1

### Rule in Foss v. Harbottle

The rule in Foss v. Harbottle (1843) is a fundamental principle of
corporate law that asserts the proper plaintiff in an action in respect of
a wrong done to a company is the company itself. This rule establishes
the foundation for majority rule within companies and limits the rights
of minority shareholders. Here are the key points:

1.**Proper Plaintiff Rule**: The rule stipulates that if a wrong is done to

the company, only the company itself, through its board of directors, can
sue. This prevents individual shareholders from suing on behalf of the
company.

2.**Majority Rule**: The principle underpins the idea that decisions

made by the majority of shareholders in accordance with the company’s
articles of association should prevail. This ensures smooth governance
and management of the company.

3.**Exceptions to the Rule**: Despite its broad application, there are

exceptions where minority shareholders can bring an action:
- If the act complained of is illegal or ultra vires.
- If the act constitutes fraud against the minority and the wrongdoers
are in control.
- If the company is acting contrary to its articles of association.
- If the majority has used its power improperly to commit a fraud.

4.**Internal Management**: The rule supports the notion that courts

should not interfere with the internal management of companies.
Matters of internal management should be resolved within the company
structure.
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5.**Derivative Actions**: Minority shareholders can sometimes bring a

derivative action on behalf of the company if one of the exceptions
applies. This allows them to seek redress for wrongs done to the
company when those in control refuse to act.

6.**Company’s Separate Legal Personality**: The rule reinforces the

principle that the company is a separate legal entity distinct from its
shareholders, which underlies much of corporate law.

7.**Protection Against Frivolous Suits**: By ensuring that only the

company can sue for wrongs done to it, the rule helps to prevent
frivolous lawsuits from disgruntled shareholders.

8.**Corporate Democracy**:
- The rule embodies the principle of corporate democracy, where the
will of the majority shareholders prevails. This supports efficient
decision-making and avoids potential deadlocks that could arise from
dissenting minority shareholders.
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### Prevention of Oppression and Mismanagement in

Indian Company Law (Sections 241-246)

Indian Company Law provides mechanisms to protect minority

shareholders and prevent oppression and mismanagement. Sections
241-246 of the Companies Act, 2013, are particularly relevant. Here are
the key points:

1. **Section 241 – Application to Tribunal for Relief**:

- Shareholders can apply to the National Company Law Tribunal (NCLT)
if they believe the affairs of the company are being conducted in a
manner prejudicial to public interest, or oppressive to any member, or
detrimental to the interests of the company. - Applications can also
be made by the Central Government.

2. **Section 242 – Powers of Tribunal**:

- The NCLT has the authority to make any order it deems fit to rectify
the situation, including the regulation of the conduct of the company’s
affairs in future, the purchase of shares of any members by other
members or by the company, restrictions on the transfer or allotment of
shares, and removal of any managing director, manager, or other
directors of the company.

3.**Section 243 – Consequence of Termination or Modification of

Certain Agreements**: - Any agreement between the company and its
managing director, manager, or other directors can be terminated or
modified if it is in contravention of the tribunal’s order. Compensation
for termination is usually not awarded unless the tribunal directs
otherwise.
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4.**Section 244 – Right to Apply**:

- Specifies the minimum number of members who must agree to bring
an action under Section 241: at least 100 members or members holding
at least one-tenth of the issued share capital. Alternatively, any
member(s) holding not less than one-tenth of the company's share
capital.

5. **Section 245 – Class Action**:

- Allows shareholders and depositors to file a class action suit against
the company if it is found that the company’s affairs are conducted in a
manner prejudicial to their interests. They can seek various remedies,
including restraining the company from committing an act which is ultra
vires or breaching its articles or memorandum.

6.**Section 246 – Application of Certain Provisions to Proceedings

under Section 245**: - Provides that the provisions of Sections 337-
341 (which deal with frauds by officers) apply to any proceedings under
Section 245, ensuring that fraudulent actions by company officers can
be effectively addressed.

7.**Preventive and Corrective Measures**:

- These sections collectively offer both preventive and corrective
measures to protect minority shareholders and ensure that companies
are managed fairly and in accordance
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### Meetings in Company Law

1. **Annual General Meeting (AGM)**:
- Held once a year and is mandatory for all companies. It provides a
platform for shareholders to discuss the company’s annual accounts,
dividends, election of directors, and appointment of auditors.

2. **Extraordinary General Meeting (EGM)**:

- Convened to address urgent matters that cannot wait until the next
AGM. It can be called by the board of directors or requisitioned by a
specified number of shareholders.

3. **Board Meetings**:
- Regular meetings of the board of directors to discuss and make
decisions on the company’s operational and strategic issues. The
frequency of these meetings is usually specified in the company’s articles
of association.

4. **Class Meetings**:
- Meetings held for specific classes of shareholders (e.g., preference
shareholders) to address issues affecting their class rights. Decisions are
made by voting within that class.

5. **Statutory Meeting**:
- Held only once in the lifetime of a company, within a stipulated period
after its incorporation. It is primarily for discussing the statutory report
presented by the directors.
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#### Notice
1. **Mandatory Notice Period**:
- Notices for AGMs must be given at least 21 clear days before the
meeting. For EGMs, the notice period can vary but often follows similar
requirements unless otherwise stipulated.

2. **Contents of Notice**:
- The notice must specify the date, time, place, and agenda of the
meeting. It should include details of the business to be transacted and
any resolutions to be passed.

3. **Mode of Delivery**:
- Notices can be delivered by hand, post, email, or any other prescribed
electronic means to the shareholders’ registered addresses.

4. **Right to Receive Notice**:

- All shareholders, directors, and auditors are entitled to receive notice
of the meeting. Failure to give proper notice can invalidate the meeting
and any resolutions passed.

5. **Short Notice**:
- Meetings can be convened on short notice if agreed upon by a
majority in number and representing not less than 95% of the paid-up
share capital or total voting power.
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#### Quorum

1. **Definition**:
- The minimum number of members required to be present to validate
the proceedings of a meeting. The quorum is specified in the company’s
articles of association.

2. **Quorum for Different Meetings**:

- For AGMs and EGMs, the quorum is typically two members personally
present for private companies, and three for public companies. For
board meetings, the quorum is usually two directors or one-third of the
total strength, whichever is higher.

3. **Adjournment for Lack of Quorum**:

- If a quorum is not present, the meeting is adjourned to the same day
in the next week at the same time and place, or as specified in the
articles. If quorum is not present at the adjourned meeting, the members
present constitute a quorum.

4. **Quorum in Articles of Association**:

- The company’s articles of association may stipulate a higher or lower
quorum than the statutory minimum, which must be adhered to for valid
meetings.

5. **Role of Proxies**:
- Proxies can be counted towards quorum requirements if permitted
by the company’s articles and relevant laws.
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#### Voting

1. **Methods of Voting**:
- Voting can be conducted by a show of hands, electronically, or by a
poll. A show of hands is the most common method for routine decisions,
while a poll may be demanded for more significant issues.

2. **Casting Vote**:
- The chairperson of the meeting may have a casting vote in case of a
tie, depending on the provisions in the company’s articles of association.

3. **Proxy Voting**:
- Shareholders who cannot attend a meeting in person may appoint a
proxy to vote on their behalf. The proxy must be properly registered
before the meeting.

4. **Electronic Voting**:
- Companies may allow electronic voting (e-voting) to enable
shareholders to cast their votes remotely. This is increasingly common in
modern corporate governance.

5. **Majority Requirements**:
- Ordinary resolutions usually require a simple majority of votes cast.
Special resolutions require a higher threshold, typically a two-thirds or
three-fourths majority, depending on the jurisdiction.
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#### Kinds of Resolutions

1. **Ordinary Resolution**:
- Requires a simple majority of the votes cast by members
entitled to vote. It is used for routine business, such as approving
financial statements, declaring dividends, and appointing
auditors.

2. **Special Resolution**:
- Requires at least a three-fourths majority of the votes cast. It
is used for more significant matters, such as altering the
company’s articles of association, changing the name of the
company, or approving mergers and acquisitions.

3. **Unanimous Resolution**:
- Requires the unanimous consent of all shareholders. This is
typically required for very critical decisions where the interests of
all shareholders must be aligned.

4. **Written Resolution**:
- Can be passed without a meeting if signed by all the members
entitled to vote on the resolution. This method is often used for
decisions in smaller companies.

5. **Resolution by Circulation**:
- For board meetings, certain resolutions can be passed by
circulation among the directors rather than convening a formal
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meeting, provided it is permitted by the company’s articles and

relevant regulations.

These points offer a detailed overview of different aspects of

meetings, notices, quorum requirements, voting methods,
and types of resolutions in company law.

### Kinds of Debentures in Indian Company Law

Debentures are a type of debt instrument used by companies to raise

funds from the public, with a promise to repay with interest. The
Companies Act, 2013, and other relevant laws govern the issuance and
regulation of debentures in India. Below are the different kinds of
debentures, each with detailed points and relevant sections:

1. **Secured Debentures (Section 71(3))**:

- **Collateral Backing**: These debentures are backed by the
company's assets, which act as collateral. In case of default, debenture
holders can claim the secured assets. - **Priority in Liquidation**:
Secured debenture holders have a priority claim over unsecured
creditors in the event of liquidation.
- **Risk Level**: Lower risk compared to unsecured debentures due to
the security provided by collateral.
- **Trust Deed Requirement**: Issuance of secured debentures usually
requires the creation of a trust deed as per Section 71(3), appointing a
debenture trustee to protect the interests of debenture holders.

2. **Unsecured Debentures**:
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- **No Collateral**: These debentures do not have any asset backing,

making them riskier than secured debentures.
- **Higher Interest Rates**: Companies may offer higher interest rates
to attract investors to compensate for the higher risk.
- **Priority in Liquidation**: Rank below secured creditors and
potentially alongside other unsecured creditors during liquidation.
- **Creditworthiness**: Investors rely more heavily on the issuing
company's creditworthiness and reputation.
- **Simplicity**: Issuance process is simpler and involves fewer legal
formalities compared to secured debentures.

3. **Convertible Debentures**:
- **Conversion Option**: These debentures can be converted into
equity shares of the company after a specified period.
- **Types of Conversion**: They can be fully, partially, or optionally
convertible.
- **Potential Upside**: Investors benefit from the potential
appreciation in the company’s share price.
- **Lower Initial Interest**: Typically offer lower interest rates
compared to nonconvertible debentures due to the added conversion
feature.
- **Dilution Effect**: Conversion results in dilution of equity, affecting
existing shareholders' ownership percentages.

4. **Non-Convertible Debentures (NCDs)**:

- **Fixed Income**: These debentures cannot be converted into equity
shares and offer fixed returns in the form of interest.
- **Certainty**: Provide certainty of income and capital repayment
upon maturity. - **Suitability**: Suitable for investors seeking steady
and predictable income without equity risk.
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- **Interest Rates**: Usually offer higher interest rates than convertible

debentures due to lack of conversion option.
- **Maturity Terms**: Can have varying maturity terms from short to
long-term.

5. **Redeemable Debentures**:
- **Repayment on Maturity**: These debentures are repayable at the
end of a specified period, ensuring return of principal to investors.
- **Fixed Maturity Date**: Have a clearly defined maturity date for
redemption.
- **Periodic Interest**: Pay periodic interest throughout the tenure.
- **Financial Planning**: Allows companies to plan their financial
obligations and repayment schedules.
- **Market Perception**: Positively perceived due to clear terms of
repayment

6. **Irredeemable Debentures**:
- **Perpetual Nature**: Do not have a fixed maturity date and are not
redeemable during the lifetime of the issuing company.
- **Interest Payments**: Pay regular interest perpetually.
- **Capital Conservation**: Help companies conserve capital by
avoiding large lump-sum repayments.
- **Risk Factor**: Higher risk for investors due to the perpetual nature
and lack of principal repayment.

7. **Fully Convertible Debentures (FCDs)**:

- **Complete Conversion**: Entire principal amount is converted into
equity shares at a predetermined rate after a specific period.
- **No Repayment Obligation**: No need to repay the principal
amount, reducing the company's debt burden.
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- **Dilution of Equity**: Results in significant dilution of existing

shareholders’ equity.
- **Growth Potential**: Attractive for investors anticipating significant
company growth. - **Lower Initial Interest**: Usually offer lower
interest rates due to the equity conversion feature.
- **Approval Process**: Requires approval from shareholders and
adherence to regulatory norms.

8. **Partly Convertible Debentures (PCDs)**:

- **Partial Conversion**: Only a portion of the debenture is converted
into equity shares, while the remaining part is repaid in cash.
- **Balanced Approach**: Offers a balance between debt repayment
and equity conversion.
- **Interest on Non-convertible Portion**: Pays interest on the non-
convertible portion until maturity.
- **Investor Choice**: Provides investors with both fixed income and
equity growth potential.
- **Complex Structure**: Structuring and managing partly convertible
debentures can be more complex.
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### Shareholder vs. Debenture Holder:

1. **Ownership vs. Creditorship**:

- **Shareholder**: A shareholder is a part-owner of the company. They
own equity shares, which represent a portion of the company's capital.
- **Debenture Holder**: A debenture holder is a creditor to the
company. They lend money to the company in exchange for debentures,
which are debt instruments.

2. **Return on Investment**:
- **Shareholder**: Returns come in the form of dividends, which are
paid out of the company’s profits. Shareholders also benefit from capital
gains if the share price increases. - **Debenture Holder**: Returns
come in the form of fixed interest payments, irrespective of the
company’s profitability. The principal amount is repaid upon maturity.

3. **Risk Exposure**:
- **Shareholder**: Higher risk due to dependency on the company's
profitability and stock market performance. In case of liquidation,
shareholders are paid after all debts are settled, often resulting in little
or no return.
- **Debenture Holder**: Lower risk compared to shareholders.
Debenture holders have a priority claim over the company’s assets in
case of liquidation, ensuring they are paid before shareholders.

4. **Voting Rights**:
- **Shareholder**: Shareholders have voting rights in the company,
allowing them to vote on important matters such as the election of
directors, mergers, and changes to the company's articles of association.
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- **Debenture Holder**: Debenture holders typically do not have

voting rights and cannot influence company decisions.

5. **Participation in Profits**:
- **Shareholder**: Shareholders have the potential to participate in the
company's profits through dividends and share price appreciation.
- **Debenture Holder**: Debenture holders do not participate in the
company’s profits beyond the fixed interest payments agreed upon.

6. **Term and Redemption**:

- **Shareholder**: Equity shares usually do not have a maturity date
and can be held indefinitely unless sold in the market or the company
buys them back.
- **Debenture Holder**: Debentures have a fixed maturity date by
which the principal amount must be repaid. Some debentures can be
redeemed before maturity.

7. **Claim on Assets**:
- **Shareholder**: In the event of liquidation, shareholders have the
last claim on the company’s assets. They are only paid after all debts
and liabilities have been settled. - **Debenture Holder**: Debenture
holders have a higher claim on the company’s assets in liquidation,
making their investment more secure compared to equity shares.

8. **Income Stability**:
- **Shareholder**: Income for shareholders is variable and depends on
the company’s profitability and dividend policy. Share prices can also be
volatile.
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- **Debenture Holder**: Income for debenture holders is stable and

predictable, based on the fixed interest rate agreed upon at issuance.
This provides more certainty compared to dividends.

9. **Nature of Return**:
- **Shareholder**: Returns for shareholders are variable and tied to
the company's profitability and performance. They can benefit from
dividends (which are not guaranteed and depend on profits) and capital
appreciation if the company's share price increases. - **Debenture
Holder**: Returns for debenture holders are fixed and predetermined.
They receive regular interest payments at an agreed rate and
repayment of the principal amount upon maturity. This fixed return
makes their investment more predictable compared to the potential
variability in shareholder returns.

Remedies of debenture holders

Debenture holders, as creditors to the company, have specific rights and

remedies to protect their investments and ensure the company meets
its obligations. Here are the key remedies available to debenture
holders:

1. **Interest and Principal Payment Claims**:

- **Regular Payments**: Debenture holders have the right to receive
interest payments as per the terms of the debenture. They can claim
overdue interest payments and the principal amount at maturity.
- **Legal Action**: If the company fails to make these payments,
debenture holders can initiate legal proceedings to recover the amounts
due.
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2. **Appointment of a Debenture Trustee (Section 71(5))**:

- **Representation**: For secured debentures, a debenture trustee
is appointed to act on behalf of the debenture holders.
- **Trust Deed**: The trust deed outlines the duties of the trustee,
who ensures the company complies with the terms and protects the
interests of debenture holders. - **Action by Trustee**: The
trustee can take legal action against the company if it defaults on its
obligations.

3. **Enforcement of Security (Section 71(10))**:

- **Secured Debentures**: If the company defaults, debenture holders
can enforce their security interest over the company's assets.
- **Sale of Assets**: This may involve selling the secured assets to
recover the principal and interest amounts due.

4. **Winding Up Petition (Section 271)**:

- **Insolvency Proceedings**: Debenture holders can file a petition for
winding up of the company if it is unable to pay its debts.
- **Liquidation**: In liquidation, debenture holders have a preferential
claim over the company’s assets compared to shareholders, ensuring
they recover their investments before any remaining assets are
distributed to shareholders.

5. **Conversion Rights**:
- **Convertible Debentures**: Debenture holders with convertible
debentures can convert them into equity shares if the company defaults
on payments or as per the terms of the debenture agreement.
- **Equity Participation**: This provides an alternative remedy to
recover their investment by becoming shareholders in the company.
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6. **Debenture Holder Meetings (Section 71(8))**:

- **Convening Meetings**: Debenture holders can call meetings to
discuss and address issues related to their debentures, including defaults
and restructuring.
- **Collective Action**: Through these meetings, debenture holders can
collectively decide on actions to take against the company.

7. **Court Intervention**:
- **Specific Performance**: Debenture holders can seek court
orders for specific performance, compelling the company to comply
with the terms of the debenture. - **Injunctions**: They can also
seek injunctions to prevent the company from taking actions that
could jeopardize their interests, such as selling off secured assets.

8. **Restructuring and Compromise (Section 230-231)**:

- **Scheme of Arrangement**: Debenture holders can participate in
schemes of arrangement or compromise under the Companies Act,
2013, which allows the company to restructure its debt obligations.
- **Approval of Scheme**: Such schemes need the approval of
debenture holders, ensuring their interests are considered in the
restructuring process.

9. **Refinancing and Restructuring Agreements**:

- **Negotiation of Terms**: Debenture holders can negotiate with the
company to refinance the existing debenture terms. This might include
extending the maturity date, altering the interest rate, or changing other
terms of the debenture to make repayment more feasible for the
company.
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- **Legal Support**: These agreements are often facilitated with the

help of financial advisors and legal experts to ensure that the interests of
the debenture holders are protected.
- **Mutual Benefit**: Refinancing can help avoid default and ensure
that the debenture holders eventually receive their returns, while
providing the company with the necessary financial flexibility to continue
operations and improve its financial health.

#### Fixed Charge

1. **Definition**:
- A fixed charge is a type of security interest over specific assets
of a company, such as land, buildings, machinery, or other
tangible assets. The charged asset is identified and remains
constant.

2. **Control Over Asset**:

- The company cannot sell or dispose of the asset without the
consent of the charge holder. This gives the lender significant
control over the specific asset.

3. **Priority in Liquidation**:
- Fixed charge holders have a high priority over the proceeds
from the sale of the charged assets in case of the company's
liquidation. They are paid before floating charge holders and
unsecured creditors.
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4. **Registration**:
- Fixed charges must be registered with the Registrar of
Companies within a specified period (typically 30 days) from the
creation of the charge to be valid against third parties.

5. **Examples of Fixed Charge**:

- Mortgages on land or buildings, charges on machinery,
equipment, or specific receivables.

6. **Interest Rates**:
- Fixed charge debt might carry lower interest rates compared
to unsecured debt, as the risk to the lender is reduced by the
security of specific assets.

7. **Legal Implications**:
- The creation of a fixed charge typically involves detailed legal
documentation specifying the asset, the obligations of the
company, and the rights of the charge holder.

8. **Stability**:
- Fixed charges provide stability and predictability for lenders,
knowing they have a direct claim over a specific asset, making it
a preferred security for longterm financing.