Practical questions - ca final exams

[CS A Rengarajan]

Starting from today, we are posting  corporate law questions in ca final.   We can see how many members will join for the discussion   We  request larger participation for this topic.  Atleast express your opinion and make an attempt for this question.

Question No.1   (  May 2008)

A group of shareholders  has approached  you for advice regarding  the affairs of LPM Paper Mills Ltd.  According to them, the management  of the company is not carrying out its functions in accordance with the prudent commercial practice and if the affairs  of the company are   allowed to run in future  in the same manner,  the company's solvency would be in danger.  They want  that a Special Audit  be conducted to find out the actual nature of the transactions

a)  You are required to state with reference to the provisions of the Companies Act, 1956 as to when  a special audit can be conducted and by whom?

b)  Draft an application to be submitted  to the approrpriate authority in this respect

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[seema tiwari]

DEAR,

I enclosed some notes regarding this question,consider my views and if there is any modifications than let me know.

best regards
seema tiwari
9540880041

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[CS A Rengarajan]

Very few interactions came all forums.  Thank you very much. 

 We are posting second questions I am going to release all answers by may 15th in one installment.

We are comparing salary limit at par with Chartered Accountant but at the same time  we should also master in corporate law i.e. company law which is our specialization.  

The floor participation is very important  to analyse the practical questions.  We expect larger floor participation to have interesting discussion. We need to  attempt practical questions to analyse the particular problems and resolve it.  

Best Regards

Second question

The Board of Directors  of  M/s ABC Limited, an unlisted company  having a paid up capital of Rs.6 crores consisting of equity share capital of Rs.5 crores and preference shares  of Rs.1 crore  and also 1100 small shareholders holding  equity shares   seeks your advice on the following

a)   is it necessary for the company  to appoint a Director  to represent  the 'small shareholders?

b)  In case the Company decided  to appoint  such a Director.  The procedure  to be followed  by the company for such  appointment and the period  for  which such appointment can be made

c)  Can such a director be removed by the company before  the expiry  of the period of appointment without  the consent of the small shareholders

Advise explaining  the relevant provisions  of the Companies Act  and the rules ( May 2004,  Nov 2008)

.

[CS Bhavani Prasad CN]

Hats off to Renga Rajan for taking interest and initiative for posting interactive sessions on the forum.On behalf of mysore groups I hereby request him to contest for elections next time.

We are here with you Mr Rajan.

---

From: CS A Rengarajan <csaren...@gmail.com>

Sender: csmy...@googlegroups.com

Date: Mon, 4 Apr 2011 21:59:21 +0530

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Subject: [CSMysore] Re: Practical questions - ca final exams

[CS A Rengarajan]

First of all we have taken pledge that the profession must grow leaps and bounds. We are taking small initiative and we expect knowledge  and talented young company secretaries to be shown to the world.   At this point we need to create competition and talent in our forums.  Automatically, we will be recognized outside world. Let the members participate  in the discussion to come out with their  own ideas.  Atleast  first they should attempt the questions.  Next step whether it is right or wrong .  

This is our first agenda

Best Regards

[gaurav rathore]

In the above given case of ABC Limited:-

A) No it is not necessary to appoint a small shareholder's Director.

Reason :- It is not mentined anywhere to to necessarily appoint a small shareholder's Director.

Section 252 (1) only says that a public Company having--

(a) a paid up capital of five crore rupees or more

(b) one thousand or more small shareholders

may have a director elected by such shareholder's.

B) The Procedure :-

As Per The Companies (Appointment of the Small Shareholders’ Director) Rules, 2001

(1) A company may act suo-moto to elect a small shareholders’ director from
amongst small shareholders or upon the notice of small shareholders, who are
not less than 1/10th of total small shareholders and have proposed name of a
person who shall also be a small shareholder of the company.

(2) Small shareholders intending to propose a person shall leave a notice of their
intention with the company at least 14 days before the meeting under the
signature of at least 100 small shareholders specifying name, address, shares
held and folio number and particulars of share with differential rights as to
dividend and voting, if any, of the person whose name is being proposed for the
post of director and of other small shareholders proposing such person as a
candidate for the post of director or small shareholders.

(3) A person whose name has been proposed for the post of small shareholders’
director shall sign, and file with the company, his consent in writing to act as a
director.

(C) Yes he can be removed before expiry of his term without approval of the small shareholder's in the following situtations:-

1) he has applied to be adjudicated as an insolvent and his application is pending;

2) he has been convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence;

3)he has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; or

4)such person so elected, as director of small shareholders ceases to be a small shareholders’ director on and from such date on which he ceased to be a small shareholder;

5)he absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board;

6)he is a partner of any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the company in contravention of section 295;

7)he acts in contravention of section 299;

8)he becomes disqualified by an order of Court under section 203;

Please correct me if I am wrong.

Thanking You 

Gaurav G.S. Rathore

(CS Trainee)

[ankit misra]

Mr. Bhavani, I second your views.

On Mon, Apr 4, 2011 at 10:04 PM, CS Bhavani Prasad CN <bhavanip...@gmail.com> wrote:

--
thanks & regards,

Ankit Misra

Mob. No. 9839750527

[ankit misra]

Dear Gaurav,

Very nice explanation.

[monika singh]

Section 252 (1) proviso says 

a) Every Company having paid up capital of five crore rupees or more 

b) one thousand or more small shareholders 

may have a director elected by such small shareholders.

and  in the given case company is  having paid up of 6 crore and also 1100 small shareholder  so section 252(1) proviso is applicable to the company. 

 A Company may act on its own to elect a small shareholders’ director from amongst small shareholders. Alternatively, a company may act to elect a small shareholders’ director, upon the notice of not less than one-tenth of total small shareholders, who have proposed the name of the small shareholder of the company. 

A resolution to the appointment of small shareholders director of a company should contain at least one hundred small shareholders signature. 

The person whose name has been proposed shall file his written consent to be appointed as a director. 

He can be appointed only for three years. 

He shall not be liable to retire by rotation. 

A person cannot become a small shareholder director in more than one company at a time. 

He can not be appointed as a full time director of the Company. The provisions of Section 274(1)(g) are not applicable to small shareholder director.   

please correct me if i m  wrong.

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PLEASE CONSIDER THE ENVIRONMENT BEFORE PRINTING THIS MAIL.

Help someone have a nice day

--------------------------------------------------------
REGARDS,

MONIKA SINGH

[gaurav rathore]

Dear Monika,

Can u please explain why provisions of section 274 (1) g are not applicable ?

REGARDS,

GAURAV G.S. RATHORE

[Dipak singh]

Answer to Question a) It is not Necessary to appoint Small Share
Holder Director in Company , The word written in Section 252 is "small
shareholders may elect a director in the prescribed manner" so it is
not necessary to appoint.

Answer to Question b) Mentioned below

Convene Board Meeting after giving notice to all the directors
[Section 286] to discuss besides others the following matters.

· Approve the terms and conditions on which the Small
shareholders’ director is proposed to be appointed. [Section 252(5)]

· To decide the day, time, venue of the General Meeting.

· To approve the notice of general meeting.

· To authorise the Company Secretary or any director of the
company to issue the notice of general meeting.

· Issue and despatch notices in writing at least 21 clear
days before the date of the General Meeting [Section 171(1)]

*

In case the shares of the company are listed on a Stock ExchangeInform
the Stock Exchange with which shares of the company are listed about
the date of this meeting prior to the board meeting. [Clause 19 of the
Standard Listing Agreement]

*

Inform the said Stock Exchange within 15 minutes of the board Meeting,
of the outcome of the meeting by letter or fax.

*

Hold and convene a General Meeting and pass an [Ordinary resolution],
[Section 189(1)].

*

In case of listed companies send 3 copies of the notice and a copy of
the proceeding of the General meeting to the Stock Exchange with which
the shares of your company are listed. [Clause 31(c) & (d) of the
Standard Listing Agreement]
*.

File [e-form no 32] with the concerned ROC within 30 days from the
date of Appointment.

*

Check that such Director makes intimation within twenty days of his
appointment to the other companies in which he is already a director,
Managing Director, manager, Secretary. [Section 305(1)].

*

Pay the requisite fees, as prescribed by the Companies (Schedule X)
Companies Act, 1956.

*

Fees can be paid through Credit Card / by cash / by cheque in favour
of “MCA Collection Account ICICI Bank” at the prescribed rates. (Fee
Calculator)

*

Make necessary entries in the Register of Directors and in the
Register of Director’s Shareholding. [Section 303(1) & 307].

*

Notify the Stock Exchange with which shares of the Company are listed
about the change in the company directors [Clause 30(a) of the
Standard Listing Agreement]


Answer to question to c) Once it is appointed with the Consent of
Member in GM , so it should be not removed without Consent of Share
Holders.

Correct me if I am Wrong

NOTE

Definition: Small Shareholders mean shareholders holding shares of
nominal value of Rs. 20,000/- or more.

In case of a Public Company having a paid up capital of Rupees Five
Crores or more and one thousand or more small shareholders, small
shareholders may elect a director in the prescribed manner.

A Company may act on its own to elect a small shareholders’ director
from amongst small shareholders. Alternatively, a company may act to
elect a small shareholders’ director, upon the notice of not less than
one-tenth of total small shareholders, who have proposed the name of
the small shareholder of the company.

A resolution to the appointment of small shareholders director of a
company should contain at least one hundred small shareholders
signature.

The person whose name has been proposed shall file his written consent
to be appointed as a director.

He can be appointed only for three years.

He shall not be liable to retire by rotation.

A person cannot become a small shareholder director in more than one
company at a time.

He can not be appointed as a full time director of the Company. The
provisions of Section 274(1)(g) are not applicable to small
shareholder director.

Regards,

Dipak Singh

[monika singh]

Dear Sir,

Coz small shareholder's director cannot be considered as a director appointed by the co.in the general meeting within the meaning of the section 255 and also

He can not be appointed as a full time director of the Company. so the provisions of Section 274(1)(g) are not applicable to small shareholder director. he act like a nominee director

Correct me if i m wrong.          

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[gaurav rathore]

Dear Madam,

 

I think Section will be applicable to small shareholder's Director also.

 

Reason- Bcoz it is not given anywhere  that this section is not apllicable on small shareholder's Director.

 

Also the The Companies (Appointment of the Small Shareholders’ Director) Rules, 2001 should be read in conjuction with the Act. ( Rules should not prevail over the Act )

 

A basic rule of law is when  two law contain the provisions then same should be read in stricter sense so that both can be given meaning.

 

I agree with the fact that small shareholder's Director act like a nominee on Board.

 

But, there is a cirular General Circular of MCA in respect of applicability of section 274(1) g of the Act which only exempts Nominee Directors apponited by:

 

1) Central & State Govarment Companies

 

2) Public Financial Institutions

 

No exemption given to small shareholder's Director.

 

 

Correct me please if i am wrong.

 

 

 

REGARDS

 

Gaurav G.S. Rathore

[monika singh]

Than i would open this question to Senior members.

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[Dipak singh]

Dear Gaurav,

Section 274(1)(g) is not applicable to Small Share holder's Director
please go through my email.

Regards,

Dipak Singh

[gaurav rathore]

Dear Deepak,

 

A small shareholder can be a small shareholder Director in more than one Company at a time.

 

It is clearly mentioned in the Rules :

 

Point No. 7

No person shall hold office at the same time as small shareholders’ director in more than two companies.

REGARDS

 

 

Gaurav G.S. Rathore

[Suresh Kumar Vaishraj]

Dear Friends,

 

1. Yes, I agree with Mr. Gaurav that, such director can act upot maximum of 2 companies but not more than that.

 

2. Is appointment of small shareholders directors, Mandatory?

    In case of listed the appointment is mandatory upon satisfaction of all other criterias. 

    In case of unlisted companies the appointment is at the option of the Company.

 

3. The tenture of such director (if appointed) shall not exceed 3 years, however the same person 

can be re-appointed for another period of 3 years.

 

4. In list of disqualifications which are applicable to a small shareholders director, there's no mention of the restrictions of Section 274(1)(g). Thus the provisions of Section 274(1)(g) is not applicable to a small shareholders director. This may be the deliberate intention of the draftsmen.

 

5. The removal of such director does not require the approval of small shareholders.

 

Last but not least cheers to Mr. Rengarajan, for great intiatives.

 

Thanks and Regards,
Suresh Kumar V
Company Secretary
91-9849991201

REGARDS

 

 

Gaurav G.S. Rathore

--

[Anju Grewal]

Dear Sir,

As per Section 233A companies Act 1956, Where the Central Government is of the opinion

(a) that the affairs of any company are not being managed in accordance with sound business principles or prudent commercial practices; or

(b) that any company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business to which it pertains; or

(c) that the financial position of any company is such as to endanger its solvency;

the Central Government may at any time by order direct that a special audit of the company’s accounts for such period or periods as may be specified in the order, shall be conducted and may by the same or a different order appoint either a chartered accountant whether or not such chartered accountant is a chartered accountant in practice or the company’s auditor himself to conduct such special audit and such auditor shall be known as Special auditor. The report of the special auditor shall, as far as may be, include all the matters required to be included in an auditor’s report under section 227 and, if the Central Government so directs, shall also include a statement on any other matter which may be referred to him by that Government.

 

 Therefore the members of the Company can file an application with the Central Government thereby requesting the Government to conduct special audit and safeguard their interest.

Application for the same is as follows:

Date____

Regional Director

Company Law Board

(Address)

Sub: Special Audit under Section 233A of the Companies Act, 1956

 

This is in reference to the above captioned subject for conducting special audit on direction of the Central Government over companies running their business irregularly or doing such things that are prejudicial to industry, trade, business or public at large.  I am the member/shareholder/employee/creditor etc.(whichever applicable) of ______________(Company name) and associated with the company since________(date).

I have found that in this company (whatever irregularities are there, list them). In order to protect my own interest and of several other persons who have stake in this company in one or the way, a special audit u/s 233A of the Companies act, 1956 be conducted.

 

Yours Truly

Anju Grewal_________

abc_______

def_______

ghi________

jkl________

mno________

(Members of LPM Papers Limited)

 

Please correct me where ever I am wrong.

 

P Please do not print this email unless it is absolutely necessary. Spread environmental awareness. 

Thanks & Regards

Anju Grewal

--

[Bhuvaneswari S]

Answer to Question No 1

                                            Special Audit

 

(i) Section 233A of the Companies Act deals with the matter relating to Special Audit.

According to Section 233A of  the Companies Act 1956,the Central Government has the power to direct special audit in certain circumstances which are as follows:

a)       if sound business principles or prudent commercial  practices is not followed.

b)      If it affects the interests of trade, industry or business

c)       The financial position of the company is such as to endanger its solvency.

 

Thus, in this case, the group of shareholders may make a compliant to the Central government requesting for conducting the special audit.

The special audit can be carried out either by the statutory auditors of the company or by any Chartered Accountant.

 

                                                  Draft Application

 

                                                                                                                                Date : 05.04.2011

 

To

 

The Secretary

Ministry of Corporate Affairs

New Delhi

 

Sir,

 

We, the undersigned the shareholders of LPM Paper Mills Ltd would like to bring to your kind notice that for a long time the affairs of the said company are not being managed in accordance with sound business principles.

We are of the view that certain expenditures, which are being incurred by the company, are not related to the business of the company and the company is not getting any benefit out of such expenses.

The prices charged for the business transactions entered in to by the directors are not comparable with the prices charged by the other parties for similar transactions.

The financial position of the company will reach a stage where it will endanger its solvency is such state of affairs is allowed to be carried on for long.

 

We pray that Central government be pleased to appoint pursuant to Section 233A of the Companies Act 1956, as Special Auditor to properly audit the accounts of the Company and find the real nature of the transactions and determine the losses so far sustained and being sustained by the company on this account.

 

Yours faithfully,

 

1………………….

2………………….

3………………….

(Shareholders)

On Mon, Apr 4, 2011 at 10:26 AM, CS A Rengarajan <csaren...@gmail.com> wrote:

--

[Bhuvaneswari S]

Dear Sir,

Answer to Question No 2

                                  Small Shareholders

a) Section 252 of the Companies Act 1956 states that

(i)                  a public company having a paid up capital of Rs 5 crores or more

(ii)                One thousand or more shareholders may have a director elected by small shareholders in the manner prescribed by the rules.

 

In this case, the total paid up share capital including the preference share capital exceeds Rs 5 crores and the equity share capital is Rs 5 Crores.The Company has also got more than 1000 small shareholders. Hence, the provisions of Section 252(1) are applicable to this company.

Since the words used “ may have a director”, the appointment of small shareholders director is voluntary Rule 4(1) of the Companies Appointment of the Small Shareholders Director)Rules 2001,a company can act suomotu to elect such director. If notice is received from required number of shareholders, it will be mandatory to appoint shareholder’s director, otherwise it is discretionary.

 

b) Appointment

 

• Small shareholders intending to propose to person shall give notice to company atleast 14 days before meeting.
• The notice should be signed by at least 100 small shareholders ad it must contain the prescribed particulars.
• The person whose name is proposed as director will sign and filw with the company his consent in writing to act as a director.
• The person must be a small shareholder.

 

Small shareholder’s director can be appointed for a maximum period of 3 years subject to meeting the requirements of provision of Companies Act except that he is not required to retire by rotation.

 

c)Small Shareholders director can be removed by the shareholders at a general meeting under section 284 of the companies act 1956 before the expiry of his tenure.

Pls do let me know if my answers are incorrect and request you to give suggestions to improve.

Thanks&bestregards,

Bhuvaneswari.S

 

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[Dipak singh]

Dear Gaurav,

YES, NO SPL. APPROVAL OF SMALL SHAREHOLDERS IS REQUIRED FOR REMOVAL OF
SMALL SHAREHOLDER DIRECTOR. BUT YOU NEED TO FOLLOW PROCEDURE IN SEC
284 OF COS. ACT.

Regards,
Dipak Singh

[Dipak singh]

Dear Gaurav,

If Small Share Holder Director Removed without Consent of Share
Holder then I think it is highly illogical because this provision
vanishes the intention of this small shareholder directors
rules....???????


Correct me if I am wrong,

Regards
Dipak Singh

[jhannavi kumari]

hi will you please inform me regarding companies for 15 months
training at Bangalore

[Rajeshwari R]

Dear Bhuvaneshwari Mam,

Is the Draft application regarding special audit to be sent to MCA, New Delhi or Company Law Board?

Thanks and Regards,

Rajeshwari.R

[Anju Grewal]

Hi Rajeswari,

As its addressed to MCA, it can be clearly seen that we have to apply to MCA on behalf of Central Govt. But I request Ms. Bhuvaneshwari to tell me the source where it is mentioned that CG had delegated this power to MCA.

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[Bhuvaneswari S]

Dear Rajeshwari,

The application has to be addressed to Ministry of Corporate Affairs.

rgds,

Bhuvaneswari

On Wed, Apr 6, 2011 at 2:36 PM, Rajeshwari R <r.chinnu.r...@gmail.com> wrote:

[Bhuvaneswari S]

Dear Anju Grewal.

The application has to be addressed to Ministry of Corporate Affairs as MCA is primarily concerned with administration of the Companies Act, 1956, other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with law.

 The Company Law Board was constituted by the Central Government as an independent quasi-judicial body .The petitions/applications falling under section 247, 250, 269, and 388B ,sections 17, 18, 19, 58A(9), 58AA(1), 79/80A, 111,111A, 113/113(3), 117, 117C, 118(3), 141, 144(4), 163, 167, 186, 196, 219/219(4), 235, 237(b), 269, 284, 284(4), 304, 307, 408, 409, 614, 621A, 634A, of the Companies Act, 1956.

So as per my view,the application has to be addressed to Ministry of Corporate Affairs.

Please let me know if my answers seems to be incorrect so that I can rectify it and improve my knowledge.

Thanks&bestregards,

Bhuvaneswari.S

[Anju Grewal]

Okies....thanks a lot....:-)

[Rajeshwari R]

Hello Maam,

Thanks a lot.

Regards,

Rajeshwari.R