COMPANY LAW -1

(PAPER VII)
Study Material for LL.B.(Hons.) Vth Sem

Compilation of Unit 2 & Unit 4

Submitted by: Gargi Singh

Ph.D. (Law) 2019-20

Disclaimer: This content is solely for the purpose of e-learning by students and any commercial use is
not permitted. The author does not claim originally of the content and it is based on the following
references
 UNIT II: CORPORATE DOCUMENTS

MEMORANDUM OF ASSOCIATION
The first step in the formation of a company is to prepare a document called the
memorandum of association. In fact memorandum is one of the most essential pre-requisites
for incorporating any form of company under the Companies Act, 2013 (hereinafter referred
to as ‗Act‘).

According to Section 2(56) of the Act ―memorandum‖ means the memorandum of

association of a company as originally framed and altered, from time to time, in pursuance of
any previous company law or this Act. Section 4 of the Act specifies in clear terms the
contents of this important document which is the charter of the company. The memorandum
of association of a company contains the objects of the company which it shall pursue. It not
only shows the objects of formation of the company but also determines the scope of its
operations beyond which its actions cannot go. ―THE MEMORANDUM OF
ASSOCIATION‖, as observed by Palmer, ―is a document of great importance in relation to
the proposed company‖.

In the celebrated case of Ashbury Railway Carriage & Iron Co. Ltd. v. Riche, (1875) L.R. 7
H.L. 653, Lord Cairn observed: ―The memorandum of association of a company is its charter
and defines the limitations of the powers of the company.......... it contains in it both that
which is affirmative and that which is negative. It states affirmatively the ambit and extent of
vitality and powers which by law are given to the corporation, and it states negatively, if it is
necessary to state, that nothing shall be done beyond that ambit.........‖ [Egyptian Salt and
Soda Co. Ltd. v. Port Said Salt Association Ltd. (1931) A.C. 677]

CONTENTS OF MEMORANDUM
A. NAME CLAUSE:
A company being a legal entity must have a name of its own to establish its separate identity.
The name of the company is a symbol of its independent corporate existence. The first clause
in the memorandum of association of the company states the name by which a company is to
be known. The company may adopt any suitable name provided it is not undesirable.

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According to section 4(2), the name stated in the memorandum shall not—
(a be identical with or resemble too nearly to the name of an existing company registered
under this Act or any previous company law; or
(b) be such that its use by the company—
(i) will constitute an offence under any law for the time being in force; or
(ii) is undesirable in the opinion of the Central Government.

The Registrar may, on the basis of information and documents furnished along with the
application, reserve the name for a period of 60 days from the date of the application.

Cases:
Ewing v. Buttercup Margarine Co. Ltd. (1917) 2 Ch. 1,
Atlas Cycles (Haryana) Ltd. v. Atlas Products Pvt. Ltd [146 (2008) DLT 274 (DB)]
Halifax Plc v. Halifax Repossessions Ltd. (2004) 2 BCLC 455 (CA)]
K.G. Khosla Compressors Ltd. v. Khosla Extractions Ltd., (1986) 1 Comp LJ 211: AIR 1986
Del 181]

ALTERATION OF NAME CLAUSE

The name of the company can be altered by a special resolution and with the approval of the
Central Government in writing. Approval of the Central Government is not required , in case
where the the change in the name of the company relates to the addition/deletion of the word
‗Private‘ to the name of the company consequent to the conversion of a company into a
public company and vice versa. [Section 13 (2)]

When any change in the name of a company is made under section 13(2), the Registrar shall
enter the new name in the register of companies in place of the old name and issue a fresh
certificate of incorporation with the new name and such change in the name shall be complete
and effective only on the issue of such a certificate [Section 13(3)].

B. SITUATION CLAUSE
According to section 12 of the Act within 15 days of company‘s incorporation, and at all
times thereafter, the company must have a registered office to which all communications and
notices may be sent. The company must also furnish to the Registrar verification of its

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registered office within a period of thirty days of its incorporation in such manner as may be
prescribed.

According to Section 12(3) every company is required to display its name and address in
legible letters in conspicuous position and in all its business letters, bill heads, letter papers.
Accordingly, the company shall—
(a) paint or affix its name, and the address of its registered office, and keep the same painted
or affixed, on the outside of every office or place in which its business is carried on, in a
conspicuous position.
(b) have its name engraved in legible characters on its seal, if any;
(c) get its name, address of its registered office and the Corporate Identity Number along with
telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its
business letters, billheads, letter papers and in all its notices and other official publications;
and
(d) have its name printed on negotiable instruments such as hundies, promissory notes, bills
of exchange.

ALTERATION OF REGISTERED OFFICE CLAUSE

(a) Change within the local limits of same town
A company by passing Board Resolution can change the situation of its registered office
within the limits of same city, town or village. This does not involve alteration of
memorandum.

(b) Change outside the local limits of any city, town or village:
According to Section 12(5) of the Act except on the authority of a special resolution passed
by a company, the registered office of the company shall not be changed,—
1. in the case of an existing company, outside the local limits of any city, town or
village: by virtue of a special resolution passed by the company; and
2. in the case of any other company, outside the local limits of any city, town or village:
by virtue of a special resolution passed by the company.

(c) Change within the same State from the jurisdiction of one Registrar of Companies to the
jurisdiction of another Registrar of Companies: is confirmed by the Regional Director.

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(d) Change of Registered office from one State to another: effected by a special resolution of
the company which must be confirmed by the Central Government on an application made to
it.

C. OBJECTS CLAUSE
The third compulsory clause in the memorandum sets out the objects for which the company
has been formed. Under section 4(1)(c) of the Act, all companies must state in their
memorandum the objects for which the company is proposed to be incorporated and any
matter considered necessary in furtherance thereof.

The objects clause states affirmatively the ambit and extent of powers of the company and,
stated negatively, that nothing should be done beyond that ambit and that no attempt shall be
made to use the company for any other purpose than that which is specified. The purpose of
the objects clause is to enable the persons dealing with the company to know its permitted
range of activities. The acts beyond this ambit are ultra vires and hence void. Even the entire
body of shareholders cannot ratify such acts.

DOCTRINE OF ULTRA VIRES

In the case of a company whatever is not stated in the memorandum as the objects or powers
is prohibited by the doctrine of ultra vires. As a result, an act which is ultra vires is void, and
does not bind the company. Neither the company nor the contracting party can sue on it. Also,
as stated earlier, the company cannot make it valid, even if every member assents to it.

ALTERATION
The rule is meantOF to OBJECTS CLAUSE and
protect shareholders OF the
THEcreditors
COMPANY of the company. If the act is ultra
vires (beyond
It means that the powers of)can
a company thechange
directors
itsonly, the shareholders
objects by passing acan ratify resolution.
special it. If it is ultra vires
Further
the articles of association, the company can alter its articles in the proper way.
section 13(6)(a) provides that a company shall, in relation to any alteration of its
The doctrine of file
memorandum, ultrawith
viresthe
wasRegistrar
first enunciated by the
the special House ofpassed
resolution Lords in
byathe
classic case, under
company
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1878) L.R. 7 H.L. 653.
section 13(1). As per section 13(9), the Registrar shall register any alteration of the
memorandum with respect to the objects of the company and certify the registration within a
period of thirty days from the date of filing of the special resolution in accordance with
section 13(6)(a).

ALTERATION OF OBJECTS CLAUSE OF THE COMPANY

According to section 13(1), a company may, by a special resolution and after complying with
the procedure specified in this section, alter the provisions of its memorandum. It means that
a company can change its objects by passing a special resolution. Further section 13(6)(a)

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provides that a company shall, in relation to any alteration of its memorandum, file with the
Registrar the special resolution passed by the company under section 13(1). As per section
13(9), the Registrar shall register any alteration of the memorandum with respect to the
objects of the company and certify the registration within a period of thirty days from the
date of filing of the special resolution in accordance with section 13(6)(a).

D. LIABILITY CLAUSE
Section 4 sub-section 1(d) of the Act, states that the liability of members of the company is to
be specifically mentioned in the MoA. It is provided that the liability of member may either
be limited or unlimited, further it shall also state that,—
(i) in the case of a company limited by shares, the liability of its members is limited
to the amount unpaid, if any, on the shares held by them; and
(ii) in the case of a company limited by guarantee, the amount up to which each
member undertakes to contribute—
a) to the assets of the company in the event of its being wound-up while he is a
member or within one year after he ceases to be a member, for payment of the
debts and liabilities of the company or of such debts and liabilities as may have
been contracted before he ceases to be a member, as the case may be; and
b) to the costs, charges and expenses of winding-up and for adjustment of the rights
of the contributories among themselves;

ALTERATION OF LIABILITY CLAUSE

According to section 13(1), a company may, by a special resolution and after complying with
the procedure specified in this section, alter the provisions of its memorandum. It means that
a company can change the liability clause of its memorandum of association by passing a
special resolution. Further section 13(6)(a) provides that a company shall, in relation to any
alteration of its memorandum, file with the Registrar the special resolution passed by the
company under section 13(1).

E. CAPITAL CLAUSE
This clause shall state the amount of the capital with which the company is registered. The
shares into which the capital is divided must be of fixed value, which is commonly known as
the nominal value of the share. The capital is variously described as ―nominal‖, ―authorised‖
or ―registered‖.

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ALTERATION OF CAPITAL CLAUSE
 alteration of capital clause to be authorised by the Articles of Association [section
61]; Ordinary Resolution
 If by division or consolidation in capital the voting % gets affected then a
confirmation from Tribunal is mandatory.
 Notify the alterations made and a copy of Resolutions passed shall be filed with
Registrar within 30 days.
 Registrar shall record the notice and make alterations required.

F. SUBSCRIPTION CLAUSE
The subscribers to the memorandum declare: ―We, the several persons whose names and
addresses are subscribed below, 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 our respective names‖. Then follow the names,
addresses, description, occupations of the subscribers, and the number of shares each
subscriber has agreed to take and their signatures attested by a witness.

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7
 ARTICLES OF ASSOCIATION

According to Section 2(5) of the Companies Act, 2013, ‗articles‘ means the articles of
association of a company as originally framed or as altered from time to time or applied in
pursuance of any previous company law or of this Act. It also includes the regulations
contained in Table A in Schedule I of the Act, in so far as they apply to the company.

The general functions of the articles have been aptly summed up by Lord Cairns, L.C. in
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) L.R. 7 H.L. 653 that the
memorandum lays down the scope and powers of the company, and the articles govern the
ways in which the objects of the company are to be carried out and can be framed and altered
by the members. But they must keep within the limits marked out by the memorandum and
the Companies Act. The articles regulate the internal management of the affairs of the
company by way of defining the powers of its officers and establishing a contract between
the company and the members and between the members inter se

ENTRENCHMENT PROVISIONS [Section 5 (3)]

The Companies Act 2013, recognizes an interesting concept of entrenchment. This provision
acts as a protection to the minority shareholders and is of specific interest to the investment
community. This shall empower the enforcement of any pre-agreed rights and provide greater
certainty to investors, especially in joint ventures.

CONTENTS OF ARTICLES
1. Exclusion wholly or in part of Table F.
2. Adoption of preliminary contracts.
3. Number and value of shares.
4. Issue of preference shares.
5. Allotment of shares.
6. Calls on shares.
7. Lien on shares.
8. Transfer and transmission of shares.
9. Nomination.
10. Forfeiture of shares.
11. Alteration of capital.

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12. Buy back.
13. Share certificates.
14. Dematerialisation.
15. Conversion of shares into stock.
16. Voting rights and proxies.
17. Meetings and rules regarding committees.
18. Directors, their appointment and delegations of powers and so on……

ALTERATION OF ARTICLES OF ASSOCIATION [Section 14]

Section 14(1) provides that subject to the provisions of this Act and the conditions contained
in its memorandum, if any, a company may, by a special resolution, alter its articles including
alterations having the effect of conversion of a private company into a public company; or a
public company into a private company.

First proviso to section 14(1) lays down that where a company being a private company
alters its articles in such a manner that they no longer include the restrictions and limitations
which are required to be included in the articles of a private company under this Act, the
company shall, as from the date of such alteration, cease to be a private company.

Second proviso to section 14(1) stipulates that any alteration having the effect of conversion
of a public company into a private company shall not take effect except with the approval of
the Tribunal which shall make such order as it may deem fit.

Every alteration of the articles under this section and a copy of the order of the Tribunal
approving the alteration as per section 14(1) shall be filed with the Registrar, together with a
printed copy of the altered articles, within a period of fifteen days in such manner as may be
prescribed, who shall register the same. [Section 14 (2)]

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DISTINCTION BETWEEN MEMORANDUM AND ARTICLES
Basis Memorandum of association Articles of association

Concept is the charter of the company and are the rules and regulations
defines the fundamental conditions framed to govern this internal
and objects for which the company management of the company.
is granted incorporation.

Alteration  cannot be easily altered.  members have a right to

 can only be altered in alter the articles by a
accordance with the mode special resolution.
prescribed by the Act.  there is no need to obtain
 In some of the cases, the permission of the Court
alteration requires the or the Central Government
permission of the Central for alteration of the articles.
Government or the Court.

Limits cannot include any clause contrary subsidiary both to the Companies
to the provisions of the Companies Act and the memorandum of
Act. association.

Relation defines the relation between the regulate the relationship between
company and the outsiders the company and its members and
between the members inter se.

Scope and Acts done by a company beyond But the acts of the directors
ratification the scope of the memorandum are beyond the articles can be ratified
absolutely void and ultra vires and by the shareholders.
cannot be ratified even by
unanimous vote of all the
shareholders

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CONSTRUCTIVE NOTICE OF MEMORANDUM AND ARTICLES
The memorandum and articles, when registered, become public documents and can be
inspected by anyone on payment of nominal fee.
Every person dealing with the company is deemed to have a ―constructive notice‖ of the
contents of its memorandum and articles.
If a person enters into a contract which is beyond the powers of the company, as defined in
the memorandum, or outside the limits set on the authority of the directors, he cannot, as a
general rule, acquire any rights under the contract against the company.
In Griffith v. Paget (1877) 6 Ch. D. 517 case, the Court held that it is presumed that
individuals dealing with the company have not only read these documents but that they have
also understood their proper meaning.
Thus, the doctrine of ‗constructive notice‖ seeks to protect the company against the outsiders,
the principal of indoor management operates to protect the outsiders against the company.

DOCTRINE OF INDOOR MANAGEMENT

According to this doctrine, as laid down in Royal British Bank v. Turquand, (1856) 119 E.R.
886, persons dealing with a company having satisfied themselves that the proposed
transaction is not in its nature inconsistent with the memorandum and articles, are not bound
to inquire the regularity of any internal proceedings. In other words, while persons
contracting with a company are presumed to know the provisions of the contents of the
memorandum and articles, they are entitled to assume that the provisions of the articles have
been observed by the officers of the company. It is no part of the duty of an outsider to see
that the company carries out its own internal regulations.

EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT

 Where the outsider had knowledge of irregularity
 No knowledge of memorandum and articles
 Forgery
 Negligence

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MEANING AND DEFINITION OF PROSPECTUS
Section 2(70) of the Companies Act, 2013 defines a prospectus as:
(a) There must be an invitation to the public;
(b) The invitation must be made ―by or on behalf of the company or in relation to an intended
company‖;
(c) The invitation must be ―to subscribe or purchase‖;
(d) The invitation must relate to any securities of the company.

Important judicial pronouncement about an invitation to be termed as an invitation to public:

 Pramatha Nath Sanyal v. Kali Kumar Dutt, A.I.R. 1925
 Nash v. Lynde (1929) A.C. 158
 Rattan Singh v. Managing Director, Moga Transport Co. Ltd. (1959)
 Govt. Stock and Other Securities Investment Co. Ltd. v. Christopher, (1956)
 Re. South of England Natural Gas and Petroleum Co. Ltd., (1911)

TYPES OF PROSPECTUS

According to Companies Act 2013, there are four types of prospectus.

Deemed Prospectus [Section 25 (1)]: When a company allows or agrees to allot any
securities of the company, the document is considered as a deemed prospectus via which the
offer is made to investors. Any document which offers the sale of securities to the public is
deemed to be a prospectus by implication of law.

Red Herring Prospectus – Red herring prospectus does not contain all information about the
prices of securities offered and the number of securities to be issued. According to the act, the
firm should issue this prospectus to the registrar at least three before the opening of the offer
and subscription list.

Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies Act, 2013.
Shelf prospectus is issued when a company or any public financial institution offers one or
more securities to the public. A company shall provide a validity period of the prospectus,
which should not be more than one year. The validity period starts with the commencement
of the first offer. There is no need for a prospectus on further offers. The organization must
provide an information memorandum when filing the shelf prospectus.

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Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient
features of the prospectus as specified by SEBI. This type of prospectus includes all the
information in brief, which gives a summary to the investor to make further decisions. A
company cannot issue an application form for the purchase of securities unless an abridged
prospectus accompanies such a form.

CONTENTS[SECTION 26(1)]
The prospectus contents are specified in the Companies Act. The prospectus must touch over
the following content points:

 names and addresses of the registered office of the company, company secretary,
Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters
and such other persons as may be prescribed.
 dates of the opening and closing of the issue, and declaration about the issue of
allotment letters and refunds within the prescribed time.
 a statement by the Board of Directors about the separate bank account where all
monies received out of the issue are to be transferred
 details about underwriting of the issue
 the consent in writing of the directors, the auditors, bankers to the issue, expert‘s
opinion,
 capital structure of the company in the prescribed manner
 main objects and present business of the company
 details of directors including their appointments and remuneration,
 minimum subscription, amount payable by way of premium, issue of shares otherwise
than on cash

Liabilities for misstatements in prospectus:

Civil Liability: By virtue of section 35(1), where a person has subscribed for securities of a
company acting on any statement included, or the inclusion or omission of any matter, in the
prospectus which is misleading and has sustained any loss or damage as a consequence
thereof, the company and certain persons as mentioned in the said section, including a
promoter of the company shall, without prejudice to any punishment to which any person
may be liable under section 36, be liable to pay compensation to every person who has
sustained such loss or damage. No promoter shall be liable under this section, if he proves

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(i) that the prospectus was issued without his knowledge or consent, and that on
becoming aware of its issue, he forthwith gave a reasonable public notice that it was
issued without his knowledge or consent.

Criminal Liability
Under Section 34 for the issue of prospectus containing untrue or misleading statements in
form or context in which it is included or where any inclusion or omission of any matter is
likely to mislead. Section 447 imposes severe punishment for fraud on promoters who make
untrue or misleading statements in prospectus with a view to obtaining capital. The
punishment prescribed is imprisonment for a term which shall not be less than six months but
which may extend to ten years and also a fine which shall not be less than the amount
involved in the fraud, but which may extend to three times the amount involved in the fraud.
Further, where the fraud in question involves public interest, the term of imprisonment shall
not be less than three years. A promoter can, however, escape the punishment if he proves:
(i) that the statement or omission was immaterial; or
(ii) that he had reasonable grounds to believe, and did, up to the time of the issue of
prospectus, believe that statement was true or the inclusion or omission was
necessary.

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 UNIT IV: CORPORATE MANAGEMENT AND ADMINISTRATION

MEMBERSHIP OF COMPANY

WHO ARE MEMBERS?

The members of a company are the persons who, for the time being, constitute the company,
as a corporate entity.
According to Section 2(55) of the Companies Act, 2013, member, in relation to a company,
means,
1. The subscribers to the memorandum of a company who shall be deemed to have agreed to
become members of the company, and on its registration, shall be entered as members in
its register of members;
2. Every other person who agrees in writing to become a member of a company and whose
name is entered in its register of members shall, be a member of the company;
3. Every person holding shares of a company and whose name is entered as a beneficial
owner in the records of a depository shall be deemed to be a member of the concerned
company.

MODES OF ACQUIRING MEMBERSHIP:

As per Section 2(55) of the Companies Act, 2013, a person may acquire the membership of a
company:
(a) by subscribing to the Memorandum of Association (deemed agreement); or
(b) by agreeing in writing to become a member:
(i) by making an application to the company for allotment of shares; or
(ii) by executing an instrument of transfer of shares as transferee; or
(iii) by consenting to the transfer of share of a deceased member in his name; or
(iv) by acquiescence or estoppel.
(c) by holding shares of a company and whose name is entered as beneficial owner in the
records of a depository (Under the Depositories Act, 1996)

CESSATION OF MEMBERSHIP:

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A person ceases to be a member of a company when his name is removed from its register of
members, which may occur in any of the following situations:
(a) He transfers his shares to another person, the transfer is registered by the company and his
name is removed from the register of members;
(b) His shares are forfeited;
(c) His shares are sold by the company to enforce a lien;
(d) He dies; (his estate, however, remains liable for calls);
(e) He is adjudged insolvent and the Official Assignee disclaims his shares;
(f) His redeemable preference shares are redeemed;
(g) He rescinds the contract of membership on the ground of fraud or misrepresentation or a
genuine mistake;
(h) His shares are purchased either by another member or by the company itself under an
order of the Tribunal under Section 242 of the Companies Act, 2013;
(i) The member is a company which is being wound-up in India, and the liquidator disclaims
the shares;
(j) The company is wound up;

EXPULSION OF A MEMBER:
A controversy had arisen as to whether a public limited company had powers to insert an
article in its Articles of Association relating to expulsion of a member by the Board of
Directors of the company where the directors were of the view that the activities or conduct
of such a member was detrimental to the interests of the company.

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 MEETINGS

Annual General
Meeting

Members' Extra Ordinary

Meetings General Meeting
KINDS OF
MEETINGS
Board Meetings Class Meetings

a. Board meetings

Section 173 of Companies‘ Act 2013 provide for meeting of board of directors where they
exercise their powers and functions. This is to ensure that board of directors supervise the
company efficiently.
First board meeting – The first meeting should be held within 30 days of the incorporation of
the company.
Time and due date – In a year not less than 4 meetings are to be held and not more than 4
months should pass between two meetings.
Quorum– A definite number of members or directors have to be present in the meeting
according to section 174. The board meeting is to comprise of 1/3 of total members or two
directors

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 b. Extraordinary general meeting (EOGM) –

Section 100 of companies Act lays down the guidelines for the board to call a general
meeting extraordinary in nature to deliberate upon some matter requiring immediate
attention. The articles of association of the company of the company make provisions for
convening general meeting other than the annual general meeting. All general meetings other
than annual general meeting are called extraordinary general meetings.

c. Annual general meeting(AGM)-

According to section 96(1) of the companies Act 2013, every company public and private
company is required to hold one general meeting in a year supervised by its directors to
evaluate the progress of the company and plan future course of action which is known as
annual general meeting.
Holding of annual general meeting
1. Annual general meeting should be held once in each calender year.
2. First annual general meeting of the company should be held within 9 months from the
closing of the first financial year. Hence it shall not be necessary for the company to hold any
annual general meeting in the year of its incorporation.
3. Subsequent annual general meeting of the company should be held within 6 months from
the date of closing of the relevant financial year.
4. The gap between two annual general meetings shall not exceed 15 months.

d. Class meetings:
Class meetings are meeting of shareholders, holding a particular class of share which is held
to pass resolution which will bind only the members of the class concerned. Only members of
the class concerned may attend and vote at meeting. Usually the rules to voting apply to class

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meetings as they govern voting at general meetings. These class meetings must be convened
whenever it is necessary to alter or change the rights or privileges of that class as provided by
the articles. For effecting such changes, it is necessary that these are approved at a separate
meeting of the holders of those shares and supported by a special resolution. Under section
48 of the Companies Act, 2013 (variation of shareholders‘ rights) class meeting of the
holders of different classes of shares shall be held if the rights attaching to these shares are to
be varied. Similarly, under Section 232 (Merger and Amalgamation of companies), where a
scheme of arrangement is proposed, meeting of several classes of shareholders and creditors
are required to be held.

VOTING RIGHTS
Section 47 of Act, 2013 provides for voting rights of the shareholders. Each member of a
company that is limited by shares in adding up to holding equity share capital in that will
have a right to vote on every resolution related to the company. The voting right on a poll
will be in percentage of his share in the paid-up equity share capital associated with the
company. Hence, if a shareholder owns 51% of the company in terms of paid-up equity, he
will have the rights to exercise majority control over the company.

KINDS OF VOTING RIGHTS

a. Voting by Show of Hands (Section 107): At any general meeting, a resolution put to
the vote of the meeting shall in the first instance be decided on a show of hands.
A declaration by the Chairman of the meeting of the passing of a resolution (that the
resolution has been passed or failed, as the case may be) on show of hands and an
entry to that effect in the minutes book shall be conclusive evidence of the fact of
passing of such resolution.

b. Voting through Electronic Means (Section 108): General meetings of companies

are held at their registered offices and it is not possible for every member specially
members holding minor shares to travel up to the registered office of the company
and participate in the general meetings of the company. To eliminate this type of
difficulty and to enhance the participation of minority members, concept of e-voting

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 has been introduced by the Companies Act 2013. Now a member can cast his vote
easily through electronic mode without physically attending the general meeting.

c. Demand for Poll (Section 109): Before or on the declaration of the result of the
voting on any resolution on show of hands, a poll may be ordered to be taken by the
Chairman of the meeting on his own motion, and shall be ordered to be taken by him
on a demand.
The Chairman shall get the validity of the demand verified. The demand for a poll
may be withdrawn at any time by the persons who made the demand.

d. Postal Ballot (Section 110): As per section 2(65) ―postal ballot‖ means voting by
post or through any electronic mode. It includes voting by shareholders by postal or
electronic mode instead of voting personally for transacting businesses in a general
meeting of the company. Each item proposed to be passed through postal ballot shall
be in the form of a Resolution and shall be accompanied by an explanatory statement
which shall set out all such facts as would enable a Member to understand the
meaning, scope and implications of the item of business and to take a decision
thereon.

RESOLUTION
The board of directors pass corporate resolutions to make any significant decisions binding.
A document in writing that is normally created by the board of directors certifying a binding
corporate action is called a resolution.

A. Ordinary Resolution Section 114(1):

This type of resolution is passed for the conduct of ordinary business matters at the
AGM such as:-
–Adoption of the financial statements
–Declaration of dividend
–Appointment of directors
– Appointment of auditors and their remuneration

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 The votes cast in favour of the resolution must exceed the votes cast against it. In
other words, a simple majority in favour of the motion shall allow the resolution to be
passed.
 Notice of the meeting must have been served to all the members in advance,
complying with the provisions of the Companies Act, 2013.
 The consent of at least 51% of the members must be obtained to have a valid
resolution passed.
 The votes of the members eligible to vote will be the ones considered for the count.
 In certain cases, the copy of the ordinary resolution must be filed with the Registrar
once the necessary signatures are obtained.

B. Special Resolution Section 114(2):

 Notice of the meeting must have been served to all the members in advance,
complying with the provisions of the Companies Act, 2013.
 The notice handed over to the members prior to the meeting has to specifically
mention on its agenda of the passing of a special resolution.
 In order for a special resolution to be passed at a General Meeting, a supermajority is
required in favor of it.
 Supermajority refers to at least 75 percent of the members voting in favor of the
resolution.
 The votes of the members eligible to vote will be the ones considered for the count.
 Some of the matters that require a special resolution are:-
– Amendment of the Articles of Association.
– Issue of sweat equity shares.
– Change in the registered office of the company.
– Reduction of share capital.
– Removal of an auditor before the expiry of his term.
– Buyback of shares.
– Appointment of more than 15 directors.
– Loans and investments by the company.

C. Resolution requiring special notice [Section 115]: It is not an independent class of

resolution. Rather, it is a kind of ordinary resolution with the difference that the
mover has to give a 14 days‘ prior notice of the intention to move such a resolution.

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 The company, on receipt of such a notice, will give a notice of the resolution to the
members at least 7 days before the meeting in the same manner in which notice for
meeting is given.

DIRECTORS

Appointment

The Companies Act 2013 does not contain an exhaustive definition of the term ―director‖.
Section 2(34) of the Act prescribed that ―director‖ means a director appointed to the Board of
a company.

Section 2(10) of the Companies Act, 2013 defined that ―Board of Directors‖ or ―Board‖, in
relation to a company, means the collective body of the directors of the company.

The term ‗Board of Directors‘ means a body duly constituted to direct, control and supervise
the affairs of a company.

As per Section 149 of the Companies Act, 2013, the Board of Directors of every company
shall consist of individual only. Thus, no body corporate, association or firm shall be
appointed as director.

Again Section 166 of Companies Act, 2013, prohibits assignment of office of director to any
other person. Any assignment of office made by a director shall be void.

Minimum/Maximum Number of Directors in a Company [Section 149(1)]

PUBLIC COMPANY 3 Directors

PRIVATE COMPANY 2 directors

ONE PERSON COMPANY (OPC) 1 directors

Number of directorships [Section 165]

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  Maximum limit on total number of directorships has been fixed at 20 companies and
the maximum number of public companies in which a person can be appointed as a
director shall not exceed ten.
 The members of a company may, by special resolution, specify any lesser number of
companies in which a director of the company may act as director.

Qualifications

The Companies Act does not prescribe any qualifications for Directors of any company. An
Indian company may, therefore, in its Articles, stipulate qualifications for Directors. The
Companies Act does, however, limit the specified share qualification of Directors which can
be prescribed by a public company or a private company that is a subsidiary of a public
company, to be five thousand rupees (Rs. 5,000/-).

Kinds of Directors

Independent
Director

Nominee Additional
Director Director

Types of
Directors

Resident Woman
Director Director

Alternate
Director

A. Independent Directors:
Section 149(6) of the Companies Act, 2013

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a) Independent Director, in relation to a company, means a director other than a
managing director or a whole time director or a nominee director:
b) who, in the opinion of the Board, is a person of integrity and possesses relevant
expertise and experience;
(i) who is or was not a promoter of the company or its holding, subsidiary or
associate company;
(ii) who is not related to promoters or directors in the company, its holding,
subsidiary or associate company;
c) who has or had no pecuniary relationship with the company, its holding,
subsidiary or associate company, or their promoters, or directors, during the two
immediately preceding financial years or during the current financial year. In
Government companies, the criteria is not required to be followed.

d) none of whose relatives has or had pecuniary relationship or transaction with the
company, its holding, subsidiary or associate company, or their promoters, or
directors, amounting to two per cent. or more of its gross turnover or total income
or fifty lakh rupees or such higher amount as may be prescribed

e) who, neither himself nor any of his relatives—

(i) holds or has held the position of a key managerial personnel or is or has been
employee of the company or its holding, subsidiary or associate company in
any of the three financial years immediately preceding the financial year in
which he is proposed to be appointed;
(ii) is or has been an employee or proprietor or a partner, in any of the three
financial years immediately preceding the financial year in which he is
proposed to be appointed, of—
(iii)a firm of auditors or company secretaries in practice or cost auditors of the
company or its holding, subsidiary or associate company; or
(iv) any legal or a consulting firm that has or had any transaction with the
company, its holding, subsidiary or associate company amounting to ten per
cent. or more of the gross turnover of such firm;
(v) holds together with his relatives two per cent. or more of the total voting
power of the company; or

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 (vi) is a Chief Executive or director, by whatever name called, of any non-profit
organisation that receives twenty-five per cent. or more of its receipts from the
company, any of its promoters, directors or its holding, subsidiary or associate
company or that holds two per cent. or more of the total voting power of the
company; or
f) who possesses such other qualifications as may be prescribed.

B. Nominee Director:
A Nominee Director is a Director appointed to the Board to represent the interest in the
Company. The Appointment of Nominee Director is done by any law for the time being in
force or by agreement or by Central or State Governments by its shareholding in Government
Company. As per Section 161(3) and the Explanation of Section 149(7). A Nominee
Director is nominated by any financial institution in pursuance of the provisions of any law
for the time being in force or of any agreement, or appointed by Central Government or State
Government, or any other person to represent its interest.
*Nominee Directors are not Independent Directors

C. Woman Director:
Second Proviso to section 149(1), prescribes the following class of companies shall appoint
at least one woman director-
a) every listed company;
b) every other public company having:-
(i) paid–up share capital of one hundred crore rupees or more; or
(ii) turnover of three hundred crore rupees or more.
D. Alternate Director:
Section 161(2) of the Act empowers the Board, if so authorized by its articles or by a
resolution passed by the company in general meeting, to appoint a director (termed as
‗alternate director) to act in the absence of a original director during his absence for a period
of not less than three months from India.
E. Additional Director:
Section 161(1) of the Companies Act, 2013
The articles of a company may confer on its Board of Directors the power to appoint any
person, other than a person who fails to get appointed as a director in a general meeting, as an

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additional director at any time who shall hold office up to the date of the next annual general
meeting or the last date on which the annual general meeting should have been held,
whichever is earlier.
F. Resident Directors:
The provision relating to appointment of Indian resident director are contained in section 149
(3) of the Companies Act, 2013. i.e. every company shall have at least one director who has
stayed in India for a total period of not less than 182 days in the previous calendar year.
Companies incorporated after 30.9.2014 need to have the resident director from the date of
incorporation itself.

REMOVAL OF DIRECTORS [SECTION 169]

Under section 169 of the Act, a company may, by ordinary resolution remove a director
before the expiry of the period of his office.

(i) A company may, remove a director other than a director appointed by the
National Company Law Tribunal u/s 242 of the Act, after giving him a reasonable
opportunity of being heard.
(ii) The directors appointed on the principle of proportional representation under
section 163 cannot be removed by an ordinary resolution
(iii) A special notice shall be required of any resolution, to remove a director under
section 169 or to appoint somebody in place of a director so removed, at the
meeting at which he is removed. Legal requirement of special notice
The intention to move the resolution for removal of a director must be-
a. Given to the company not earlier than 3 months before the date of general
meeting but at least 14 days before the general meeting (excluding the day on
which such notice is given and the day of the general meeting)
b. Signed by member(s) holding not less than 1% of total voting power or
member(s) holding paid up share capital of rupees five lakhs.
(iv) On receipt of the notice of this resolution, the company shall forthwith send a
copy thereof to the director concerned, and the director, whether or not he is a
member of the company, shall be entitled to be heard on the resolution at the
meeting. [Section 169(3)]

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(v) Where notice has been given of a resolution to remove a director under this
section and the director concerned makes with respect thereto representation in
writing to the company and requests its notification to members of the company,
the company shall, if the time permits it to do so,—
a. in any notice of the resolution given to members of the company, state the fact
of the representation having been made; and
b. send a copy of the representation to every member of the company to whom
notice of the meeting is sent (whether before or after receipt of the
representation by the company), and if a copy of the representation is not sent
as aforesaid due to insufficient time or for the company‘s default, the director
may without prejudice to his right to be heard orally require that the
representation shall be read out at the meeting.
Provided that copy of the representation need not be sent out and the
representation need not be read out at the meeting if, on the application either of
the company or of any other person who claims to be aggrieved, the Tribunal is
satisfied that the rights conferred by this sub-section are being abused to secure
needless publicity for defamatory matter; and the Tribunal may order the
company‘s costs on the application to be paid in whole or in part by the director
notwithstanding that he is not a party to it.
(vi) The vacancy resulting from the aforesaid removal if he had been appointed by the
company in general meeting or by the Board, may be filled in by the appointment
of another director at the same meeting at which the director is removed, provided
special notice of the proposed appointment has been given under sub section (2).
[Section 169(5)]
(vii) A director so appointed shall hold office for the remaining period for which the
director who has been removed would have held office if he had not been
removed. [Section 169(6)]
(viii) If the vacancy is not filled in the same meeting as above, then it may be filled as a
casual vacancy in accordance with the provisions of this Act provided that the
director who was so removed from office shall not be reappointed as a director.
[Section 169(7)]
(ix) Nothing in this section shall be taken to deprive a person removed under this
section of his rights to compensation or damages payable to him in respect of the

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 premature termination of the directorship, or terms of his appointment as director
or of any appointment terminating with that as a director. [Section 169(8)(a)]
(x) Nothing in this section shall be derogating from any power to remove a director
under any other provisions of this Act. [Section 169(8)(b)]

DIRECTOR IDENTIFICATION NUMBER

Section 152 (4) mandates that every person proposed to be appointed as a director by the
company in general meeting or otherwise, shall furnish his Director Identification Number or
such other number as may be prescribed under section 153 and a declaration that he is not
disqualified become a director under this Act.

As per Section 153 of the Act, every individual intending to be appointed as director in an
existing company shall make an application electronically in Form DIR-3 for allotment of
director Identification Number to the Central Government along with the prescribed fees.
Further, DINs to the proposed first directors (not having approved till) in respect of new
companies would be mandatorily required to be applied for in SPICe forms (subject to a
ceiling of 3 new DINs) only.

Within one month of application the Central government shall allot a Director Identification
Number (DIN) to the applicant. A person appointed as a director shall on or before the
appointment give his consent to hold the office of director in physical form DIR-2 i.e.
consent to act as a director of a company. Company shall file Form DIR-12 (particulars of
appointment of directors and KMP along with the form DIR-2 as an attachment within 30
days of the appointment of a director, necessary fee. In case of any appointment of director
by Central Government or State Government consent of director is not required.

The Companies Amendment Act, 2017 provides that the Central Government may prescribe
any identification number which shall be treated as Director Identification Number for the
purposes of this Act and in case any individual holds or acquires such identification number,
the requirement of this section shall not apply or apply in such manner as may be prescribed.

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No person shall continue or be appointed as director without obtaining DIN. Section 153 read
with the Companies (Appointment and Qualification of Directors) Rules, 2014, provides for
the procedure for making application for allotment of DIN.

OBLIGATIONS

1. Duty to act as per the articles of the company

2. Duty to act in good faith
3. Duty to exercise due care
4. Duty to avoid conflict of interest
5. Duty not to make any undue gain
6. Duty not to assign his office

Punishment for contravention: If a director of the company contravenes the provisions of this
section such director shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees.

POWERS OF DIRECTORS

i. General powers vested under section 179

Section 149 of the Companies Act, 2013 empowers the directors with the general power
vested in the Board. The Board of directors is entitled to exercise all the powers and do all
required actions which a company is authorised to exercise. But, such action is subject to
certain restrictions.The powers of directors are co-extensive with the powers of the company
itself.

ii. Powers to be exercised with general meeting approval

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Section 180 of the Companies Act 2013 states certain powers which can be exercised by the
Board only when it is approved in the general meeting:

a) To sale, lease or otherwise dispose of the whole or any part of the company‘s
undertakings.

b) To invest otherwise in trust securities.

c) To borrow money for the purpose of the company

d) To give time or refrain the director from repayment of any debt.

iii. Power to constitute an Audit committee

The board of directors are empowered under section 177 to constitute an audit committee. It
needs to be constituted of at least three directors, including independent directors. In the
committee, the independent directors need to be in the majority. The chairperson and
members of the audit committee should be persons with the ability to read and understand the
financial statements.

iv. Power to constitute Nomination and Remuneration Committees and

Stakeholders Relationship Committee

The Board of directors can constitute the Nomination and Remuneration Committee and
Stakeholders Relationship Committee under section 178. The Nomination and Remuneration
Committee should be consisting of three or more non-executive directors out of which one
half are required to be independent directors.

v. Power to make a contribution to charitable or other funds

The Board of directors of the company is empowered under section 181 to contribute to the
bona fide charitable and other funds. When the aggregate amount of contribution, in any case,
exceeds the 5% of the average net profit of the company for the immediately preceding
financial years, then the prior permission of the company in a general meeting is required.

vi. Power to make a political contribution

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Under section 182 of the Companies Act 2013, the companies can make a political
contribution. The company making a political contribution should be other than a government
company or a company which has been in existence for less than three years.

vii. Power to contribute to National Defence Fund

The Board of Directors is empowered to make contributions to the National Defence Fund or
any other fund approved by the Central Government for the purpose of National defence
under section 183 of the Companies Act 2013.

DUTIES OF THE DIRECTORS

A. Fiduciary duties: As fiduciaries, the directors must:

(a) Exercise their powers honestly and bona fide for the benefit of the company as a whole;
and
(b) Not to place themselves in a position in which there is a conflict between their duties to
the company and their personal interests. They must not make any secret profit out of their
position. If they do, they have to account for it to the company.

B. Duties of care, skill and diligence: Directors should carry out their duties with reasonable
care and exercise such degree of skill and diligence as is reasonably expected of persons of
their knowledge and status. He is not bound to bring any special qualifications to his office.

C. Standard of care: The standard of care, skill and diligence depends upon the nature of the
company‘s business and circumstances of the case. They are various standards of the care
depending upon:
(a) The type and nature of work
(b) Division of powers between directors and other officers
(c) General usages and customs in that type of business; and
(d) Whether directors work gratuitously or remuneratively

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D. Duty to disclose interest: Where a director is personally interested in a transaction of the
company, he is required to disclose his interest to the board. An interested director is neither
to vote on the matter of his interest nor his presence shall count for the purposes of quorum.

E. Duty to attend board meetings: The Act only says that the office of a director is
automatically vacated if he fails to attend three consecutive meetings of the board or all
meetings for a period of 3 months, whichever is longer. Moreover, a director‘s habitual
absence may become evidence of negligence.

F. Duty not to delegate: A director should not delegate his functions to another person. But
delegation of functions may be made to the extent to which it is authorized by the Act or the
constitution of the company.
He shall not assign his office to any other person

MEETINGS OF BOARD
Section 173 of the Act deals with Meetings of the Board and Section 174 deals with quorum.
1. The Act provides that the first Board meeting should be held within thirty days of the date
of incorporation.
2. In addition to the first meeting to be held within thirty days of the date of incorporation,
there shall be minimum of four Board meetings every year and not more one hundred and
twenty days shall intervene between two consecutive Board meetings
3. In case of One Person Company (OPC), small company and dormant company, at least one
Board meeting should be conducted in each half of the calendar year and the gap between
two meetings should not be less than Ninety days.
4. In case of Section 8 Company, after MCA exemptions Notification Dated 05.06.2015, the
provision of Section 173(1) shall apply only to the extent that the Board of Directors, of such
Companies shall hold at least one meeting within every six calendar months.

POWER OF BOARD

Section 179 of the Act deals with the powers of the board; all powers to do such acts and
things for which the company is authorised is vested with board of directors. But the board
can act or do the things for which powers are vested with them and not with general meeting.

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The following (section 179(3) and Rule 8) powers of the Board of directors shall be exercised
only by means of resolutions passed at meetings of the Board, namely :-
(1) to make calls on shareholders in respect of money unpaid on their shares;
(2) to authorise buy-back of securities under section 68;
(3) to issue securities, including debentures, whether in or outside India;
(4) to borrow monies;
(5) to invest the funds of the company;
(6) to grant loans or give guarantee or provide security in respect of loans;
(7) to approve financial statement and the Board‘s report;
(8) to diversify the business of the company;
(9) to approve amalgamation, merger or reconstruction;
(10) to take over a company or acquire a controlling or substantial stake in another company;
(11) to make political contributions;
(12) to appoint or remove key managerial personnel (KMP);
(13) to take note of appointment(s) or removal(s) of one level below the Key Management
Personnel;
(14) to appoint internal auditors and secretarial auditor;
(15) to take note of the disclosure of director‘s interest and shareholding;
(16) to buy, sell investments held by the company (other than trade investments), constituting
five percent or more of the paid–up share capital and free reserves of the investee company;
(17) to invite or accept or renew public deposits and related matters;
(18) to review or change the terms and conditions of public deposit;
(19) to approve quarterly, half yearly and annual financial statements or financial results as
the case may be.

The Board may, by a resolution passed at a meeting, delegate to any committee of directors,
the managing director, the manager or any other principal officer of the company or in the
case of a branch office of the company, the principal officer of the branch office, the powers
specified in (4) to (6) above on such conditions as it may specify.

Disclaimer: This content is solely for the purpose of e-learning by students and any
commercial use is not permitted. The author does not claim originally of the content
and it is based on the following references:
i. D.K. Jain : Company Law Ready Reckoner; Bharat Law House Pvt. Ltd.;

33
 ii. R. Suryanarayanan: Company Law Ready Reckoner; Commercial Law Publishers,
iii. Palmer : Company Law (Vol. 1); Stevens & Sons Ltd., London.
iv. Companies Act 2013 (Bare Act)
v. Dr. Avtar Singh : Company Law; Eastern Book Company
vi. C.R. Datta : Datta on the Company Law; Lexis Nexis, Butterworths Wadhwa
vii. Ramaiya : Guide to the Companies Act; Lexis Nexis, Butterworths Wadhwa,
viii. V.S. Datey : Guide to Tax and Corporate Laws; Taxmann.
ix. Companies Act 2013 (Bare Act)

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