Legum Baccalaureus (LLB) -PAPER-IV: COMPANY LAW 3rd Semester Syllabus Short Notes
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PAPER – IV
UNIT – 1
Corporate Personality
Corporate personality refers to
the legal concept that a company is recognized as a distinct entity separate
from its members. This separation provides the company with rights and
liabilities, allowing it to enter into contracts, own property, and sue or be
sued in its own name.
General Principles of Company Law
General principles of company law
include the concepts of corporate personality, limited liability, separate
legal entity, and the ability to transfer shares. These principles collectively
govern the formation, operation, and dissolution of companies.
Nature and Definition of Company
A company is a legal entity
formed under the applicable company law. It has a separate legal existence from
its members, enabling it to engage in business activities, own assets, and
incur liabilities. The nature of a company involves features such as perpetual
succession, limited liability, and transferability of shares.
Private Company and Public Company
Private Company: A private
company is characterized by restrictions on the transfer of shares and a
limited number of members (usually up to 200). It cannot invite the public to
subscribe to its shares and often has a more closely held ownership structure.
Public Company: A public
company can offer its shares to the public, subject to regulatory compliance.
It generally has more extensive reporting and disclosure requirements compared
to a private company.
One Person Company
A One Person Company (OPC) is a
type of private company that can be formed with only one member. This allows a
single entrepreneur to enjoy the benefits of limited liability, similar to
larger companies. OPCs are subject to specific regulations to ensure proper
corporate governance.
Characteristics of a Company
·
Separate Legal Entity: A company is a distinct
legal entity separate from its members.
·
Limited Liability: Members' liability is limited
to the extent of their investment.
·
Perpetual Succession: A company continues to
exist even if members change.
·
Transferability of Shares: Shares can be bought
and sold freely (in public companies).
·
Common Seal: Acts as the official signature of
the company.
Different kinds of Company
·
Private Company: Restricted transferability of
shares, limited members.
·
Public Company: Can issue shares to the public,
more regulatory requirements.
·
One Person Company (OPC): Formed with a single
member.
Registration & Incorporation of Company
Registration: The process of
providing details to the Registrar of Companies.
Incorporation: The creation of a
legal entity, involving the issuance of a Certificate of Incorporation.
Lifting the Corporate Veil
Legal Doctrine: The principle
that separates a company's legal identity from its shareholders may be
disregarded in certain situations.
Fraud or Wrongful Conduct: The
court may lift the corporate veil if the company is used for fraudulent
purposes or to evade legal obligations.
Company distinguished from Partnership, HUF and LLP.
·
Partnership: Involves a relationship between
individuals with shared profits and liabilities.
·
HUF (Hindu Undivided Family): A family business
structure governed by Hindu law, not a separate legal entity.
·
LLP (Limited Liability Partnership): Combines
features of a partnership and a company, providing limited liability to its
partners.
UNIT – 2
Promoters
Definition: Promoters are
individuals or a group of individuals who take the initiative to form a
company. They conceive the idea of the company, assemble the necessary
resources, and undertake the steps for its incorporation.
Role: Promoters play a crucial
role in the birth of a company by identifying business opportunities, raising
initial capital, negotiating contracts, and setting the groundwork for the
company's operations.
Fiduciary Duty: Promoters owe a
fiduciary duty to the company, requiring them to act in its best interests and
disclose any personal benefits derived from their position.
Memorandum of Association
Definition: The MOA is a
fundamental document that outlines the company's constitution and defines its
objectives, powers, and scope of activities.
Contents: It includes details
such as the company's name, registered office, objects (main and ancillary),
liability of members, and authorized share capital.
Alteration: The MOA can be
altered, but any change must comply with the provisions of the Companies Act
and receive approval from shareholders.
Doctrine of Ultra vires
Meaning: "Ultra vires"
is a Latin term that means "beyond the powers." The doctrine of ultra
vires prevents a company from acting beyond the scope of powers defined in its
MOA.
Effect of Ultra Vires Acts: Acts
performed ultra vires the MOA are considered void and unenforceable. The
doctrine aims to protect the company's interests and the interests of
shareholders by ensuring that the company operates within its authorized framework.
Exceptions: Modern company law
has significantly restricted the application of the ultra vires doctrine. Many
jurisdictions now allow companies to engage in activities not explicitly
mentioned in the MOA as long as they are within the general scope of the
company's business.
Articles of Association
Definition: AOA is a document
that contains the rules and regulations governing the internal management and
administration of a company. It complements the Memorandum of Association (MOA)
and provides guidelines on how the company should operate internally.
Contents: AOA typically covers
matters such as the rights and duties of shareholders, the appointment of
directors, conduct of meetings, and distribution of profits.
Alteration: AOA can be altered,
but the changes must comply with the Companies Act and usually require
shareholder approval.
Doctrine of Indoor Management
Meaning: The Doctrine of Indoor
Management protects outsiders who deal with a company from the internal
irregularities or unauthorized actions by the company's officers. Unlike the
Doctrine of Ultra Vires, it focuses on protecting external parties.
Rule: While outsiders are
presumed to be aware of a company's public documents (MOA and AOA), they are
not expected to know about internal irregularities. Therefore, an outsider
dealing with the company in good faith is protected even if the company's internal
procedures have been violated.
Prospectus
Definition: A prospectus is a
legal document issued by a company to invite the public to subscribe for its
shares or debentures. It provides information about the company's operations,
financial status, and the securities being offered for public subscription.
Types: Prospectuses can be
classified into different types, such as a Red Herring Prospectus (issued
before the IPO without final issue details), a Shelf Prospectus (allowing
multiple issues within a specified period), and a Deemed Prospectus (documents considered
as a prospectus in certain situations, like during a takeover).
Civil and Criminal
Civil Aspects: In company law,
civil aspects involve disputes between private parties, such as shareholders or
directors. Remedies are typically sought through civil proceedings, and
outcomes may include damages or specific performance.
Criminal Aspects: Criminal
aspects involve offenses against the state or public interest. For example,
fraudulent activities in the context of company law may lead to criminal
charges. Regulatory authorities may prosecute individuals for violations of company
law regulations.
Compounding of offences under Sec. 441
Section 441: In the context of
company law, Section 441 of the Companies Act provides the power to compound
certain offenses. Compounding involves a settlement between the company and the
person accused of an offense, where the accused agrees to pay a sum of money in
exchange for dropping legal proceedings.
Offenses: Compounding is
typically applicable to offenses of a less serious nature and is subject to the
approval of the Tribunal or the Regional Director.
Decriminalization
Meaning: Decriminalization refers
to the process of removing criminal penalties for certain offenses. In the
context of company law, it involves reclassifying certain offenses as civil
wrongs, reducing the severity of penalties.
Objective: The aim of
decriminalization is often to promote ease of doing business, reduce the burden
on the legal system, and focus on remedial measures rather than punitive
actions for minor regulatory violations.
Liability for misstatement in prospectus
Prospectus: A prospectus is a
legal document issued by a company to invite the public to subscribe to its
securities (shares or debentures).
Liability: Persons responsible
for the prospectus, including directors and experts, can be held liable for
misstatements or omissions. If the prospectus contains false or misleading
information, they may be held accountable for any losses suffered by investors
who relied on such information.
Statement in lieu of Prospectus
Definition: When a company does
not issue a prospectus for its initial public offering (IPO), it must file a
statement in lieu of prospectus with the Registrar of Companies. This document
provides information similar to a prospectus but is not an invitation for
public subscription.
Contents: The statement in lieu
of prospectus includes details about the company's history, financials, and the
shares offered.
Pre- incorporation Contracts
Definition: Pre-incorporation
contracts are agreements entered into by individuals on behalf of a company
that has not been formally incorporated yet.
Liability: Generally, the
person(s) entering into these contracts on behalf of the future company are
personally liable until the company adopts the contracts after its
incorporation. Once adopted, the company becomes bound by the terms of these
contracts.
Membership in a Company
Definition: Membership in a
company refers to the status of individuals who hold shares in the company.
Members are also known as shareholders or stockholders.
Rights: Members have various
rights, including the right to attend and vote at general meetings, receive
dividends, and participate in the distribution of the company's assets in case
of winding up.
Borrowing Powers
Authority: The borrowing powers
of a company are typically outlined in its Memorandum of Association (MOA) and
Articles of Association (AOA).
Limitations: The company can
borrow within the limits specified in its MOA or AOA. Borrowing beyond these
limits may require shareholder approval or a special resolution.
Debentures & Charges
Debentures: Debentures are debt
instruments issued by a company to raise funds. Holders of debentures are
creditors of the company and are entitled to receive interest and repayment of
the principal amount.
Charges: A charge is a security
interest created over the company's assets to secure the repayment of a loan or
debenture. Charges can be fixed or floating, depending on the nature of the
asset.
insider trading of company shares.
Definition: Insider trading
involves buying or selling a company's shares based on non-public, material
information. It is considered illegal in many jurisdictions.
Regulation: Insider trading is
regulated to ensure fairness and prevent individuals with privileged
information from gaining an unfair advantage in the stock market. Regulatory
bodies impose strict penalties for violations.
UNIT - 3
Shares & Stock
Shares: A share represents
ownership in a company and constitutes a portion of its equity. Shareholders
are entitled to certain rights, including voting at meetings and receiving
dividends.
Stock: Stock is a collection of
shares in a company held by an individual or entity. While "shares"
represent ownership in a specific company, "stock" refers to shares
in general.
Kinds of shares
Equity Shares: Holders of equity
shares are the true owners of the company, with voting rights and a claim on
the company's profits.
Preference Shares: Preference
shareholders have a preference in receiving dividends over equity shareholders.
They may not have voting rights but have a claim on assets in case of
liquidation.
Debentures with a Right to
Convert into Shares: Holders of convertible debentures have the option to
convert their debentures into equity shares at a predetermined ratio.
Statutory restrictions on allotment of shares
Minimum Subscription: A company
cannot allot shares unless a minimum subscription amount, as stated in the
prospectus, has been subscribed by the public.
Time Limit for Allotment: There
are specific time limits within which shares must be allotted after the closure
of the subscription list, as outlined in the Companies Act.
Intermediaries
Definition: Intermediaries in the
context of securities and shares refer to entities that facilitate transactions
between buyers and sellers in the stock market.
Examples: Intermediaries include
stockbrokers, investment banks, and depository participants. They play crucial
roles in the buying and selling of shares, ensuring smooth and regulated
transactions.
Call on shares for future of shares
A "call on shares"
refers to a demand made by a company on its shareholders to pay the remaining,
or yet-to-be-paid, portion of the nominal value of shares held by them.
Purpose: Companies may issue
shares with a portion of the nominal value payable at the time of subscription
and the remainder to be paid when the company calls for it. This allows the
company to raise capital gradually.
Transfer of shares
Definition: The transfer of
shares involves the sale or transfer of ownership of shares from one person
(the transferor) to another (the transferee).
Procedure: The transfer typically
requires the completion of a share transfer form, the surrender of the share
certificate, and the updating of the company's records.
Transmission of shares
Transmission of shares refers to
the process by which the ownership of shares is transferred from one person to
another upon the death or insolvency of the original shareholder.
Procedure: Unlike a voluntary
transfer, transmission generally does not require a formal transfer deed.
Instead, the legal heirs or representatives of the deceased shareholder provide
necessary documents to establish their entitlement.
Reduction on transfer of shares
A reduction on the transfer of
shares refers to a reduction in the nominal value of shares during their
transfer from one shareholder to another.
Purpose: This reduction may occur
due to various reasons, such as a company's decision to reduce its share
capital or the issuance of bonus shares.
Rectification of register on transfer
The rectification of the register
on transfer involves correcting errors or updating the register of members
maintained by a company when shares are transferred.
Procedure: This process may be
initiated by the transferor, transferee, or the company itself to ensure
accurate and up-to-date information about share ownership.
Certification and issue of certificate of transfer of shares
A certificate of transfer is a
document issued by the transferor (seller) to the transferee (buyer) certifying
the transfer of shares. It is typically required before the company updates its
register.
Procedure: The transferor signs
the share transfer deed, which is then submitted to the company along with the
share certificate. The company certifies the transfer and issues a new
certificate in the name of the transferee.
Limitation of time for issue of certificates
The Companies Act or similar
regulations in various jurisdictions often stipulate a time limit within which
a company must issue share certificates after a transfer or allotment of
shares.
Compliance: Timely issuance of
share certificates ensures transparency and facilitates the smooth functioning
of the securities market.
Object and effect of share certificate.
The primary purpose of a share
certificate is to provide evidence of ownership of shares in a company.
Effect: A share certificate
acknowledges the rights of the shareholder, including the right to receive
dividends, participate in voting, and enjoy other benefits associated with
shareholding. It also serves as proof of title during the transfer of shares.
UNIT – 4
Directors
Directors are individuals elected
or appointed to the board of a company to oversee its management, make
strategic decisions, and ensure that the company operates in the best interests
of its shareholders.
women director
Requirement: In many
jurisdictions, there is a legal requirement for companies to have at least one
woman director on their board. This is part of efforts to promote gender
diversity and inclusion in corporate governance.
Purpose: The presence of women
directors is seen as a means to bring diverse perspectives to board discussions
and decision-making processes.
Independent director
An independent director is a
non-executive director who does not have any material or pecuniary relationship
with the company, its promoters, or its management.
Role: Independent directors are
expected to bring an objective and unbiased view to the board. They play a
crucial role in ensuring good corporate governance and providing oversight.
code for independent directors
The Code for Independent
Directors is a set of guidelines or principles that independent directors are
expected to follow to fulfill their responsibilities effectively.
Content: The code typically
outlines the roles, duties, and responsibilities of independent directors,
emphasizing integrity, professionalism, and ethical conduct.
Different kinds of Directors
1.
Executive Directors: These are directors who are
also part of the company's executive management team, often holding specific
roles like CEO or CFO.
2.
Non-Executive Directors: Directors who are not
involved in the day-to-day management of the company.
3.
Nominee Directors: Directors appointed by a
specific shareholder or group of shareholders, often as a result of an
investment or a significant stake in the company.
4.
Shadow Directors: Individuals whose instructions
or directions are followed by the board, even if not formally appointed as
directors. They are treated as directors in some jurisdictions.
Appointment, position, qualifications and disqualifications
Appointment: Directors are
appointed through various means, such as election by shareholders, nomination
by significant shareholders, or appointment by the board.
Position: Directors hold a
fiduciary position, owing duties of loyalty and care to the company and its
shareholders.
Qualifications: Qualifications
for directors may vary based on local laws and the company's articles of
association. Common qualifications include age, competency, and not being
disqualified under relevant laws.
Disqualifications:
Disqualifications may include bankruptcy, criminal convictions, or being
declared mentally unfit.
powers of Directors
Statutory Powers: Directors
derive their powers from the company's articles of association, statutory laws,
and shareholder resolutions.
Collective Decision-Making: While
individual directors may have specific powers, major decisions often require
collective approval by the board.
Limitations: The exercise of
powers is subject to legal and regulatory constraints to ensure proper
corporate governance.
Rights and Duties of Directors
Rights: Directors have the right
to access information, attend board meetings, and participate in
decision-making. They may also receive remuneration for their services.
Duties: Duties include the duty
of care, duty of loyalty, duty to act in good faith, and the duty to act in the
best interests of the company and its shareholders. Directors are also required
to avoid conflicts of interest.
Meetings and proceedings
Board Meetings: Directors
participate in board meetings where major decisions are discussed and made.
Regular board meetings are essential for effective governance.
Committees: Boards often delegate
certain responsibilities to committees, such as audit committees or
remuneration committees, composed of directors.
Minutes: Accurate minutes of
meetings are maintained to record decisions and discussions, serving as an
official record of board proceedings.
kinds of meetings
Board Meetings: Convened by the
board of directors to discuss and make decisions on various matters concerning
the company's management and operations.
General Meetings: Involving the
participation of shareholders or members, general meetings can be further
categorized into various types, including the annual general meeting and
extraordinary meeting.
Statutory meeting
Purpose: A statutory meeting is a
meeting held by a company shortly after its incorporation, as required by the
Companies Act or similar legislation.
Content: The meeting typically
involves presenting the company's financial and operational position, its
business plan, and other relevant information to shareholders. However, in many
jurisdictions, the statutory meeting requirement has been abolished.
Statutory report
Purpose: The statutory report is
a document that must be prepared by the directors and presented at the
statutory meeting.
Content: It provides an overview
of the company's financial position, the progress made since its incorporation,
and any other relevant information. If there is no statutory meeting, the
report must be sent to all shareholders.
Annual General Meeting
Frequency: The AGM is held
annually and is a legal requirement for most companies.
Purpose: The primary purpose of
the AGM is to discuss and approve important matters such as the annual
financial statements, the appointment or reappointment of directors, and the
declaration of dividends.
Extraordinary meeting
Purpose: An extraordinary
meeting, also known as a special meeting, is convened when specific urgent
matters arise that require the attention and approval of the shareholders
outside the regular AGM.
Content: Topics discussed in an
extraordinary meeting can include significant changes to the company's
structure, amendments to the articles of association, or other major decisions.
Power of the Tribunal to order meeting
Authority: In certain situations,
the Tribunal or court may have the authority to order a meeting of a company.
Purpose: Such an order might be
made to resolve disputes, ensure proper corporate governance, or address
specific concerns raised by shareholders or regulatory authorities.
class meetings
Definition: Class meetings are
gatherings of a specific class or group of shareholders who have similar rights
or interests.
Purpose: These meetings are often
convened to discuss matters that directly affect the interests of that
particular class, such as the modification of their rights or preferences.
Requisites for a valid meeting
Notice: Proper notice must be
given to all entitled participants, specifying the date, time, venue, and
agenda of the meeting.
Quorum: The minimum number of
attendees required for a meeting to be valid constitutes the quorum.
Agenda: Meetings should follow a
predetermined agenda, and discussions and decisions should align with the items
listed.
Chairman for meetings
Appointment: The chairman of a
meeting is often appointed in advance or elected at the beginning of the
meeting.
Role: The chairman is responsible
for presiding over the meeting, maintaining order, and ensuring that the agenda
is followed.
Duties of Chairman
Presiding: The chairman presides
over the meeting, opens and closes discussions, and facilitates the orderly
conduct of proceedings.
Decision on Points of Order: The
chairman decides on points of order raised during the meeting.
Casting Vote: In case of a tie in
voting, the chairman may have a casting vote to break the deadlock.
Ensuring Compliance: The chairman
ensures that the meeting complies with legal requirements and the company's
articles of association.
Proxy
A proxy is a person appointed by
a shareholder to attend and vote on their behalf at a company's meeting.
Procedure: Shareholders unable to
attend meetings can delegate their voting rights to a proxy through a written
authorization. Proxies are common in both general and class meetings.
Resolutions
Resolutions are formal decisions
or proposals made by shareholders during a company meeting.
Types: Resolutions can be
ordinary or special, depending on the nature of the decision. Ordinary
resolutions typically require a simple majority, while special resolutions
often require a higher level of approval, such as a 75% majority.
Minutes
Minutes are written records or
summaries of discussions, decisions, and actions taken during a meeting. They
serve as an official record of what transpired and what was agreed upon.
Content: Minutes typically
include details such as the date, time, and venue of the meeting, a list of
attendees, matters discussed, resolutions passed, and any other significant
points raised during the meeting.
Importance: Minutes play a
crucial role in maintaining transparency, ensuring accountability, and serving
as a historical record of the company's decision-making processes. They are
also vital for compliance and audit purposes.
Shareholders Activism
Shareholders activism refers to
the efforts of shareholders (individuals or groups) to influence a company's
policies, practices, or decision-making processes to align with their interests
or values.
Methods: Shareholders may engage
in activism through various means, including voting at meetings, proposing
resolutions, engaging with the board and management, or, in extreme cases,
pursuing legal action.
Objectives: Activist shareholders
often focus on issues such as corporate governance, executive compensation,
environmental practices, and social responsibility. The goal is to enhance
shareholder value and bring about positive change within the company.
Corporate Social Responsibility.
Corporate Social Responsibility
is a business approach that involves companies taking responsibility for their
impact on society. It encompasses ethical practices, environmental
sustainability, and community engagement.
Components: CSR initiatives may
include reducing carbon footprint, promoting diversity and inclusion,
supporting local communities through philanthropy, and ensuring ethical supply
chain practices.
Benefits: Adopting CSR practices
can enhance a company's reputation, build stakeholder trust, attract socially
conscious investors, and contribute to long-term sustainable business
practices.
UNIT - 5
Accounts and Audit
Accounts refer to the
financial records maintained by a company, including balance sheets, profit and
loss statements, and cash flow statements.
Audit involves the
independent examination of these financial records to ensure accuracy and
compliance with accounting standards.
Companies Act Reference: Section
128 of the Companies Act (specific sections may vary by jurisdiction) typically
mandates the maintenance of books of accounts, and Section 139 relates to the
appointment of auditors.
Inspection and Investigation
Inspection involves a
routine examination of a company's books and records by its members or
regulatory authorities.
Investigation is a more in-depth
examination often conducted by government agencies to look into specific
concerns, such as fraud or mismanagement.
Companies Act Reference: Section
206 (or similar provisions) may grant authorities the power to appoint
inspectors for an investigation, and Section 204 may cover the voluntary
inspection of books by members
Compromises, Reconstruction and Amalgamation
Compromises involve arrangements
with creditors or members, reconstruction alters the company's structure, and
amalgamation merges two or more companies.
Relevant Sections: Section 230
provides the legal framework for compromises, arrangements, or reconstructions,
and Section 232 may cover amalgamations.
Majority rule and Rights of minority share holders
Majority rule denotes decisions
made by a majority of shareholders, while the rights of minority shareholders
protect their interests against unfair prejudice.
Relevant Sections: Various
sections, including those related to shareholder meetings, resolutions, and
protection of minority interests (e.g., Section 241), address these principles.
Prevention of oppression and mismanagement
Prevention of oppression and
mismanagement involves legal measures to protect shareholders from unfair
treatment and prevent mismanagement within a company.
Relevant Sections: Sections 241
and 242 (or equivalent) empower shareholders to seek relief from the tribunal
in cases of oppression or mismanagement.
class action
Class action is a legal procedure
where a representative, typically a shareholder, files a lawsuit on behalf of a
group (class) of individuals with similar legal claims.
Relevant Sections: Companies Acts
may have provisions allowing for class actions, providing a collective remedy
for shareholders with common grievances.
Revival and rehabilitation of sick industrial companies
Revival and rehabilitation refer
to the legal and financial processes designed to restore and recover
financially distressed or "sick" industrial companies, ensuring their
survival and contribution to the economy.
Objective: The primary goal is to
prevent the premature closure of companies facing financial difficulties, which
may result from factors such as mismanagement, external economic challenges, or
industry-specific issues.
Legal Framework: In many
jurisdictions, the revival and rehabilitation of sick industrial companies are
addressed through specific legal provisions or a separate law dedicated to the
rehabilitation of financially distressed enterprises.
Mergers,
Amalgamation and Takeover
Mergers: Mergers involve
the combination of two or more companies into a single entity, typically with a
new name.
Amalgamation: Amalgamation
is a broader term encompassing mergers but may also refer to the blending of
assets and liabilities without necessarily forming a new entity.
Takeover: Takeover occurs
when one company acquires a significant portion of another company's shares,
leading to control or influence over its operations.
Dissolution of a company
Dissolution is the process of
formally closing down a company, resulting in the termination of its legal
existence.
Procedure: The dissolution
process typically involves settling outstanding obligations, distributing
remaining assets, and obtaining necessary approvals from regulatory
authorities.
Winding up of companies
Winding up, also known as
liquidation, is the legal process by which a company is systematically
dissolved, its assets are sold, and its affairs are concluded.
Modes of winding up of companies
1.
Voluntary Winding Up:
Members' Voluntary Winding Up: Applicable to solvent
companies where shareholders decide to voluntarily close the company. Directors
make a declaration of solvency.
Creditors' Voluntary Winding Up: Applied when a
company is insolvent, and creditors have a role in the winding-up process.
2.
Compulsory Winding Up:
By Tribunal (Court): Initiated by an order of the
National Company Law Tribunal (NCLT) based on grounds such as insolvency,
inability to pay debts, or oppression.
3.
Winding Up Under Tribunal's Supervision:
Creditors' Voluntary Winding Up under Tribunal's
Supervision: When the creditors believe their interests are at risk, they can
apply to the tribunal to supervise the winding-up process.
consequences of winding up
1.
Dissolution: The company ceases to exist legally
after the winding-up process is completed.
2.
Asset Distribution: The assets of the company
are sold, and the proceeds are used to settle the company's debts and
liabilities.
3.
Employee Claims: Employee claims, including
salaries and other dues, are given priority in the distribution of assets.
4.
Cessation of Business Operations: The company
stops its usual business operations during the winding-up process.
5.
End of Corporate Existence: The company's name
is struck off from the register of companies, signifying the end of its
corporate existence.
6.
Creditors' Claims: Creditors are paid according
to the order of priority set by law, with secured creditors having precedence
over unsecured creditors.
7.
Distribution to Shareholders: Any surplus
remaining after settling debts is distributed among the shareholders according
to their shareholding.
8.
Public Notice: Public notice is given to inform
creditors and others about the winding-up proceedings.
The insolvency and Bankruptcy
Code, 2016 in relation to winding up of companies
1.
Winding Up and the IBC:
·
The IBC primarily deals with the resolution of
corporate insolvency and the liquidation of companies.
·
It provides an alternative mechanism for the
resolution of insolvency issues, including the initiation of the Corporate
Insolvency Resolution Process (CIRP) and the possibility of corporate
restructuring.
2.
Corporate Insolvency Resolution Process (CIRP):
·
Under the IBC, when a company defaults on its
debt, a financial creditor, operational creditor, or the company itself may
initiate the CIRP.
·
The objective is to find a resolution plan that
can revive the company and avoid its liquidation.
3.
Liquidation:
· If
a resolution plan is not approved within the stipulated time or the process
fails, the company enters into liquidation.
·
Liquidation under the IBC is a well-defined
process overseen by a liquidator.
Authorities under the Act
1.
National Company Law Tribunal (NCLT):
NCLT is the adjudicating authority for corporate
insolvency resolution matters under the IBC.
It has the power to admit or reject insolvency
petitions and approve resolution plans.
2.
National Company Law Appellate Tribunal (NCLAT):
NCLAT is the appellate authority for appeals against
NCLT orders related to insolvency and bankruptcy cases.
3.
Insolvency and Bankruptcy Board of India (IBBI):
IBBI is the regulatory authority overseeing the
implementation of the IBC.
It sets the regulations and guidelines for insolvency
professionals and insolvency professional agencies.
4.
Insolvency Professionals (IPs):
IPs are licensed professionals appointed to manage and
conduct the insolvency resolution or liquidation process.
5.
Committee of Creditors (CoC):
CoC is a key decision-making body comprised of
financial creditors.
It evaluates resolution plans during the CIRP.
6.
Liquidator:
The liquidator is appointed during the liquidation process
to realize the assets of the company and distribute proceeds among creditors.
Department of Company Affairs
1.
Department of Company Affairs (DCA):
Role: The DCA was the regulatory body overseeing
company law matters in India. However, it has been replaced by the Ministry of
Corporate Affairs (MCA).
2.
Ministry of Corporate Affairs (MCA):
Role: The MCA is the primary regulatory body in India
that administers company law and ensures compliance with the Companies Act. It
oversees entities like the Registrar of Companies (RoC) and the Serious Fraud
Investigation Office (SFIO).
3.
National Company Law Tribunal (NCLT):
Role: NCLT is the adjudicating authority for matters
related to company law, including insolvency and bankruptcy cases. It is
responsible for resolving disputes and ensuring the fair application of
corporate laws.
4.
National Company Law Appellate Tribunal (NCLAT):
Role: NCLAT is the appellate authority for appeals
against orders of NCLT. It provides a forum for parties dissatisfied with NCLT
decisions to seek redressal.
5.
Company Law Board (CLB):
Role: The Company Law Board was a quasi-judicial body
under the Companies Act, responsible for resolving disputes and addressing
company law matters. It has been replaced by the NCLT.
6.
Regional Directors:
Role: Regional Directors are officers appointed by the
MCA who oversee compliance and regulatory matters at the regional level. They
play a role in corporate governance and enforcement.
7.
Registrar of Companies (RoC):
Role: RoC is an office under the MCA responsible for
maintaining the registry of companies, ensuring compliance, and providing
relevant information to the public. There are multiple RoC offices across
different regions.
8.
Public Trustee or Advisory Committee:
Role: The Public Trustee or Advisory Committee may be
involved in certain matters related to companies, providing guidance or acting
in a trustee capacity. The specific roles may vary.
9.
Serious Fraud Investigation Office (SFIO):
Role: SFIO is an investigative agency under the MCA,
responsible for dealing with serious financial frauds and corporate
malpractices. It has the authority to investigate and prosecute white-collar
crimes.
Their powers and functions
1.
Ministry of Corporate Affairs (MCA):
Powers and Functions: Formulates company law policies,
administers the Companies Act, oversees the NCLT and NCLAT, and regulates
corporate governance.
2.
National Company Law Tribunal (NCLT):
Powers and Functions: Adjudicates company law matters,
including insolvency cases, mergers, and demergers. Decides on schemes of
arrangement and compromises.
3.
National Company Law Appellate Tribunal (NCLAT):
Powers and Functions: Hears appeals against NCLT
orders. Provides a forum for parties dissatisfied with NCLT decisions to seek
redressal.
4.
Registrar of Companies (RoC):
Powers and Functions: Maintains the registry of
companies, ensures compliance with the Companies Act, and provides information
to the public.
5.
Regional Directors:
Powers and Functions: Oversee compliance and
regulatory matters at the regional level, take actions against non-compliance,
and contribute to corporate governance.
6.
Serious Fraud Investigation Office (SFIO):
Powers and Functions: Investigates and prosecutes serious
financial frauds and corporate malpractices. Has the authority to recommend
legal action.
Jurisdiction of Courts
NCLT: Exclusive jurisdiction over
company law matters, including insolvency and bankruptcy cases.
NCLAT: Appellate jurisdiction for
appeals against NCLT orders.
High Courts: Have jurisdiction
over company law matters and can hear appeals against NCLT orders.
Supreme Court: The highest court
of appeal for company law matters.
Corporate governance and certain relaxations in the light of
pandemic.
1. Relaxations during the Pandemic:
Virtual
Meetings: Relaxations provided for conducting virtual board meetings, annual
general meetings (AGMs), and extraordinary general meetings (EGMs) to ensure
social distancing.
Extended
Filing Deadlines: Extensions granted for filing annual returns and financial
statements to accommodate disruptions caused by the pandemic.
2. Corporate Governance:
Board
Oversight: Emphasis on boards overseeing risk management and ensuring
transparent communication with stakeholders.
Audit
Committee: Vigilant monitoring of financial reporting and internal controls.
Disclosure
and Transparency: Encouraging companies to provide clear and timely disclosures
to shareholders, regulators, and the public.
3. CSR Activities:
Flexibility:
Companies allowed flexibility in spending Corporate Social Responsibility (CSR)
funds to combat the effects of the pandemic.
4. Debenture Trustees:
Roles:
Debenture trustees play a crucial role in ensuring the interests of debenture
holders and monitoring compliance with debenture trust deeds.
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DOWNLOAD SYLLABUS SHORT NOTES PDF of COMPANY LAW:
DOWNLOAD - Company Law syllabus short notes (revised on 02-02-2024)
DOWNLOAD - Company Law IMP Q&A (revised on 31-01-2024)
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P-II: Public International Law
P-III: Interpretation of Statutes
P-V: Intellectual Property Law
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Note: Some of the short notes are intended for a basic understanding of the subject topics. For a more in-depth understanding, please refer to the textbooks.
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