SCHOOL OF LAW

MID SEM EXAMINATION

Submitted by: Submitted to:

Utkarsh Singh Dr Daksha Sharma

L19BALB015 Assistant Professor

BA-LLB (B)

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Answer 2

The promoter is responsible for maintaining the prospectus' declarations; if any misleading
statements are found in the prospectus that are capable of inducing a person to adhere for the
company's securities based on the prospectus' statements, then only the promoter is to be held
liable for such act. Sec 35(1), which carries the civil liability of promoters for
misrepresentations in prospectuses, states that if a person subscribes for securities in a
company based on a statement introduced or neglected in the prospectus that is misleading
and suffers loss or damage as a result, certain persons, including the promoter, are liable for
the misstatement. And attached sec 36 states that, as a result of such liability, the promoter
may be forced to compensate parties who have suffered loss or harm as a result of such
prospectus misstatements.
Sec 36 states that if a promoter intentionally makes any false or misleading statements in the
prospectus or conceals any significant facts in order to induce a party to make investments by
promising them rewards on the basis of a misleading prospectus, the promoter can be held
liable for fraud.
In our case, Mr. Joy trusted the deceptive representations in the prospectus; it was the
promoter's responsibility to check whether the prospectus contained any misstatements and
warn Joy of the same, but he failed to do so. Mr. Joy was led to believe that he would profit
from this agreement because of the misleading representations in the prospectus, and these
misrepresentations persuaded him to invest in the securities. As a result, the promoter could
be held accountable for such a deceptive act, and the promoter could be ordered to
compensate Mr. Joy for his losses.
In the case of Brownley vs Campbell, it was determined that if a promoter is aware that the
prospectus contains false representations, he has a duty to reveal the truth and can be held
liable for fraud if he fails to do so. As a result, in this scenario, the promoter will be held
accountable.

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Answer 3
A government department is not the same as a government. In Andhra Pradesh State Road
Transport Corporation v. ITO, the Andhra Pradesh Road Transport Corporation sought tax
exemption under Article 289 of the Indian Constitution, which exempts the state's assets and
revenue from Union taxes. While dismissing the Corporation's claim, the Supreme Court
concluded that, despite being entirely governed by the State Government, it had a separate
entity, and its earnings was not the State's.
A company may be thought to have lost its uniqueness in favour of its principle if it is seen as
an agent or trustee of its members or of another firm. This is a common question in India
when it comes to government-owned businesses. Under the Businesses Act, a considerable
number of private companies for commercial reasons have been incorporated, with the
President and a few other executives as shareholders. When the Central or State
Governments, or any combination of the two, own 51 percent of a firm's interest or capital,
the company is referred to as a 'Government Company.' This government corporation is also
known as 'Public Enterprises' or 'State Enterprises.' They must be officially registered under
the Companies Act. A Government Company is defined as "any company in which the
Central Government, or any State Government or Governments, or partially by the Central
Government and partially by one or even more State Governments, holds not less than 51
percent of the paid-up share capital, and involves a company which is a subsidiary company
of such a Government company" under section 2(45) of the Companies Act 2013. This

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signifies that the company's primary feature is the government's 51 percent ownership. It was
held in Hindustan Steel Works Construction Ltd. v. State of Kerala [1998] 2 Comp LJ 383,
that despite all of the government's control, the company would be neither a government
department nor a government institution, but rather a government agency, and thus not
exclude any from the Kerala Construction Workers Welfare Funds Act. A Government
Company's employees are not the same as those employed by the federal or state
governments. A Government Company, like any other company incorporated under the
Companies Act, can be wound up. It could become bankrupt or be unable to pay its bills.
Features of Government Company

 Government corporations are legally recognized under Section 2 of the Companies

Act of 2013. (45). The rules outlined in this section are followed by the Government
Companies. Government firms, like all other businesses, have a separate legal entity
that can be sued and sued in legal proceedings. They can also own real estate under
their own name. The annual reports must be presented in both chambers of
Parliament at the end of the fiscal year.
 The state and federal governments will jointly or individually own the company's
capital, which will be entirely or partially owned by the state and federal
governments. The directors, who are selected by the government, are in charge of
them.

Answer 4
Yes, a single person can form company. T According to the Companies Act of 2013, an
individual can start a business with just one member and one director. It is possible for the
chairman and members to be the same individual. According to section 2(62) of the
Companies Act of 2013, a "one person company" is defined as a corporation with only one
member.

The Companies Act of 2013 introduces a new idea of a one-person corporation. Previously, a
single person could not start a corporation since a private company required a minimum of 2
directors and 3 members, while a public company required a minimum of 3 directors and 7
members. Previously, forming a business could only be done as a sole proprietorship.

Following the passage of the Companies Act of 2013, section 2(62) states that a business can
be founded with only one director and one member, with fewer compliance obligations than a
private corporation. It is possible for the director and the members to be the same individual.
Section 3(1) states that a company may be founded for any legal purpose by one person, and
Section 3(2) states that an OPC can be formed as a limited liability company, a limited
liability company, or an unlimited liability business. The idea of a one-person firm would
stimulate microbusiness entrepreneurship and corporatization. JJ Irani advocated for the
foundation of such a single-person company to simplify the legal framework and reduce the

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time, effort, energy, and other resources required to start a small business. Various countries,
like the United Kingdom, China, and Pakistan, are supporting this form of business.

A promoter and the firm are distinguished in a single person corporation. It restricts the
promoter's liability in the event of failure or other legal concerns. It is necessary to register
such a business. The death of the only member has no bearing on OPC's ability to continue
the event. A 30 percent tax rate is in effect. When the paid-up capital of an OPC crosses a
certain threshold, it must be changed to a private or public corporation. Such businesses are
extremely beneficial to small business owners who wish to establish a separate character for
their company while minimizing legal compliance, perks, and liabilities.

Answer 5
The phrase "corporate veil" refers to the fictitious barrier that divides the firm from people
who run it and those who own it. The primary benefit of incorporation is that the firm
becomes a separate legal entity with limited liabilities. In actuality, the individuals who
constitute the association are the ones who do business on behalf of the incorporated
organization. That is, while a company is a separate entity in the eyes of the law, in actuality,
it is a group of people who benefit from the corporate personality. As a result, granting firms
legal personality at the time of incorporation is a luxury. In the matter of Kotak Mahindra
Bank Limited v Subhiksha Trading Services Limited, 18 Kotak Mahindra Bank sought the
wrapping up of Subhiksha after the latter failed to pay back the loan of Rs 35 crore with
interest. Because Subhiksha failed to show how it suffered greatly of Rs 800 crores as a result
of the global financial crisis, Kotak's counsel, Mr. H. Karthik Seshadri, argued that Mr. R.
Subramanian's (Managing Director of Subhiksha) action required a detailed investigation by
lifting the corporate veil because there was probable cause to believe he "wilfully"
transmitted the company's assets to organizations such as Cash and Carry Wholesale Traders
Pv. In this instance, the court correctly upheld Kodak's winding-up action, and in my opinion,
it is a good case for piercing the corporate veil due to Mr. Subram's fraudulent behaviour.

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Doctrine Law lifting the corporate veil as such is not given in the text of Indian Company
Law but could be inferred from number of provisions.

 Failure to return application money (Section-39)

If a corporation issue shares to the public or by way of rights, and the minimal
contribution as specified in the prospectus is not met, the directors are personally
liable to refund the money, plus interest, if the funds is not returned within a
prescribed term.
 Misrepresentation in prospectus (Section- 34 and 35)
In the event of a prospectus deception, every director, promoter, and other person who
authorizes the release of the prospectus is liable to individuals who subscribed for
shares based on the false statement.
 Fraudulent Conduct (Section 339):
If it appears that any business of a company has been conducted with the intent to
deceive creditors of the company or any other individual, or for any unlawful purpose,
those who are knowingly parties to such conduct of business may be made personally
responsible without restriction for all or any debts or other liabilities of the company,
if the Tribunal thinks it appropriate to do so.