COMPANY LAW & SECRETARIAL PRACTICE – II

UNIT – I

SECTION-A

1. Define charge?
Ans: “Charge” means an interest or lien created on the property or assets of a company or any
of its understandings or both as security and includes a mortgage.
2. What is mortgage?
Ans: Mortgage is a transaction where the borrower without transferring possession of the
immovable property of which he is a owner transfer his interest in specific immovable
property as security for the loan he has borrowed or to be borrowed from the lender.The
borrower is known as mortgagee.
3. Define Debenture.
Ans: Section 2 (12); Debenture has been defined “as one that includes debentures stock,
bonds and any other security of a company, whether constituting charge on the company’s
assets or not which either creates a debt or acknowledgement and any document which fulfils
either of these conditions is a debenture”.
4. What is a fixed charge?
Ans: A fixed charge is a charge created over specific identifiable movable or immovable
properties given as securities in favour of the creditor by the debtor. A fixed charge possesses
legal title to certain specific assets and company loses the right to disposed the property,
though the company possess the property.
5. What is floating charge?
Ans: A floating charge is a charge created over the entire assets of the company which may
be both movable and immovable properties, subject to certain terms and conditions. In other
words it is a charge on the current assets of the company, present or future which changes
from time to time in ordinary course of business. Eg: bills receivable.
6. What is “paripassu” clause?
Ans:paripasu clause means a clause that is found in the debenture deed in respect of
repayment of loan advanced by third party creditors to the company on priority basis. The
term paripasu clause signifies discharge of loan to several creditors on equal footing, on
property basis. This is to say, first recipients of loan to be discharged first in order of the
series.
7. Who is shareholder?
Ans: A shareholder is one who participates in contributing towards equity capital. He is an
investor. A shareholder is entitled for dividend payable annually subject to availability of
distributable profits.
8. Who is debenture holder?
Ans: A debenture holder is a participant in respect of borrower capital. He is a creditor. A
debenture holder has to advance the entire money.
9. Give the meaning of ultra vires borrowing?
Ans: The borrowers can borrow up to the limit specified in the memorandum / Articles of
association.Any borrowing in excess of the limit is ultra vires the company.
10. State any two advantages of debentures.
Ans: (i) Lower rate of interest
(ii) Trading on equity.
 SECTION – B
1. How are borrowings classified?
Ans: Borrowings can be classified as;
(i) Borrowings which are ultra vires the company.
(ii) Borrowings which are considered ultra vires the directors.

Borrower’s ultra vires the company: Any borrowings which are beyond the powers of the
company are not recognised as debts against company. In such cases, the lender of the
money cannot sue the company for recovery of excess money borrowed by it.

Borrowings ultra vires the directors but ntra vires the company: The directors might have
borrowed money exceeding the limit authorised under articles of association. Such
borrowings are said to be beyond their powers since they have violated the articles. But
the articles can be amended at any time. Hence, by a specoal resolution, the borrowings of
the directors exceeding the limit could be ratified by the general meting of the company.

2. What is the purpose of registration of charge?

Ans:
(i) The main purpose of registration of charges is only to put the third parties or
prospective lenders on notice that a specific asset or property of the company has been
given as security and a loan has been raised by the company over it. This will be a notice
to a third party or a prospective creditor not to advance further loan on the security of the
same property.

(ii) Secondly, the charge holder can also feel secured over the loan he has advanced to
the company because no loan could be advanced further on the property which has been given as
security by the company. They also cannot be sold of otherwise disposed of without notice to the
charge holder concerned. According to section 125(4), the following charges must be registered with
registrar of companies.

a) A charge on the issue of debentures.

b) A charge on the uncalled capital of the company
c) A charge on any immovable property
d) A charge on the book debts of the company
e) A floating charge on the undertaking or any property of the company including
stock in trade
f) A charge on calls made but not paid
g) A charge on the goodwill or a patent or licence under a copyright.
3. What are the duties of company secretary with regard to borrowing powers and
loan advances?
Ans: (i) The company secretary must ensure the condition as laid down under the section 293
is duly complied with. That is the company cannot borrow funds exceeding the paid-up
capital and free reserves.

(ii)The money advanced by the company towards loan must be instrict compliance with
the section 295. That is to say, loans to the directors or to its holding company or
subsidiary or to a private company in which the director is occupying the position of a
director cannot be sanctioned without the approval of central government proceeded by
passing a special resolution to this effect.
 (iii) The secretary must ensure that the loans advanced by the third party creditors are
adequately supported by securities.
(iv) The charge created over the assets must be registered under section 124 and a
book must be maintained for registration of charges.
(v) It is imperative on the part of a company secretary to maintain a separate register
for debenture holders duly recording the interest paid on the loan advanced.
4. Discuss the differences between Mortgage and Charge
Mortgage Charge
1 Transfer of interest: In charge, the repayment of a debt is secured
There is a transfer of interest in out of particular property without
specific property under mortgage. transferring any interest in the property.
2 Duration: Charge may be perpetual
A mortgage is usually for some fixed
time.
3 As per section 124: The expression charge includes mortgage.
Mortgage is a part of charge
5. What is the debenture trust deed? What are the advantages of debenture trust deed
Ans: When a company issues Mortgage debentures, it has to execute a deed mortgaging
the assets in favour of the debenture-holders.
As the debenture-holders are the individuals scattered over a wide area and cannot act as
a single person, the trust deed is executed in favour of trustees appointed to act on behalf
of the debenture-holders. Under the trust deed, the assets of the company are mortgaged
in favour of the trustees. The trustees hold the assets in trust for and on behalf of the
debenture-holders and in case of default by the company, they take prompt legal action to
safe guard the interest of debenture-holders.
ADVANTAGES OF TRUST DEED:
a. Under the trust deed, interests of the debenture holders can be fully secured by
legal or equitable mortgage on immovable assets or floating mortgage on other
assets. Without such an arrangement legal interest in the assets could not have
been vested in thousands of individual debenture holders.
b. The legal interest being vested in the trustees, the company cannot create a
subsequent mortgage having priority over the trustees.
c. In case of default, trustees can take quick and effective steps to safeguard the
interests of the debenture holders, which is not possible for individual debenture-
holders scattered widely.
d. The trustees are usually given power to sell and realize the security without the
intervention of the court or to appoint a receiver for carrying on the business of
the company if necessary.
e. The trustees are empowered to keep with over the affairs of the company and to
see that the property mortgaged is insured and maintained in proper condition.
f. With the consent of the trustees, the company can also exercise powers of sale,
lease or exchange of the mortgaged property, thus putting it to advantageous use
without affecting the interest of the debenture holders.

SECTION – C
1. Distinguish between shareholder and debenture holder
Ans:
Shareholder Debenture holder
1 He is an investor He is a creditor
 2 He participates in contributing towards He advances loan to the company repayable
equity capital. on or after a particular date
3 He is entitled to dividend He is entitled to interest
4 The liability is limited to the extent of There is no liability in case of holder
the face value debenture of the share
5 Shareholders are eligible to participate Debenture holders are not entitled to attend
in the company meetings any meeting except creditors meeting.
6 Shares may be partly paid Debentures are fully supported by
consideration representing the loan
advanced by the debenture holder to the
company
7 Only two types of shares are issued Debentures are various types:
under company law:Equity shares and Bearer and registered debentures;
preference shares. redeemable and irredeemable; convertable
and non-convertible; secured and
unsecured.
8 All equity shareholders are treated alike Debentures are sometimes issued in series
only preferential right to dividend and with paripasu clause which means the
repayment of capital debentures falling under earlier series enjoy
a prior claim the regard to repayment of
loan.

2. How are debentures classified? Explain or Explain the types of

debentures?
Ans:
A. Classification according to transferability:
• Bearer Debentures – A bearer debenture conveys title or ownership by mere
delivery and transfer of possession. Mere possessionconveys ownership. It is
payable to the bearer of the deed. It is termed as negotiable instrument and is
transferable by delivery. A bonafide transferee for value is not affected by
any defect in the title of transfer.
• Registered Debentures – These debentures are registered with the company.
The amount of such debentures is payable only to those debenture holders
whose name appears in the registrar of the company.
B. Classification according to securities:
• Secured Debentures – These debentures that are held by persons who are
said to be secured creditors.This is due to the reason that secured debentures
are supported with fixed property or assets that are given as security and
charged therein for loan obtained on the said debentures. It is also called
mortgaged debentures.
• Unsecured Debentures or Naked debentures – These debentures are not
supported by any security or assets with which charge is created for the said
debentures. Therefore, they are known as naked or unsecured debentures. The
holders of these debentures are ordinary creditors or unsecured creditors of
the company.
C. Classification according to performance:
• Irredeemable or Perpetual Debentures – When the principal sum is made
payable only at the time of winding up, then such debentures on which the
loan is obtained are known as irredeemable debentures.
 • Redeemable Debentures – When a period is fixed for repayment of
principal, sum on the debenture, then debenture is known as redeemable
debenture.
D. Classification according to convertibility
• Convertible or fully convertible or partially convertible Debentures –
The debenture holders are given the option to convert the same into equity
shares at certain rates of exchange after a particular period. Once the holders
of debentures convert them into equity shares they are no longer creditors of
the company, but became members of the company.
The former could be fully exchanged for shares and in the latter only a
portion of it could be exchanged for shares.
• Non-convertible debentures – In this kind of debentures, option is not given
to holders of debentures into shares. These debentures have to be paid on the
due date of maturity. Sometimes, even non-convertible debentures also could
be converted as shares according to the direction of central government
through company law board.
E. Classification according to priority:
• Debenture without PariPassu clause – To be repaired according to the date
on which they have been issued.
• Debenture with PariPassu clause – This clause would be treated equity on
par with one another. Repayment of loans would be made in proportionate
order among them. If the debentures are issued on the same day and are
serially numbered, they would rank in numerical order.
3. State the provisions relating to registration of charges. List out the
charges that are to be registered.
Ans: As per sec. 124 of the Act the expression “Charge” also includes a
“Mortgage”.
As per sec 125, following charges are required to be registered with the
Registrar of companies within thirty days of their creation in order to be valid
against the creditor and the liquidator.7 days more may be allowed by the
registrar if there is sufficient cause for delay.
a. A charge for the purpose of securing any issue of debentures.
b. A charge on the uncalled share capital of the company.
c. A charge on any immovable property, or any interest there of
d. A charge on any book debts of the company
e. A charge not being a pledge, on any movable property of the
company.
f. A floating charge on the undertaking or any property including in
stock-in-trading.
g. A charge on calls made but not paid.
h. A charge on a slip or any share in a ship
i. A charge on goodwill or a patent, on a trade mark, or on the copy
right or a licence there under.

It is the duty of the company to send the above particulars to the Registrar, but registration may also
be affected on the application of the creditor who may recover the registration fee from the company.
 UNIT – II

[COMPANY MANAGEMENT]

SECTION – A
1. Who is a Director?

Ans. A director is one of the person constituting the board and he is said to be responsible for
controlling regulating and directing the company.

2. Who are board of directing?

Ans. The directors collectively constitute the board and they are known as board of directors.
(Sec 252 (3)
3. Who is an alternate director?
Ans. An alternate director must act in the place of the original director for a minimum of at
least 3 Months, With regard to the appointment of alternate director arises only in the case of
original directors leaving India to a foreign country for duration of not less than three months.
4. What is audit committee?
Ans. Every public company having paid up share capital of not less than five cores of rupees
shall constitute a committee of the board known as audit committee. It shall consist not less
than three directors and such number of directors as the board may decider of the members
shall be directors. The audit committee shall have a chairman elected by the members.
5. Define sole selling agent?
Ans. Sole selling agent means an exclusive agent appointed over an area in which no other
person has any right or privilege to act agent. He has monopoly over the area allotted to him.
He has exclusive jurisdiction to transact business in the area allotted to him.
6. Define a managing director?
Ans. Section 226 defines “A managing directors as a director, who, by virtue of an agreement
with the company or of a resolution passes by the company in general meeting or by its board
of directors”.
7. Define corporate governance?
Ans. Corporate governance is defined as the responsibility of running a corporate unit
effectively, economically and above all being trust worthy to the people who have reposed
their faith, hope and future as shareholders, creditors, employees and patronizing consumers.
SECTION – B
1. What are the difference between a manager and managing director?
Ans:
S.no Manager Managing Director
1 A manager need not be a director of A managing director in order to occupy
the company. the said position must be a director of
the company
2 A manager is vested with power to A managing director has substantial
manage the whole or substantially the powers of management as given under
whole of the affairs of the company. the articles or as approved by the board
of directors.
3 Maximum remuneration payable to a In case of managing director,where there
manager cannot exceed 5% of the is morethan one, the maximum limit is
annual net profits (section 387) fixed at 10% of annual net profits
[section 309(3)]
2. What are the differences between whole time director and managing director?
Ans:
S.no Whole time Director Managing Director
1. A whole time director is just an A managing director is entrusted with
ordinary employee of the company substantial power of management to take
of management and has no decisions with discretion.
discretionary power.
2 The appointment of a whole time The appointment of a managing director
director requires the sanction of the does not require the consent of the
shareholders, by means of a special shareholders
resolution except when he is
appointed in the capacity of trustees
for debenture holders or manager.
3 A whole time director could be A managing director and a whole time
appointed along with a managing director cannot exist simultaneously
director (section 197-A)
4 A whole time director being a full A managing director can be a managing
time employees of the company director for more than one company.
cannot serve elsewhere
5 There is no time restriction with A managing director of a public company
regard to the duration of period of or subsidiary thereof can be appointed as
employment. such for maximum period of only 5 years.

3. Detail the short notes on qualification of directors or who is eligible to become

director?
Ans: A Director:
(a) A director can only be an individual.
(b) Must be competent to contract
(c) Must possess share qualification.
A schedule I table a regulation 66 states that the qualification of a director shall be the
holding of at least one share in the company. If a direction fails to acquire his
qualification shares within 2 months from the date of his appointment, his office is
deemed to have become vacant. Furthermore, he will be liable to pay penalty for
continuing as a director after such prescribed period.

4. Explain the short note on disqualification of directors?

Ans: The following persons cannot be appointed as directors (section 274)
(a) A person of unsound mind duly certified by a court of competent jurisdiction to be
insane.
(b) A person who is an undercharged insolvent.
(c) Any person who has been sentenced to at least 6 months of imprisonment for an
offence involving moral turpitude and 5 years have not elapsed from the date of
expiry of the sentence.
(d) Where a person has not paid any call money on his shares for a period of 6 months.
(e) A person who has applied to be adjusted as an insolvent.
(f) When a person has indulged in fraud or unlawful methods in the matter of managing
and administering the companies.
5. Describe the role or legal status of directors?
Ans: According to L.J. Bower, “Director are described sometimes as agents, sometimes
as trustees and sometimes as managing partners”.
I) Directors as agents:
The director is normally regarded as an agent of the company because he
represents the company in many transactions. Further, he signs all the deeds and
agreements with the third parties for and on behalf of the company.
II) Directors as employees:
A director who carries out action in several decisions of the board cannot be
designed as employees of the company because
(a) There is no contract of employment between the director and the
company.
(b) They are not paid any regular monthly remuneration for the service
rendered by them.
III) Directors as trustees:
The directors being endowed with responsibility of managing and
administering the company, is considered as a trustees for safeguarding the
capital and securing the assets of the company.
Directors are trustees so far as safeguarding and securing the capital of the
company and they are said to be the agents of the company in respect of entering
into transactions with outside parties.
(a) The directors are trustees to the company’s capital and property or assets
acquired by it.
(b) Directors are also considered as trustees of the power granted and sanctioned
under the companies act and articles of association.
6. What are the powers exercised by the board of directors?
Ans: The board of directors of the company by means of passing resolution at the
meetings of the board.
(a) The power to make calls on shareholders in respect of money unpaid on their shares.
(b) The power to issue debentures.
(c) The power to borrow money otherwise on debentures.
(d) The power to invest the funds of the company
(e) The power to take loans.

7. Describe the provisions of Act for the Removal of directors by shareholders before
the expiry of their term of office?
Ans: Section 284 of the Act provides for the removal of directors by the company before
the expiry of their term of office. The procedure laid down is;
(i) A special notice of 14days is required to be given to the company to move an
ordinary resolution to remove the director and to appoint another director in his place.
(ii) On receipt of notice, the company must inform all the members of the proposed
resolution. It must also send a copy of the notice to the director proposed to be
removed.
(iii) If the director concerned wishes to make a representation he may send it to the
company and the company in turn sends copies of the representation to the members,
together within the notice of a meeting.
 (iv) If the representation is not received by the company within a reasonable time, the
representation may be read out at the meeting. Further, the director concerned can
speak at the meeting against his removal.
(v) At the meeting, two ordinary resolution will have to be passed;one resolution for the
removal of the director and another resolution for the filling up the vacancy. The new
director will hold office till the date his predecessor would have held it.

8. How a managing director is appointed?

Ans: Appointment of Managing Director:
i. Appointment (sec 269): compulsory appointment of managing or whole time
director or manager: Every public company or a private company which is z
subsidiary of a public company having a paid-up share capital of Rs.5 crores or
more shall have a managing or whole time director or a manager.
ii. Prior approval of the central government unless appointment is in
accordance with the conditions specified in schedule XII: No such
appointment shall be made except with the prior approval of the central
government. However no such approval is required where the appointment is
made in accordance with the conditions specific is schedule XII.
Schedule XII prescribes conditions to be fulfilled for the appointment of a
managing or whole time director or manager without the approval of the central
government. It also lays down the remuneration payable to managerial personnel.
Approval, of the central government is not required in the case of appointment of
managerial personnel made on or after 15th day of June 1988,in accordance with
the conditions specified in schedule XII to the Act.
9. Define Managing Director. What are disqualifications of Managing Director?
Ans: Section 226, defines, “A managing director as a director, who, by virtue of an
agreement with the company or of a resolution passes by the company in general meeting
or by its board of directors. Which would be otherwise be exercised by him and includes
a director occupying the position of a managing director by whatever name called”.
Disqualifications of Managing Director: No person shall be appointed a managing or
whole-time director who-
i. Is a discharged insolvent, or has at any time been adjudged an insolvent.
ii. Suspends, or has at any time suspended, payment to his creditors or makes or has
at any time mode, composition with them or
iii. Is or has at any time been, convicted by a tribunal of an offence involving moral
turpitude.
The disqualifications which apply to directors also apply to a managing
director.

SECTION – C
1. What are the duties of directors?

Ans: Duties and obligations of directors could be classified under heads:

a) Discharge of statutory duties

b) Discharge of other duties
(i) Discharge of statutory duties
• Fiduciary duties
 • Duties of care, skill and diligence

Fiduciary duties: Fiduciary duties impose the necessity of discharging the duties honestly and
bonafide for the benefits of the company.

Duties of care, skill and diligence: The directors are expected to discharge their duties with
reasonable skill, care and diligence as a normal businessman would act. The amount of care and
diligence very much depends upon the nature of company’s business and circumstances of the case.
For example, the directors should not enter into any agreement which would involve risk and
liabilities to the company.They should keep a vigilant watch against the use of capital,security of the
assets an safeguarding the properties of the company.

Statutory duties of directors are enumerated below:

a. To be ensured that the application money received from the applicants for shares is deposited
in a schedule bank,till the certificate to commence business is obtained under section 149.
b. To forward a copy of the statutory report atleast 21 days before the statutory meeting to every
member of the company and to the registrat (section 165)
c. To call for annual general meeting every year and submit the annual report to the general
body in order to get its approval. Even if such meeting is not held, the return must be
submitted to the registrar within 15 days from the due date on which the meeting has to be
held. (section 166)
d. To convene extraordinary general meeting on the requisition of the prescribed number of
members. (section 169)
e. To co-operate with the court and liquidation in case of winding up of the company.
f. To take steps for filling declaration of solvency in the case of voluntary windingup.
g. To convey the board meeting at least four times in a year and once in three months.

Other duties:The board of directors are expected to discharge the following duties;

a. They must ensure that they are trustees for the capital of the company contributed by
shareholders and they must not make any secret profits.
b. They are responsible for submitting returns under Income Tax Law, Sales Tax, M.R.T.P.,
Acts and other such miscellaneous acts.
1. What are the liabilities of directors?
Ans: The directors are liable to make good the loss to the company.such
occasions may arise:
a. When they enter into contracts ultra vires the memorandum.
b. When they make secret profits or use of company’s funds for their
personal purpose and commit breach of trust.
c. When they make secret profits or use of company’s funds for their
sell to the company at a higher price dishonestly.
d. When they act negligently in the performance of their duties by
paying dividends when there id no profits.
e. When they act in such a way as to misappropriate company’s assets
wilfully and thereby indulge in misconduct.
f. When the directors abstain themselves without leave from attending
the board meetings.
g.
Liabilities to these parties: The directors are liable to the parties

a. For mis-statements or concealments in prospectus.

b. For signing negotiable instruments without mentioning name of the company for giving false
guarantee or warranty.
c. For indulging in such acts of fraud to as to cheat the company and the public.

Criminal Liability: The directors may incur criminal liability for the following acts of defults:

a. Mis-statements in prospectus (section 63)

b. Failure to file return of allotment (section 75)
c. Failure to intimate the alteration in capital structure to the registrar of companies (section 95)
d. Failure to issue share certificated (section 113)
e. Default in filling with the registrar in respect of charges created in favour of third party
creditors.
f. Failure to keep member’s ans debentures holders registers (section 150)
g. Default in holding annual general meeting (section 168)
h. Failure to file annual returns with audited balance sheet before the annual general meeting
(section 210)
i. For holding office of director in more than 15 companies (section 275)
j. For securing loan without the approval of central government.

2.Detail the notes on director or Removal of directors?

Ans: Directors may be removal or terminated by

a. Shareholders (section 284)

b. Central government (section 388 E)
c. Company law board (section 402)
Removal of shareholders: A director may be removed by shareholders by passing an ordinary
resolution before he could serve the full term of his office. Directors appointed by the central
government, directors employed in private companies or a nominee director representing the
banking company or financial institutions like U.T.I, L.I.C, and S.B.I cannot be removed by
shareholders. However, shareholders cannot be prevented on restrained from calling a general
meeting to remove the existing directors and appoint new directors.
A removed director cannot be reappointed but can claim compensation, for wrongful
termination of the appointment.

Removal by central government: Based on reference made by the company Law board, on the
grounds of alleged fraud, gross negligence or breach of trust, the central government by order
may remove any director from his office against whom such allegations are proved (section
388 B). The person so removed cannot be allowed or become a director in any company for a
period of 5 years. No compensation be paid to the terminated director.

Removal by company law board: The company law board has and the power to remove a
director to prevent oppression and mismanagement. It may terminate, set aside or modify any
agreement between the company and managing director or any other director on manager.
Terminated managerial personnel cannot sue the company for damages or compensation for
 the loss for his office. He cannot also be re-appointed for a period of 5years from the date of
the order. The company law board could grant exemption from this order.

Unit-III

Section –A

1. What is a Statutory Meeting?

Ans. Statutory meeting is considered to be the first meeting of the shareholders f a public
company and is held only once in the life of the company. The term “Statutory “Implies that
their meeting is mandatory.

2. What is annual general meeting?

Ans. The annual general meeting is intended to reveal to the shareholders and general public
as to how far the company has performed its business or activities relating to the procedure
year. The audited balance sheets including profit and loss account are placed before the
shareholders for their security and approval.

3. What are the requirements for a valid meeting?

Ans.
Proper convening authority
Proper notice
Requisite quorum
Agenda
Proper chair person
Motion and resolution
Minutes of the meeting

4. What is a quorum?
Ans. Quorum signifies the minimum number of members who must be present in order to
constitute a valid meeting. The quorum will be decided based on the number of members on
the date of the meeting which are as follows.
Number of Members Quorum
Below 1000 5
1000-5000 15
Above 5000 30
If no quorum is present in the general meeting, the proceedings will become invalid. The
quorum for general meetings is required to be present at the time when the meeting proceeds
to do business.

5. What is Agenda?
Ans: Agenda is “a list of things to be dealt with especially at meeting” it is a statement of
business to be transacted at a meeting.

6. What is a poll?
Ans: Poll is a system of ascertaining the sense of the meeting in relation to the number by
shares held by a member. A poll may also be demanded even before the declaration of the
result on show of hands. (section179)
7. Define motion?
Ans: A motion is a formal proposition which also means a proposal on any item contained
in the Agenda. It is initiated by a member for deliberation, discussion and taking decision at a
meeting. Passing a motion or moving proposal is said to be the preliminary step for passing a
final resolution a motion or moving a proposal is said to be the preliminary step for passing a
final resolution
8. What are the kinds of resolutions passed at the general meeting?
Ans:
Ordinary Resolution
Special Resolution
Resolution requiring Special notice
9. What is an ordinary Resolution?
Ans: An ordinary resolution is the one which the votes that are cast in favour of the
resolution is more than the votes cast against it. It is supported only by numerical majority.
Ordinary resolutions are passed for transacting ordinary business.

10. What is special Resolution?

Ans: Special resolutions are passed for transacting special business. Unlike an ordinary
resolution which requires numerical majority, in a special resolution the votes that are cast in
favour of the resolution are three times more than the votes that are cast against it.

11. What is Minutes of Meetings?

Ans. The terms minutes means “Official summary of the proceedings of a meeting:. The
minutes convey the highlights of the decisions arrived at a meeting. It precisely pictures the
event that takes place in the meeting in concise terms.
There are two types of Minutes:
Minutes of natation.
Minutes of resolution.
12. What do you mean by proxy?
Ans. Proxy is a person appointed by the shareholder to attend the meeting on his behalf. Any
member of a company who is entitled to attend and vote at a meeting is entitled to appoint
another person as his proxy to attend and vote at the meeting on his behalf. A Proxy need not
be a member of the company. Has no right to speak at the meeting. He has a right to demand
a poll or join in demanding poll. The right of a proxy to vote arises only on a poll.

Section-B
1. What are the contents of statutory report?

Ans.Contents of Statutory Report:

1. The total number of shares allotted distinguishing shares allotted otherwise than for
cash including partly paid up shares.
2. Total amount of cash received by the company in respect of the shares allotted.
3. An extract of receipts and payments up to a date within seven days of the date on
which the report is prepared with a balance of cash in hand.
 4. The report also must disclose the names. Addresses and occupations of the
company’s directors, auditors, manager or managing director, manager, secretary,
banker, broker and underwriter etc.
5. The report should also mention the contract between the company and managerial
personnel between the company and third parties etc...
6. The report must mention as to what extend the underwriting contract has not been
carried out and the reasons thereof.
7. The report should also disclose the arrears of call including the amount due from
directors, managing directors or managers.
8. The report should also mention the commission paid to brokers and underwriters.
2. What are the businesses transacted in the statutory meeting?
Ans.
• Constitution of board of directors.
• Selection of directors, revealing their identity, qualification and business
background to the shareholders.
• Finalisation of contract between the company and the managerial personnel.
• Appointment of auditor, underwriter, broker, banker solicitor.
• Contract between the company and third parties for sale, supply, for
procurement of materials or for rendering service to third parties.
• Present project launched by the company is disclosed to shareholders.
• A statement of receipts and payment duly prepared just seven days before the
convening of the statutory meeting has to be disclosed to the shareholders
attending the meeting.
3. What are the objectives of statutory meeting?
Ans.
a) To obtain the approval of the shareholders in respect of the statutory
report submitted to them.
b) To constitute legally the board of directors to manage the company.
c) To obtain the approval of the shareholders regarding the appointment of
directors or managing directors or managers, auditor, company secretary
banker, broker, solicitor etc..
d) To facilitate the shareholders to become conversant with the business of
the company and also acquaint themselves as regards the amount realised
by way of capital.
4. Explain the legal provision regarding board meeting?
Ans. As per the section 285 of the company Act, 1956, a company should hold a board
meeting one in every three calendar months and there should be four such meeting every
year.
Notice: Notice of the board Meeting must be given in writing to every director at their
usual address in India. If notice of the board of directors is invalid and the resolution
passed at such meeting is in operation.
Time and place: The companies Act, 1956 does not specify about the time and place of
board meeting can be held at any place and outside business hours, but an adjourned
board meeting cannot be held on a public holiday.
Agenda: Agenda should be circulated in advance to the directors.
Minutes: Minutes are the records of the meeting. It must be recorded within 30days of the
conclusion of the meeting and numbered consecutively. The minutes of the board
 meetings are not open to the inspection for the members. The minutes must be duly
signed by the chairman of the meeting.
Quorum: Quorum signifies the minimum number of members who must be present in
order to constitute a valid meeting. The quorum for a board meeting shall be one third of
the total strength of the directors or two directors whichever is higher. The quorum is
requires to be present throughout the meeting.
5. What are the conditions for recording minutes?
Ans.
a) It must be in third person and free from personal impression and commands.
b) It must be brief. Brief should be at the cost of lucidity and result in paucity of
information.
c) It must not be ambiguous and repetitive in nature.
d) The minute’s book must be in the form of a note book duly stitched and each page
containing the page numbers in chronological order.
e) The minute’s book must be in the form of a notes book duly stitched and each
page containing the page numbers in chronological order.
f) Each page must be duly signed by the chairman with date.
g) The minute’s book must be kept in the safe locker and the custody of the
secretary.
6. What are the duties of the chairman of meeting?
Ans.
1. To see that the meeting has been properly convened and that the required quorum is
present.
2. To take care that the statutory requirements as laid down by the act and the articles
are complied with.
3. To preserve order at the meeting
4. To take care that the proceeding are conducted in a proper manner.
5. To make sure that the views of the directors are properly ascertained with regard to
any question before the meeting.
6. To act in good faith and to be impartial in the performance of the duties.
7. To see that proper ‘minutes’ of proceedings are kept ant to sign them.
8. To adjourn the meeting if necessary.
9. To declare the meeting closed.
7. State the secretarial duties regarding proxy.
Ans. A member who is entitled to vote and attend the meeting is entitled to appoint a
proxy need not be a member in a company since the members have contributed to the
capital.
• The appointment of proxies must be done in accordance with the articles of
association
• A proxy shall not be allowed to vote expect on poll subject to the articles.
• An appointment of proxy must be in (article 62 of table A and sec 176(6). The
proxy form must be duly signed by the member it is better that proxy signature is
duly attested by the attesting witnesses in order to prevent fraud. If the appointing
person a corporate body.
• A duly signed stamped and completed proxy form must be filed with the
registered office of the company not later than 48 hours before the
 commencement of the meeting this the one to enable the secretary of the
company to verify the give ness of the appointment of proxy.
8. Describe the guidelines relating to the issue of debentures?
Ans. The guidelines have been given for the issue of debenture by SEBI. Guidelines will
be applicable for the issue of convertible and non-convertible debenture by public limited
as well as public sector companies.
1. Debentures can be issued for the following:
For starting new understanding
Expansion or diversification.
For modernisation
Merger/amalgamation which has been approved by financial
institution.
Restricting of capital
For acquiring assets.
For increasing resources of long term finance.
2. Issue of debentures should not exceed more than 20% of gross current asset and also
loans and advances.
3. Debt equity ratio should not exceed 2:1 but this condition will be relaxed for capital
intensive projects.
4. Any redemption of debenture will not commence before 7 years, since the
commencement of the company.
5. For small investor for value such as Rs. 5,000 payment should be made in
instalments.
6. With the consent of SEBI, even non-convertible debenture can be converted
debentures only.
7. The face value of debentures will be Rs.100 and it will be listed in one or more stock
exchanges in the country.
8. Secured debentures will be permitted for public subscriptions.

SECTION-C
1. What are the duties of secretary with regard to statutory meeting?

Ans. Duties of the secretary: Before the meeting:

1. He must observe and adhere the time factor with regard to convening the meeting.
2. He must not only get prepared the statutory report, but ensure that it is attached with the
notice sent to the shareholders.
3. The statutory meeting must be preceded by the board meeting and the directors must
approve the statutory report.
4. The secretary must ensure that the statutory report is duly printed and see that it is
attached to the notice convening the meeting. Notice must be given 21 days before
convening the meeting.
5. Agenda of the meeting must be prepared in consultation with the chairman.
6. He must prepare the list of shareholders or members showing their names, occupation,
address and the numbers of shares held by them in order to disclose the same before the
meeting.
7. Venue, seating arrangement, proxy register, attendance register including refreshments
are the responsibilities of the secretary.
 Duties of the secretary during the meeting:

1. Must ensure that quorum is present and all the persons attending the meeting are
entitled to attend the meeting.
2. Must read the notice of the meeting. If directed by the chairman, must read the
statutory report.
3. Must produce the list of members of the company
4. Must render assistance to the chairman for the proper conduct of the meeting, and
should supply necessary information to the chairman of explaining facts before the
meeting.
5. Must take the notes of proceedings in the meeting

Duties of secretary after the meeting:

1. Must prepare the minutes of meeting.

2. Must record the resolutions passed during the meeting.
3. Must submit the copy of the resolution passed at the meeting with statutory report
duly signed by the chairman and the same should be filed with registrar of companies
within 30 days from the conclusion of meeting.
2. What are the duties of secretary with regard to annual general meeting? Or explain the
provisions regarding annual general meeting.

Ans. Business transacted in the annual general meeting.

a) The annual accounts consisting of audited balance sheet, trading account and
profit/loss appropriation account covered by director’s report is approved and
adopted by passing ordinary resolution in the meeting.
b) The dividend as recommended by the directors has to bbe approved by the meeting
and cannot be enhanced.
c) The statutory auditor is appointed in the general meeting whose terms of office
continues upto subsequent annual general meeting.
d) The remuneration of auditor is fixed as per rules and norms of the companies act and
practice.
e) In the place of retiring directors, new directors are appointed. A retiring director can
also stand for re-election.
f) Any other business other than the above ordinary business could be transacted
subject to the fact that adequate notice has been given to the members of the
company.

Duties of the secretary during the meeting:

i. Ensure that no person who is not a shareholder is admitted and see that quorum is
present examine that proxy forms and the proxies to attend the meeting.
ii. Read the notice of the meeting if ordered by the chairman including auditor and
director’s report.
iii. Record the proceedings of the meeting, incorporating them in the minute’s book.
iv. Advise the chairman regarding ascertaining the sense of the meeting inheriting
conduct of poll.
v. Personally attend to the requirements of shareholders and clarify their doubts.
 vi. Make necessary arrangements with banks concerned and issue dividend warrants to
all the shareholders on the list of the register on the day meeting.

Duties of the secretary after the meeting:

i. Brief the press if necessary for publication of chairman of the same meeting within 30
days of the meeting
ii. Make necessary charges in the register of directors and notify the same meeting within
30 days of the meeting.
iii. Make necessary charges in the register of directors and notify the same to the register
within 30 days of the meeting.
iv. Send intimation of appointments and re-appointment to the directors and auditors.
v. See that the annual return with balance sheet, profit and loss account as adopted and
approved by the meeting with its copy of resolution duly signed by the authorities
concerned are submitted to the register within 30 days of the meeting.
3. What are the duties of secretary regarding extra- ordinary general meeting?
Ans:
i. The necessity for convening such a meeting must be decided on the basis of situation,
subject matter, urgency and importance of the matter.
ii. If the requisitionists call for a meeting, the secretary has to consult the board but the
convening a board meeting to take a decision.
iii. The secretary must ensure that the notice is properly given, disclosing whether it is
convened by the company law board, including the draft of the special resolution proposed
to be passed. He must attach the explanatory statement setting out the material facts.
iv. He must prepare the agenda in consultation with the chairman. Necessary registers for
attendance, proxy register etc., must display before the meeting is commenced.
v. Seating arrangements with light refreshment should be arranged by the secretary.
vi. Proxy forms and necessary register and arrangement for conducting poll must be prepared
by secretary.

Duties of the secretary during the meeting:

i. The secretary has to ensure that persons who are admitted to attend and participate with
meeting are eligible.
ii. He has to produce such records, registers and other documents that may be required by the
chairman for clarification of doubts expressed buy the members.
iii. He has taken down notes on the proceedings of the meeting for preparation of minutes.

UNIT – IV
SECTION-A
1. What is the meaning of Dividend?
Ans: The term Dividend" is derived from the Latin term "dividend" meaning that which
is company to be divided. The profits of the company distributed to the members shall be
called the Dividend.
2. What is Dividend Warrant?
Ans:The cheque issued by the company to the shareholders for the amount of dividend is
known as the dividend warrant. The dividend warrant is sent along with a dividend notice
which gives particulars as to the meeting in which the dividend was declared, the rate of
 dividend, the period to which it relates, the gross amount due and the income tax collected
etc.
3. What is dividend mandate?
Ans:The shareholders who want the dividend due on their shareholdings to be paid directly to
his bankers should make a request to the company to pay the amount direct to their bankers
the request should be made in the prescribed form supplied bY the company. A completed
form of this type is known as divide mandate or dividend request.
4. What is interim dividend?
Ans:Interim dividend is usually declared in between two annual general meetings. The
interim dividend is usually declared the board of directors in anticipation of profit to be
calculated at the end of the year. Declaration of Interim dividend depends upon the financial
position of the company and its earning capacity.
5. What are the documents to be submitted at the annual general meeting?
Ans:*Profit and Loss Account for the period
*Balance Sheet as on that date.
*A report of the directors.
6. What are Statutory Books?
Ans:Statutory books are those books which a company is required to maintain under law.
Failure to maintain these books shall attract penalty to the management of the company.
7. Define Audit?
Ans:Audit means vindication of the recorded transactions of the firm's incomes and expenses
supported by hills and vouchers. It also involves examination of their transactions
incorporated in the books of accounts as entries.
8. Define dividend.
Ans:"Dividends are profits of a trading company divided amongst the members in proportion
to their shares. Such proportion may be determined by the articles, if not, dividend is paid on
each share in proportion to the nominal values of that share".
9. What is the penalty for failure to maintain proper books of accounts?
Ans:The persons responsible for maintenance of accounts who are in default will be liable for
imprisonment up to six months or fine up toRs. 10,000 or both. However, the act specifically
mentions that no imprisonment can be awarded if there is no wilful default. Only fine can be
imposed in those circumstances.
10. What are optional books?
Ans:Optional books are those books which a company is not bound to keep under law. Most
of the companies maintain these books to ensure efficiency in performance. These books are
also known as non-statutory books.
11. What is unpaid dividend Account?
Ans:Unpaid and Unclaimed dividend account (sec205 B): Any person, who is legitimate
claim to the dividend amount transferred to the investor Education and Protection fund will
have to apply either to the authority concerned or to the committee formed for that purpose.
The authority concerned or the foresaid committee on being satisfied with the bonfires of the
claim either. Partially or fully in settlement, shall order payment of the dividend after taking
necessary securities from the claimants.
12. State the qualifications of an auditor?
Ans:Unless a person is a qualified with the meaning of the Chartered Accountant act 1949 he
or she cannot be appointed as an auditor either in a Public Ltd company or private company.
Unless all the partners of the firm are qualified Chartered Accountant firm cannot act as an
auditor for a company or companies as such.
13. Who is a first auditor?
Ans:The first auditor of the company is appointed by the board of directors. The first auditors
have to appointed within one month from the date of registration of the company. The
auditors so appointed by the board shall hold their office until the conclusion of the first
annual general meeting. If the Board of directors fails to appoint the first auditors, the
company in general meeting may appoint the first auditors.
14. When subsequent auditors are appointed?
Ans:Appointment of auditor shall be made by members at First AGM and every subsequent
6th AGM. Company shall intimate the auditor about appointment. After intimating, company
shall obtain written consent and certificate from auditor. Then, company is required to file a
notice with the registrar about the appointment within 15 Days of the meeting. The Auditor
shall hold office for a period of 5 Years.

SECTION – B
1. What is the Distinction between Interim Dividend and final Dividend?
Ans:
Interim Dividend Final Dividend
1) Declared by the board of directors. Declared by shareholders in the annual
general meeting.
2) Declared before the preparation of Can be declared only after the accounts are
final accounts. prepared.
3) Relates to part of the year i.e., Relates to the full year
usually 6 months.
4) Can be declared only when articles Need not be any express provision in the
permit. articles for declaring final declaration.
5) Interim dividend once declared shall Final dividend once declared shall become
not become a debt due from the a debt due from the company.
company to the shareholders.
6) The directors are also empowered to The shareholders once declared a final
cancel the declaration of the interim dividend cannot cancel the declaration.
dividend after it is declared.

2. HOW ARE BOOKS OF COMPANY CATEGORIES?

Ans:
STATUTORY BOOKS
OPTIONAL BOOKS
I. SATUTORY BOOKS: Statutory books are those which are these is required to
maintain under law. Failure to maintain these books shall attract penalty to the
management of the company. The following are the statutory books.
(a)Resister of investments
(b)Register of charges
(c)Register of members
(d)Index of members
(e)Register of debenture holders
(f)Index of debenture holders
(g) Foreign register of members and debenture holders (in duplicate)
(h) Minutes of books
(i) Register of contracts with companies and firms which the directors are interested
(k) Register of director’s shareholding
(l) Register of investments in shares and debentures of other companies
 (M) Register of loans made, guarantees (or) securities provided
(n) Register of fixed deposits
(o) Cost account records
(p) Register of renewed and duplicate share certificates.

II. OPTIONAL BOOKS: Optional books are those books which a company is not bound to
keep under law. Most of the companies maintain these to ensure efficiency in performance.
The following are the optional books as non-statutory books. The following are the optional
books generally maintained by the companies.

(a)Register of transfers
(b) Register of documents sealed
(c) Register of certification
(d) Register of balance tickets
(e) Share application and allotment book
(f) Register of shares warrants
(g) Director’s attendance books
(h) Register of probates and letters of administration
(i) Register of dividend mandates
(j) Register of lost certificates
(k) Log book
(l) Proxies record
3. What are the various returns that are to be filled with the registrar?

Ans:

Return as to allotment
Return to directors
Return as to alteration of memorandum
Return as to alteration of share capital
Annual return
Return of charges
Return of resolution and agreements.
4. What are the charges that require registration with the registrar of companies?
Ans:
• A change for the purpose of security any issue of debentures.
• A charge on uncalled capital of the company
• A charge on any immovable property
• A charge on any book debts of the company
• A charge on any movable property of the company
• A charge on calls made bit not paid.
• A charge on a goodwill, on a patent right, on a trade mark, on as copyright.
• A floating charge on the undertaking or any property of the including stock
in trade.
5. Explain the statutory powers of an auditor?
Ans:
• The auditor has a right of access the to the bokks of accounts of the
company including its branches and subsidiaries at all times.
• He can examine any officers of the company call for explanation and
record statements pertaining to the state of affairs of the company.
• He is entitled to visit the branches and subsidiaries of the company and
examine the accounts.
• He is entitled to receive all notices and other communications relating to
any general meeting of the company.
 • He is entitled to be heard at the general meeting an any part of business
concerning him.
• He is entitled to obtain his remuneration on completion of the work.

The report of the auditor must strictly be submitted according to the prescribed manner as laid down
by the companies Act.

SECTION – C

1. What are the duties of the company secretary regarding maintenance of books?

Ans:*To see that the books and registers required to be maintained by every company under the Act
are properly maintained.

*To see that the statutory books and annual returns contain, particular required under the
Act.

*To see that the statutory books and returns are kept at the registered office of the company.

*To see that the statutory books and returns are open tt inspection by the members and
outsiders two hours on every working day and to realise the requisite fees from
outsiders for such inspection.
*To supply copies of registers and books to members and outsiders on application after
realising the requisite charges.
*To see that proper books of accounts are maintained at the head office and separately at
branch office.
*To see that proper summarised returns of branch accounts are received at the head office
at intervals of not more than 3 months.
*To open the books of accounts, for inspection by the registrar of companies or any
officer appointed by the central Government at any time they demand and to produce all
books, documents and papers and to supply all information, statements and explanations
required by the person making the inspection.
*To comply with the direction of the national comply law tribunal for the rectification of
any omission or mis-statement in the register of members and register of charges.
* To see that the annual return is prepared properly in the form prescribed by the act
and filed with the registrar of companies within 60 days of the annual general meeting.
*To see that the non-statutory statistical and other books of the company are
maintained properly as per the provisions of articles and directions of the board.

2. What are the duties of company secretary regarding payment of dividend?

Ans:*To close the share transfer book, dispose of all pending transfers and to make the
register of members up-to-date on the basis of the authority derived from board of directors
of the company.
*The secretary will draft the forms of the dividend notice and warrant and make
arrangements for their printing.
*After closing the register of transfer, the secretary will prepare a list of registered
members showing the names and address of the members, the number of shares held, the
gross dividend payable, the amount of income tax to be deducted and the net amount
payable to each member.
 *The secretary will complete the dividend "Notice and Warrants" and get them signed by
two directors or put his own signature if he is empowered to do so.

*The secretary will arrange to open a special dividend account with the company's bankers and
the necessary funds required to pay, as dividend will be transferred to that account.

*The secretary will also make arrangements with the bankers for the payment of dividends.

*In case, the company has issued share warrants, the secretary will send a notice of
declaration of dividend to the press for information of share warrant holders.

*The secretary will make arrangement for despatching dividend warrants by post to the
registered members within 30 days of declaration of dividend.

*The secretary must ensure that the approval of reserve bank has been obtained under the
foreign exchange management act 1999, before the dividend is remitted to the non-resident
shareholders.

*The secretary must see that the income tax deducted at source from the dividend is
deposited with the government within seven days from the date of dividend warrant.

* If the dividend is not paid within 30 days of declaration or the dividend warrant is not sent
within that period, the secretary must see that the total amount of such unpaid or unclaimed
dividend is transferred to a special account in a scheduled bank to be called “Unpaid dividend
account” within 7 days of the expiry of 30 days from the declaration of dividend.

* If the money transferred to the “Unpaid Dividend Account” remains unpaid or unclaimed for
a period of 3 years, the secretary should make arrangement for transferring such money to the
“General Revenue Account” of the central government along with a statement in the prescribed
form.

3. What are the rules relating to books of accounts?

Ans:

Books of accounts to be maintained (sec 209(1)):

I. According to section 209(1) of the Act, every company should maintain

proper books of accounts, which disclose the following:
a. All sums of money received and expenditure made by the company and
the matter to which they relate.
b. All sales and purchases of goods by the company.
c. The assets and liabilities of the company.
d. In case of a company engaged in production, processing, manufacturing
or mining activities, particulars relating to utilisation of material or
labour or other items of cost as may be prescribed by the central
government.
II. Location of the books (sec209 (2)): The Act specifically states that books of
accounts should be maintained at registered office of the company. The
following provisions can be noted at this stage.
 a. If the directors decide to keep the books in any other place, they can keep
the books at the desired place. But they should communicate their
decision to the registrar within 7 days of taking such decisions. Full
address of the place should be informed to him.
b. If the company has a branch office, the books of accounts relating to the
transactions made at the branch office, must be kept at the branch,
however, summarised accounts at intervals of not exceeding 3 months
should be sent to the registered office.
III. Period of preservation of accounts (sec 209(4)): The books of accounts of
each year along with the relevant documents and vouchers must be preserved
in good condition for a period of 8 years.
IV. Responsibility of keeping the books: The Act fixes responsibility for the
maintenance of the books on two alternate categories of persons. They are as
follows:
a. Where the company has a managing director or manager, such managing
director or manager and all officers and other employees of the company.
b. Where the company has neither the managing director nor a manager,
every director of the company.
V. Inspection of books of accounts of companies:
a. The books of accounts shall be open to inspection during business hours
by the following persons.
b. Registrar.
c. Officer of the government as authorised by the central government.
d. Officer of SEBI as authorised by it.
4. Distinguish between Dividend and Interest?
Ans:
Dividend Interest
1. Dividend is a portion of the divisible Interest is the considerstion payable to the
profits payable to the members. lender of money for the use of that amount.
2. Dividend is payable out of profits, Interest is payable even out of capital.
except when the government has
sanctioned it.
3. The dividend is paid after it is Interest, being a compulsory payment,
recommended by the board of requires such recommendation or and
directors declared in the general sanctions.
meeting.
4. Income by way of dividends is Interest is a certain and constant figure.
uncertain and varies with the progress
of the company.
5. Dividend does not attract interest if Interest must be paid when due, otherwise
payment is delayed. the company has to pay the interest on the
arrears.
6. Dividend is not payable on calls paid Interest is payable on any advanced by a
amount in advance. creditor.
 5. What are the qualifications and disqualifications of an auditor of a company? Explain
his rights?
Ans: Qualifications and disqualifications of an auditor:
Qualifications:
Unless a person is a qualified with the meaning of the chartered accountant Act 1949 he or
she cannot be appointed as an auditor either in a public limited company or private
company.Unless all the partners of the firm are qualified chartered accountants the firm
cannot act as an auditor for a company or companies as such.

Disqualifications:

The under mentioned persons are disqualified for appointment as auditor of a company;

a. A body corporate
b. An officer or employee of a company
c. A person who is a partner or who is in the employment of an officer or employee of the
company.
d. A person who is in debited to the company to the extent of a sum exceeding of Rs. 1000 to the
company.
e. A person who is disqualified for any other reason. If an auditor after the date of his
appointment becomes affected with any of the above mentioned disqualification then he is
deemed to have vacated his office.
The above disqualification is applicable to all companies whether public, private or
government companies.

UNIT –V

SECTION –A

1. Define the term “Winding Up”.

Ans: The term “Winding up” signifies a process, “whereby he functioning of the company is
put to an end by the disposal of the assets of the company so as to benefit its creditors and its
members. Thus the process of winding up involves the realisation of the assets, payment of
the liabilities and distribution of the surplus among the members of the company”-Justice
Grover.
2. State the difference between winding up and dissolution.
Ans: Winding up is one of the processes or stages in dissolution. In fact Winding up precedes
dissolution. On dissolution of the company, It ceases to exist and its name is struck off from
the register of companies by the registrar, which has got to be given a wider publicity in
notifying in the official gazette.
3. What are the modes of winding up?
Ans:
a) Compulsory winding up under order of the court.
b) Voluntary winding up
c) Voluntary winding up subject to the supervision of the court.
4. Who may file the petition for winding up?
Ans: An application for winding up of a company may be submitted by the following
persons;
 • By the company
• By the creditor or creditors
• By the contributory or contributories
• By all or any prior parties
• By the registrar
• By the central government
• By the official liquidator.
5. Who is a liquidator?
Ans: The term, “Liquidator” means to close down the business and all the assets will be
realised at the best prices and the amount realised will be settled among the creditors and
members in the order of preferences. These jobs are activities have to be done by an
individual person officially appointed. Such person who is entrusted with above task is known
as liquidator.
6. What is the order for discharge of liabilities?
Ans: On realisation of the assets,the liquidator has to finalise the list of claimants. The order
will be as under;
Costs and expenses of winding up
Preferential creditors
Creditors secured on fixed charge, creditors secured on floating charge
Unsecured creditors.
7. What are the 3 aspects required for member’s for voluntary winding up?
Ans:i) Declaration of solvency certificate
ii) Passing of an ordinary or special resolution by members at an extra ordinary general
meeting.
iii) Filing of necessary documents with registrar in this regard.
8. What is meant by contributory?
Ans: Contributory refer to person who are liable to contribute to the assets of the company
in the event of winding up contributories include not only the holders of partly-paid shares,
who are liable to contribute the unpaid amount on their shares, but also the holders of fully
paid shares who are entitled to a share in the surplus, if any.
9. Differentiate between compulsory winding up and voluntary winding up?
Ans: The main differences between compulsory winding up and voluntary winding up are;
Compulsory winding up of a company is brought about by an order of the copurt,
whereas voluntary winding up is brought about either by the members or by the
creditors of the company without the intervention of the court.
Compulsory winding up is of only one type. But voluntary winding up is of two types
viz a. Members voluntary winding up; b. creditors voluntary winding up.
In case of compulsory winding up, the liquidator is appointed by the court. On the
other hand, in the case of voluntary winding up, the liquidator is appointed either by
the members or by both the members and the creditors.
Voluntary winding up is more convenient than compulsory winding up.
10. What is corporate restructuring?
Ans:Corporate restructuring is a comprehensive process by which a company can
consolidated or re arrange its organisational setup or business operations and strengthen its
position so as to achieve its short term and long term objectives and establish itself as a
synergetic. Dynamic,continuing as well as successful independent corporate entity in the
competitive environment.
 SECTION – B
1. What is winding up? What are the reasons for winding up?
Ans: Winding up of company is the process whereby its life is ended and its property
administered for the benefit of its creditors. An administrator, called liquidator, pay its
debts and finally distributes any surplus among the members in accordance with their
rights.

In other words, winding up or liquidation of a company is a legal process by which the

business of a company is closed, i.e., the assets of the company are realized, its creditors are
paid off and the surplus , if any is distributed among the members in accordance with their
rights as provided in the articles of a company.

Reasons for the winding up of a company:

When a company is wound up, it does not necessary mean that it has become insolvent .Even
a solvent company may be wound up, if the members of the company decide to do so. For
instance, a solvent company may be wound up for the purpose of reconstruction and
amalgamation. Some of the followings are reasons under which a company can winding up of
a company or;

• If the main objects of the company for which it was formed have been accomplished
• If the company is unable to carry out its main objects
• If the company has to dispose of its business or undertaking to another company or
concern.
• If the company has become insolvent (i.e. if the company is unable to pay its creditors
in full).
2. What is meant by voluntary winding up? Explain the procedure for voluntary
winding up?
Ans: Voluntary winding up refers to the winding up of a company either by its member
or by its creditors without eh interference of the court. In voluntary winding up, the
shareholders and the creditors of a company settled their affairs themselves without going
to the court, though they may apply to the court for directions or orders, if and when
necessary.
Procedure
I. Procedure for members voluntary winding up: The following procedure is, voluntarily
followed in the case of members winding up.
Making and filing of a declaration of solvency of the company.
Passing of the resolution at an extraordinary general meeting, publication of the same
in the official gazette and local newspapers and filing a copy of the same with the
registrar of the companies.
Appointment of liquidator or liquidators
Commencement of liquidation proceedings by the liquidator
Calling of the general meeting of the member’s by the liquidator at the end of each
year and presentation of his report and statement on winding up.
Calling of the final meeting of the members and presentation of detailed final
accounts of the winding up proceedings by the liquidator.
Filling of the certified copies of final accounts of the wnding up of the company with
the registrar of companies and also with the official liquidator.
 Making of a thorough scrutiny of books of account of the company by the official
liquidator.
Dissolution of the company.
Calling of the creditors meeting in case of insolvency.
II. Creditor’s voluntary winding up: The voluntary winding up in which the declaration of the
solvency of the company is not made by the directions and so is controlled and supervised by
the creditors of the company is known as creditors voluntary winding up. In short, the
winding up which takes place at the instance and under the control and supervision of the
creditors is called creditors winding up.
Circumstances under which the creditors of the voluntary winding up takes place:
A creditor’s voluntary winding takes –place when a company is unable to pay its
liabilities in full (i.e. when a company is insolvent) and still wants to undergo voluntary
winding up.
Procedure for creditor’s for voluntary winding up: The following procedure is generally,
followed in the case of creditors voluntary winding up.
Convening the meeting of the members and the meeting of the creditors.
Presentation of statement of affairs before the creditors meeting.
Passing of resolution for the voluntary winding up and appointment of liquidators.
Filling of the copy of the resolution for voluntary registrar of winding up with the
companies.
Appointment of the committee of inspection by the creditors
Fixation of the remuneration of the liquidator
Sessesion of the powers of the board of directors and the commencement of the
liquidator proceedings by the liquidator.
Calling of the meeting of the members and the creditors the liquidator at the end of
each year and presentation of his report and statement on winding up
Calling of the final meeting of the members and the creditors and the presentation of
the final accounts of the winding up proceedings by the liquidator.
Filling of the certified final account of the winding up with the registrar of the
companies by liquidator.
Dissolution of the company.
3. Mention the circumstances under which a court can order winding up of a
company?
Ans: Compulsory winding up of a company is brought about by an order of the court
If the company, of its own accord passes a special resolution that it should be
wounded by the court and presents a petition to the court for the winding up.
If the company makes a default in filling the statutory report with the registrar of
companies or in holding the statutory meeting either the prescribed time.
If the company does not commence within one year from the date of its
incorporation or suspends its business for the whole year.
If the number of members falls below 7 in the case of public company and below
2 in the case of a private company.
If the company is unable to pay its debts.
If the court is of the opinion that it is just and equitable that the company is
wound up.
4. Distinguish between winding up and dissolutions?
Ans: i) In winding up the assets of a company are sold. The proceeds there from or
utilised for the payment of liabilities of a company. It is the first stage where by the
 existence of a company ends. While dissolution is the second stage and after this the
company remains no more in existence.
ii) The winding up proceeding, are carried out by liquidator of the company while is
dissolution no such proceedings are carried out.
iii) The liquidator represents the company in case of winding up but no such
representation is made by the liquidator in dissolution.
iv) Creditors can prove their debts in the winding up but not in the dissolution of the
company.
Order of the court not essential in winding up because voluntary winding up may also
take place while for dissolution the order of court is essential.

5. Who can present petition for winding up of a company briefly explain?

Ans: Section 439 and application for winding up of a company may be submitted by the
following persons.
By the company
By the creditor or creditors
By the contributory or contributories (shareholders)
By all or any prior parties shareholders together or separately.
By the registrar
By the central government.
a. Petition by the company(section 439(1)(a):Company never submits a petition for
winding up of company could be achieved more conveniently by passing a special
resolution in a company meeting for voluntary winding up on behalf of the company.
A Managing director cannot file on application for winding up the affairs of the
company as he cannot unilaterally act without the sanction or approval of the general
body.
b. Petition by any Creditor or Creditors (439 (1)(b):The term creditor has a wider
comprehension in the sense that it include not only persons to whom a depth is due
but it is also includes person having a claim against the company in any manner. A
company which has paid the principal loan amount after filling of the suit against it
but unable to pay the interest due on it, will become justifiable for winding up the
company.

SECTION – C
1. What are the powers of the official liquidator? Or what is the legal status of the
liquidator?
Ans: (I) with the approval of court, the liquidator can exercise the following powers:
a. To defend any suit prosecution or other, legal, civil or other criminal proceedings in
the name or on behalf of the company.
b. Any liability incurred by the liquidator for the limited purpose of carrying on the
business for winding up the company shall rank for payment in priority to the other
general debts and liabilities of the company.
c. To sell or dispose off movable and immovable assets, per sue actionable claims of the
company either by private contracts or by public action.
d. To raise loan on the security of the assets of the company.
e. To render all such service as may be necessary for winding up of the affairs of the
company and distributing its assets and setting the lists of creditors and
contributories.
 f. To engage and advocate or attorney or pleader to conduct legal proceedings before
the court in connection with matter relating to winding up of the company.

(II) Without obtaining the permission from the court, the liquidator can exercise the following powers:

a. To do all acts of routine nature in the name of the company on behalf of the company
including execution of all deeds, receipts and other document by using thecommon seal of the
company.
b. To inspect all records and returns of the company without payment of any fee.
c. To prove the rank and claim in the solvency of any contributory for any balance against his
estate and to receive dividend in the insolvency.
d. To draw, accept, make and endorse any negotiable instruments such as pronote,bill of
exchange in the name of the company.
e. To take out letters of administration in his official name to the estate of a diseased
contributory for obtaining payment.
f. To avoid fraudulent preferences done within 6 months before the commencement of winding
up.
g. To appoint an agent on his behalf to execute the work entrusted to him.
h. To avoid objectionable voluntary transfers made within a year before the commencement of
winding up the order.
2. Explain the provisions applicable to creditors voluntary winding up.
Ans: Where a company proposes to windup voluntarily and the directors are not in a position
to make the statutory declaration of solvency, the winding up is said to be a creditors
voluntary winding up. The following are the provisions related to the creditors voluntary
winding up:
a. A company shall convene the creditors meeting on the day or next
following day on which a resolution for voluntary winding up is
proposed in the general meeting.
b. The company shall give notice of resolution passed at the creditors
meeting to the registrar within 10 days of its passing.
c. The creditors and the company shall appoint a person as liquidator.
d. Appointment of committee of inspection with representatives from
members and creditors equal in number to monitor the winding up
proceedings.
e. Liquidator’s remuneration is fixed either by the committee or inspection
or the creditors in their meeting.
f. On appointment of liquidator, all the powers of the board shall come to
an end.
g. The creditors in their meeting may fill up any vacancy caused in the
office of the liquidator.
h. Where the winding proceedings continues for more than a year the
liquidator shall call a general meeting of the company and a
corresponding meeting of the creditors at the end of the first year and at
the end of each subsequent years.
i. As soon as the affairs of the company are wound up, the liquidator shall
make up the account duly audited and lay before the general meeting.
6. What do you mean by voluntary winding up? Explain its types.
Ans: Voluntary winding up refers to the winding up of a company either by its members
is by its creditors without the interference of the court. In voluntary winding, the
shareholders and the creditors of a company settle their affairs themselves without going
to report, though they may apply to the court for directors or orders, if and when
necessary.
Modes or types of voluntary winding up:
There are two types of voluntary winding up. They are
1. Members voluntary winding up
2. Creditors voluntary winding up
A members voluntary winding up refers to a voluntary winding up which takes place
at the instants under the control and supervision of the members of the company, and
in which a declaration of the solvency of the company has been made by the board
and the same has been find with the registrar of companies.
Creditor’s voluntary winding up:
The voluntary winding up in which the declaration of the solvency of the company is
not made by the directors and so is controlled and supervised by the creditors of the
company is known as creditor’s voluntary winding up. In short the winding up which
takes place and under the control and supervision of the creditors is called creditors
winding up.
Circumstances under which the creditors voluntary winding up takes place:
A creditor’s voluntary winding takes place when a company is unable to pay its
liabilities in full .and still wants to undergo voluntary winding up.