FUNCTIONS OF NCLT

Jurisdiction - The Tribunal follows the rules set aside in the Code of Civil Procedure.
Further, they are expected to function as per the guidelines laid out by the Central
Government. The NCLT has jurisdiction over the following actions:

Class Action - Class Action suits are undertaken against frauds and hence comes under
Section 245 of the Indian Companies Act. Any company registered under the Indian
Companies Act which cheats or steals money from investors is liable to be fined and
penalised by the NCLT. Companies who make money fraudulently by duping investors and
shareholders are expected to provide compensations to the victims for their losses.

Share Transfer Disputes - If any company refuses to transfer shares or mishandles

registration of transfers, then the victim or the individual who incurred losses due to this
malpractice can appeal to the NCLT within a time frame of two months to seek
justice. Contracts and arrangements for security transfer come under the jurisdiction of the
NCLT as per Section 58 and 59.

Oppression - Under Section 397 an individual was given the liberty to file complaints only
about ongoing cases of abuse and mismanagement. But the Tribunal, allows people the
opportunity to seek justice for all forms of abuse, whether it be in the past or present. If
someone finds that the working of a company is prejudiced and aims to benefit certain parties
while being oppressive towards others, then he or she has the right to approach the Tribunal.
And also demand to look into the company just to ensure that all parties involved get justice.

Revision of Financial Statements - Falsification of record books was a significant form of

injustice that was prevalent in the past and Sections 447 and 448 were added to ensure that
such instances would be handled effectively by the Tribunal. These new amendments forbid
companies from acting on their will and opening accounts to revise their financial statements.
Section 130 allows the Tribunal authority to command a company to reopen accounts under
certain circumstances. While companies are permitted to review their financial statement
under Section 131, they do not have the power to reopen any accounts.

What is the Corporate Veil Theory?

The Corporate Veil Theory is a legal concept which separates the identity of the company
from its members. Hence, the members are shielded from the liabilities arising out of the
company’s actions.
Therefore, if the company incurs debts or contravenes any laws, then the members are not
liable for those errors and enjoy corporate insulation. In simpler words, the shareholders are
protected from the acts of the company.
Piercing the Corporate Veil
Scenarios under which the Courts consider piercing or lifting the corporate veil are as below,
1] To Determine the Character of the Company
There are cases where the Courts need to understand if the company is an enemy or friend. In
such cases, the Courts adopt the test of control. The Courts usually avoid piercing the
corporate veil, unless the public interest is in jeopardy. However, to ascertain if a company is
an enemy company, the Court might choose to do so.
2] To Protect Revenue or Tax
In matters concerning evasion or circumvention of taxes, duties, etc., the Court might
disregard the corporate entity.
Imagine a company that is used to evade tax. In such cases, piercing the corporate veil allows
the Court to understand the real owner of the income of the company and make the said
person liable for legitimate taxes.
3] If trying to avoid a Legal Obligation
Sometimes the members of a company can create another company/subsidiary company to
avoid certain legal obligations. In such cases, piercing the corporate veil allows the Courts to
understand the real transactions.
4] Forming Subsidiaries to act as Agents
Sometimes, the basis of the formation of a company is to act as an agent or trustee of its
members or of another company. In such cases, the company loses its individuality in favour
of its principal. Also, the principal is liable for the acts of such a company.
5] A company formed for fraud or improper conduct or to defeat the law
In cases where a company is formed for some illegal or improper purposes like defeating the
law, the Courts might decide to lift or pierce the corporate veil.
 1. FEATURES OR HIGHLIGHTS OF MCA-21

Introduction of anywhere, anytime secure electronic filing for MCA transactions;

2. Adaptation of a new set of electronic forms or e-forms leading to a reduction in the
total number forms besides elimination of repetitive data in each of the e-forms;
3. Use of Digital Signatures to ensure the security of electronic forms and documents in
conformance with the Information Technology Act.
4. Convenient methods of payments that will encompass electronic payment
options using credit cards and Internet banking in 200 bank branches across the
country
5. Back office of the Ministry to use best-in class information technology solutions
6. 53 Customers Facilitation Centres located nationwide that will provide facilitation
services for electronic filing and the public interface
7. Nearly 5 crore pages of legacy corporate documents digitised/to be digitised
for electronic access through Internet
8. Easy reporting of complaints by investors through MCA portal for easy and speedy
redressal
9. National Data Center to provide uninterrupted 24X7 operations Disaster Recovery
mechanisms with a facility to restart operations within half-day in the event of a
natural or man-made disaster
10. Proposal for collection of stamp duty electronically
11. Adoption of a Build-Own-Corporate-transfer model through Public-
Private Partnership to ensure sustained performance levels

DIFFERENCE BETWEEN PUBLIC AND PRIVATE COMPANY

1. Meaning:
The public company refers to a company that is listed on a recognized stock exchange
and its securities are traded publicly. A private company is one that is not listed on a
stock exchange and its securities are held privately by its members.

2. Name:
A public company need not include the word “private” in its name. But for a private
company, it is mandatory to write the words “private limited” at the end of its name.

3. Number of Members:
There must be at least seven members to start a public company. But on the contrary,
the private company can be started with a minimum of two members. There is no
ceiling on the maximum number of members in a public company. Conversely, a
private company can have a maximum of 50 members, including its past and present
employees.

4. Number of Directors:
A public company should have at least three directors, whereas a private company
can have a minimum of 2 directors.

5. Quorum:
It is compulsory to call a statutory general meeting of members, in the case of a
public company. Presence of two members is an adequate quorum for the general
meeting in case of a private company. On the other hand, there must be at least five
members, personally present at the annual general meeting for constituting the
requisite quorum in case of a public company.

6. Capital:
A public company must have a paid-up capital of rupees five lakh. Conversely, a
private company must have a paid-up capital of rupees one lakh.

7. Commencement of Business:
To start a business, the public company needs a certificate of commencement of
business after it is incorporated. On the contrary, a private company can start its
business just after receiving a certificate of incorporation.

8. Articles of Association:
A public company can adopt the model Articles of Association given in the
Companies Act. On the other hand, a private company must prepare and file its own
Articles of Association.

9. Transferability of Shares:
The transferability of shares of a private company is completely restricted. On the
contrary, the shareholders of a public company can freely transfer their shares.

10. Restrictions on the Appointment of Directors:

A director of a public company shall file with the registrar consent to act as such.
He/she shall sign the memorandum and enter into a contact for qualification shares.
He/she cannot vote or take part in the discussion on a contract in which he/she is
interested. Two-thirds of the directors of a public company must retire by rotation.
These restrictions do not apply to a private company.
SCHEME FOR FILING STATUTORY DOCUMENTS THROUGH
ELECTRONIC MODE
In exercise of the powers conferred by sub-section (2) of section 610B of the
Companies Act, 1956, the Central Government hereby makes the following Scheme to
amend the Scheme for Filing of Statutory Documents and other Transactions by
Companies in Electronic Mode, namely:-

1. (1) This Scheme may be called as the “Scheme for Filing of Statutory Documents
and other Transactions by Companies in Electronic Mode (Amendment) Scheme,
2009.

2. In the Scheme for Filing of Statutory Documents and other Transactions by

Companies in Electronic Mode, in Annexure ‘A’, in paragraph 4, for sub-paragraph
(8), the following sub-paragraph shall be substituted, namely:-

“(8) Collection of Stamp Duty on documents through MCA portal and dispensation
of physical submission thereof.

(a) The Central Government, for the purpose of making all transactions faster,
improving service delivery and making Office of the Registrar paperless, has decided
to dispense with the physical submission of documents.

(b) There shall be a transition period of three and a half months to enable the
companies to use their already purchased stamp papers. The 1st day of January, 2010
shall be the cut off date for a company to compulsorily make payment electronically
for stamp duty in respect of the States which have authorized the Central
Government to collect stamp duty on their behalf.

(c) The company shall not make physical submission of documents on which stamp
duty is paid electronically through MCA portal. However, documents on which stamp
duty is not paid through MCA portal, the company shall, in addition to their
electronic filing, submit physical copies of such stamped documents at the office of
the Registrar also, simultaneously.

(d) Documents other than those specified in clause (a) which are not covered for
payment of stamp duty through MCA portal, and on which stamp duty payable in
respective State is equal to or less than one hundred rupees, such stamped
documents, shall be scanned by the company and filed electronically for evidencing
by the Registrar and need not be submitted physically except those required to be
filed for compounding of offence under clause (a) of sub-section (4) of section 621A.
Doctrine of Ultra Vires

The object clause of the Memorandum of the company contains list of the object for
which the company formed. Company must not act beyond the object clause of
memorandum of association. If company acts beyond the object clause then its ultra
vires. If the contract entered into is a ultra vires contract, then it becomes void and
cannot ratified by shareholders also. This known as Doctrine of Ultra Vires.

Basic principles included the following:

1. An ultra vires transaction cannot be ratified by all the shareholders, even if

they wish it to be ratified.
2. The doctrine of estoppel usually precluded reliance on the defense of ultra
vires where the transaction fully performed by one party
3. A fortiori, a transaction fully performed by both parties could not attacked.
4. The contract fully executory, the defense of ultra vires might also raised by
either party.
5. If the contract partially performed, and the performance held insufficient to
bring the doctrine of estoppel into play, a suit for quasi contract for recovery
of benefits conferred available.
6. If an agent of the corporation committed a tort within the scope of his or her
employment, the corporation could not defend on the ground the act was ultra
vires.

1. EXCEPTIONS TO THE DOCTRINE OF ULTRA VIRES

An act intra vires of the company but outside the authority of the directors
may ratified by the shareholders.
2. An act intra vires of the company but done in an irregular manner. It can turn
into valid by shareholders consent.
3. If the company has acquired any property through an investment, ultra vires
of the contract, the company’s right over such a property shall still secured.
4. While applying doctrine of ultra vires, the effects incidental or consequential
to the act shall not invalid unless they expressly prohibited by the Company’s
Act.
5. There are certain acts under the company law, which though not expressly
stated in the memorandum, are deemed impliedly within the authority of the
company and therefore they are not deemed ultra vires.
6. If an act of the company is ultra vires the articles of association, the company
can alter its articles in order to validate the act.
Contents of Articles of Association: The articles generally deal with the following 1. Share
capital including sub division thereof, rights of various shareholders, the relationship of these
rights, payment of commission, share certificates, 2. Lien of shares 3. Calls on shares 4.
Transfer of shares 5. Transmission of shares 6. Forfeiture of shares 7. Surrender of shares 8.
Conversion of shares into stock 9. Share warrant 10. Alteration of capital 11. General
meetings and proceedings thereat 12. Voting rights of members, voting by poll, proxies 13.
Directors, including first directors or directors for life, their appointment, remuneration,
qualifications, powers and proceedings of Board of directors’ meetings 14. Dividends and
reserves 15. Accounts and audits 16. Borrowing powers 17. Winding up

LIMITATIONS Of Articles:
Sec. 31 of the Companies Act provides that a company may alter regulations contained in its
Articles by passing a special resolution subject to
a) the provisions of the Companies Act and
b) Conditions contained in the Memorandum of Association [Section 31(1)].

A copy of every special resolution altering the Articles should be filed in Form no 23 with
the Registrar within 30 days its passing and attached to every copy of the Articles issued. The
fundamental right of a company to alter its articles is subject to the following limitations:

a) The alteration must not exceed the powers given by the Memorandum of Association of
the company or conflict with the provisions,
b) It must not be inconsistent with any provisions of Companies Act or any other statute.
c) It must not be illegal or against public policies
d) The alteration must be bonafide for the benefit of the company as a whole.
e) It should not be a fraud on minority, or inflict a hardship on minority without any
corresponding benefits to the company as a whole.
f) The alternation must not be inconsistent with an order of the court. Any subsequent
alteration thereof which of inconsistent with such an order can be made by the company only
with the leave of the court.
g) The alteration cannot have retrospective effect. It can operate only from the date of
amendment.
h) If a public company is converted into a private company, then the approval of the Central
Government is necessary. Printed copies of altered articles should be filed with the Registrar
within one month of the date of Central Government’s approval.
i) An alteration that has the effect of increasing the liability of a member to contribute to the
company is not binding on a present member unless he has agreed thereto in writing.
Functions of a Promoter:

The Promoter Performs the following main functions:

1. To conceive an idea of forming a company and explore its possibilities.

2. To conduct the necessary negotiation for the purchase of business in case it is

intended to purchase as existing business. In this context, the help of experts may be
taken, if considered necessary.

3. To collect the requisite number of persons (i.e. seven in case of a public company
and two in case of a private company) who can sign the ‘Memorandum of
Association’ and ‘Articles of Association’ of the company and also agree to act as the
first directors of the company.

4. To decide about the following:

(i) The name of the Company, (ii) The location of its registered office, (iii) The
amount and form of its share capital, (iv) The brokers or underwriters for capital
issue, if necessary, (v) The bankers, (vi) The auditors, (vii) The legal advisers.

5. To get the Memorandum of Association (M/A) and Articles of Association (A/A)

drafted and printed.

6. To make preliminary contracts with vendors, underwriters, etc.

7. To make arrangement for the preparation of prospectus, its filing, advertisement

and issue of capital.

8. To arrange for the registration of company and obtain the certificate of

incorporation.

9. To defray preliminary expenses.

10. To arrange the minimum subscription.

Privileges of Private ltd companies

1. Number of members: A private company can be formed with just two members.

2. Allotment before minimum subscription: The private company can make

allotment of shares even before the minimum subscription is received.

3. Prospectus: The private companies need not issue prospectus or file statement in
lieu of prospectus with the Registrar of Companies.

4. Commencement of business: It can commence its business after receiving

incorporation certificate. Whereas a public company can commence business only
after receiving Certificate of Commencement of Business.
5. Number of directors: It requires only two directors.

6. Statutory meetings: Private company is not required to hold statutory meetings

and file statutory report with the Registrar of Companies.

7. Index of members: It is not required to keep and maintain index of members.

8. Loan to directors: It can grant loan to directors without the permission of the
government.

9. Qualification shares: Directors of the private company need not have

qualification shares.

10. No restriction on the number of directors: The private company can

increase its number of directors without the permission of the government.

11. Appointment of managing director: The private company can appoint a

person as managing director, who has already been working as the managing
director of other company.

12. Quorum of directors meeting: Only two directors are sufficient to constitute

quorum.

13. Retirement of directors by rotation: The directors of private company need

not retire by rotation.

14. Remuneration of Managers and Directors: There is no limit on

remuneration of managers and directors of a private company. The change or
increase in remuneration can be made without the approval of Central Government.

Contents of a prospectus:
1. Address of the registered office of the company.
2. Name and address of company secretary, auditors, bankers, underwriters etc.
3. Dates of the opening and closing of the issue.
4. Declaration about the issue of allotment letters and refunds within the prescribed time.
5. A statement by the board of directors about the separate bank account where all monies
received out of shares issued are to be transferred.
6. Details about underwriting of the issue.
7. Consent of directors, auditors, bankers to the issue, expert’s opinion if any.
8. The authority for the issue and the details of the resolution passed therefore.
9. Procedure and time schedule for allotment and issue of securities.
10. Capital structure of the company.
11. Main objects and present business of the company and its location.
12. Main object of public offer and terms of the present issue.
13. Minimum subscription, amount payable by way of premium, issue of shares otherwise
than on cash.
14. Details of directors including their appointment and remuneration.
15. Disclosure about sources of promoter’s contribution.
16. Particulars relation to management perception of risk factors specific to the project,
gestation period of the project, extent of progress made in the project and deadlines for
completion of the project.

Doctrine of Indoor Management

The doctrine of indoor management, also known as Turquand rule is a 150-year old
concept, which protects the outsiders against the actions done by the company. Any
person who enters into a contract with the company shall ensure that the transaction is
authorised by the articles and memorandum of the company.
There is no requirement to look into the internal irregularities, and even if there are any
irregularities, the company shall be held liable since the person has acted on the grounds
of good faith. To absorb the concept of this doctrine, it is important to understand the
concept of the doctrine of constructive notice.

Exceptions to the Doctrine of Indoor Management

Listed below are the exceptions to the doctrine that have been judicially established,
which provide circumstances under which the benefit of indoor management cannot be
claimed by a person dealing with the company.

1. Knowledge of Irregularity: This rule does not apply to circumstances where the person
affected has actual or constructive notice of the irregularity. In Howard V Patent Ivory
Manufacturing Company (1888) 38 Ch D 156, the Articles of the company empowered the
directors to borrow up to 1,000 pounds. The limit could be raised provided consent was
given in the General Meeting. Without the resolution being passed, the directors took 3,500
pounds from one of the directors who took debentures. Held, the company was liable only
to the extent of 1,000 pounds. Since the directors knew the resolution was not passed,
they could not claim protection under the Turquand’s rule.
2. Suspicion of Irregularity: In case any person dealing with the company is suspicious
about the circumstances revolving around a contract, then he shall enquire into it. If he
fails to enquire, he cannot rely on this rule. In the case of Anand Bihari Lal V Dinshaw & Co,
(1946) 48 BOMLR 293, the plaintiff accepted a transfer of property from the accountant.
The Court held that the plaintiff should have acquired a copy of the Power of Attorney to
confirm the authority of the accountant. Thus, the transfer was considered void.
3. Forgery: Transactions involving forgery are void ab initio since it is not the case of absence
of free consent; it is a situation of no consent at all. This has been established in the Ruben
V Great Fingall Consolidated case [1906] 1 AC 439. A person was issued a share certificate
with a common seal of the company. The signature of two directors and the secretary was
required for a valid certificate. The secretary signed the certificate in his name and also
forged the signatures of the two directors. The holder contented that he was not aware of
the forgery, and he is not required to look into it. The Court held that the company is not
liable for forgery done by its officers.
Alteration Of Articles Of Association

1. A Board Meeting is convened to change all or any of the existing Articles of Association and fix up
the day, time, place and agenda for a general meeting for passing special resolution to effect the
change.
2. Any such change in the Articles of the company should be confirmed to the provisions of the
companies Act, 1956 and the conditions contained in the Memorandum of Association of the
company.
3. Any such change does not increase the liability of any member who has become so before the
alteration to contribute to the share capital of or otherwise to pay money to, the company.
4. Any such change does not have the effect of converting a public company into a private company.
If such is the case, then make an application to the Central Government for such alteration.
5. Any such change does not provide for expulsion of a member by the company.
6. Notice should be for the General Meeting proposing the Special resolution and explaining and
reasoning the changes being proposed.
7. If the shares of the company are enlisted with any recognised Stock Exchange, then forward
copies of all notices sent to the shareholders with respect to change in the Articles of Association to
the Stock Exchange.
8. The General Meeting should be held and special resolution should be passed.
9. File with the stock exchange with which the company is enlisted six copies of such amendments as
soon as the company adopts it in General Meeting. Out of the six copies, one copy must be a
certified true copy.
10. Forward promptly to the Stock Exchange with which your company is enlisted three copies of the
notice and a copy of the proceedings of the General Meeting.
12. Effect the changes in all copies of the articles of association.
13. Any alteration so made be as valid as if originally contained in the Articles of Association and be
subject to alteration by Special Resolution as above.

Legal status/position of a promoter:

· The statutory provisions are silent regarding the legal status of a promoter.
· A promoter cannot be an agent or trustee for the proposed company (or) company under
incorporation.
· However, the law imposes certain duties, functions, responsibilities and liabilities on a
promoter which are “like that of an agent or trustee” of a proposed/under incorporation
company.
· This position of the promoter “like that of an agent or trustee” is called the “fiduciary duties
or fiduciary role or fiduciary position” of a promoter.
Fiduciary position of the promoter: The promoter stands in a fiduciary relation to the
company which he promotes. They are follows:-
(1)Not to make any profit at the expense of the company: The promoter cannot make any
profit of the company he promotes either directly (or) indirectly without knowledge and the
consent of the company. Similarly he is not allowed to drive any profit from the sale of his
own property to the company unless all material facts are disclosed. If any such secrete
profits is violated to this rule, the company may compel him to account for and surrender for
such profits.
(2) To give benefit of negotiations to the company: The promoter must give benefit to the
company of any contracts (or) negotiations enter into by him in respect of the company. Thus
where he purchases some property for the company and he cannot rightfully sell that property
to the company, he may sell at a higher price than he gave for it. If he does do, the company
may on discovering the fact, the company may have the following remedies against such
promoter:
a) Rescind the contract and recover the money if any already paid on the transaction (or)
b) Retain the property, pay the promoter only the cost value and deprive him the profit,(or)
c) Where the above remedies are inappropriate, the company may sue for misfeasance (i.e..,
breach of duty to disclose)