Practical Questions in Corporate & Other Laws
Q.No.71. Charge can be created on Reserve Capital?
Sol.: False., Sec.125 of the Companies gives the list of assets on which charge can be created.
a. A charge on any immovable property.
b. A floating charge on the undertaking or any property of the Company including stock in trade.
c. A charge for the purpose of securing any issue of debentures.
d. A charge on uncalled share capital of the Company.
e. A charge on calls made but not paid.
f. A charge on the book debts of the Company.
g. A charge on Goodwill, Patent, License.
h. A charge created outside India comprising property situated outside India.
i. A charge created in India comprising property outside India.
j. Purchase of a property in India but already subject to charge.
k. Purchase of a property situated abroad but already subject to charge.
The list given above does not contain “Reserve Capital’ and, thus, no charge can be created on it.
Q.No.72. The Company was offered a term loan of Rs.200 crores by a financial institution against the security of entire fixed assets of its two factories situated in Alwar & Parwanoo. After repayment of more than 75% of the loan amount the financial institution agreed to release fixed assets of one of its factory from charge. State whether Company can file part satisfaction of charge or it would amount to modification of charge.
Sol.: The concept of partial satisfaction of charge is not there. Satisfaction shall be in full only. These amounts to modification of charge and the Company will have to file particulars of modification of charge, for registration. (Sec.135)
Q.No.73. Charge can be created on assets which are in possession of the Company on the date of creation of charge.
Sol.: False., Charge can be created even on assets which will come into Company’s possession at any future date e.g. future debts, current assets etc. This is called floating charge.
Characteristics of a floating charge:
a. It is a charge on a class of assets of the Company, both present and future. It does not mean only those assets which were in existence when the charge was created.
b. The class of assets charged is one which in the ordinary course of business, is changing from time to time.
c. Until some steps are taken to enforce the charge by the creditors, the Company may continue to deal with the assets charged in the ordinary course of business.
d. The possession of assets charged is not given to the charge (i.e. creditors).
Q.No.74. ABC Ltd. observed on 2nd May, 2001 that particulars of charge created on 12th March, 2001 infavour of a Bank were not filed with the Register of Companies for Registration. What procedure should the Co. follow to get the charge registered with the Registrar of Companies? Would the procedure be different if the charge was created on 12th February, 2001 instead of 12th March, 2001? Explain with reference to the relevant provisions of the Companies Act, 1956.
Sol.: The prescribed particulars of the charge together with the copy of instrument of charge shall be filed with the Registrar within 30 days after the date of the creation of charge. In this case particulars of charge have not been filed within the prescribed period of 30 days.
However, the Registrar is empowered to extend the period of 30 days by another 30 days on payment of such additional fee not exceeding 10 times the amount of fee specified on Schedule X. Taking advantage of this provision, ABC Ltd., should immediately file the particulars of charge with the Registrar and satisfy the Registrar that it had sufficient cause for not filing the particulars of charge within 30 days of creation of charge.
If the charge was created on 12th Feb., 2001, then the Co. has to apply to the NCLT under Sec.141 and seek extension of time for filing the particulars for registration. The Co. must satisfy the NCLT that the omission was accidental or due to some other sufficient cause or was not of the nature to prejudice creditors, or that it is just and equitable to grant relief on the other grounds. On such satisfaction, the NCLT may extend the term for the registration of charge on such terms and conditions as it may think fit.
Q.No.75. A meeting was properly convened and was subsequently adjourned by the Chairman. No fresh notice is given for the adjourned meeting which is held subsequently. State whether the adjourned meeting is valid.
Sol.: According to sec.174 of the Companies Act 1956, if within half an hour from the time appointed for holding a meeting of the Company, a quorum is not present, the meeting shall stand adjourned to the same day in the next week, at the same time and place unless the directors determine otherwise. No Fresh notice is, therefore, required to hold the adjourned meeting. Besides, no quorum is necessary in the adjourned meeting. Thus, the adjourned meeting in question is valid.
Q.No.76. The Chairman counts six votes in favour and seven against the resolution. Can the chairman cast his own vote, which he had not exercised earlier, in favour of the resolution and also casting vote which the Articles authorise and declare the resolution as passed?
Sol.: The Chairman after ascertaining the sense of the meeting by show of hands, that 6 votes are in favour and 7 are against the resolution, may before declaration of result cast his vote in favour of the resolution and also the casting vote and declare the resolution as passed.
Q.No.77. The articles of association of M/s. QPR Private Limited provides that 5 members present in person constitute the quorum. The total number of members of the Company is also 5. A general meeting of the Company was held on 25/1/1999 and it was attended by 4 members as the 5th member had expired sometime earlier. In the said meeting a resolution was passed by a majority of 3 to 1 removing one Mr. Doubtful as a director for indulging in anti Company Activities. Mr. Doubtful challenges the validity of the resolution on the ground of lack of quorum in terms of the Articles of Association. Discuss with reference to the relevant provisions of Companies Act whether the contention of Mr. Doubtful is correct.
Sol.: Section 174 of the Companies Act, 1956 stipulates that unless the articles of association of the Company provide for a larger number, two members personally present shall constitute quorum in case of Private Company. Hence a private Company may provide a larger number for quorum. The general principle is that if no quorum is present, the meeting and the proceedings are void. However, there can be situations when quorum becomes immaterial. If all the members are present, it is immaterial that the quorum required is more than the total number of members thus in this case. Mr. Doubtful cannot successfully challenge the resolution.
Q.No.78. The Articles of Association of X ltd., require the personal presence of six members to constitute of General Meetings. The following persons were present at the time of commencement of an extraordinary general meeting to consider the appointment of Managing Director.
1. Mr. G. the representative of Governor of Gujarat.
2. Mr. A and Mr. B shareholders of Preference shares.
3. Mr. L., representing M Ltd N Ltd and X Ltd.,
4. Mr. P, Mr. Q, Mr. R and Mr. S who were proxies of shareholders.
Can it be said that quorum was present? Discuss.
Sol.: In this case quorum for a General meeting is six members to be personally present. For the purpose of quorum, only those members are counted who are entitled to vote on resolution proposed to be passed in the meeting. Again, only members present in person and not by proxy, are to be counted. Hence, proxies whether they are members or not will have to be excluded for the purpose of quorum.
If a Company is a member of another Company, it may authorize a person through resolution to act as its representative at a meeting of the other Company, then such a person shall be deemed to be a member present in person and counted for the purpose of quorum (Section 187).
Where two or more companies appoint a single person as their representative, then each of such company will be counted quorum at a meeting of the latter Company.
Again, section 187 a provides that the President of India or Governor of State if he is a member of a Company may appoint such person, as he thinks fit, to Act as his representative at any meeting of the Company. A person so appointed shall be deemed to be a member of such a Company and, thus considered as member personally present.
In view of the above there are only four members personally present, namely, Mr. G and Mr. L (representing three Companies and thus effectively equal to three members) Mr A and Mr. B the preference shareholders have been excluded since the agenda being the appointment of Managing Director, their rights cannot be said to be directly affected and therefore, they shall not have any voting rights. Thus it can be said that the requirement of quorum being six, four members personally present shall not constitute a valid quorum.
Q.No.79. Immediately upon conducting the last general meeting held in July, the Chairman went overseas for medical treatment. Accordingly, the minutes of the said meeting could not be signed by him. To meet the requirements of the law, he sent a letter of authority to the secretary authorizing the latter to sign the minutes on the former’s behalf. Can the Secretary Act on the letter of authority? if not, what procedure should be followed?
Sol.: Each page of the minute book should be signed and in the last page of the record of proceedings of each meeting in the minutes book shall be dated and signed by the Chairman of the said meeting. In the event of death or inability of the chairman, by the director duly authorised for the purpose. The Company Secretary cannot carry out the said function, although he had been authorised by the Chairman.
Q.No.80. If a Chairman of General Meeting is unable to sign minutes of General meeting he may authorize any other person to sign the minutes on his behalf.
Sol.: False., Provisions of section 193(1A)(b) provides that the minutes of the proceeding of the general meeting shall be signed by the chairman of the same meeting within a period of 30 days or in the event of death or inability of the chairman by a Director duly authorized by the Board for the purpose.
Q.No.81. The required quorum is not present within ten minutes of the scheduled time of holding of annual general meeting.
Sol.: Quorum is the minimum number of members of a Co. whose presence is necessary for commencing the meeting. If within half an hour for the time appointed for holding a meeting of the Co., a quorum is not present, the annual general meeting shall stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time and place as determined by the Board. In the present case, as the quorum is not present within 10 minutes of the scheduled time of holding the annual general meeting, the legal position is that the people present will have to wait for another 20 minutes to ascertain whether requisite quorum is present or not, before any decision regarding the conduct of the meeting can be taken.
Q.No.82. XYZ Ltd. wants to hold its annual general meeting on Sunday, the 30th June to facilitate the share holders to attend it. Advise the legal position.
Sol.: According to the provisions of Section 166(2) read with Section 171(1) every Annual General Meeting should be called with at least 21 clear days notice and must be held on a day other than a public holiday i.e., it should be held on a working day during business hours. It is clarified that if any day is declared by the Central Government to be a public holiday after the issue of the notice convening such a meeting, it shall not be deemed to be a public holiday in relation to the meeting. In view of the above mentioned provisions, XYZ Ltd. cannot hold the AGM on Sunday, the 30th June as Sunday is a public holiday.
Q.No.83. Mr. X a shareholder of 100 equity shares of P Limited sent a letter to the Company that the notice of annual general meeting is to be sent to him only by registered post. Is Company under obligation to accept such a request from the shareholder?
Sol.: The Company is under obligation to accept such requests subject to the condition that the expenses to be incurred by the Company for giving the notice by registered post are deposited by the member with the Company, in advance. (Sec.53) In the given case since Mr. X has not deposited any such amount the Company is under no obligation to accept request.
Q.No.84. Pref. shareholders, not being entitled to exercise voting rights are not entitled to attend the general meeting also.
Sol.: False., What the Act prohibits is only their exercise of voting but not the attendance of the meeting. Further they have the right to receive the notice of general meeting of the Company and therefore, the right of preference shareholder to attend the general meeting of the Co. is implied.
Q.No.85. Every Company limited by guarantee must hold a statutory meeting within the time limit prescribed under section 165 of the Act.
Sol.: False., In accordance with the provisions of section 165 only public Companies having share capital or public Companies limited by guarantee and having share capital are required to hold the statutory meeting and, thus, a Company limited guarantee and having no share capital is not required to hold annual general meeting.
Q.No.86. A copy of the statutory report is required to be filed with the Registrar of Companies after having been placed before the shareholders in the statutory meeting.
Sol.: False., In accordance with sub-section (5) of section 165, a copy of the statutory report is required to be filed with the Registrar immediately after having been sent to the shareholders.
Q.No.87. If a Company fails to hold the AGM it may be ordered to hold the annual general meeting by the central government on an application made by any person interested in the Company.
Sol.: False., In accordance with the provisions of section 167 of the Act if a Company fails to hold the annual general meeting it may be ordered to hold the annual general meeting by the Central government on an application made by any member of the Company.
Q.No.88. Even a single person present in the annual general meeting held on instructions of the central government constitutes valid quorum.
Sol.: False., Sec.167 provides that the central government while issuing instructions for holding the annual general meeting on a complaint of a member may also issue a direction that even a single member present in the meeting shall constitute a valid quorum. Thus, except where special orders are made by the C.G., single member present in the meeting will not constitute quorum.
Q.No.89. All ordinary business are required to be transacted by ordinary resolution and all special businesses are required to be transacted by special resolution.
Sol.: False., All ordinary businesses are normally transacted through ordinary resolutions except the appointment of auditor under Sec. 224A where the appointment of auditor is required to be made by passing a special resolution. All special businesses are not compulsorily required to be transacted by special resolution. The kind of resolution depends on the provisions of the Act & Articles of the Co.
Q.No.90. 30th June & 31st December have been declared as Public holidays under the negotiable Instrument Act, 1881. Hence, AGM of any Company shall not be held on these dates.
Sol.: False., 30th June & 31st December have been declared as public holiday under the negotiable Instrument Act, 1881 only for the limited purpose of closing of accounts of banks\treasuries etc, and, thus, these two dates shall not be treated as public holiday for the purpose of holding annual general meeting of the Company.
Q.No.91. The shareholders need not disclose reasons for requisitioning extraordinary general meeting while submitting a requisition to the Company therefore.
Sol.: True. In the case of LIC Vs. Escorts Ltd. the Supreme Court has laid down that every shareholders has statutory right to call an extraordinary general meeting and he is not bound to disclose the reason for the resolution proposed to be moved at the general meeting.
Q.No.92. If quorum is not present within 30 minutes from the appointed time in a general meeting called on a requisition of members of the Company the meeting stands dissolved.
Sol.: True. Sec.174 provides that “If within half an hour from the time appointed for holding a meting of the Company, a quorum is not present, the meeting, if called, upon the requisition of members, shall stand dissolved”.
Q.No.93. Quorum is required to be present throughout the meeting.
Sol.: As per Reg.49 of Table A, quorum should be present at the commencement of the meeting and subsequent absence thereof will not invalidate the proceedings. In case of own articles, in the absence of a provision similar to Reg.49, then it is presumed that quorum should be present throughout the meeting.
Q.No.94. The articles of association of a Company provided that the proxy to be valid shall be deposited at least 24 hours before the commencement of the general meeting. The Company cannot prescribe less than 48 hours time.
Sol.: False., The provisions of the Act provide that the articles of a Company cannot provide more than 48 hours time for lodging the proxy. This even, if articles of Company require proxy to be deposited more than 48 hours before the commencement of the meeting, that shall have effect as if 48 hours time has been provided. However, Companies are free to provide any time less than 48 hours for the same purpose in their articles.
Q.No.95. A resolution put to vote in the general meeting shall be decided by poll unless a demand is made for deciding the matter by show of hands.
Sol.: False., Section 177 provides that, at any general meeting, a resolution put to vote of the meeting shall, unless a poll is demanded, be decided on a show of hands. Therefore, the poll is to be taken only when demanded.
Q.No.96. Poll demanded on the question of election of Chairman and on the question of adjournment of the general meeting must be taken forthwith.
Sol.: True. In accordance with the provisions of section 175 and section 180 of the Act, poll demanded on the question of election of chairman and on a question of adjournment of the meeting shall be taken immediately.
Q.No.97. A body corporate can be represented in the general meeting of any other Company of which it is a member, only by its managing directors.
Sol.: False, Section 187 provides that the Companies shall be represented in the general meeting of the other Companies through any person duly authorized by a resolution and that the presence of such person in the general meeting shall be considered as personal presence of the body corporate represented by him.
Q.No.98. An annual general meeting is called on a fixed day. After the sending of the notice of the meeting, the Government notifies that date as a public holiday. Can be meeting proceed as scheduled?
Sol.: Yes, the meeting can proceed, as scheduled. According to Sec.166 (2) of the Companies Act, 1956 an annual general meeting must be held on a day which is not a public holiday. But if the date of AGM becomes a public holiday after issue of notice - Meeting can be held on such public holiday.
Q.No.99. A preference shareholder has lodged a complaint with the Company for not receiving notice of an annual general meeting. The secretary of the Company contends that he was not entitled to such notice. Advise the shareholder.
Sol.: The shareholder contention is right and he is entitled to the notice of the annual general meeting. According to section 172 of the Companies Act, 1956, notice of every general meeting of a Company shall be given to every member of the Company. A preference shareholder is also a member because, under the Companies Act, every shareholder- whether ordinary or preference- is a member. As such, he is entitled to the notice of the meetings. In the given problem, the preference shareholder should have been issued a notice and the contention of the secretary is wrong.
Q.No.100. Will a person representing one Company under Sec.187 of the Companies Act, 1956, in addition to representing himself as a member in general meeting of a Company, be counted as two persons for the purpose of quorum?
Sol.: Yes, the person representing one Company under Sec. 187 of the Companies Act, 1956, and also himself as a member shall be counted as two persons for purposes of quorum at general meetings of a Company. This is because of the fact that a person representing a Company Sec. 187 is deemed to be a member of the Company. As he presents himself in two different capacities, he is to be counted as two persons.
Q.No.101. At an adjourned meeting (Which was adjourned previously for want of quorum) of a public Company, the chairman after waiting for half-an-hour after the schedule time finds that only 3 persons are present. Can he declare the meeting closed for want of quorum?
Sol.: No, the chairman cannot declare the meeting closed for want of quorum. In case of a public Company, five members personally present shall be the quorum for a general meeting. But, the Companies Act, if at the adjourned meeting, a quorum is not present within ½ hour from the time appointed for holding the meeting, the members, present shall be a quorum. This being an adjourned meeting, the members present constitute the quorum and, thus, the chairman cannot declare the meeting closed for want of quorum in this case.
Q.No.102. The Governor of a State is a member of a Company and has appointed X as his representative for the purpose of attending meetings. His representative is unable to attend the forthcoming general meeting. Can anything be done in these circumstances?
Sol.: Sec. 187-A of the Companies Act, 1956, provides that a person so appointed is entitled to exercise the same rights and powers as the Governor could exercise. Since a member is entitled to appoint a proxy in his place to attend the meeting of the Company, therefore, a representative of the Governor by virtue of Sec. 187-A of the Companies Act, 1956, is also entitled to appoint a proxy who can attend the meeting on behalf of the representative.
Q.No.103. A proxy duly executed by one of the joint shareholders was lodged 48 hours before the commencement of an adjourned general meeting of a Public Ltd Co. If the proxy so lodged valid?
Sol.: No, the proxy lodged is invalid Sec. 176 of the Companies Act, 1956, provides that an instrument appointing a proxy must be in writing and must be signed by the appointer. In other words, the proxy form must be signed by the member who desires to appoint a proxy. However, where the shares are held jointly by two persons, obviously, such right can be exercised by both of them jointly. As such, in case the shares are held jointly by two or more person, the proxy form must be signed by all of them. Accordingly in the given problem as the proxy has been executed by one of the joint shareholder’s it is invalid.
Q.No.104. XYZ Co. Ltd. called its AGM on 7th September 1997. The notice of AGM was posted on 16th August 1997. One member holding 20 shares wishes to challenge the resolutions passed at the AGM on the ground that the notice was not valid. Advise him.
Sol.: According to Companies Act a general meeting of a Company may be called by giving not less than 21 days notice in writing. Not less than 21 days means 21 clear days i.e. excluding both the date on which the notice was served and the date of the meeting. In case the notice of the general meeting is sent by post, service notice of the meeting shall be deemed to have been effected at the expiry of 48 hours after it was posted. In the instant case, the notice was short of one day:
| 16th August to 7th September Less. date of service and date of meeting Less. 48 hours of positing but 24 hours are common between date of service and 48 hours of posting. Total Days. | 23 days 2 days 1 day |
| 20 days |
Therefore, the meeting was invalid and the resolutions passed were invalid. However in case of AGM, where all members entitled to vote consent, the meeting may be held on shorter notice.
Q.No.105. Examine the validity of the following proxies and suggest remedies where possible.
a. L, a member of a private Company, appoints B and C as proxies dividing his voting rights between them. B and C are not members of the Company.
b. X, the director of Y Limited is authorized to represent Y Limited at the general meeting of ABC Limited. He in turns appoints a proxy Z.
c. Y, a member of a Company not having share capital, appoints a proxy. Articles of the Company are silent as to the power to appoint proxies.
Sol.:
a. In case of private Companies only one proxy can be appointed (proviso b to 176) and the proxy need not be a member.
b. By virtue of Section 187, if a Company is a member of another Company, it may appoint a representative to vote. A person authorised by resolution as aforesaid shall be entitled to exercise the same rights and powers (including the right to vote by proxy) on behalf of the body corporate. Therefore the proxy Z is a valid one.
c. In the case of a Company not having share capital, the right to appoint a proxy is available only if the Articles make a specific provision about the same and therefore appointment is invalid. The Company would have to pass a special resolution to alter the Articles of Association; when the same is done, this power may be exercised by the members.
Q.No.106. The paid up share capital of ABC Limited is Rs. 5 lakhs consisting of 50,000 equity shares of Rs.10 each fully paid-up. Certain members of the Company holding the following shares requisitioned an extra-ordinary general meeting on 1.2.2000: A - 2,250 shares, B - 2,000 shares including 500 bonus shares C - 1,000 shares including 500 rights shares. The directors have failed to call the meeting on the contention that the articles have not permitted the same. What is the course of Action open to the aforesaid members?
Sol.: As per sec.169 of the Companies Act the members of a Company may also ask for an extraordinary meeting to be held.
Persons entitled to requisition. A requisition for convening an extraordinary general meeting may be made by member(s):
a. Holding 10% of the paid-up share capital of the Company and having a right to vote at the date of deposit of requisition, on the matter to be discussed Or
b. Company has no share capital, members having 10% of the voting power of all members having a right to vote at the date of deposit of the requisition, on the matter to be discussed.
Here the total share capital held by the requisitionists amounts to Rs. 52,500 and exceeds one tenth of the total of Rs. 5 lakhs as on the date of requisition on 1.2.2000. Bonus and rights shares are at par with ordinary shares and are to be included in arriving at the eligible value. Therefore the requisition is a valid one. Members can call themselves an EGM called requisitionists meeting satisfying the conditions like time limit, number of required members etc.
Q.No.107. Examine the validity of the following:
a. J, a member of a private Company, being unable to attend a meeting of the members of the Company appoints more than one proxy on the same occasion. The articles of association of the Company are silent on this issue.
b. D, a member of MR & Company Limited, holding shares in his own name on which final call money has not been paid, is denied voting right at a general meeting of the Company on the ground that the articles of association do not permit a member to vote if he has not paid the calls on the shares held by him.
Sol.:
a. As per the Companies Act, unless the articles otherwise provide a member of a private Company shall not be entitled to appoint more than one proxy to attend on the same occasion. Thus based on the above provisions, J in the given case cannot, appoint more than one proxy on the same occasion. Since the articles of the Company also do not provide for the above, he cannot do so.
b. Restrictions on voting rights - Section. 181.
¡ The AOA may prohibit any member from excersing the voting rights if any call money is due on such shares on the date of voting.(If such a provision is not available then a member cannot be prevented from exercising his voting right).
¡ A public Company or a dependent Company shall not put any other restriction on voting rights other than given under Sec.181 of the Act.
¡ However, an independent private Company can provide in their AOA further restrictions like only holders of shares for a specified period alone can exercise voting rights.
Q.No.108. State whether the following persons can be counted for the purpose of quorum in a General Meeting of a Public Company.
a. A person representing three member Companies.
b. Both the joint owners of shares are present at the meeting.
Sol.:
a. A representative of a body corporate appointed under Sec.187 is a member personally ‘present’ for purposes of counting of quorum. If one individual represents three member Companies, his presence be counted as three members being present in person for purpose of quorum.
b. Joint shareholders.
¡ In the case of joint holders it would be seen prima facie that any one of them may be counted in a quorum.
¡ It should be noted that Act specifically provides that for certain purposes where two or more persons hold any shares jointly, they shall be counted only as one member. (E.g. Under Sec.3(1) (iii) for the purposes of counting the number of members in a private Company).
¡ If the Act does not provide anything to the contrary, it appears that two or more joint holders when personally present can be counted as so many members for the purpose of quorum.
¡ Further, in a case, it has been held that two joint holders are each member and are to be counted towards a quorum as two members personally present.
Q.No.109. Examine the va1idity of the following:
a. The Board of Directors of a Company refuse to convene the extraordinary general meeting of the members on the ground that the requisitionists have not given reasons for the resolutions proposed to be passed at the meeting.
b. The Board of Directors refuse to convene the extra ordinary general meeting on the ground that the requisitions have not been signed by the joint holder named first in the register in respect of the shares held by the joint share holders.
c. Holding of extra general meeting at a place other than the village in which the registered office of the Company is situated, on the ground that it is more convenient for the members to attend the meeting at a place other than the village in which the registered office of the Company is situated.
d. Adjournment of extra ordinary general meeting called upon the requisition of the members on the ground that the quorum was not present at the meeting.
Sol.:
a. Action of the Board of Directors in the given case is not valid in view of the Supreme Court decision in LIC Vs. ESCORTS LTD. Requisitionists are not bound to give reasons for the resolutions proposed to be passed at the meeting.
b. Sec.169 provides that, in the case of joint shareholders requisition signed by one shareholder is sufficient. The Action of the Board of Directors is not valid.
c. Provisions of Sec.166(2) of the Companies Act, 1956 apply to AGM. EGM can be held at any place. In the given case Action of the Board of Directors is bonafide and hence it is valid.
d. In the given case unless the Articles of the Company otherwise provide, the meeting shall stand dissolved, if called upon the requisition of members, in case the quorum is not present with half hour from time appointed for a meeting of the Company.
Q.No.110. The quorum for a general meeting of a Company is 9 members personally present according to the provisions in the articles of association of the Company. Examine with reference to the relevant provisions of the Companies Act, 1956 whether there is proper quorum at a general meeting of the Company, which was attended by the following persons.
a. 7 members personally present out of which 2 members are also proxies for 5 members.
b. 5 members represented by proxies who are not members of the Company.
c. One person representing two member Companies.
Sol.: In this case, the quorum for a general meeting is 9 members personally present according to the provisions in the Articles of Association of the Company. For the purpose of ascertaining quorum, only members present in person and not by proxies, are to be counted. If a Company is a member of another Company, it may authorise a person by a resolution to Act as its representative at a meeting of the latter Company, then such a person shall be deemed to be a member present in person and counted for the purposes of quorum. Where two or more Companies being members of another Company appoint a single person as their representative, then each of such Companies will be counted in quorum. Hence the meeting is attended by 9 members personally consisting of 7 members personally present & 2 member companies and there is proper quorum.
Q.No.111. Any document sent to the member by the Company will be deemed to have been delivered to him on expiry of 48 hours from the time of delivery.
Sol.: False., Sec.53 provides that the notice of a meeting shall be deemed to have been served on members at the expiration of 48 hours after the letter containing the same is posted and in case of any other documents to be served on members it shall be deemed to have been delivered at the time at which the letter would be delivered to him in the ordinary course of post.
Q.No.112. MR Co. Limited could not hold its first AGM with in 18 months from the date of its incorporation. The Board of Directors of the Company by a resolution decide not to call first AGM at all on the ground that most of the directors were outside India on a business trip and since the Company was under gestation period it would cost the Company heavily. Referring to the provisions of the Act, examine whether:
a. The Board of Directors decision is legally justified.
b. What course of Action is open to the Company if one of the members writes to the Company for holding the meeting though the statutory time limit is over?
Sol.: According to Section 166 of the Companies Act, 1956 every Company shall in each year hold in addition to any other meetings a general meeting as its AGM and shall specify the meeting as such in the notices calling it and not more than 15 months shall elapse between the date of one AGM of a Company and that of the next. The First AGM of the Company must be held within 18 months from the date of incorporation of the Company. If the AGM is held within that period and consequent to which the Company had not held an AGM in the year of incorporation or in the following year there is no violation of the Act. Further the Registrar may extend the time within which any AGM (not being the first AGM) shall be held by a period not exceeding three months.
Thus, applying the above provisions, the questions can be answered as follows:
a. The Board of Directors decision is not legally justified. Holding of First AGM is a statutory requirement. No Company can be exempted from this.
b. The course of Action open is that any member should apply to the CG under Section 167 and the CG in turn shall call or direct the calling of a general meeting of the Company with necessary directions and a meeting held according shall be an AGM. The member should approach the CG and seek its assistance to fulfill his demand. Member may, therefore, be advised accordingly.
Q.No.113. Examine the possibilities of the following:
a. Signing of minutes of general meeting of a Company by a person other than the Chairman of the said meeting.
b. Holding of annual general meeting of a Private Company in New Delhi when its registered office is situated in Lucknow.
Sol.:
a. As per the Companies Act the minutes of the proceedings of a general meeting must be signed by the chairman of the same meeting within a period of 30 days of the conclusion of such meeting. But in the event of death or inability of that chairman within that period, the minutes of the said general meeting may be signed by a director duly authorised by the Board for the purpose.
b. As per the Companies Act every annual general meeting of a Co. must be held either at the registered office of the Co. or at some other place within the city, town or village in which the registered office of the Co. is situate. But the proviso to Sec.166(2) permits a Private Co. which is not a subsidiary of a public Co. to fix a place for holding the AGM by a resolution agreed to by all the members. So it is possible to hold the AGM in New Delhi provided it is agreed by all the members by a resolution and the private Company is not subsidiary of a public Company.
Q.No.114. A & B are joint-holders of 1,000 shares in ABC Ltd. which has adopted Table A as its Articles. For the general meeting of the Company, A whose name stands first in the order of names executes a proxy authorising X to attend the meeting. On the other hand B appoints Y as his proxy for the meeting.
a. Of the two proxies X and Y who will have the right to attend and vote in the meeting?
b. Would it make any difference to your answer if A’s proxy is registered first with the Company and B’s proxy is registered later?
c. What would be your answer if B personally attends the meeting?
Sol.:
a. According to regulation 57 of Table A, in the case of joint holders of shares, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. As such, the seniority shall be determined by the order in which the names stand in the register of members. Unless the Company has modified Regulation 57 of Table A, the proxy appointed by A will have the right to attend and vote in the general meeting. Y, the proxy appointed by B, will have no right to attend and vote in the meeting.
b. The proxy appointed by A will be valid. The time of its lodgment with the Company is immaterial. Though B has lodged his proxy later, but as given above (Regulation 57 of Table A) it cannot supersede A’s proxy.
c. After giving a proxy if a member personally attends the meeting and votes thereat, the proxy is automatically cancelled. If B personally attends the meeting, both the Proxies X and Y shall be revoked.
Q.No.115. A Company served a notice of a general meeting upon its members. The notice stated that a resolution to increase the share capital of the Company would be considered at such meeting. A shareholder complains that the amount of the proposed increase was not specified in the notice. Is the notice valid?
Sol.: Section 173 of the Companies Act, 1956 requires a Company to annex an explanatory statement to every notice for a meeting of Company, at which some Special Business to be transacted. This explanatory statement is to bring to the notice of the members all material facts relating to each item of special business. Section 173 further specifies that all business in case of any meeting other than annual general meeting is regarded as special business. Thus, the objection of the shareholders is valid since the details on the item to be considered are lacking. The notice is, therefore, not a valid notice under Section 173 of the Companies Act, 1956.
Q.No.116. The secretary of a Co. while sending out to members of the Co. notices of a special resolution to be proposed at the AGM inadvertently omitted to send notice to one member. The resolution was passed at the meeting. Discuss whether the resolution is valid or not.
Sol.: Section 172(3) of the Companies Act requires that proper notice must be served on all the persons entitled to receive such notice. Deliberate omission to give notice even to a single member entitled to receive notice, shall invalidate the proceedings of the meeting. But, however, it provides that an accidental omission to give notice to a member or if the member does not receive the notice, the meeting cannot be held invalid. Thus, in the present case, the resolution shall be valid since the omission is stated to be inadvertent (i.e. unintentional).
Q.No.117. The auditor of a Company complains that he was not given notice of a recently held general meeting of the Company. The secretary of the Company contends that as no part of the business of that meeting concerned the auditor, no notice was required to be given to him. Do you agree with the secretary? If the auditor attends a general meeting, can he participate in the meeting?
Sol.: The contention of the secretary is not correct. The auditor has a statutory right under Companies Act to receive all notices of any general meeting of a Company, which any member is entitled to have sent to him. Failure to send notice of general Meeting to the Company’s auditor, whether he is concerned or not with any part of the business to be transacted at the meeting, amounts to a default on the part of the Company. Sec.231 further entitles the auditor of a Company to attend any general meeting of the Company. He cannot participate in the meeting.
Q.No.118. Discuss the validity of the following: ABC (Pvt.) Ltd. provides in the Articles of Association of the Company special requirements for the forms of proxy. ‘Z’, a member, submits a form of proxy to the Company in the form given in Sch. IX of Companies Act. The Company rejects the proxy.
Sol.: Section 176(6) provides that an instrument appointing a proxy, if in any of the forms set out in Schedule IX shall not be questioned on the ground that it fails to comply with any special requirements specified for such instrument by the Articles. The aforesaid provisions are applicable to both public as well as private Companies. Accordingly, Company is guilty of wrongful rejection.
Q.No.119. The Registrar of Companies on examining the statutory report filed by M/s De Jyoti Company Ltd finds that the report has been certified as correct, by all the directors of the Company except the Managing director. The ROC refused to register the document on the ground that it is not signed by the Managing Director of the Company, and further wants to hold the Company liable to penalties for non-compliance of the provisions of the Companies Act. State in this connection
a. What provisions of the Companies Act have not been complied with by the Co. and its officers?
b. Whether the Registrar of Companies can hold the officers of the Company liable?
Sol.:
a. Sec.165 of the Companies Act, 1956 requires the statutory report to be certified as correct by at least two directors of the Company one of whom must be a managing director, where there is one. Thus, the aforesaid provision of Section 165(4) has not been complied with.
b. Yes, the Registrar can hold the officers of the Company liable.
Q.No.120. At an annual general meeting held on 25th Sept. 1989, the auditor was appointed to hold office up to the conclusion of next annual general meeting. The next annual general meeting was convened on 20th September, 1990 but stood adjourned without transacting any business. Does the retiring auditor continue in office?
Sol.: According to the Companies Act, 1956, an auditor who is appointed at an annual general meeting holds office from the conclusion of that AGM to the conclusion of the next AGM. In the given case, the auditor was to hold office up to conclusion of the AGM duly convened but which stood adjourned. As the adjourned meeting is merely a continuation of the original meeting, the retiring auditor continues to hold the office till the conclusion of meeting.
Q.No.121. Annual general meeting of a public Company was scheduled to be held on 15.12.1899. Mr.X, a shareholder, issued two proxies in respect of the shares held by him in favour of Mr.A and Mr. B. The proxy in favour of Mr. B was lodged on 12.12.1989 and the one in favour of Mr. A was lodged on 15.12.1989. The Company rejected the proxy in favour of Mr.B as the proxy in favour of Mr. B was dated 12.12.1989 and that in favour of Mr.A was dated 13.12.1989. Is the rejection by the Company in order?
Sol.: In case more than one proxies have been appointed by a member in respect of the same meeting, one which is later in time shall prevail and the earlier one deemed to have been revoked. Thus, in the normal course, the proxy in favour of Mr. A, being later in time, should be upheld as valid. But as per Sec.176. A proxy should be deposited 48 hours before the time of the meeting. In this case, the proxies should have, therefore, been deposited on or before 13.12.1989 (the date of the meeting being 15.12.1989). But, Mr. A deposited the proxy on 15.12.1989. Therefore, proxy in favour of Mr. A has become invalid. Thus, rejecting the proxy in favour of Mr. B is unsustainable. Proxy in favour of Mr. B is valid since it is deposited in time.
Q.No.122. Once annual General Meeting was called by a Company in December 1994. This meeting was adjourned to march 1995 and then held. Subsequent meeting was held in February 1996. Is the Company liable for any irregularity?
Sol.: Sec.166 of the Companies Act, 1956 requires a Company to hold its annual general meeting every calendar year. Thus, in the above case the meeting held in March 1995 is actually the meeting of December 1994. Since, the next meeting is held only in February 1996, the meeting of December 1995 has been missed. Under these circumstances, unless permission of the registrar was obtained for extension of time, which may be granted up to a period of 3 months under certain special circumstances, the Company shall be convicted.
Q.No.123. At an adjourned extraordinary general meeting of a public limited Company only three members are personally present. Comment.
Sol.: As per Section 174(5), if a meeting is adjourned for want of quorum and at the adjourned meeting also quorum is not present within half-an hour from the time appointed for holding the meeting, the members present shall be quorum. Assuming that the given situation, i.e. adjournment of the meeting is caused because of absence of quorum, the above-stated position will prevail. Accordingly, three members who are personally present can validly conduct the meeting. But if adjournment has taken place for any reason other than absence of quorum, the quorum as per Articles or at least five members must be present.
Q.No.124. M, a foreign shareholder, receives notice of the annual general meeting after it was held.
Sol.: Under Sec.53 of the Companies Act a Company is required to serve notice of meeting on foreign shareholders only if they have left their Indian address. Further, in such cases it would be enough if the notice excluding the explanatory statement is advertised in a newspaper circulating in the neighbourhood of the Registered Office of the Company. However, the fact that the explanatory statement has been sent along with the notice of the meeting should be mentioned in the advertisement. Therefore, ‘M’ attention should be drawn to the notice published in the newspaper.
Q.No.125. At a general meeting of a Company a matter was to be passed by a special resolution. Out of 40 members of the Company 20 voted in favour of the resolution, 5 voted against it and 5 votes are cancelled. The remaining 10 members abstained from voting. The chairman declared the special resolution as passed. Is the decision valid?
Sol.: In case of a special resolution votes cast in favour of the resolution must be atleast three times the votes cast against it. Votes cancelled or votes of members who abstain from voting are not taken into account. In the given case, since the votes cast in favour(20) are more than three times the votes cast against the resolution(5) the decision of the chairman treating the resolution passed is valid.
Q.No.126. Dividend can be paid on the basis of called up capital.
Sol.: False. Dividend shall be paid up only on paid up capital. (Sec.93)
Q.No.127. Under section 205 Companies defaulting in compliance with the provisions of section 80A can not pay dividend on equity share till default continues.
Sol.: True. Section 80A relates to redemption of irredeemable preference shares. Sec.205 of the companies act provides that the Company which fails to comply with the provisions of Sec.80A shall not declared any divided on its equity shares as long as the failure continues.
Q.No.128. Dividend cannot be paid in kind.
Sol.: True. Sec.205 provides that the dividend shall be paid in cash and that issue of fully paid- up Bonus shares is not prohibited by capitalizing the profits or reserves of the Company.
Q.No.129. Company can adjust amount of dividend payable to a shareholder against any sum due to it from the shareholders.
Sol.: True. As per Sec.207 the dividend payable by the Company to any person can be lawfully adjusted by the Company against any sum due to it from the shareholders.
Q.No.130. Strike in postal dept. could be a valid reason for delay in dispatch of dividend warrants?
Sol.: True. Sec.207 provides that the Company shall not attract any penalty for delay in payment of dividend for any other reasons not due to any default on the part of the company.
Q.No.131. Academic qualification of a member is also required to be entered in the Register of Members of the Company.
Sol.: False., Sec.150 of Act requires the following to be entered in Register of Members:
a. The name and address, and the occupation, if any, of each member;
b. In the case of a Company having share capital, the shares held by each member, distinguishing each share by its member and the amount paid or agreed to be considered as paid on those shares;
c. The date at which each person was entered in the Register as a member; and
d. The date at which the person ceased to be a member.
The particulars mentioned above are the only particulars of a member which are required to be entered in the Register of Members maintained by the. There is no requirement of entering academic qualification of the members in the Register of Members.
Q.No.132. All private limited Companies are required to maintain index of members.
Sol.: False., Under section 151 every Company in which number of members exceed 50 is required to maintain an alphabetical index of all the members. Private limited Companies, generally, do not have more than 50 members and thus these are not required to maintain an index of members. However, if number of members in private Companies also exceeds fifty, then such Companies will also be required to maintain index of members.
Q.No.133. Company can maintain its books of account on single entry system of accounting.
Sol.: False., Sec.209 provides that the Company shall not be deemed to have maintained proper books of account unless these have been maintained on accrual basis and on double entry system of accounting.
Q.No.134. In accordance with the provisions of section 2 (17) of the Act “financial year” refers to a period of 12 months
Sol.: False., Under Sec.2(17) “financial year” means”, the period in respect of which any profit and loss account of the Company is made up, whether that period is a 12 months or not. Financial year of Company may extend up to 18 months.
Q.No.135. Any partnership firm having more than 20 partners is necessarily required to be registered under the Act as a Company?
Sol.: True. An association of more than 10 persons carrying on the business of banking Or An association more than 20 persons carrying on any other type of business, not registered under the Companies Act or any other law is an ‘Illegal Association’ (Sec.11). In such a case such association must have to be registered under the Companies Act or any other Indian law.
Q.No.136. Mr. M applied for allotment of shares in the name of Mr.Dara. Subsequently it transpired that the particular application made in the name of Mr.Dara was in fictitious name. Did Mr. M. incur any penalty under the Companies Act, 1956?
Sol.:
a. 1st Declaration. Sec.187C provides that a person, whose name is entered in the register of members of a Company as the holder of a share in that Company but who does not hold the beneficial interest (called registered holder) in such shares, shall make a declaration to the Company in the prescribed form specifying the name and other particulars of the person who holds the beneficial interest in such share. Such declaration shall be made by the registered holder within 30 days after his name is entered in the register of members.
b. 2nd Declaration. Similarly a person who holds a beneficial interest in a share of a Company, shall, within 30 days after his becoming such beneficial owner, make a declaration to the Company in the prescribed form specifying the particulars of the person in whose name the shares stand registered.
c. Penalty. If the registered holder or the beneficial owner fails to make the aforesaid declarations, without any reasonable excuse to do so, he shall be punishable with the fine up to Rs.1000 for every day during which the default continues.
Q.No.137. The name of Shri A.K. Modi appears in the register of members of XYZ Ltd. as holding 5,000 Equity’ shares of Rs.10 each. However, according to the information given to you, Shri R.S. Darna is the beneficial owner of the said shares. Advise XYZ Ltd. about the procedure to be followed under the provisions of the Companies Act.
Sol.: Refer to the previous question.
Q.No.138. The rates of equity dividend declared and paid by a Company are as follows: Year 2002 - 15%, Year 2001 - 12%, and Year 2000 - 12%. The Company has earned sufficient profit after tax in 2003 and wishes to propose a dividend on equity shares at 11% of the current profits. It also wishes to transfer more than 10% of Current Profits to its Reserves. The Company did not issue bonus shares during last few years. The Company’s PAT for the past years are: Year 2003 - Rs. 10.00,000, Year 2002 - Rs.17,00,000, Year 2001 - Rs. 15,00,000, and Year 2000 - Rs. 18,00,000. Comment on whether the Company is allowed to transfer a higher rate of profits to Reserves.
Sol.: A company may transfer a higher percentage of profits (i.e., more than 10%) by satisfying the below given conditions:
a. Minimum rate: The company is to maintain a rate of dividend for the current year equal to the average rate of dividend for the immediately preceding 3 years. In the given case, the average rate of dividend for the previous three years =(15+12+12)/3=13% and higher than the proposed dividend rate of 11%. Hence, the first condition is not satisfied.
b. Minimum amount: Where bonus shares have also been issued in the financial year in which the dividend is declared or in the 3 years immediately preceding the financial year, a minimum amount of dividend equal to the average amount of dividend declared over the 3 years immediately preceding the financial years is to be maintained. In the given case, there is no bonus issue and this condition is hence not applicable.
c. However, if the PAT for the current year is lower at least 20% compared to the average PAT for the immediately 2 preceding years, the company will not be required to ensure the maintenance of the average rate/amount of dividend mentioned earlier. In the given case, PAT of the current year is Rs.10 lakhs, which is 37.5% [(16-10)/16] lower than that of the average of the immediately preceding two years Rs.16 lakhs. [(17+15)/2 Years] The Company may take advantage under this exception.
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Other laws
THE PAYMENT OF BONUS ACT
Q.No.1. An employer had been paying to his employees every year at the time of Deepawali one month’s basic wages as Deepawali Bonus for the last 10 years, in addition to the bonus payable under the Payment of Bonus Act. The bonus had been paid even in those years when there were losses. The employer now wants to adjust Deepawali Bonus paid by him for the current accounting year against the bonus payable by him under the Act, for the current accounting year. State whether it is possible for the employer to make the above adjustments.
Q.No.1a) An employer had been paying to his employees every year at the time of 'Diwali' one month’s basic wages as bonus for the last 10 years, In addition to the bonus payable under the P.B. Act,1965. The bonus had been paid even in those years when there were losses. The employer now wants to adjust 'Diwali' bonus paid by him for the current accounting year against the bonus payable by him under the Act for the current accounting year. State with reference to the provision of the Payment of Bonus Act, 1965, whether it is possible for the employer to make the above adjustment.
Sol.: According to Sec.17 of the Payment of Bonus Act, if the employer has paid in any accounting year, Deepawali, Puja or any customary bonus to his employees, the employer is within his rights to deduct the amount of bonus so paid from the amount of bonus payable by him under the Act in respect of that accounting year. Thus, the employer can deduct/adjust the Deepawali bonus already paid against the bonus payable under the Act and the employees shall be entitled to receive only the balance.
Q.No.2. A person has worked only for 35 days in an accounting year. Is he eligible or entitled to be paid bonus by his employer for that year?
Sol.: The employee in the given case has not worked for all working days in an accounting year. Sec.13 provides for proportionate reduction of bonus in such cases. The employees shall hence be entitled to bonus for 35 working days only as a ratio of the bonus payable for the total working days.
Q.No.3. X, a temporary employee drawing a salary of Rs.3,000 per month, in an establishment to which the Payment of Bonus Act, applies was prevented by the employers from working in the establishment for two months during the financial year 2001-2002, pending certain inquiry. Since there were no adverse findings ‘X’ was re-instated in service. Later, when the bonus was paid to other employees, the employers refuse to pay bonus to ‘X’, even though he has worked for the remaining ten months in the year. Examine the validity of employer’s refusal?
Sol.: The employee in the given case has not worked for all working days in an accounting year. Sec.13 provides for proportionate reduction of bonus in such cases. (Sec.13) But Sec.13 does not cover a case where an employee was prevented from working by reason of an illegal order of termination. Thus based on the above, the refusal by the employers to pay bonus to X is not valid and he (X) is entitled to get bonus.
Q.No.4. A Company in a particular accounting year suffered losses and hence was not able to pay even the minimum bonus to its workmen. State in this connection, whether the minimum bonus is payable irrespective of losses and any circumstances that the Company may get exemption under the Payment of Bonus Act, 1965.
Sol.: As per the act, minimum bonus is payable whether or not the employer has any allocable surplus in the accounting year i.e. even if the employer suffers losses during the accounting year he is bound to pay this. However, exemption can be granted by the central government - Write Sec.36.
Q.No.5. In an accounting year, a company to which the payment of Bonus Act, applies, suffered heavy losses. The Board of Directors of the said company decided not to give bonus to the employees. The employees of the company move to the Court for relief. Decide in the light of the provisions of the said Act whether the employees will get relief?
Sol.: As per the act, minimum bonus is payable whether or not the employer has any allocable surplus in the accounting year i.e. even if the employer suffers losses during the accounting year he is bound to pay this (Sec.10). Applying the provisions of as contained in Section 10 the employees shall succeed and they are entitled to be paid minimum bonus at rate 8.33% of the salary or wage earn during the accounting year or Rs. 100 (Rs. 60 in case of employees below 15 Years of age), whichever is higher.
Q.No.6. Mr. Sharma is a supervisor in a factory drawing a salary of Rs.3,500 per month. In a particular accounting year he was on one month leave with salary. His employer declared minimum bonus as per the Payment of Bonus Act, to all eligible employees. State in this connection:
a. What shall be the salary that shall be taken into account for the purpose of calculating bonus payable to him?
b. What shall be the total bonus payable to him in that accounting year?
c. What would be your answer if the company suffers losses in that accounting year?
d. Is bonus payable to him if he was illegally terminated?
Sol.:
Where the salary or wage of an employee exceeds Rs.2,500 per month, the bonus payable to such employee shall be calculated as if his salary or wages were Rs.2,500 per month. In the instant case, Mr. Sharma is drawing a salary of Rs.3,500 per month. For the purpose of bonus his salary shall be taken at Rs.2,500 per month.
a. The total bonus payable to him in that accounting year shall be Rs.2,500 X 12 X 8.33%. For the purpose of calculating the total working days, leave with salary or wages shall be deemed to the working days of an employee. (Sec.14)
b. Even if the company suffers losses, the employer has to pay the minimum bonus.
c. Where an employee was prevented from working by reason of an illegal order of termination, Sec.13 and 14 do not apply.
Q.No.7. A Company could not pay bonus to its employees even after the expiry of six months from the close of its accounting year. Can the employees sue the employer for this reason?
Sol.: All amounts payable to an employee by way of bonus shall be paid in cash by his employer, within a period of 8 months from the close of the accounting year. This period of 8 months may be extended upto a maximum of 2 years by the appropriate government, on an application being made by the employer. Since the periods of 8 months have not expired, employees cannot sue the employer.
Q.No.8. An employee drawing a salary of Rs. 5,000 per month is entitled to Bonus. True/false.
Sol.: False. As per the Payment of Bonus Act, 1956, an employee employed on a salary or wage not exceeding Rs. 3,500 per month is entitled to Bonus.
Q.No.9. S joins as a worker with Gokale Sugar Factory on 2nd February, 04. Will he be eligible for Bonus for the financial year 2003- 04?
Sol.: Sec.8 of the Payment of Bonus Act provides that an employee is entitled to bonus if he has worked in the establishment for not less than 30 days. Since S has worked for more than 30 days in the accounting year, he would be eligible for Bonus for 2003-04.
Q.No.10. T Ltd. Carried on three business ventures viz., manufacturing sugar, cement and heavy engineering machinery, locating them in three different places in North India. They employed workmen on different terms in the different units. One of these units was financially feeling ill. The workers of this unit demanded bonus on the basis of treating these three units as one composite establishment. Can the workmen succeed in getting bonus?
Sol.: The payment of bonus act provides that, where an establishment consists of different departments or has branches, all such departments or branches shall be treated as part of the same establishment. Therefore the workmen succeed in getting bonus.
Q.No.11. State whether an employee is eligible for payment of bonus for the following period -
a) An employee laid off under an agreement.
b) An employee on casual leave for 5 days in a year.
c) A woman employee on maternity leave.
d) An employee absent due to temporary disablement.
e) An employee prevented from working by reason of legal order of termination.
Sol.: The eligibility of the following categories of employees to bonus are discussed below
a) An employee laid off under agreement - Eligible for bonus for the period of so laid off (Sec.14)
b) An employee on casual leave - Eligible for bonus for the period of such leaves (Sec.14) as
casual leaves are generally leave with salary.
c) Woman employee on Maternity Leave - Eligible if she has been on leave with salary wages.
If she has been absent i.e. with salary /wages, she is not eligible for that period of absence.
d) An employee absent due to temporary disablement eligible only if the temporary disablement
is caused by accident arising out of and in course of employment
e) An employee prevented to work by order of legal termination is eligible for bonus for that
period.
Q.No.12. In an accounting year, A company to which the Payment of Bonus Act, 1965 applies, suffered heavy loss. The B.O.D of the Company decided not to give bonus to the employees. The employees of the company move to the court for relief. Decide in the light of the provisions of the said Act, whether the employee will get relief (PEII May 2003).
Sol.: The employees are entitled to get minimum bonus even if the company suffered any loss. As per Sec.10 of Act, Every employer shall bound to pay to every employee a minimum bonus which shall be 8.33% of salary/wages earned by the employee during the accounting year or Rs. 100 whichever is higher, whether or not the company has allocable surplus. In case of an employee who has not completed 15 years of age, such min. bonus would be Rs. 60 or 8.33% of the salary/wages, whichever is higher. In the present problem, Employer is liable to pay minimum bonus to the employee.
Q.No.13. Can the appropriate Government exempt an establishment from payment of statutory minimum bonus? If so under what circumstances?
Sol.: As provided in Sec.36 of Payment of Bonus Act, 1965, If the appropriate Government, having regard to the financial position and other relevant circumstances of any establishment is of the opinion that it will not be in public interest to apply, all or any of, the provisions of the Act thereto, it may by notification in the Official Gazette exempt such establishment for such period as may be specified therein and subject to such conditions as it may think fit.
Q.No.14. Mr. K, Who is a casual employee of PQR Company actually worked in a year for 27days. However, he was absent due to temporary disablement caused by an accident arising out of and in the course of his employment for 7 days and has been laid off for 2 days as per the service agreement. Is he eligible to bonus under the Payment of Bonus Act, 1965?
Sol.: As per Sec.8 of the Payment of Bonus Act, 1965, An employee is eligible to bonus if he has worked for not less than 30 working days in the company. Further as provided in Sec.14 of the said Act, and employee shall be deemed to have worked on the days on which he has been laid off under agreement or as permitted by the standing order of the company or under the I.D. Act, 1947 or has been absent due to temporary disablement caused by accident arising out of and in course of his employment.
In the given problem, Mr. X has worked for 27 days, temporarily absent for 7 days due to accident arising out of and in the course of employment and laid off for 2 day as per an agreement. Therefore, the total day’s eligible for bonus = 27+2+7= 36 days and Mr. X is eligible for bonus under the Payment of Bonus Act, 1965.
Q.No.15. For the financial years 2001-02, 2002-03 and 2003-04 the amount of available surplus allocable as bonus to all employees of the company were Rs. 6,35,000, Rs. 2,20,000 and Rs. 3,75,000 respectively. Maximum amount of bonus payable to all employee of the company as per the Payment of Bonus Act, 1965 is Rs. 2,50,000 for each of the said years. In terms of the provisions of the said Act calculate the amount a company can pay as bonus to its employees, the amount set on in such year and the cumulative set on amount at the end of the year 2003-04.
Sol.: Considering Sec.15 of P.B. Act, Given problem can be solved in the following way:
Year Avbl Surplus Amount of Set on or Cumulative
Allocable bonus set off or set on or set off
as bonus payable Year c/f
(Rs.) (Rs.) (Rs.) (Rs.)
2001-02 6,35,000 2,50,000 50,000 2,50,000
2002-03 2,20,000 2,50,000(incl. Nil 2,20,000
Rs.30K for 02-03)
2003-04 3,75,000 2,50,000 1,25,000 3,45,000
(2.2L +1.25L)
Q.No.16. State with reference to provisions of the Payment of Bonus Act, 1965 whether the following employees are eligible to payment of bonus in terms of provisions of said Act.
a) An employee working in Life Insurance Corporation of India.
b) Employees of a university or college.
c) Employees employed though contractors on building operation.
d) Employees of National Housing Bank.
e) Employee of Reserve Bank of India.
f) Employees of a Municipal Corporation.
Sol.:Sec.32 of the Payment of Bonus Act, 1965 specially provides employees to whom the provisions of the Act shall not apply. Considering the said provision, the eligibility of the employees in the given problem are stated below.
a. ......not eligible c. not eligible e. not eligible
b. .....not eligible d. not eligible f. not eligible
Q.No.17. Sri. K. Mukherjee, an employee of Bigboss Ltd. left the company on 30.11.04 on health ground. He was on sick leave since 5th August 2004 and did not work from that date. There was an agreement by the company with its worker in 1998 for payment of bonus to employees. The company refused to pay the bonus for the year 2003-04 and threatened the employees of retrenchment in case of any labour trouble in connection with the bonus issue. Explain in terms of the payment of Bonus Act, 1965
i) What remedy is available to the workers,
ii) Can Sri Mukherjee after leaving the company move to recover amt from company?
iii) What is the power of the appropriate Government to recover the amount?
Sol.: As per Sec.21 of P.B. Act,
(i). Workers can apply to appropriate government for recovery of amount due to them.
(ii). Sri Mukherjee can move to appropriate government within one year from the date the
money became due to him.
(iii). The appropriate government if satisfied that any amount is due to Sri Mukherjee, It shall
issue a certificate for that amount to the collector who shall collect the amount as an
arrear of land revenue.
Q.No.18. Sri. Sanjib is an employee of the Megatele Co. Ltd. There are three trade unions in the company. One of the unions prevented the workers belonging to the workers of another union and as a result Sri Sanjib was prevented from attending to his work for few days. The company paid bonus to its employees during the year 2003-04 but refused to pay full bonus to Sri Sanjib because of his not attending office during the period he was prevented from attending office. Explain in terms of the Payment of Bonus Act, 1965 whether Sri Sanjib would be entitled to bonus for those days.
Sol.: As per Sec.14 of P.B. Act, An employee who is willing to work and is prevented from working is therefore eligible to bonus. Sri Sanjib is entitled to bonus for those periods.
Q.No.19. Sri Bholanath, an employee of Newtele Ltd. destroyed some electronic machines in the company premises after taking alcoholic with his friends in the company premises. He was found guilty and punished under the industrial Disputes Act, 1947. The Company loose huge amount due to break down of the machines. When the company paid bonus in that year to its employees it deducted the amount from the bonus payable to Sri Bholanath and he did not get any bonus in that year. Did the company violate any provisions of the Payment of Bonus Act, 1965 in not paying bonus to Sri Bholanath?
Sol.: As per Sec.18 of P.B. Act, The company can deduct the amount of loss from the bonus payable to Shri Bholanath and it did not violate the provisions of the Act.
CO-OPERATIVE SOCIETIES ACT
Q.No.1. A Co-operative Society with unlimited liability wants to expel its member, who prejudices the society by his misconduct. For this purpose, the society wants to amend its bye-laws. State the grounds which should be included in the bye-laws of the society so as to expel such member from the membership of the society?
Sol.: The society has the right to expel a member who conduct or character is prejudicial to the society. The bye-laws of a society normally provide that a member may be expelled if:
a. He fails to fulfill his obligations in the matter of dues (the number of month’s arrears being specified).
b. He becomes a member of another similar society and refuses to withdraw (because each member has the right to inspect the books of the society and may pass information to a rival society of which he is a member).
c. He is to be proceeded against for debts.
d. He becomes insolvent.
e. He engages in such activities as might be contrary to the principles of the society.
f. He becomes unsound mind.
g. He is convicted by as criminal court, especially for bribery, forgery, theft or fraud.
h. He has committed an act that is considered dishonorable by the managing committee.
Q.No.2. S is a member of a co-operative society registered with the unlimited liability under the Cooperative Societies Act, 1912. Holding shares of the society for ten months, S transfers his shares to Mohan. Decide whether transfer of shares in favour of Mohan is valid?
Sol.: In the case of an unlimited Society, a member cannot transfer any shares unless:
a. He has held such shares for not less than 1 year &
b. The transfer is made to the society or to a member of the society.
Hence, the transfer of shares by S is not valid since he had held these shares only for 10 months.
Q.No.3. Mr. Ramamurthy is a member of a co-operative society. After one year he becomes member of another society. One of the members of society complains to the society Mr. Ramamurthy's membership in the other society and asked for his expulsion. But Ramamurthy contended that it is his fundamental rights to be members of another society and no one can debar him. Advise the society.
Sol.: The membership of a society is governed by the bye-laws of the society and the Co-operative Societies Act, 1912. It is based on the co-operative principles. The bye-laws of the society generally provide provisions for restriction of multiple memberships of a member. This principle based on the concept that each member has the right to inspect the books of the society and may pass information to other societies which may be against the interest of other member Co-operative societies are established for the benefit of the members. If Mr. Ramamurthy does not withdraw from the membership of the other society he may be expelled form the membership of the society.
Q.No.4. A limited co-operative society earned a net profit of Rs. 1,00,000 in a year. The member want the profit to be divided among themselves equally. The society has also divisible profit for the past year amounting to Rs. 20,000. State how the profit will be divided among the members.
Sol.: As per Sec.33 of Co-operative Societies Act, 1912, No part of the profit of a limited society shall be divided among the member unless one-fourth of the net profit is transferred to a reserve fund. The divisible profit of the past year may also be divided among the members. Considering the provisions out of net profit of Rs.1,00,000, Rs. 25,000 being one-fourth of the amount is to be transferred to reserve fund and the balance Rs.75,000 and the past profit of Rs.20,000(total Rs.95,000) may be divided among members subject to the bye-laws of society.
Q.No.5. Mr. X is a member of a co-operative society limited by shares with a share capital of Rs. 1,00,000. There are 20 members in the society each holding shares of Rs. 5,000. 5 members of the society want to withdraw from the society and Mr. X wants to buy their shareholding. Can he do so? What would be the position if a registered society as a member acquires those share?
Sol.: Membership of co-operative society is based on the co-operative principles. Members may withdraw from the membership. When members withdraw their share value may be paid to the member. Further, as provided under Sec.5 of Co-operative Societies Act, 1912, in case of a co-operative society limited by shares no member other than a registered society as member shall shares subject to a maximum of 1/5th of the share capital of the society. From the provision it can be seen that Mr. X can hold upto Rs.20,000 shares. If he takes the shares of the 5 members, his total share would go up to Rs. 25,000 which is not permissible under the Act. In the second concept, if a registered society acquires the shares of the 5 members, its shares would be Rs. 25,000 which does not prohibit the provision of law therefore, can acquire the share subject to the bye-laws of the society.
Q.No.6. Mr. Bijay Kumar, a member of a registered co-operative society resigned from the society and his resignation was accepted w.e.f. 01.07.04. On 26.12.04 the society received a claim for Rs.20,000 relating to the year 2002. The existing members are capable of meeting the debt. Explain in terms of the provisions of the Co-operative Societies Act, 1912.
i) Whether Mr. Bijay Kumar is liable for the debt.
ii) What would be your answer if Mr. Bijay Kumar had resigned as a member w.e.f. 01.07.02,
iii) If Mr. Bijay Kumar would have died, explain the position of his legal representative.
Sol.: In terms of the provisions of section 23 and 24 of the Co-operative Societies Act, 1912 a past member shall be liable for the debts of the society for two years from the date when he cased to be a member. In case a member is dead, his legal representative shall be liable for the debts of the society for one year from the date of the death of the member. So,
i) Mr. Bijay Kumar is liable for the debt since he resigned w.e.f. 01.07.04 and the claim was made on 26.12.04. It is immaterial to which period it relates.
ii) If Mr. Bijay Kumar would have resigned w.e.f 01.07.02, he would not have been liable for the debt which arises in December 04 though it relates to the year 2002.
iii) If Mr. Bijay Kumar would have died his legal representatives would have been liable if the death of Mr. Bijay Kumar would have been within one year from 26.12.04 i.e. Date of claim.
Q.No.7. Sri Gundicha Co-operative Society lent a sum of Rs.20,000 to one of its members on mortgage of gold by the member. Explain in terms of the provisions of the Co-operative Societies Act-
i) Whether the society can give loan to its members, if it is limited society,
ii) Whether the society can give loan to its members, if it is an unlimited society
iii) Would your answer be same if the member would have mortgaged his land to the society for taking the loan?
Sol.: Sec.20 of Co-operative Societies Act, 1912 provides that a registered society can give loan to its members who are individuals. Loan to members who are registered co-operatives requires approval of Registrar. Loan to a member on security of immovable property may be restricted or prohibited by State Government. So,
i). The society, if it is limited society, can give loan to its members on mortgage of gold.
ii).The society, if it is an unlimited society, can give loan its members on security of gold
(movable property) with approval of the Registrar.
iii).The society has to see whether there is any restriction or prohibition by the S.G as regards
to such loan on security of immovable property. If there is no such restriction or prohibition,
the society can give the loan.
Q.No.8. All Brothers Co-operative Society made a good profit in the year 2003-04. The Managing Committee of the society recommended payment of divided @ 10% of the profits to its member and the General Body of the society approved the same. Explain in terms of the provisions of the Co-operative Societies Act, 1912-
i). Whether the society can distribute dividend if it is a limited society,
ii). In case it wants to pay dividend what would be the maximum quantum of dividend,
iii). Can undistributed profits of past years be utilized in paying divided in the current year?
Sol.: As per Sec.33 of Co-operative Societies Act, 1912,
i). Society can distribute dividend after transferring 1/4th of net profits to reserve fund.
ii).The quantum of dividend depends upon the policy of the society and the provisions of the
bye-laws. After transferring 1/4th of net profits to reserve fund. The society can distribute
balance amount as dividend and even out of past years profit.
iii).Undistributed profits of the past years can be paid as dividend if the bye-laws permit.
Q.No.9. Mr. S.M. Gupta is a member of a registered co-operative society. State his rights to vote as a member in terms of provisions of the Co-operative Societies Act, 1912 -
i). If he has partly paid his membership fee;
ii). No. of votes he is entitled to cast if the society is a limited society or unlimited society;
iii).Can he appoint a proxy to vote in his stead?
Sol.: As per Sec.12 of Co-operative Societies Act, 1912, no member shall exercise his right to vote unless he has made the payment in respect of membership to the society as per the byelaws of the society. Sec.13 of the Act provides that in case the liability of the member of the society is not limited by shares, he is entitled to one vote only. Where the liability is limited by shares he is entitled to as many votes as may be prescribed in the bye-laws of the society. A registered society if is a member of another society, it can appoint any member of the society as proxy to attend and vote at the meeting of the society where it is a member. So,
i). Mr. Gupta is not entitled to vote as a member at the meeting of the society as he has not
paid the membership fee.
ii). If the society is a limited liability society, Mr. Gupta can cast as many as votes as bye laws
of the society permits provided he has paid the membership fee and is entitled to vote.
iii). Mr. Gupta cannot appoint a proxy to vote at the meeting of the society; only societies which
are members are entitled to appoint proxies.
Q.No.10. Mr. B.Nayak is a member of Bilana Co-operative Society. He has certain debts payable to the society. Explain in terms of the provisions of the Co-operative Societies Act, 1912
i). Whether his shares in the society have a charge for the said debt;
ii). Can the society set of such debt from such shares.
iii).Can such shares be liable to attachment are claimable by any Official Receiver/Assignee?
Sol.: As per Sec.20 of Co-operative Societies Act, 1912, the share or interest of any member in the capital of the society will have a charge in respect of any debt due by the member to the society. The society can set off such debt of the member from his share or interest in the society. Sec.21 of Act provides that the share or interest of any member in the capital of the society shall not be liable to attachment claimable by any Official Receiver or Assignee. So,
i). The shares of Mr. B.Nayak shall have a charge in society for his debts due to the society.
ii). The society can set off the debts due from Mr. Nayak from his shares or interest in the
capital of the society.
iii). The shares or interest(Mr.Nayak) cannot be claimable by any Official Receiver or Assignee.
MULTI STATE CO-OPERATIVE SOCIETIES ACT
Q.No.1. Examine the validity of the following acts of the society during a particular year:
a. The Society declares dividend 11% on its paid up share Capital.
b. The society decides to donate a sum of Rs.10 lakhs out of its ‘Net Profits’.
Sol.: As per the provisions of the multi state co-operative society, profits can be used for payment of dividend at a rate not exceeding 12% & donations not more than 5 lakhs. Thus applying the above provisions, the answers to the questions asked are as under:
a. Declaration of dividend @ 11% on the paid share capital of the society is quite valid as it does not exceed 12%.
b. The decision to donate Rs.10lakhs out of the society’s Net Profits is not valid since the limit is Rs.5lakhs in a year.
Q.No.2. Mr. P, a member of a multi-State co-operative society applied to the society for a loan on security of his shares in the society. Explain with reference to the provision of the Multi-State Co-operative Societies Act, 2002
i) Whether the Multi-State Co-operative Society can given him the loan.
ii) Instead of security of his own shares, if one of his relatives offer mortgages of his property.
iii) If Mr. P would have been a depositor, would the Multi-State Co-operative society provide him he loan on mortgage of such deposit?
Sol.: As per Sec.66 of Multi-State Co-operative Societies Act, 2002,
i). Multi-State Co-operative Society cannot give loan to Mr. P on security of his shares.
ii). Even if relative provides any security, society can’t give loan as his relative is non-member.
iii).If Mr. P would have been a depositor, the society might give him the loan on the security of
his deposit in the society.
Q.No.3. A Multi-State Co-operative Society is formed with some Individuals as members. Some of the Individual members want to transfer their shares to one of themselves. Explain with reference to the provisions of the Multi-State Co-operative Societies Act, 2002,
i) Whether the individual members can transfer their shares to another,
ii) What is the limit of shareholding of an individual shareholder?
iii) How far the members who transfer their shares liable for the debts of the society.
Sol.: As per Sec.34 of Multi-State Co-operative Societies Act, 2002, Transfer of shares or interest of members in the capital of a multi-State Co-operative Society shall be subject to such conditions as to maximum holding as specified in Sec.33 of the Act. Sec.33 of the Act provides that no member other than those specified in Sec.25 (1) (c) to (g) shall hold such portion of total share capital of the society not exceeding one-fifth thereof as may be prescribed in the rules or bye-laws of the society. Further as provided in Sec.37 of the Act, the liability of a member shall continue form the date of transfer of the shares till two years from such date. So,
i) A member can transfer his shares to another.
ii) An individual member can hold shares as provided in the rules of bye-laws of the society subject to a maximum of one-fifth of the share capital of the society.
iii) A member who transfers his shares shall be liable for any debts of the society from date of such transfer and continue for a period of two years from such date of transfer.
EMPLOYEES PROVIDENT FUND ACT & MISC. PROVISIONS ACT
Q.No.1. Mrs. Tsunami who was an employee of M/s. Backbone Ltd. died in a sudden accident. She had taken a loan from a bank for purchasing a house and the loan was still out standing. After her death her legal representative applied for payment of her P.F dues. The bank lodged a claim with the authorities for payment of its balance loan amount from the P.F dues. Explain with reference to the provisions of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952
i) Whether the bank can recover the loan amount from the P.F. dues and
ii) If, Instead of the bank, Mrs. Tsunami had taken any loan from her legal representative what would have been the answer?
Sol.: As per Sec.10(2) of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 any amount standing to the credit of a member in the Fund at the time of his death and payable to his nominee shall vest on the nominee and shall be free from any debt or other liability incurred by the deceased or the nominee before death of the member and shall not be liable to attachment by any decree or order of any court. So,
i) The bank cannot recover its loan dues from the P.F. dues,
ii) Answer would be same in case the nominee had paid any loan to Mrs. Tsunami before her death.
Q.No.2. M/s Harsh Ltd. has been regularly depositing the P.F. contributions to the Government in respect of the company's contribution as well the employees' contribution. The company is doing well and earning huge profit. But due to reverse market conditions the company suffered loss for the last two years. The management is thinking to reduce the salary/wages of the employees to reduce the company's contribution to P.F. and instead, to pay certain compensatory allowance so that the employee's pay packet remains same. Explain in terms of the provisions of Employee's Provident Fund and Miscellaneous Provisions Act, 1952 whether the company can reduce the salary/wages.
Sol.: As per Sec.12 of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, M/s Harsh Ltd. cannot reduce the salary/wages of its employees so that lower contribution will be made by the company to the Fund which will reduce the benefit to the employees under the Scheme.
Q.No.3. M/S Atwal & Co. Pvt. Ltd. is engaged by M/s. Mine managers Ltd. for doing operational work at its mines. There are about 300 employees employed by M/s Atwal & Co. Pvt. Ltd. to do the mining operation. M/s Minemanagers Ltd. deducted from the amount payable to M/s Atwal & Co. Pvt. Ltd. a sum of Rs.2,00,000 being the P.F. contribution of the employees engaged by it. M/s Atwal in response to such deduction, deducted from the employees the entire amount of Rs. 2,00,000 in two installments to which the employees protested. Explain in terms of the provisions of Employees' Provident Fund and Miscellaneous Provisions Act, 1952.
i) Whether M/s Atwal & Co. Ltd. Can deduct from the salary/wages of the employee;
ii) Whether it can deduct the employee's contribution from the salary/wages paid to the employees in one installment.
iii) Can it recover the amount from the employees by entering into an agreement with employees?
Sol.: As per Sec.8A of Employee's Provident Fund and Miscellaneous Provision Act, 1952,
i). M/s Atwal may deduct the employee's contribution from the salary/wages of employees.
ii). M/s Atwal may deduct the employee's contribution only from the salary/wages of the
employees in one or more installments.
iii) M/s Atwal cannot recover the employer's contribution from the salary/wages of the
employees even by entering into any agreement with the employees.
Q.No.4. Manorama Group of Industries sold its textile unit to Giant Group of Industries. Manorama Group contributed 25% of the total contribution in pension scheme, which was due before sale under the provisions Employees' Provident Fund and Miscellaneous Provisions Act, 1952. The transferee company (Giant Group of Industries) refused to bear the remaining 75% contribution in the Pension Scheme. Decide in the light of the Employee's Provident Fund and Miscellaneous Provisions Act, 1952, who will be liable to pay for the remaining contribution in case of transfer of establishment and upto what extent? (PE II, Nov' 04)
Sol.: As per Sec.17B of Employees' Provident Fund and Miscellaneous Provisions Act, 1952, Both Manorama Group of industries and giant Group of industries are liable to bear the amount of contribution. However, Giant Group of industries will bear only upto the value of the assets obtained by it.
Q.No.5. The P. F. authorities passed an order in 2000 determining dues from Feedback Co. Ltd. in July 2003 the concerned officer who passed the order issued a notice to the company as to why the amount determined earlier should not be re-determined. Explain in terms of the Employee's Provident Fund and Miscellaneous Provisions Act, 1952 as to power of the concerned officer to re-open the case if any amount hand been escaped his determination.
Sol.: Based on Sec.7C of aforesaid Act, the P.F. authorities may re-open the case.
