Full Name: PRANAV DILIP INDULKAR

Roll No: 27

Course: S.Y.M.M.S

Name of College: ANJUMAN-I-ISLAMS ALLANA INSTITUTE OF MANAGEMENT STUDIES

Date of Submission: 26TH SEPTEMBER 2012

Assignment Business Law 2/ Corporate Law Questions 1. Distinguish between a shelf Prospectus and a Red- Herring Prospectus (Atleast 5 points)? 2. What is a defunct Company? What procedure is followed to dissolve it? 3. Explain the inter relationship between Doctorine of Constructive Notice and Doctorine of Indoor Management? 4. 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 the meeting. A shareholder complains that the amount of the proposed increase was not specified in the notice. Is the notice valid? Give legal Reasons? 5. The AoA of the company provided that the shares of the member of the company who became bankrupt would be offered for sale to other share holders at certain price. Is the provision binding on the shareholders? Give legal Reasons? 6. A meeting of a public limited Company was properly convened and was subsequently adjourned by the chairman. The meeting is held subsequently without giving a fresh notice? Is the meeting valid? Give legal Reasons and Quote the Relevant Section 7. XYZ ltd wants to make a contract with a partnership. Four of the five directors of the company are partners of such partnership. How can the contract be executed at all? 8. Can anyone file a suit against an officer of the Government excersing powers under FEMA? Discuss. Note: The format is as follows 1. 2. 3. 4. 5. Full Name Roll No Course Name of College Date of Submission

Attach copy of this Assignment Must be printed or typed

ANSWER 1: Shelf Prospectus v/s Red herring Prospectus

Shelf Prospectus is a prospectus issued by a financial institution or a bank whose main object is financing of one or more issues of securities or class of securities specified in that prospectus. Financing for this purpose means making loans to, or subscribing in the capital of a private company or industrial enterprise engaged in infrastructural financing, or such other companies as the Central Government may notify. Rules regarding the shelf prospectus are as follows: It shall be filed by a public financial institution, public sector bank, or a scheduled bank whose main objective is financing. It shall be accompanied by an information memorandum which shall provide material facts relating to new charges created, changes in financial position prior to the making of a second or subsequent offer of securities under the shelf prospectus. Once the shelf prospectus has been filed, there is no need to file to afresh prospectus at every stage of offer of securities within the period of validity of shelf prospectus. It is valid for one year from the date of first offer of securities under it. If another issue is made during this period, only an information memorandum is required to be filed. The shelf prospectus along with the information memorandum shall constitute the prospectus.

Red herring prospectus is a prospectus, which does not have complete particulars on the price and quantum of securities offered. It is filled along with information of memorandum prior to the opening of subscription list and Atleast three days before the opening of the offer. The following points must be kept in mind as regards for the red herring prospectus. Both the information memorandum and red herring prospectus shall carry the same obligations as applicable to a prospectus. Every variation between the information memorandum and the red herring prospectus shall be highlighted by the issuing company and intimated to the persons invited to the issue of securities On the closure of offer a final prospectus stating the total capital raised and the closing price of securities and any other details as were not included in the red herring prospectus shall be filed in the case of listed company with SEBI and the registrar, and in any other case with only the Registrar. An applicant can withdraw his application on the intimation of variation within seven days from the date of such intimation.

ANSWER 2: Defunct Company

A defunct company means a company which never commenced business or which is not carrying on business and has either no assets or has such assets as shall not be sufficient to meet the cost of liquidation. A company is, however, not considered defunct if the cessation of business is due to the conduct of winding up. Also the numbers of stockholders of a company are reduced below the statutory minimum limit does not render it defunct. The policy which is followed with regard to weeding out the defunct companies is that where it appears from the latest available balance sheet of a defunct company that it has adequate realisable assets, steps are taken to take the company into compulsory liquidation. It is only where the latest available balance sheet shows that the company has no assets or has such assets as would not be sufficient to meet the cost of liquidations. Steps are taken to strike their names off the register under section 560. Also subsection (5) of section 3 introduced by the companies (amendment) Act, 2000 states that if a company, private or public, has failed to meet the paid-up capital norm, it shall be deemed to be defunct company and the ROC shall strike off the name of the company. Procedure followed for dissolution of a defunct company (SECTION 560) Sec 560 - Power of Registrar to strike defunct company off register. Where the registrar has reasonable cause to believe that a company is not carrying on business or in operation, he sahll send to the company by post a letter inquiring whether the company is carrying on business or in operation. If the Registrar does not within one month of sending the letter receive any answer thereto, he shall within fourteen days after the expiry of the month, send to the company by post a registered letter referring to the first letter, and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Official Gazette with a view to striking the name of the company off the register. If the Registrar either receives an answer from the company to the effect that is is not carrying on business or in operation, or does not within one month after sending the second letter receives any answer, he may publish in the Official Gazette, and send to the company by registered post, a notice that at the expiration of three months from the date of that notice, the name of the company mentioned therein will unless cause is shown to the contrary, be struck off the register and the company will be dissolved. As stated above Section 560 (1), (2) and (3) are governing the process of dissolving a company by the Registrar of Companies. Where he has a reason to believe that a company is not carrying on business or is non-operative, he has been bestowed with the powers to remove the name of the company from his register. After two sequential notices to the company by ordinary post and registered post respectively and a notice in the Official Gazette at the prescribed interval, unless sufficient contrary cause is shown to him, the Registrar shall erase its name off the register, and
4

again publish a notice thereof in the Official Gazette; and on the publication of this notice in Official Gazette, the company stands dissolved, in a contingency, the Liquidator being inactive in case of a winding up of a company, the Registrar can take over the formalities and follow the route of publishing notice in the Official Gazette onwards. The policy which is followed with regard to weeding out the defunct companies is that where it appears from the latest available balance sheet of a defunct company that it has adequate realizable assets, steps are taken to take the company into compulsory liquidation. But where the latest available balance sheet shows that the company has no assets or has such assets as would not be sufficient to meet the cost of liquidation, steps are taken to strike their name off the register under section 560.

ANSWER 3 : Interrelationship between doctrine of constructive notice & doctrine of indoor management
On registration, memorandum and articles become public documents. These are open to the inspection in the Registrars office on payment of prescribed fee. Every person dealing with the company is deemed to know the contents of these documents. This is known as constructive Notice of memorandum and articles. The legal effect of this doctrine is that if a person deals with a company in a manner which is inconsistent with the provisions of these documents, he cannot acquire any rights there under. It prevents an outsider from alleging that he did not know the contents of memorandum of association or the articles of association of the company. Irrespective of whether he has actually read them or not he is presumed to have read and understood them. It is a negative doctrine in the sense that it cannot operate against the company. It operates only against the outsiders dealing with the company. Therefore it is the duty of every person dealing with the company to firstly inspect these documents, and to ensure that it is within the powers of the company to make the proposed contract The doctrine of indoor management constitutes an exception to the doctrine of constructive notice. It provides that a person dealing with the company is entitled to presume that internal requirements prescribed in public documents have been observed. For instance when the articles give the power to borrow with the sanction of an ordinary resolution of general meeting, a lender need not inquire whether the general meeting was convened. In other words, the person dealing with the company need not inquire into the regularity of internal proceedings. There is a rule known as Rule in Turquands case. This rule is based on reasons of public convenience. An outsider dealing with the company is presumed to know the constitution of the company but he need not probe into what happens indoors of the company. This rule is of great commercial significance. In its absence, the plight of those dealing with the companies would have been worse because the companies would have escaped liability by pleading lack of authority on the part of concerned officials.
5

ANSWER 4:
When at a general meeting any special business is sought to be transacted Section 173 (2) enjoins upon the company to send an explanatory statement along with the notice of the meeting. The explanatory statement must state all material facts relating to each item of special business. But this has not been done. Hence the objection of the shareholder is valid. Any business other than the ordinary business transacted at a general meeting and all the business at any other meeting is regarded as special business. If any special business is to be transacted, the notice shall specify its nature. There shall be annexed to the notice an explanatory statement setting out all the material facts concerning each such item of business including the nature and extent of interest of every director/ manager.

ANSWER 5:
As per the binding force of legal effect of the memorandum and articles, According to section 36 the memorandum and articles shall, when registered bind the company and the members thereof to the same extent as if they respectively had been signed by the company and each member. In this case each member of the company is bound to observe the provisions of these documents as if he has contracted to comply with them. In other words, the company can sue the members for enforcing these documents or for restraining them from their breach. However Section 38 prohibits the company from altering these documents so as to increase the liability of the member or to require him to subscribe for more shares. The objection by shareholder is invalid.

ANSWER 6:
Section 174 provides that in case the quorum is not present within half an hour from the time appointed for holding the meeting, the meeting shall stand adjourned to the same day in the next week at the same time and place. No fresh notice is required to hold the adjourned meeting. Therefore the adjourned meeting is valid in the instant case. The quorum must be present at the beginning of the meeting. It need not be present throughout or at the time of taking votes. If the quorum is not present within hour of the scheduled time, the meeting called upon the requisition of members shall stand dissolved. In any other case it shall be adjourned to the same day in the next week at the same time and same place, or such other day, time and place as the board may determine and notify. If at the adjourned meeting also quorum is not present within hour the members present will be the quorum.

ANSWER 7:
It can be formed by entering into partnership; Partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by all of them or any of them acting for all. The owners of a partnership business are individually known as the "partners" and collectively as a "firm". Its main features are :A partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential. However, if the firm is not registered, it will be deprived of certain legal benefits. The Registrar of Firms is responsible for registering partnership firms. The minimum number of partners must be two, while the maximum number can be 10 in case of banking business and 20 in all other types of business. The firm has no separate legal existence of its own i.e., the firm and the partners are one and the same in the eyes of law. In the absence of any agreement to the contrary, all partners have a right to participate in the activities of the business. Ownership of property usually carries with it the right of management. Every partner, therefore, has a right to share in the management of the business firm. Liability of the partners is unlimited. Legally, the partners are said to be jointly and severally liable for the liabilities of the firm. This means that if the assets and property of the firm is insufficient to meet the debts of the firm, the creditors can recover their loans from the personal property of the individual partners. Restrictions are there on the transfer of interest i.e. none of the partners can transfer his interest in the firm to any person(except to the existing partners) without the unanimous consent of all other partners. The firm has a limited span of life i.e. legally, the firm must be dissolved on the retirement, lunacy, bankruptcy, or death of any partner. Partnership deed: A partnership is formed by an agreement, which may be either written or oral. When the written agreement is duly stamped and registered, it is known as "Partnership Deed". Ordinarily, the rights, duties and liabilities of partners are laid down in the deed. But in the case where the deed does not specify the rights and obligations, the provisions of the THE INDIAN PARTNERSHIP ACT, 1932 will apply.

The deed, generally contains the following particulars:Name of the firm. Nature of the business to be carried out. Names of the partners. The town and the place where business will be carried on. The amount of capital to be contributed by each partner. Loans and advances by partners and the interest payable on them. The amount of drawings by each partner and the rate of interest allowed thereon. Duties and powers of each partner. Any other terms and conditions to run the business.

ANSWER 8

No suit, prosecution or other legal proceedings shall lie against the central government or the Reserve Bank or any officer of the government or of the Reserve Bank or any person exercising any power or discharging any functions or performing any duties under the Act, 2000 for anything done in good faith or extended to be done under the Act or rule, regulation, notification, direction or order made there under. The act extends to the whole of India. Also, it applies to all the branches, offices and agencies outside agencies outside India owned or controlled by a person resident in India and also to any contravention there under committed outside India by person to whom this act appeals. The act has come into force with effect from June 1, 2000.
The person include in it :

1. Authorized person: It means an authorized dealer, money changer, offshore banking unit or any other person for the time being authorized under the Act to deal in foreign exchange and foreign securities. 2. Capital account transactions: It means a transaction which alters the assets or liabilities, including contingent liabilities, outside India or assets or liabilities in India of persons resident outside India and includes transactions referred to in sec 6.(3).

3. Currency: This expression includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers, letters of credit, bills of exchange and promissory notes, credit cards, or such other similar as may be notified by the reserve bank. Vide Notification No. FEMA15/2000/RB dated May 3,2000 , RBI has notified debit card, ATM, cards or any other instruments by whatever name called that can be used to create a financial liability, as currency. 4. Currency Notes: It means and includes cash in the form of coins and bank notes. 5. Currency Account Transactions: it means a transaction, other than a capital account transaction, and without prejudice to generality of the foregoing 6. Export: Export with its grammatical variations and cognate expressions, means I. The taking out of India to a place outside India any goods, II. Provision of services from india to any person outside India. 7. Foreign currency: It means any currency other than Indian currency. 8. Foreign Exchange: It means foreign currency and includes I. Drafts, travelerscheques, letters of credit or bills of exchange expressed or drawn in Indian currency but payable in any foreign currency. II. Deposits, credits and balance payments in any foreign currency. III. Drafts, travelerscheques, letter s of credit or bills of exchange drawn by banks, institutions or persons outside India but payable in Indian currency. 9. Foreign Security: The expression means any security in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency but where redemption or any form of return such as interest or dividend is payable in Indian currency.