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Answer Paper

Corporate and economics law Duration: 80

Details: Test – 3 Marks: 45

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ANS-1 As per section 230 (6) of the Companies Act, 2013 where majority of persons at a
meeting held representing ¾ th in value, voting in person or by proxy or by postal ballot, agree
to any compromise or arrangement and if such compromise or arrangement is sanctioned by
the Tribunal by an order. The majority of person representing ¾ th Value shall be counted of
the following:

 the creditors, or

 class of creditors or

 members or

 class of members, as the case may be,

The majority is dual, in number and in value. A simple majority of those voting is sufficient.
Whereas the ‘three-fourths’ requirement relates to value. The three-fourths value is to be
computed with reference to paid-up capital held by members present and voting at the
meeting.

In this case 300 members attended the meeting, but only 260 members voted at the meeting.
As 120 members voted in favor of the scheme the requirement relating to majority in number
(i.e. 131) is not satisfied.

260 members who participated in the meeting held 9,00,000 shares, three-fourth of which
works out to 6,75,000 while 120 members who voted for the scheme held 7,00,000 shares. The
majority representing three-fourths in value is satisfied.

Thus, in the instant case, the scheme of compromise and arrangement of Power Limited is not
approved as though the value of shares voting in favor is significantly more, the number of
members voting in favor do not exceed the number of members voting against.
ANS-2 An order under section 232 of the Companies Act, 2013 transferring the property, rights
and liabilities of one company to another does not automatically transfer contracts of personal
service, which are in their nature, incapable of being transferred and no contract of service is
thereby created between an employee of the transferor company on the one hand and the
transferee company on the other.

In compliance with section 232(1) and (2), the tribunal may by order make a provision for the
transfer of the employees of the transferor company and the transferee company. And
provisions shall also be made for any persons who dissent from the compromise or
arrangement scheme.

According to the above provisions, the workers/employees and their services cannot be
transferred without their consent. Tribunal may by order safeguard the interest of the
employees/ workers. Therefore, the workers of PQR Ltd. (Transferor) will succeed against XYZ
Ltd.

ANS-3 The Managing Director of Primex Securities (P) Ltd. is advised that:

(i) (a) Broking company fails to redress the grievances of the investors within the stipulated
time [Section 23C of the Securities Contract (Regulation) Act, 1956]: Fine of at least INR
1,00,000 but may extend to INR 1,00,000 per day during which such failure continues, subject
to a maximum of INR 1 crore.

(b) Broking company fails to segregate securities or money of client and used the same for self-
use or for any other clients [Section 23D of the Securities Contract (Regulation) Act, 1956:
Penalty of at least INR 1,00,000 but it may extend to INR 1 crore.

(ii) Composition of certain offences (Section 23N): Any offence punishable under this Act, not
being an offence punishable 'with imprisonment' only, or 'with imprisonment and also with
fine' may either before or after the institution of any proceeding, be compounded by SAT or a
court before which such proceedings are pending.

Hence, the offence committed by the stock broking company is compoundable by SAT or a
Court.

(iii) Yes, this offence can be compounded after institution of proceedings against the stock
broking company but only by SAT or a Court before which such proceedings are pending.

ANS-4 Audit Committee: According to Regulation 18 of SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015, every listed entity shall constitute a qualified and
independent audit committee which shall have:

(a) Minimum three directors as members.

(b) Two-thirds of the members of audit committee shall be independent directors.

(c) All members of audit committee shall be financially literate and at least one member shall
have accounting or related financial management expertise

As per the facts of the question, M/s MKBTC Limited, listed its securities in a recognized stock
exchange in the month of August, 2019. In order to comply with the requirements of SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015, the company requires to
do the following:

(i) The audit committee of M/s MKBTC Limited already has 7 directors as members, which is in
compliance.
(ii) The audit committee has 4 directors as independent directors. However, once the company
gets listed, at least 5 [7*(2/3)] directors shall be independent directors. Thus, they need to
change the composition of audit committee once the company gets listed on stock exchange.

(iii) In the existing audit committee though majority of the members have the ability to read
and understand the financial statement but none of them has accounting or related financial
management expertise. However, once the company gets listed it is required that all members
of audit committee shall be financially literate and at least one member shall have accounting
or related financial management expertise. Hence, it is required that the company should
appoint at least one member in the audit committee who shall have accounting or related
financial management expertise.

In view of above, the existing audit committee cannot continue after listing of its securities.

ANS-5(A) As per the given instance, the act of JIPL to remove Mr. B Dutt, a Managing director
from FPRPL and pressurizing him to sell his shares much below the fair market price is an act of
oppression and violations of Section 241and 242 of the Companies Act,2013. Mr. B Dutt was
not given prior notice of board meeting and no chance to disprove the false allegations made
against him.

According to Section 242(2) the Tribunal Without prejudice to the generality of the powers
under sub-section (1) can order for

a. the regulation of conduct of affairs of the company in future;

b. the purchase of shares or interests of any members of the company by other members
thereof or by the company;
c. in the case of a purchase of its shares by the company, the consequent reduction of its share
capital;

d. restrictions on the transfer or allotment of the shares of the company;

e. the termination, setting aside or modification, of any agreement entered between the
company and the managing director, any other director or manager, upon such terms and
conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of
the case;

f. the termination, setting aside or modification of any agreement between the company and
any person other than those referred to in clause (e):

Provided that no such agreement shall be terminated, set aside or modified except after due
notice and after obtaining the consent of the party concerned;

g. the setting aside of any transfer, delivery of goods, payment, execution or other act relating
to property made or done by or against the company within three months before the date of
the application under this section, which would, if made or done by or against an individual, be
deemed in his insolvency to be a fraudulent preference

h. removal of the managing director, manager or any of the directors of the company;

i. recovery of undue gains made by any managing director, manager or director during the
period of his appointment as such and the manner of utilization of the recovery including
transfer to Investor Education and Protection Fund or repayment to identifiable victims;

j. the manner in which the managing director or manager of the company may be appointed
subsequent to an order removing the existing managing director or manager of the company
made under clause (h);
k. appointment of such number of persons as directors, who may be required by the Tribunal to
report to the Tribunal on such matters as the Tribunal may direct;

l. imposition of costs as may be deemed fit by the Tribunal;

m. Any other matter for which, in the opinion of the Tribunal, it is just and equitable that
provision should be made

The above mentioned case, falls within the purview of the Section 241 and 242 of the
Companies Act 2013, ensuring that the transfer of shares to the company (JIPL) by the member
will not effect to the interests of the company or any of its shareholders. It gives broad powers
to the Tribunal, leading to the establishment of its jurisdiction, even when a separate JVA exist.

Under Section 242(2) of the Companies Act, 2013, the Tribunal can pass an order for purchase
of shares/interest of any members of the company by other members thereof or by the
company if it thinks fit. Mr. B. Dutt can be reappointed by Tribunal as the Managing director of
the company and it can also issue orders for the future conduct of the company along with
provision of just and equitable relief to the applicant (i.e. Mr. B Dutt).

(B) 1. According to section 244 of the Companies Act, 2013, in the case of a company having
share capital, the following member(s) have the right to apply to the Tribunal under section
241:

(a) Not less than 100 members of the company or not less than one-tenth of the total number
of members, whichever is less; or

(b) Any member or members holding not less than one-tenth of the issued share capital of the
company provided the applicant(s) have paid all the calls and other sums due on the shares

2. Legal heir of the deceased shareholder with minority status is entitled to file the petition
In the given case, there are six shareholders. As per the condition (a) above, 10% of 6 i.e. 1
(round off 0.6) satisfies the condition. Therefore, in the light of the provisions of the Act, a
single member (even the legal representative of a deceased shareholder) can present a petition
to the Tribunal, regardless of the fact that he holds less than one-tenth of the company’s share
capital.

Thus, the petition made by Mr. Srinath is valid and maintainable

ANS-6 Removal of Member of the SEBI (Section 6 of the Securities and Exchange Board of India
Act, 1992)

According to section 6 of the Securities and Exchange Board of India Act, 1992, the Central
Government shall have the power to remove a member or the chairman appointed to the
Board, if he:

(i) is, or at any time has been adjudicated as insolvent;

(ii) is of unsound mind and stands so declared by a competent court;

(iii) has been convicted of an offence which, in the opinion of the Central Government, involves
a moral turpitude.

(iv) has, in the opinion of the Central Government so abused his position as to render his
continuance in office detrimental to the public interest.

Before removing a member, he will be given a reasonable opportunity of being heard in the
matter.

In the present case, a group of complainants have alleged that Mr. Zubin, a member of the SEBI
is being adjudicated as an insolvent. His state of position may effect on rendering of his services
in a biased manner. This may be unfavorable to the public interest and so should be removed
from his office.
Here, above complainants may approach the Central Government for removal of Mr. Zubin, and
if the Central Government is of the opinion that Mr. Zubin was not competent in rendering of
his services/duties in a office as a member of the Board. The Central Government may remove
Mr. Zubin from his office in compliance with the said provision.

ANS-7 CASE STUDY MCQS

1D

Hint: As per section 235 of the companies act 2013, if the offer made by transferee company is
accepted by share holders holding at least 90% in value of shares, then transferee company
may give notice to any dissenting shareholders that it desires to acquire his shares.

2 A (Refer section 235 for details)

3C

Hint: As per section 233 of the companies act 2013, if the registrar or official liquidator has any
objections or suggestions he may communicate the same in writing to the Central govt in a
period of 30 days.

4. C

Hint:

Under section 244 of the Companies Act, 2013, in the case of a company having share capital,
the following member(s) have the right to apply to the Tribunal under section 241:

(a) Not less than 100 members of the company or not less than one-tenth of the total number
of members, whichever is less; or

(b) Any member or members holding not less than one-tenth of the issued share capital of the
company provided the applicant(s) have paid all the calls and other sums due on the shares
In the given case, since there are ten shareholders. As per the condition (a) above, 10% of 10
i.e. 1 satisfies the condition. Therefore, a single member can present a petition to the Tribunal,
regardless of the fact that he holds less than one-tenth of the company’s share capital

5 (d)

Hint: Section 7(A) of the Securities (Contracts) Regulation Act, 1956 provides that a recognized
stock exchange is empowered to amend rules to provide for all or any of the following matters:

(i) Restriction of voting right to members only.

(ii) Regulation of voting rights by specifying that each member is entitled to one vote only
irrespective of number of shares held.

(iii) Restriction on right of members to appoint proxy.

As such X Stock Exchange can restrict the appointment of M Ltd., as proxy, if rules of the
exchange so provide. If it is not so provided, rules may be amended and after getting approval
of the Central Government regarding amendment, it can restrict appointment of proxies.

X Stock Exchange can also restrict the voting rights of P Ltd. if rules of the exchange so provide.
If it is not so provided, rules may be amended and after getting approval of Central Government
regarding amendment, it can restrict the voting rights of P Ltd. and appointment of proxies.

6. (c)

Hint: Section 8 of SEBI Act, 1992

7. (c)

Hint: Section 15G of the SEBI Act, 1992