company and a meeting of
he creditors, for the purpose of laying the account before the meetings and
ving any explanation thereof.
Each such
meeting shall be called by advertisement specifying the time,
place and
object thereof and published one month at least before the
CCLing in the manner specified in section 289 for the publication of a
notice under that
section.
nin one week after the date of the meetings, or if the
n meetings, are not
the same date after the date of the later meeting, the liquidator shall
of
send to the Registrar a copy of the account, and shall make a return to him
of the
the re holding
holding of
of the meetings and of their dates. If the
copies are not sent or
Onour
one
IS not
made, the liquidator shall be liabl to a fine not exceeding
hundred taka for everyday during which the default continues.
Commercial Law
644 Text Book on
not present at either ofe

be two persons, 1s
But if a quorum, wlhich shall make a return that
shall, in lieu of such return, the
meeting the liquidator was present thereat
summoned and that no quorum and
meeting was duly as to the making of the re
made the provisions eturn
upon such a return being have been complied with.
be deemed to
shall, in respect of that meeting of each such meetin.
receiving the account and in respect
The Registrar on
forthwith register them a
mentioned above, shall
and any of the returns thereof the company
on the expiration of
three months from the registration
shall be deemed to be dissolved.
of the liquidator or of any other
But the Court may, on the application
make an order deferrino
who appears to the Court to be interested,
person take effect for Such
dissolution of the company is to
the date at which the
time as the Court thinks fit.
It shall be the duty of the person on application an order of the Court
whose
after the making of the order, to deliver to
is made, within twenty one days
order for registration, and if that person
the Registrar a certified copy of the
fine not exceeding one hundred taka
for
fails to do so, he shall be liable to a
305 (5)].
everyday during which the default continues[Sec.
of the Court
14.5 Winding up subject to supervision
of the Court presupposes a voluntary
Winding up subject to the supervision a
of a company. At any time
after a company has passed
winding up
make an order that the
resolution for voluntary winding up, the Court may
the
shall continue, but subject to the supervision of
voluntary winding up
Court.
14.5.1 Provisions applicable to winding up subject to supervision o
the Court
1. Power to order winding up subject to supervision (Sec.316)
When a company has by special or extraordinary resolution, resolved
wind up voluntarily, the Court may make an order that the voluntaly
nd
winding up shall continue, but subject

to such supervision of the Court, an
with such liberty for creditors, contributories or others to apply to the co
and generally on such terms and conditions as the Court thinks just.
2. Effect of petition for winding up subject to supervision (Sec.317) the
to
A petition for continuance of a voluntary winding up 'subject to
supervision of the Court shall, for the purpose of giving jurisdictuO the
the Court over suits, be deemed to be a petition for winding up o

Court.
Company Law
Court may have regard to wishes of creditors 64S
(Sec. 318) and
contributories
deciding between a winding
The Court may, in
up subject
to supervision, in the appointment ofup by the Court
Court and
and winding
winding
tters relating to the nding up subject to liquidators, and in all other
acaf the creditors or contributories supervision have regard to
as
proved the
to it
evidence. by any sufficient
4. Power of Court
appoint and remove
to
where an order is made for a liquidators (Sec.319)

winding up subject to
may by the same or any
subsequent order appoint any supervision,
additional
the Court
A liquidator so liquidator.
appointed by the Court shall have the
subject to the obligations
same and in all samne powers, be
as if he had been respects stand in the same
appointed by the company. position
The Court may remove
any liquidator so
liquidator continued under the appointed by the Court or any
supervision order and fill any
occasioned by the removal or by death vacancy
5. Efect of
or
resignation.
supervision order (Sec.320)
Where an order is made for
liquidator may,
a
winding up subject to supervision, the
his
subject
to any restrictions
imposed by the Court, exercise all
powers, without the sanction or
manner as if the intervention of the Court, in the same
company were being wound up
Any order made by the Court fora altogether voluntandy.
the Court shall
for all purposes, winding up subject to the supervision of
including
proceedings, be deemed to be an order the staying of suits and other
of the Court for
company by the Court. It shall confer full winding up of the
calls or to
enforce calls made by the authority on the Court to make
powers which it might have exercised liquidators, and to exercise all other
wanding up the company altogether by the ifCourt.
an order had been made for
ne construction of the provisions whereby the Court is

rect any act or thing to be done to or empowered to
in favour of the official
expression "official liquidator" shall be deemed to mean the liquidator,
ne
Onducting the liquidator

14.6 General winding up subject to the supervision of the Court.
consequences applicable to mode ofevery of winding up a
The
company
a general consequences to be followed by every mode of winding up
1.
Company are discussed below: ot
Avoidance of transfers and

consequences of transfers after
COmmencement
In the of winding up (Sec. 322)
case of
trancfse madeofto voluntary winding up, every transfer
transfers*made of
shares, except
to or with the sanction of the 1iquidator, and every alteration
43
Commercial Law
646 Text Book on
made alter the commenea

Inthe status of the member of the company mencement
of the winding up shall be void.
to the supervision of the o .
n the case of a winding up by, or subject ourt,
property, including actionable claims of the
cvery disposition of the
of shares, alteration in the status of
company, and every transfer
members, made after the commencement of the winding up shall, unless th
he
Caurt otherwise orders be void.
2. Proof of debts of all descriptions (Sec. 323)
In every winding up, subject to in the case of bankrupt companies to the
application in accordance with the provisions of the Act or the law n
bankruptcy, all debts payable on a contingency, and all claims against the
company. present or future, certain or contingent, shall be admissible to
proof against the company, a just estimate being made, so far as possible. of
value of such debts or claims as may be subject to any contingency or for
some other reason do not bear a certain value.
3. Application of bankruptey rules in winding up of bankrupt
companies (Sec.324)
In the winding up of a bankrupt company the same rules shall prevail and
be observed with regard to the respective rights of secured and unsecured
ereditors and to debts probable and the valuation of annuities and future and
contingent liabilities as are in force for the time being under the law of
bankruptcy with respect to the estate of persons adjudged bankrupi. All
persons who in any such case would be entitled to prove for and receive
dividends out of the assets of the company may come in under the winding
up, and make such claims against the company as they respectively are
entitled to by virtue of it.
4. Preferential payments (Sec.325)
In a winding up there shall be paid in
priority to all other debts-
(a) all revenue, taxes, cesses and rates, whether payable to ue
Government or to a local authority due from the company at tne
date, specified below hereinafter referred as the said and
become due and payable within the twelve months next beforehaving
tnc
said date;
(b) all wages or salary of any clerk and other servant respect of serva
in
rendered to the company within the two months next be fore the sa
date, not exceeding one thousand taka for each clerk or setvant,
(c) all wages of any labourer or workman, not exceeding
five hund
ired
for each, whether payable for the time

or piece-work, in respectof
services rehdered to the company within the two months
ne
before the said, date;
Company Law 647
(d) compensation payable under the Workmen's Compensation Act
1923 (Act No. VIII of 1923) (now under the
Act, 2006 (Act No. Bangladesh Labour
42 of 2006),in respect of the death or
disablement of any officer or
employee of the company;
(e)
() all sums due to any employee from a provident fund, a
fund,
pension
a gratuity fund or any other fund for the welfare of the
employees maintained by the company; and
() the expenses of any investigation held in pursuance of clause (c) of
section 195 of the Companies Act.
The debts nentioned above shal1
(a) rank equally among themselves and be paid in full, unless the
assets are insufficient to meet them, in which case they shall abate
in equal proportion; and
b)
(b) so far as the assets of the company available for payment of
general creditors are insufficient to meet them, have priority over
the claims of holders of debentures under any
floating charge
created by the company, and be paid accordingly out of
any
property comprised in or subject to that charge.
Subject to the retention of such sums as may be necessary for the costs and
expenses of the winding up, the foregoing debts shall be discharged forth
with so far as the assets are sufficient to meet them.
In the event of any person distaining or having distained on any goods or
effects of the company within three months next before the date of a
winding up order, the debts to which priority is given by this section shall
be first
a
charge on the goods or effects so distained on the proceeds of the
sale thereof.
But in
respect of any money paid under any such charge the said persons
Snall have the same
rights of priority as the person to whom the is payment
made.
The date referred to above is-
(a)in the case of a company ordered be wound up compulsorily
to
which had not previously commenced to be wound up
voluntarily the date of the winding up order; and
b) in any other
case, the date of the commencement of the winding up.
S.
Diselaimer of property (Sec.326)
Where any
p a r t of the property of a company which is being wound up
Sists of land of
tenure
ter burdened with onerous covenants, or shares,
or
stock in other any
companies,
co or unprofitable contracts or of any other
property that is unsaleable, or not
readily saleable, by reason of its binding
upon the possessor thereof the performance of any onerous act, or to th.
payment of any sum of money, the liquidator of the company,
notwithstanding that he had endeavoured to sell or has taken possession
the property, or had exercised any act of ownership in relation thereto, mav
with the leave of the Court and subject to the provisions of this section
Writing signed by him at any time within twelve months after the
commencement of the winding up or such extended period as may be
allowed by the Court, disclaim the property.
But where any such property has not come to the knowledge of the
liquidator within one month after the commencement of the winding up, the
power of disclaiming the property may be exercised at any time within
twelve months after he has become aware thereof or such extended period
as may be allowed by the Court.
The disclaimer shall operate to determine, as from the date of disclaimer,
the rights, interests, and liabilities of the company, and the property of the
company, in or in respect of the property disclaimed, but shall not, except
so far as is necessary for the purpose of releasing the company and the
property of the company from liability, affect the rights or liabilities of any
other person.
The Court, before or on granting leave to disclaim, may require such notice
to be given to persons interested and impose such terms as a condition or
granting leave, and make such other order in the matter as the Court thinks
Just.
The liquidator shall not be entitled to disclaim any property under this
section in any case where an application in writing has been made to him by
any person interested in the property requiring him to decide whether ne
will or will not disclaim, and the liquidator has not within a period of thiry
days after the receipt of the application or such further time as may De
allowed by the Court, given notice to the
applicant
that he tointends appiy
to the Court for leave to disclaim, and in the case of a contract, it
liquidator, after such an
application as aforesaid,
said
does not within the sa
period or further period disclaim the contract, the company shall be deet
med
to have adopted it.

The Court may, on the application of any person who is, as t the
against
liquidator, entitled to the benefit or subject to the burden of a contract made
with the company, make an order rescinding the contract on such

the Tethe
to payment by either party of
damages for the
contract, or otherwise as the Court thinks just, and any damages
nonperformancchle
under the order to any such person may be proved by him as deDtpheth
winding up.
Company Law 649
an application by any person who either claims anv

Court may, on
The
erest in any disclaimed property or is under any liability not discharged
L the Act in respect of any disclaimed property and on hearing any such
thin
nersons as itit thinks
persons
fit, make an order for the vesting of the property in or
entitled thereto or to whom it
the delivery of the property to any persons
should be delivered by way of
may seem just that the property a trustee for him and on
compensation for such liability as aforesaid, or
Court thinks just. And on any such vesting order being
Such terms as the
therein shall vest accordingly in the person
made, the property comprised
therein named in that behalf without any conveyance or assignment for the
purpose.
disclaimed is of a leasehold nature, the Court shall

But where the property
not make a vesting
order in favour of any person claiming under the
under-lessee or as mortgagee expect upon the terms of
company whether as
making that person-
(a) subject the same liabilities and obligations as those to which

to
the company was subject under the lease or mortgage in respect
of the property at the commencement of the winding up; or
(b) if the Court thinks fit, subject only to the same liabilities and
obligations as if the lease had been assigned to that person at that
date.
In either, if the case so requires, as if the lease had comprised only the
property comprised in the vesting order, and any mortgage or under
lease
declining to accept a vesting order upon such terms shall be excluded from
all interest in and security upon the property. If there is no person claiming
under the company who is willing to accept an order upon such terms, the
Court shall have power to vest the estate and interest of the company in the
property in any person liable, either personally or in representative, and
either alone or jointly with the company, to perform the lessee's covenants
in the lease, freed and discharged from all estates, encumbrances and
interests created therein by the company.
Any person injured by the operation of a disclaimer shall be deemed to be a
Creditor of the company to the amount of the injury, and may accordingly
prove the amount as a debt in the
winding up.
6.
Fraudulent preference (Sec.327)
uy ransfer, delivery of goods, payment, execution or other act relating to
perty which would, if made or done by or against an individual, be
d in his bankruptcy a fraudulent preference, shall if made or done by
f nsta company, be deemed in the event of its being wound upa
e n t preference of
its creditors, and be invalid accordingly.
For the purpose it, the presentation of a petition for winding up in the cas
of winding up by or subject to the supervision of the and a
Court,
for winding up in the case of a voluntary winding up, shall be resolution
deemedto
correspond with the acts of bankruptcy in the case of an individual
Any transfer or assignment by a company of all its property to trustees for
the benefit of all its creditors shall be void.
7. Avoidance of certain attachments, executions (Sec.328)
Where any company is being wound up by or
subject to the supervision of
the Court, any attachmerit, distress or execution
put in force without leave
of the Court against the estate or effects or
any sale held without leave of
theCourt of any properties of the company after the
commencement of the
winding up shall be void. But it does not apply to proceedings by the
Govermment.
8. Effect of charge created after commencement of
(Sec.329) winding up
A floating charge on the
undertaking or property of the company created
within ninety days of the commencement of the
is proved that the winding up shall, unless it
company immediately after the creation of the
solvent, be invalid except to the creation of, and in charge was
consideration for, the
charge, together with interest on that amount at the rate of five
annum. per cent, per
9. Power of Court to assess
damages against delinquent directors
(Sec.331)
Where, in the course of
who has taken
winding up a
company it appears that any person
in
part the formation
past or
or
promotion of the company or any
present director, manager or
liquidator, or any officer of the
company has misapplied or retained or become
liable or accountable for any
money or property of the or been
breach of trust in relation tocompany, guilty of any misfeasance o
the company, the Court
of the
liquidator or of any creditor or may, on the applicato
irom the date of the
first
contributory made within three yea
the appointment of a liquidator in the winding up or
misapplication,
retainer, misfeasance or breach of
be, whiche ver is
longer, examine of the conduct of the trust, as the case
tO,
manager, liquidator or officer and promoter,
may compel him to repay or
uu the
money or property or any
part thereof respectively with interest at resto
such rate
as the Court at
thinks, just, or to contribute such su the
company by way of sum to the assets
misfeasance or breachcompensation in respect of the net,
of trust, as the Court

thinks
misapplication, 1
This shall
apply notwithstanding that offence just. ender
may be is one for which the
criminally prosecuted. O
Company Law 651
10. Penalty for falsification of books (Sec.332)
If any director, manager, oificer or contributory of any
company being
Naund up destroys, mutilates, alters or falsifies or
fraudulently secrets any
books. papers or secunities or nakes or is privy to the making of any false
or fraudulent entry in any register book of account or docunment belonging
to the company with intent to defraud or deceive any person, he shall be
liable to imprisonnment tor a term which may extend to seven years, and
shall also be liable to fine.
11. Prosecution ofdelinquent directors (Sec.333)
if it appears to the Court in the course of a winding up by, or subject to the
supervision of, the Court that any past or present director, manager or other
ofticer, or any member of the company has been guilty of any offence in
relation to the company for which he is criminally liable, the Court may,
either on the application of any person interested in the winding up or of its
own motion, direct the liquidator either himself to prosecute the offender or
to refer the matter to the Registrar.
If it appears to the liquidator in the course of a voluntary winding up that
member of the
any past or present director, manager or other officer or any
company has been guilty of any offence in relation to the company for
which he is criminally liable, he shall forthwith report the matter to the
Registrar and shall furnish to him such information and give to him such
access to and shall furnish to him such information and give him such
access to and facilities for inspecting and taking copies of any documents,
the control of
being information or documents in the possession or under
the liquidator relating to the matter in question, as he may require.
Where any report is made to the Registrar, he may, if he thinks fit,
refer the
matter to the Government for further inquiry, and
the Govermment shall
thereupon investigate the matter and may, if they think expedient, apply
it
to the Court for an order conferring on any person designated by
the
concerned all such
Government for the purpose with respect to the company
as are provided by the
powers of investigating the affairs of the company
Act in the case of a winding up by the Court.
him that the case is not one in
t on any report to the Registrar it appears to
inform the liquidator
ought to be taken by him, he shall
wnich proceedings sanction of the Court,
ccordingly, and thereupon, subject to the previous
ne iquidator may himself take proceedings against the offender.
that any
appears the Court in the course of a voluntary winding up
to
member of the
or present director, manager or other officer or any
PASt that no report with respect to the
has been guilty as aforesaid, and
pany on
to the Registrar, the Court may,
th as been made by the liquidator winding up or of its own
4Pphcation of any person interested in the
and on a report
bein.
direct the liquidator to make such report,
a
motion,
made accordingly, the provision of this section shall have effect as thou
of this Section
ugh
the in
has been nmade pursuance of the provisions
report
referred to the Registrar and heconsiders th
that
If a matter is reported or
the
to be instituted thereon,
he shall place papers betore
prosecution ought
the Attorney General or the public prosecutor and shall u advised to do so,
institute proceedings.
without first giving the accused
But prosecution shall be undertaken
no
to the Registrar and
of making a statement in writing
person an opportunity
of being heard thereon.
contained in the Evidence Act, 1872 (Act No. 1
anything
Notwithstanding
instituted under this section it shall be
of 1872), when any proceedings are
officer and of the company past
the duty of the liquidator and of every in the agent
defendant proceedings, to give al
and present, other than the which he is reasonably able to
assistance in connection with the prosecution
shall be deemed to
give. The expression "agent" in relation to a company
include any banker or legal adviser of the company and any person
the company auditor, whether that person is or is not an

employed by as
officer of the company.

the
If any person fails or neglects to give assistance in manner required
Court may, on the application of the Registrar direct that person to comply
with
with the said requirements and where any such application is made
that the failure on
respect to a liquidator, the Court may, unless it appears
hands
neglect to comply was due to the liquidator not having in his
sufficient assets of the company to enable him so to do, direct that the costs
of the application shall be borne by the liquidator personally [Sec. 33(7)

12. Penalty for false evidence (Sec.334)
o
If any person, upon any examination upon oath authorised under the Act,
in any affidavit, deposition or solemn affirmation, in or about the windig
up of any company under the Act, or otherwise in or about any mat

arising under the Act intentionally gives false evidence, he shall beliabie
be
imprisonment for a term which may extend to seven years, and shall alb
liable to fine.
13. Penal provisions (Sec.335) gent, managei or
If any person, being a past or present director, managing ager
the
other officer of a company which at the time of the commission
alleged offence is being wound up in any manner:-
o
Company Law 653
des not to the best of his knowledge and belief fully and truly
(a)
(discover to the liquidator all the property, movable and immovable
f the conmpany, and how and to whom and for what consideration
and when the company disposed of any part thereof, except such
part as has been disposed of in the ordinary way of the business of
the company; or
does not deliver up to the liquidator, or as he directs, all such part

(b) of the company as in his
of movable and inmmovable property
or under his control, and which he is required by
law to
custody
deliver; or
does not deliver to the liquidator, he directs, all books and

or as
(c)
under his control belonging to the
papers in his custody
or
is required by law to deliver; or

company and which he
months next before the commencement of the
(d) within twelve of the
winding up or at any time thereafter, conceals any part
the company to the value of one hundred taka
or
property of
to or from the company; or
upwards or conceals any debt due
commencement of the
(e) within twelve months next before the
removes any part
winding up or at any time thereafter fraudulently
of the property of the company to the value
of one hundred taka or
upwards; or
statement relating to the
( makes any material omission in any
affairs of the company; or
) knowing or believing that a false debt has been proved by any

up, fails within
the period of a month to
person under winding
inform the liquidator thereof, or
after the commencement of the winding up prevents the production
(h)
the property or attairs
any book or paper affecting or relating to
O
of the company; or
commencement ot the
i) Within twelve months next before the
mutilates or
winding up or any time thereafter,
conceals, destroys,
mutilation or
1alsjfies, or is privy to the concealment, destruction,
ielatung to the
lalsification of any book or paper affecting or
property or affairs of the company, or
commeneement ot the
wthin twelve months next before the
makes or is privy to the
ding up or at any time thereafter
book or paper affecting
or relating
KIng of any false entry in any
t h e property or affairs o f t h e conpany, or
654 Commercial Law
Text Book on
within twelve months next before the commencement of

(k) t
winding up or at any time
thereafter fraudulently parts with. al
or makes any omission in, or is privy to the fraudulent partin.
with, altering or making any omission in, any document affectin
ting
to the property o r affairs of the company;
or
or relating
after the commencement of the winding up or at any meeting of the
(1) creditors of the company within twelve months next before the
commencement of the winding up, attempts to account for any Dan
of the property of the company by f+ctitious losses or expenses; or
(m) within twelve months next before the commencement of the
winding up or at any time thereatter by any talse representation or
other fraud, obtained any property for or on behalf of the company
on credit which the company does not subsequently pay: or
(n) within twelve months next before the commencement of the
winding up or at any time thereafter, under the false pretence that
the company is carying on its business, obtains on credit, for on
behalf of the company any property which the company does not
subsequently pay for: or
(o)
(o) within twelve months next before the commencement of the
winding up or at any time thereafter pawns. pledges, or disposes of
any property of the company which has been obtained on credit
and has not has been paid for. unless such pawning pledging or
disposing is in the ordinary way of the business of the company,or
(p) is guilty of any false representation or other fraud for the purpose
of obtaining the consent of the creditors of the company or any of
them through an agreement with reference to the affairs of the
company or to the winding up;
he shall be punishable, in the case of the offence mentioned in
clauses (m).(n) and (o) with imprisonment for a term not exceeding
seven years, and. in the case of any offence, mentioned in other
clauses with imprisonment for a term not exceeding two years.
But it shall be a good defence to a charge under any of clauses (b), (c), (d), (1),
(n) and (o). if the accused proves that he had no intent to defraud, and to a
charge under any of the clauses (a). (h). (i) and (Gj), ifhe proves that he hado
intent to conceal the state of affairs of the company or to defeat the law.
Where any person pawns, pledges or disposes of any property
circumstances which amount to an offence under clause (o) every perso
who takes in pawn or pledge or otherwise receives the property knowIng
to be pawned. pledged or disposed of in such circumstances as afores
shall be punishable with imprisonment for a term not exceeding three yeal
Company Law 655
14. Meeting to ascertain wishes of creditors or contributories (Sec.336)
Where by the Act the Court is authorised in relation to winding up to have
regard to the wishes of creditors or contributories, as proved to it by any
sufficient evidence, the Court may, if it thinks for the purpose of
ascertaining those wishes, direct meeting of the creditors or contributories
to be called, held and conducted in such manner as the Court directs, and
may appoint a person to act as chairman of any such meeting and to report
the result thereof to the Court.
In the case of creditors, regard shall be had to the value of each creditor's
debt. In the case of contributories regard shall be had to the number of votes
conferred on each contributory by the Articles.
15. Evidentiary value of documents of company (Sec.337)
Where any company is being wound up, all documents of the company and
of the liquidator shall as between the contributories of the company, be
prima facie evidence of the truth of all matters purporting to be therein
recorded.
16. Inspection and disposal of documents of company (Sec.338)
After an order for a winding up by or subject to the supervision of the
Court, the Court may make such order for inspection by creditors and
contributories of the company of its documents as the Court thinks just, and
any documents in the possession of the company may be inspected by
creditors or contributories accordingly, but not, further or otherwise.
17. Disposal of documents of company (Sec.339)
When a company has been wound up and is about to be dissolved, the
documents of the company and of the liquidators may be disposed of as
follows, that is to say:
(a) in the case of a winding up by or subject to the supervision of the
Court, in such way as the Court directs;
(b) in the case of voluntary winding up, in such way as the company
by extraordinary resolution directs.
After three years from the dissolution of the company, no responsibility
shall rest on the company or the liquidators, or any person to whom the
custody of the documents has been committed, by reason of the same not
Deing 1orthcoming to any person claiming to be interested therein.
18. Power of Court to declare dissolution of company void (Sec.340)
where a company has been dissolved, the Court may, at any time within
made for the
Oyears of the date of the dissolution on an application beingwho
or the company or by any
other person appears to
upose by liquidator
LOurt to be interested, make an orderupon such terms as the Court may
thinks fit, declaring the dissolution to have been void, and
thereupon suc
proceedings may be taken as might have been taken if the company had
been dissolved. not
It shall be the duty of the person on whose application the order was made
within twenty-one days after the making of the order, to file withth
Registrar a certified copy of the order, and if that person fails so to do, he
shall be liable to a fine not exceeding one hundred taka for everyday
which the default continues.
during
19. Unclaimed dividends and undistributed assets to be paid to
Companies Liquidation Account (Sec.343)
Where any company is being wound up, if the liquidator has in his hands or
under his control any money of the company representing
unclaimed
dividends payable to any creditor or undistributed asset refundable to
any
contributory which have remained uncla imed for one hundred and eighty
days after the date on which they became payable or refundable, that
liquidator shall forthwith pay the said money into the Bangladesh Bank to
credit of the Government in an account to be called the
"Companies
Liquidation Account". The liquidator shall, on the dissolution of the
company, similarly
pay into the said Account any money representing
unclaimed dividend or undistributed assets in his hand at the date of
dissolution.
The liquidator shall, when
making any payment referred to above, furnish to
such officer as the Government
may appoint in this behalf a statement in the
prescribed form setting forth in respect of all sums included in such
payment, the nature of the sums, the names and last known addresses of the
persons entitled to participate therein, the amount to which each is
and the nature of his claim
entitled
thereto, and such other particulars as may be
prescribed.
The receipt of the Bangladesh Bank for any money paid to it under above
shall be an effectual discharge of the liquidator in respect thereof.
Any person claiming to be
entitled to any money,
paid into the Companies
Liquidation Account in pursuance of this section may
an order for apply to the Court tor
payment thereof, and the Court, if satisfied that the
claiming is entitled may make an order for the person
payment to that person of the
sum or the asset due to him.
Any liquidator retaining any money or asset which should have been
deposited by him into the "Companies Liquidation Account" under this
section shall pay interest the amount retained at
on
the rate of twenty pe
cent per annum and shall also be liable
to pay any
reason of his default and where the expense occasioned by
winding up is by or under tne
Company Law 657
sDervision of the Court, he shall also be liable to disallowance of all or
Such part of his remuneration as the Court may think just and to be removed
from this office by the Court
20. Power of Supreme Court to make rules (Sec.345)
The Supreme Court, may from time to time, make rules consistent with the
Act and with the Code of Civil Procedure 1908 (Act V of 1908) concerming
the following matters namely:.
(a) the mode of proceedings to be held for winding up of a company in
the High Court Division and in a Court subordinate
thereto
(b) in the case of voluntary winding up by members or creditors, for
the holding of meetings of creditors and members in connection
with proceedings under section 228 of the Act
(c) giving effect to the provisions of the Companies Act for the
purpose of reduction of share capital and sub-division of the share
of a company:
(d) all applications to be made to the Court under the provisions ofthe Act.
Under this authornty the Supreme Court has made rules as amended upto date.
14.7 Winding up of unregistered companies
1. Meaning of "unregistered company" (Sec.371)
The expression "unregistered company" shall not include a company
under any company law in
registered under the Companies Act,1994 or
force at any time before the commencement of the Act, but any partnership,
and not
associations or company consist1ng of more than seven members
shall be deemed to be an
registered under this Act or the said company law
"unregistered company".
2. Winding up of unregistered company -how made (Sec.372)
the Companies Act and
Any unregistered company may be wound up under
all the provisions of the Act with respect to winding up shall apply to an
unregistered company, with the following exceptions and additions,
namely:-
under the Act
(a) no unregistered company shall be wound up
voluntarily or subject to supervisien ef the Court;
(b) the circumstances in which an unregistered company may be
wound up are as follows, namely:-
if the company is dissolved or has ceased to carry on business or is
)
carymg on business only for the purpose of winding up its attairs;
(ii) if the company is unable to pay its debts;
(111) if the Court is of opinion that it is just and equitable that the
company should be wound up.
Commercial.Law
Text Book on
658
shall, be deemed to be unable to pay its
unregistered company
(c) an
debts-
or otherwise, towhom thee
(i) if a creditor, by assignment
five hundred taka
company is indebted in a sum exceeding
on the company, by leaving at its
then due has served
the secretaryto
principal place of business,
or by delivering y
officer of the
or some director, manager or principal
otherwise serving in such
manner as the
company, or by
or direct a demand under his hand
Court may approve
the sum so due, and the
requiring the company to pay
three weeks after the service of the demand
company has for
secure or compound for it to
neglected to pay the sum, or to
the satisfaction of the creditor; or
(ii) if any suit other legal proceeding has been instituted
or
demand due or claimed
against any member for any debt or
to be due, from the company or from him in his character of
member, and notice in writing of the institution of the suit or
other legal proceeding having been served on the company
by leaving the same at its principal place of business or by
delivering it to the secretary, or some director, manageT or
principal officer of the company or by otherwise serving the
same in such manner as the Court may approve or direct, the
company has not within ten days after service of the notice
paid, secured or compounded for the debt or demand,
procured an order for the suit or other legal proceeding to be
stayed, or indemnified the said member or defendant to his
reasonable satisfaction against the suit or other legal
proceeding, and against all costs, damages and expense to be
incurred by him by reason of the same; or
(111) if execution or other process issued on a
decree or order
obtained in any Court in favour of a creditor against tNe
company, or any member thereof as such, or any
authorised to be sued as nominal perso
defendant on behalf of me
company, is returned unsatisfied; or
(iv) if it is otherwise
the company is
proved to the satisfaction of the Court that
unable to pay its debts.
It shall not affect the
operation of any enactment which ro any
partnership, association or company provides
company or as unregistered being wound up or being wound as
the Act. company, under any enactment by
repca
Company Law
659
Winding up of companies incorporated outside Bangladesh
Wherc a company incorporated outside Bangladesh which has been

earrving
ca
on business
in Bangladesh, it may be wound up as an unregistered
company, notwithstanding that it has been dissolved or otherwise ceased to
exist as a company under or by virtue of the laws of the
country under
which it incorporated | Sec.
was
372(3)].
3. Contributories (Sec.373)
In the cvent of an unregistered company being wound up, every person shall
be decmed to be a
contributory who is liable to pay or contribute to the
payment of any debt or liability of the
company, or to
the pay or contribute to
payment of any sum for the adjustment of the rights of the members
among themselves, or to pay or contribute to the
payment of the costs and
expenses or winding up the company, and every
contribute to the assets to
contributory shall be liable
the company all sums due from him in respect
of any such liability as aforesaid.
In the event of any contributory
dying or being adjudged bankrupt the
provisions of the Act shall
apply to the legal
representatives and heirs of
deceased contributories, and to the assignees of bankrupt contributories.
4. Stay of
proceedings (Sec.374)
The provisions of the Act with
respect to staying and restraining suits and
legal proceedings against a company at any time after the
petition for winding up and before the making of a presentation of a
in the case of an winding up order shall,
unregistered company, where the application to stay or
restrains is by a creditor, extend to suits and
legal proceedings against any
contributory of the company.
5. Stay of suits (Sec.375)
Where order has been made for winding up of a company, no suit or
an
other legal proceedings shall be
proceeded with or commenced against any
contrbutory of the company in respect of any debt ot the company, except
by leave of the Court, and subject to such terms as the Court may impose.
,Court's direetions as to property in certain cases (See.376)
a n unregistered company has no power to sue and be sued in a comnon
ame, or if for any reason it appears expedient, the Cout nay, by the
Winding up orden, or by any subsequent order, direct that all or any part of
the property, movable or immovable, including all interests and rights into
d movable and immovable, and including obligations and

Out of property,
actionable claims as may belong to the company or to trustees on its behalt
t o vest in the official liquidator by his official name and thereupon the
or the part thereof specified in the order
shall vest accordingly.
PIoperty
C Olficial liquidator may, after giving such indemnity, it any, as the Court
may direct, bring or defend in his official name any suit or other leoa
proceeding relating to that property, or necessary to be brought or defended legal
for purposes of effectually winding up the company and recovering its
property.
14.8 Defunct companies
A defunct company is one which is not carrying on business or which is not
in operation. Section 346 deals with such companies.
14.8.1 Registrar may strike defunet company off register (Sec.346)
(1) Where the Registrar has reasonable cause to believe that a company is
not carrying on business or in operation, he shall send to the company by
post a letter requiring whether the company is carrying on business or in
operation.
(2) If the Registrar does not within thirty days of sending the letter receive
any answer thereto, he shall within fourteen days, after the expiration of the
said thirty days send to the company by post a registered letter referring to
the first letter and stating that no answer thereto has been received and
that,
if an answer is not received to the second letter within thirty days from the
date, thereof, a notice will be published in the official Gazette with a view
to striking the name of the company off the register.
(3) If the Registrar either receives an answer from the company to the effect
that it is not carrying business in
on
operations, or does not within thirty
or
days after sending the second letter receive any answer, he may publish in
the official Gazette, and send to the
company by post a notice that, at the
expiration of ninety days from the date of that notice, the name of the
company mentioned therein will, unless cause is shown to the contrary, be
struck off the register and the
company will be dissolved, and in such a
case the Registrar may send a copy of the notice to the company while in
sending it to the concerned
authority for its
Gazette. publication in the official
(4) If, in any where a company is
case
being wound up, the Registrar has
reasonable cause to believe either that no
affairs of the company are liquidator is acting or that the
fully wound and the returns required to be
made by the liquidator have not been up,
made for a period of six
months after notice by the consecutive
Registrar
by post to the company, or to the demandingat
the returns, has been sen
business, the Registrar may publish inliquidator
his last known place o
the official Gazette and send to tn
company a like notice.
(5) At the expiration of.the time mentioned in
the notice the
unless because to the
is
contrary
Registrar ia
its name previously
shown by the company, su
off the register and on the publication in the
notice to the effect the official Gazette
çompany shall be dissolved.
Company Law 661
Rut the liability if any, of every director and member of the company shall
continue and may be enforced as if the company had not been dissolved.
14.8.2 Restoration [Sec. 346(6)|
If a company or any member or creditor thereof fecls aggrieved by the
company's having been struck off the register, the Court, on the application
of the company or member or creditor, may, if satisfied that the company
was at the time of the striking off carrying on business or in operation or
otherwise that it is just that the company be restored, to the register, and
thereupon the company shall be deemed to have continued in existence as
its name had not been struck off. The Court may by order give such
directions and make such provisions as seems just for placing the company
positions nearly may be as if thee
and all other persons in the same as as
name of the company had not been struck off.
TEST QUESTIONS
the
up of a company ? What
are
1. What do you understand by the winding
different modes of winding up ?
When can a company be wound up by the Court? Who are the persons
2.
of a company by the
entitled to present a petition for the winding up
circumstances in which each may present thèè
Court, and; what are the
petition?
Court order a compulsory winding up
3. Under what circumstances will the
effect of a winding up order?
of a company ? What is the
the Court commence? What are the
4. At what moment does a winding up by
order?
consequences of a winding up is
under which the Registrar of companies
5. What are the circumstances
for the winding up order?
competent to file an application of a company? Discuss their
are' contributories' in the winding up of
6. Who What is the nature and extent
the company.
right to claim set-off against
a contributor's liability?
regarding the liability of a contributory.
7. Give the statutory provisions What are the
company be voluntarily wound up? in case
8. When can a is followed
consequences of such a winding up? What procedure

commence?
When does it in a voluntary
of such a winding up? declaration of solvency
of the
9 In a voluntary importance submitted?
whom is it made, and to whom is it to the
winding up ? By shall be subject
order that a winding up
T0. When may the Court
supervision of the
Court? from the register of
regarding the removal
name of the
G i v e the statutory
provisions
restore to the Register the
Is it possible
to
how can this be
defunct companies. struck off? If so,
has been previously
company which
done?

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Chapter 1

Concept and Nature of Company

1.1Objects andpurposes ofintroducing

proportion of capital to which each member isbelongs

are always transferable

Salomon v. Salomon & Co. Ltd., (1897) A.C. 22. One

pnority to the unsecured creditors.

The decision of Saloon case was followed in the United

limited to the unpaid value of the shares. For

special Acts governing them.

In America a private company is commonly known as 'close corporation.

private company [Sec. 2(1T)).

Transferability of shares: In a public company,

6. Restriction on invitation to subscribe for for shares: A

9. Statutory meeting and report: A private company need not hold

Classification of a limited company at a

1.6.3.2 Conversion private company into public company and vice

Conversion of private company into public company (Sec.231): If a

private company, having least seven members alterS its

1.6.3.3 Conversion of a public company into private company (Se.-

that the directorship is held by an individual nominated

the provisions of any of such debentures shall

be disregarded, exercisable, not being held or

following chartexplains the point

Company S1 (Subsidiary of Company H)

Company s2 (Subsidiary of Company S1)

Company S3 (Subsidiary of Company S2)

Company S3 and Company $2 are subsidiaries of Company H.

Illustration: Share capital of Tk.

1. Government company: A Government company is one in which not

(a) a company having a permanent paid up or nominal share capital of

1.8 Foreign company

Accounts of foreign company (Sec.380): Every foreign company shall, in

accounts, in such a form,

foreign company shall-

Service of notice on foreign company (Sec.382): Any process, notice

form of application was issued

incorporated under the Companies Act.

In the event of non-compliance with or contravention of any of the

aforesaid requirements, a director or other person responsible for the

purposes. fine not

But where charge is created outside Bangladesh or the completion of

(Sec.400): If any person or persons trade or carry on business under any

Fees for registration (Sec.348) of the several matters shall be

law and consisting of seven or more members, may, at anv

limited by shares or as a company limited by guarantee. The registration

company being wound up.

(a) The members of company are not

contracts, debts or for Wrongs done by it, personally

of a firm may take part in its

can inspect it to find out what is in it.

10. Bankruptcy of firm and winding up of company: The bankruptcy of

(iii) To fix up underwriters, brokers, bankers, solicitors, auditors and

contribute to the assets of the company in the event of its beng

The certificate of incoporation has been held to be conclusive on the

for the company which is yet to be registered. Such

Position of promoters as regards pre-incorporation contracts:

companies were nothing than the assessee's himself. They did

IV) Company acting as agent or trustee of the shareholders: Where