179

Circular No. l0F 1990, dated 5th January, 1990

This circular provides that the application form for availability of names should be signed by one or more amongst the promoters and in case one or more of the promoters are thereafter no more interested in participating in the promotion of the new company, a no objection letter from such promoter is made available to the Registrar of Companies at the time of registration of the new company. This circular was issued as instances had come to the notice of the Department of Company Affairs that some promoters are preempting the names, which is not a healthy practice. It therefore decided that, in future, Registrars of Companies should register the company only in cases where the promoters, as per availability of name and application, are also the subscribers to the memorandum and articles of association of the proposed company at the time of its registration. In case of any change in the name(s) amongst the subscribers, the changed subscribers are advised to make fresh application for availability of name. The Registrar of Companies was also instructed that it may, as per existing procedure, allow the same name, if otherwise available, after three months (now six months) from the date when the name was allowed to the original promoter(s).

CHANGES IN NAME-AVAILABILITY GUIDELINES

Department's Circular dated 13-5-1999.-Names starting with small letters/having small letters/starting with small alphabets (like i2 Technologies.... Ltd. etc.) can be used by companies but they should ensure that the name starting with small alphabets does not have phonetic or visual resemblance to the name of a company in existence. In order that investors are not misled by the strategy adopted by a few companies, ROCs can allow change of name to companies to reflect the business of software only if a substantial portion of their income (as reflected from their audited accounts or accounts certified by a Chartered Accountant) is derived from software business. If this is not proved then such change of name should not be allowed. ROCs may allow companies to be registered by them with the word "Insurance" or “Risk Corporation” as part of the name only after consulting the Reserve Bank of India and Insurance Regulatory Authority (Jeevan Bharti Building, Tower 1, Connaught Circus, New Delhi 110-001) as the case may be. [DCA Circular No. 5/35/98-CL. V; General Circular No. : 6/99, dated 13-5-1999].

This embargo on allowing names by ROC with the word insurance/assurance or risk corporation as part of the name was lifted by the Department of Company Affairs Clarification dated 30-6-2000.

CHANGE OF NAME BY COMPANIES MADE STRINGENT

Press Release, dated 16-8-1999.-The Registrars of Companies (ROCs) will allow change of name to companies to reflect the business of software only if a substantial portion of their income is reflected in their audited accounts or accounts certified by a chartered accountant is derived from software business. If this is not proved then such change of name would not be allowed.

This follows the decision of the Government that investors are not misled by the strategy adopted by a few companies whose principal object was not computer software and who had actually been involved in financing activities. Such companies have changed their names to indicate as if they were in the business of computer software. For this purpose, such companies have included words like "Infosys, Software, Systems, Info-system, Computers, Cyber, cyberspace, etc." in their names only to dupe the gullible investors. [PIB Press Release, dated l6th August, 1999]

REGISTRATION OF PRIVATE INSURANCE COMPANIES ALLOWED

Press Release, dated 20-8-1999.-The Registrars of Companies (ROCs) will, henceforth, allow companies to be registered by them under the Companies Act, 1956, bearing the word "insurance" or "risk corporation" as part of name only after consulting the Reserve Bank of India and Insurance Regulatory Authority, as the case may be.

The modification in the earlier decision of the Department of Company Affairs follows the likely opening up of insurance sector in the private sector. The activities of the insurance sector would be regulated by the Insurance Regulatory Authority which has already been set up.

Earlier, the Registrars of Companies had been advised not to allow registration of companies with the "bank" "banking" "investment" "insurance" and the "trust". In view of the setting up of the Insurance Regulatory Authority, the Department of Company Affairs changed its guidelines for registration of insurance related companies in the private sector as well. [PIB Press Release, dated 20th August, 1999.]

CHANGES IN COMPANY NAME AVAILABILITY

Press Release, dated 16-9-1999.-The Registrars of companies (ROCs) will now allow company name changes starting with small alphabets like “12 Technologies _________ Ltd.”, etc., as such names are being used increasingly by many companies in other countries. It shall, however, be ensured that the name starting with small alphabets

does not have phonetic or visual resemblance to the name of a company in existence.

In the past, the name-search for allowing names for companies used to be a manual search based on list of names already in existence on a particular date, names made available by different ROCs, which used to be circulated periodically.

The name-search is no longer manual. It has become a computerised operation in all ROC offices. In view of this, some of the old constraints like alphabetical listing, which would be a restrictive factor in the manual system, do not exist under the present computerised system. [PIB Press Release, New Delhi, dated September 16, 1999].

Change of name as the name already registered is undesirable

S. 20-Change of undesirable name-Board Resolution

WHEREAS the company had made an application to the Registrar of Companies, NCT of Delhi and Haryana for a new name as the existing name of the company has to be changed;

AND WHEREAS the said application was refused by the said Registrar of Companies being undesirable as it was identical with, or too nearly resembles the name of an existing company already registered;

NOW, THEREFORE, IT IS RESOLVED that a fresh application be made to the said Registrar of Companies in a new name being the ___________ Co. Ltd. immediately;

RESOLVED FURTHER that the Secretary of the company be and is hereby authorised to make the application along with requisite fee to the said Registrar of Companies and obtain the approval and do any such acts and deeds that may be required from time to time in connection therewith.

PRACTICE NOTES

1. Availability of names.-As the section provides that no company shall be registered by a name which, in the opinion of the Central Government, is undesirable and that a name identical with or closely resembling the name of an existing company is not to be permitted, the Department of Company Affairs has provided for ascertaining by making of an application beforehand whether a proposed name is acceptable for registration.

2. Prescribed Rules and Form.-Every application for name availability shall be in Form No. 1-A, accompanied by a fee of Rs. 500/- and the Registrar shall furnish the required information ordinarily within 7 days [w.e.f. 21.3.1995 vide amended Rule 4A of the Companies (Central Government's) General Rules and Forms, 1956]. The name is valid for a period of 6 months from the date of intimation by the Registrar of Companies.

3. Citizen's Charter.-As per the Citizen's Charter of the Department of Company Affairs, the approval for availability of name should be given by the Registrar of Companies within 3 working days. [File No. 5/25/99-CL-V; Press Note No. 9/99 dated 9-8-1999].

Change of name by a company

S. 21-Change of name by a company-Board Resolution "RESOLVED that subject to the approval of the Central Government and the shareholders of the company, the name of the Company be and is hereby changed from XYZ

PRIVATE LIMITED to ABC PRIVATE LIMITED.

RESOLVED FURTHER that Shri SM, Director of the company be and is hereby authorised to make necessary application for obtaining approval to the change of name accordingly to the Registrar of Companies, Delhi and Haryana, New Delhi and to do all such acts and things as may be deemed necessary in this regard.

RESOLVED FURTHER that an Extraordinary General Meeting of the Company be convened on Wednesday the 18th June, 2002 at 11.00 A.M. at the Registered Office of the Company at R-502, New Rajendra Nagar, New Delhi for obtaining the consent of the shareholders to the said change of name.

RESOLVED FURTHER that the draft notice for convening the Extraordinary General Meeting on 18th June, 2002 as placed before the Board be and is hereby approved.

RESOLVED FURTHER that Shri SM, Director of the Company be and is hereby authorised to sign the said notice for and on behalf of the Board.

RESOLVED FURTHER that Shri SM, Director of the Company be and is hereby authorised to send the notice of the meeting to all the Members of the Company and the persons entitled to the notice."

PRACTICE NOTES

1. Board meeting for approval of name.-Select about four names and get the same approved by the Board in order of preference. The selected names should indicate to the extent possible the main object of the company.

2. Application for availability of name.-Make an application to the Registrar of Companies in Form No. 1-A given in Companies (Central Govt.'s) General Rules and Forms, 1956 for availability of name by paying application fee of Rs. 500/- in cash, along with a certified true copy of the Board Resolution.

3. Board Meeting.-When the name is made available by the Registrar of Companies, then hold again a Board Meeting for changing the name of the Company. Also fix date, time and venue for holding the General Meeting.

4. General Meeting.-Hold a General Meeting and pass a Special Resolution for change of name of the Company. Change of name of transferor company cannot be affected merely on scheme of amalgamation becoming effective without the company's passing a special resolution for that purpose and obtaining approval of Central Government for change of name. Govind Rubber Ltd., In re, (1992) 8 CLA 149 (Bom).

5. Filing.-File the Special Resolution along with Form No. 23 within thirty days of the passing of the Special Resolution at the General Meeting with the Registrar of Companies concerned.

6. Application to Registrar of Companies (Delegated by the Central Government)-No form has been prescribed for the purpose. Every Registrar of Companies has devised a form for making an application for change of name. Obtain a copy of the form from the Registrar's office and submit the same for obtaining approval to change of name along with the following documents:

(1) A certified true copy of the Special Resolution.

(2) Original letter received from the Registrar of Companies making available new name.

(3) An up-to-date certified copy of the Memorandum and Articles of Association.

(4) A certified copy of the balance-sheet and profit and loss account for the last two financial years together with Director's report thereon.

(5) A copy of the prospectus or statement in lieu thereof if the change of name is as a result of conversion of the Company from private to public.

(6) Treasury Challan duly receipted in respect of the requisite fee payable on application or the requisite filing fee in cash.

7. Citizen's Charter.-As per the Citizen's Charter of the Department of Comp, Affairs the approval for change of name should be given by the Registrar of Companies within 15 working days. [File No. 5/25/99-CL-V; Press Note No. 9/99, dated 9-8-1999]

8. Application for fresh Certificate of Incorporation.-After approval has been received from the Registrar of Companies approving the change of name, then surrender the old certificate of incorporation and obtain a fresh Certificate of Incorporation. The change of name will be complete only after the Registrar of Companies issues a fresh Certificate of Incorporation.

9. Noting of Change.-On receipt of fresh Certificate of Incorporation, then note the change of name on every copy of the Memorandum and Articles of Association, Sign Boards, Letter heads, Common Seal, Documents, etc. etc.

10. Intimation to Stock Exchange.-In the case of a Public Company whose shares are listed on a Stock Exchange, the change of name is to be notified to the Stock Exchange concerned.

11. Addition/deletion of the word "Private".-No approval of the Central Government is required where the only change in the name of the Company is the addition thereto or as the case may be, the deletion therefrom of the word "private", consequent the conversion of a public Company into a private company or of a private Company into a public Company (Proviso to section 21).

12. Entity of Company not affected.-The change of name does not affect the entity of the Company or its continuity as the same entity. It remains for all practical purposes the same entity with the same rights, privileges and liabilities as before. [Pioneer Protective Glass Fibre (P) Ltd. v. Fibre Glass Pilkington Ltd., (1985) 3 Comp LJ 309)].

13. Proceedings in Court.-The proceedings commenced by the Company in its former name can be continued under its new name. [Selvex Oils and Fertilizers v. Bliandi Cros-Fields (P.) Ltd., (1978) 48 Comp Cases 260 (P&H)].

14. Decree passed by Court in old name.-If a decree is passed by the Court in t old name of the Company, it can be executed in its new name. (Abdulquayam v. Mail, dra Land & Corporation, AIR 1955 All 192).

Rectification of name under S. 22

Under section 22 Central Government can compel a company to change its name by passing an ordinary resolution with the previous approval of the Central Government, within 12 months of that company’s first registration by its new name as the case may be. This is done by Central Government, which has been delegated to the Regional Director can be exercised either suo motu or upon an application by an aggrieved person if through inadvertance or otherwise a company on it first registration or on its registration by a new name, is registered by a name which in the opinion of the Central Government is identical with or too nearly resembles, the name by which a company in existence has been previously registered, whether under the Companies Act, 1956 or any previous companies law. There is no provision anywhere in the Act for an extension of the aforesaid period of 12 months and the Court cannot be called upon to extend it by resorting to the writ of mandamus. Sidhvi Constructions (India) P. Ltd. v. ROC, Hyderabad, (1997) 90 Com Cases 299 (AP). The power to compel a company to change its name must be exercised by the Central Government within 12 months of a company's registration or its registration by a new name. After 12 months the Central Government cannot exercise the powers and ordinary procedure for alteration of name would have to be followed. Even relief through a writ of mandamus cannot be granted by the High Court where this period prescribed for the exercise of the power has elapsed, even after exclusion of any period covered by court injunction, in computing it. [Sen & Pandit Electronics (P) Ltd. v. Union of India & Others, (2000) 36 CLA 68 (Cal)].

The Regional Director should not be competent to consider the intricacies and technicalities of a passing off action. The word, "or otherwise" should be construed ejusden generis with the preceding words "inadvertence". Therefore if a name has been registered with a State mind akin to inadvertence only then the power under section 22 will be available to the Regional Director. Kalpana Polytec India Ltd. v. UOI, (2001) 106 Com Cases 558 (Cal-DB).

Rectification of Name of Company

S. 22(l)-Rectification of name on Central Governments' Direction-Board Resolution

WHEREAS the company has received a direction from the Central Government under section 22(l)(b) to change the name of the company being identical with or too nearly resembling the name of _____________ company being in existence;

AND WHEREAS such a change of name is to be done by passing an ordinary resolution with the previous approval of the Central Government;

NOW THEREFORE IT IS RESOLVED that subject to the previous approval of the Central Government and also subject to the approval of the shareholders of the company, the name of the company be and is hereby changed to either of the following three : namely (1) _____________ Ltd.; (2) _____________ Ltd.; (3) _____________ Ltd.;

RESOLVED FURTHER that the secretary of the company be authorised to apply to the Registrar of Company for availability of name in favour of any one of the aforesaid three names in the prescribed form and on receipt of the name available from the Registrar of Companies apply to the Central Government for approval.

PRACTICE NOTES

1. Application for availability of name.-Make an application to the Registrar of Companies in Form No. I-A given in Companies (Central Govt.'s) General Rules and Forms, 1956 for availability of name by paying application fee of Rs. 500/- in cash, along with a certified true copy of the Board Resolution.

2. General Meeting.-Hold a General Meeting and pass an ordinary resolution subject to the previous approval of the Central Government.

3. Application to the Regional Director.-Once the name is availed of from the Registrar of Companies and thereafter a General Meeting is held and an ordinary resolution is passed approving the new name obtained from the Registrar, an application should be made to the Regional Director (Central Governments', Power delegated to Regional Directors) of the region in which the registered office of the company is situated. There is no prescribed form of this application and should be made on the letter head of the company along with following:

1. A Certified true copy of the Ordinary Resolution;

2. A Certified true copy of the letter of the Central Government directing the company to change the name;

3. Original letter received from the Registrar of Companies making available the new name;

4. Demand draft evidencing payment of requisite application fee as per the Companies (Fees on Application) Rules, 1999.

4. Citizen's Charter.-As per the Citizen's Charter of the Department of Company Affairs, the approval should be given by the Regional Director within 30 working days. [File No. 5/25/99-CL V; Press Note No. 9/99, dated 9-8-1999.

5. Name when amounts to identical or closely resembling.-Commercial use of geographical names in universally well known. Monopoly over the use of geographical name is not the rule but a rare exception to the rule. "Manipal" as part of the corporate name could not be said to be identical or closely resembling the names of plaintiffs as to mislead, cause confusion or result in unfair exploitation of the goodwill earned by the plaintiffs-companies. Manipal Housing Finance Syndicate Ltd. & other v. Man 7al Stock and Share Brokers Ltd. and Others, (1999) 98 Com Cases 432 (Mad).

6. Name allowed through inadvertence.-Company incorporated at Ma -as (now Chennai) with word 'Kilburn' in its name with permission from an existing " Calcutta Company. The said Madras company floating two other companies with the same and getting them registered in Madras. Permission of Calcutta Company does not extend to other companies to be floated by the said Madras Company. The registration of name of the other two company by the Registrar of Companies was due to inadvertence only. Kilburn Electrical Ltd. & Others v. Regional Director and Others, (2000) 99 Com Cases 243 (Mad).

7. Penalty.-If a company makes default in complying with any direction given under clause (6) of sub-section (1) of section 22, the company and every officer who is in default will be punishable with fine of Rs. 1000/- for every day during which the default continues.

Licence from Central Government for Charitable Company

S. 25(3)-Obtaining Licence from the Central Government-Board Resolution

WHEREAS the company had changed its objects to include objects for promotion of commerce, art, science, religion, charity or any other useful objects;

AND WHEREAS the company desires to apply its profits, if any, or other income in promoting the aforesaid objects and to prohibit the payment of any dividend to its members;

AND WHEREAS under section 25(3) of the Companies Act, 1956, the company is required to obtain a licence authorising the company to change its name by a Special Resolution including or consisting of the omission of the word 'Limited';

AND NOW, THEREFORE, IT IS RESOLVED that subject to the passing of the Special Resolution an application be and is hereby made to the Central Government (by delegation Regional Director) for obtaining a licence by which the word 'Limited' forming part of the existing name of the company will be omitted;

RESOLVED FURTHER that the Secretary of the company be and is hereby authorised to make the application and sign any such documents and papers in connection therewith and do any such acts and deeds that may be necessary and required with regard to the said application.

PRACTICE NOTES

1. Grant of licence to an existing company.-An existing company can avail itself of the privileges under this section by restricting its objects for non-profit making purposes as specified in sub-section(l). The company will have to pass a special resolution and seek approval of the Central Government for change of its name, including for deletion of the words 'Limited' or 'Private Limited', as the case may be. This power of the Central Government has been delegated to the Regional Directors.

2. Partnership firm as member.-Though a firm is not a legal person like a body corporate, section 25(4) enables firms to become members of any association registered under this section such as a chamber of commerce or social club or charitable institution and enjoy all such privileges as are enjoyed by bodies corporate which become members of such associations. But by reason of their firms being members, the individual partners of such firms cannot claim the status and privileges of membership for each of them. For instance, if the articles of association or other regulations prescribed that only members are eligible for appointment as directors, no partner of a firm which is a member, will be qualified for the appointment, unless he is himself a member in his own right. Thus, the firm is recognised only for the limited purposes of membership of section 25 companies.

3. Revocation of licence.-Once a licence is granted under section 25 by the Central Government, it may be revoked at any time by it, and upon revocation of such licence to a body the name of which contains the words, 'Chamber of Commerce' that body should within 3 months from the date of revocation change its name which does not contain those words. [Section 25(7) & (9)].

4. Penalty for default.-If the body makes default in complying with the requirements of sub-section (9) of section 25 it will be punishable with fine of Rs. 5,000/- for every day during which the default continues.

FEMA, 1999-Foreign Technology Agreement

S. 6 of FEMA-Foreign Exchange Management Act, 1999-Foreign Technology Agreement-Board Resolution

RESOLVED that subject to the prior approval of the Reserve Bank of India and subject to such other approvals, permission and sanctions as may be necessary from time to time, approval of the Board of Directors be and is hereby accorded for undertaking modernisation and updating of the technology of the plant of the Company for the manufacture of _____________ and for the said purpose to enter into agreement with _____________ (mention here the name of Foreign Collaborator) as per draft placed on the Table.

RESOLVED FURTHER that Shri _____________ Managing Director of the company be and is hereby authorised to submit the necessary application to the Reserve Bank of India and such other authorities as may be necessary for their approval and after receipt of necessary approvals to enter into the agreement with _____________ Foreign Collaborator and to do all such acts, deeds and things as may be necessary in this regard.

PRACTICE NOTES

1. Payment of lump sum consideration.-The payment of lump-sum consideration of technical know-how fee, if any, shall not exceed Rs. one crore, in case of foreign technical collaboration.

2. Payment of royalty.-The payment of royalty, if any shall not exceed five per cent on domestic sales and eight per cent on export by wholly owned subsidiaries to offshore parent companies under the automatic route without any restriction on the duration of royalty payments and payment of royalty up to 2% for exports and 1% for domestic sale is allowed under automatic route on use of trade works and brand name of the foreign collaborator without technology transfer.

3. Application to RBI Central Office.-The application is to be made to the Controller, Exchange Control Department (Foreign Investment and Technology Transfer Section), RBI Central Office at Mumbai, in Form FC (GPR) in ten copies unless the said technology agreement comes under the automatic route of the RBI.

Alteration of Articles of Association

S. 31-Alteration of Articles of Association-Board Resolution

"RESOLVED that subject to the approval of the company in the General Meeting, by passing a Special Resolution the Articles of Association of the Company be altered in the manner following:

(a) ARTICLE 9(a)

For the word "50%" appearing in 4th line, the words "51% and 49% respectively" be substituted.

(b) ARTICLE 90

For the word "50%" appearing in 6th line, the word "51 %" and for the word "50%" appearing in 9th line the word "49%" be substituted.

For the word "50%" appearing in 3rd line, the word "51%" be substituted".

(d) ARTICLE 115

For the word "50%" appearing in 3rd line, the word "49%" be substituted".

RESOLVED FURTHER that an Extraordinary General Meeting of the Members of the Company be convened to adopt the Resolution for the aforesaid amendments in the Articles of Association."

RESOLVED FURTHER that Mr. ABC, Secretary of the company be and is hereby authorised to issue the notice alongwith explanatory statement as per the draft placed before the meeting and initialled by the Chairman for the purpose of identification and approved by the Board.

PRACTICE NOTES

1. Special Resolution.-Section 31 of the Act empowers the Company to alter its Articles of Association by passing a Special Resolution at the General Meeting. However, it is provided that any such alteration in the Articles must conform to the provisions of the Act and the conditions contained in the Memorandum of Association of the Company.

2. Notice of alteration.-Notice of meeting for alteration of Articles should disclose full facts and the accompanied by a copy of the proposed amendments (Bimal Singh Kothari v. Muir Mills Co. Ltd., AIR 1952 Cal 645).

3. Mistake in articles.-A mistake, whether clerical or any other, in the Articles of a Company can only be rectified by altering the Articles by Special Resolution in accordance with this Section only. It cannot be set right by application to Court [Scott v. Scott (Frank F) (London) Ltd., (1940) 3 All ER 508 (CA)].

It is to be remembered that the mere passing of a Special Resolution inconsistent with an existing Article is not enough unless it expressly alters the Articles concerned (Halsbury Laws of England, Fourth Edn., Vol. 7, Para 454, page 257).

4. Retrospective alterations.-The Articles may be so altered as to have retrospective operation, e.g., the insertion of a lien clause so as to give the Company a lien on shares of members for debts incurred both before and after the insertion of the clause (Allen v. Gold Reefs of West Africa, (1990) 1 Ch 656). However, alterations should not be made so as to throw an increased liability on members.

5. Bona fide alteration not opposed to Memorandum is permissible.-A shareholder in the Company must be taken to know that one of the incidents of membership of a Company is that the Company may by adopting, the proper method, bona fide alter its article in a way which may prejudicially affect his interest and provided that the alteration in the article is not inconsistent with the objects set out in the Memorandum of Association and is bona fide in the interest of the Comparty, the plaintiff as a share holder in ordinary circumstances would be bound by such an alteration (Hari Chandana v. Hindustan Insurance Society, AIR 1925 Cal 690).

6. Grant of interim injunction.-Interim injunction cannot be issued against transacting business at the Extraordinary General Meeting, relating to amendment of articles of association on the ground that the amendment is at the peril of chairman and managing director and might threaten their position in the Board. K.G. Khosla v. Rahul G. Kirloskar, (1997) 24 CLA 30 (Delhi).

Alteration of Articles

(Another format)

S. 31-Alteration of Articles-Board Resolution

"RESOLVED that subject to the approval of the company obtained by passing a Special Resolution in the General Meeting, the Articles of Association of the Company be altered in the following manner:

(a) That after the existing Article 21, the following new Articles 21A and 21B be inserted:

"21A. No fee shall be charged for registration of transfer probate, letters of administration certificate of death or marriage, power of Attorney or similar other instruments".

"21B. No share shall in any circumstances be transferred to any infant, insolvent or person of unsound minds."

(b) That the words "subject to the Regulations of Recognised Stock Exchange" be added in the beginning of Article 22.

RESOLVED FURTHER that an Extraordinary General Meeting of the Members of the Company be called on _____________ (day) the _____________ (date) to adopt the Resolution for the aforesaid amendments in the Articles of Association as advised by _____________ Stock Exchange."

PRACTICE NOTES

1. Alteration of Articles to be consistent with the provisions of Memorandum and the Act.-Ensure that the alteration of Articles is consistent with the provisions of the Memorandum of Association and Companies Act, 1956.

2. Alteration must be bona fide.-Ensure that the alteration is bona fide for the benefit of the company as a whole.

An alteration in the articles of association made for the purpose of providing the shares of an expelled member to be compulsorily transferred even against his wishes and without his signature was held to be valid exercise of the power alteration. Gathami Solvent Oils Wd. v. Mallina Bliarathi, (2001) 105 Com Cases 7 10 (A.P.)

3. Notice of General Meeting to all members, auditors, Stock Exchange, etc.-Issue notice of the general meeting to all the members, auditors, legal representatives of deceased and insolvent members and three copies each to all the stock exchanges where the company is listed.

4. Filing with Stock Exchange.-Forward six copies of the amendments to the Stock Exchange where the company is listed.

5. Filing with Registrar of Companies.-File with ROC a certified true copy of the special resolution and the explanatory statement in Form No. 23 within thirty days of its passing.

6. When articles validly altered company not prevented from acting on altered articles.-If the articles are validly altered, the company cannot be prevented from acting on the altered articles although it may involve a breach of contract [Southern Foundries 1926) Ltd. v. Shirlaw, (1940) 2 All ER 445].

7. Provision limiting company's share capital to a fixed amount would not be effective.-A provision of the articles which has the effect of limiting the company's share capital to a fixed amount would have no effect being contrary to the Act [Milleer Hemant Mafatlal v. Mafatlal Industries Ltd., (1987) 89 Bom LR 86 (Bom)].

8. Members bound by valid alteration.-All members become bound by a valid alteration whether they voted for or against it (Hari Chandana Yoga Deva v. Hindustan Co-op. Insurance Society Ltd., AIR 1925 Cal 690).

Alteration of Articles

(Another format)

S. 31-Atteration of Articles-Board Resolution

"RESOLVED that subject to the approval of the company in General Meeting, the Articles of Association of the Company be altered in the manner following:

Article 125(5) of the Articles of Association be deleted and in its place the following new article shall be substituted.

"125(5). Notwithstanding anything to the contrary contained in these Articles, so long as any moneys shall be owning by the company to Industrial Development Bank of India (IDBI) or Industrial Finance Corporation of India (IFCI) or Life Insurance Corporation of India (LIC) or Unit Trust of India (UTI), or any other financing corporation, Company or Body (hereinafter referred to as the Corporation), or so long as the Corporation holds any shares/debentures in the Company as a result of subscription or underwriting or conversion of loan/debenture into equity capital of the Company or so long as any guarantee given by the Corporation in respect of any financial obligation or commitment of the company remains outstanding, the Corporation shall, pursuant to an agreement between it and the company, have a right to appoint one or more persons as Director(s) on the Board of Directors of the company (each such director is hereinafter referred to as "the Nominee Director") but so that not more than three persons shall hold office at any time by virtue of appointment under this Clause. The Nominee Director shall not be required to hold qualification shares and shall not be liable to retire by rotation. The corporation may at any time and from time to time remove the Nominee Director appointed by it and may, in the event of such removal and also in case of death or resignation of the Nominee Director, appoint another in his place and also fill any vacancy which may occur as a result of the Nominee Director ceasing to hold office for any reason whatsoever. Such appointment or removal shall be made in writing by the Corporation and shall be delivered to the Company at its registered office. The Board of Directors of the Company shall have no power to remove the Nominee Director from office. Each such Nominee Director shall be entitled to attend all general meetings, Board Meetings and meetings of the committee of which he is a member and he and the Corporation appointing him shall also be entitled to receive notices of all such meetings. In addition to the Director's fee provided in these Articles such Directors shall be paid travelling and other expenses, etc. for attending the Board Meeting as may be provided under the Rules of the body which they represent.

FURTHER RESOLVED that an Extraordinary General Meeting of the Members of the Company be called on _____________ (day) the _____________ (date) _____________ at _____________ A.M. at _____________ (place) to adopt the Resolution for the aforesaid amendment in the Articles of Association as advised by _____________ financial institutions."

PRACTICE NOTES

1. Appointment of Nominee Directors.-Pursuant to the Loan Agreement with the financial institutions, they have to be empowered to appoint their nominees as Directors on the Board of Directors of the Company and a suitable provision in this respect is to be included in the Articles of Association of the Company.

2. Tenure of office of Nominee Directors.-The said nominee directors will hold office so long as any liability of the company remains outstanding.

3. Not liable to retire.-The nominee directors shall not be liable to retire by rotation and shall be entitled to the same privileges and be subject to same obligations as any other director of the company.

No amendment of provision relating to non-rotational director should be made without the approval of the Central Government under section 258.

Registration of a company already registered as a limited

company under the Indian Companies Act, 1882

S. 32(l)(b)-Registration of company already registered as a limited company under the Indian Companies Act, 1882-Board Resolution

"RESOLVED that subject to the approval of the members given of a General Meeting. Behar Coal Co. Ltd., registered under the Indian Companies Act, 1882, be and is hereby re-registered under the Companies Act, 1956 and Mr _____________ secretary of the company be and is hereby directed to convene a General Meeting for this purpose to comply with the requirements of such re-registration as may be enjoined by the Registrar of Companies, West Bengal;

RESOLVED FURTHER that Table A in Schedule I to the Companies Act, 1956 be adopted in the place of the existing Articles of Association of the company;

RESOLVED FURTHER THAT Mr _____________ a secretary in the whole-time practice be and is hereby appointed to do all acts and deeds necessary for such re-registration."

PRACTICE NOTES

1. Effect of re-registration.-Once an existing company is re-registered it will have effect as if it was the first registration of the company under the Act and all the formalities as to the procedure, filing, etc. will have to be gone through.

2. Dispensing with the requirements of riling.-Concerned Registrar of Companies has the discretion to dispense with the requirements of filing certain documents already on record in such a case.

Registration of New Company

Ss. 331372A-Registration of company-Board Resolution

"RESOLVED that a new Company under the name and style of "XYZ LIMITED" as approved by the Registrar of Companies, Uttar Pradesh be set up jointly with UPSIDIC at Kanpur for the manufacture of Tyres and Tubes for heavy vehicles.

RESOLVED FURTHER that the draft of the promoters' Agreement and the Memorandum and the Articles of Association, as placed before the Meeting are approved and the Managing Director of the Company be and is hereby authorised to complete all formalities regarding the registration of the Company and execute the Promoters' Agreement on behalf of the Company.

RESOLVED FURTHER that the following officers of the Company be and are hereby authorised on behalf of the Company to subscribe their names to the Memorandum and Articles of Association of the said Company

1. Shri. SKM, Managing Director

2. Shri. OPM, General Manager

3. Shri. AKM, Director

4. Shri. PRM, Director

RESOLVED FURTHER that the Managing Director of the Company is further authorised to obtain necessary approval of the Shareholders of the Company under section 372A of the Companies Act, 1956, for investing in the shares of XYZ Limited upto a limit of Rs ________ lakhs in terms of the Memorandum and Articles of Association of the proposed Company notwithstanding that the aforesaid investment exceeds 60% (sixty per cent) of the paid-up share capital and free reserves or 100% (hundred per cent) of free reserves, whichever is more of the proposed company."

PRACTICE NOTES

1. Application for availability of name.-File an application in Form No. 1A to the Companies (Central Government's) General Rules and Forms, 1956 with the Registrar of Companies of the State in which the proposed company is to be registered alongwith Rs. 500/- in cash as application fee setting out therein the following particulars.

(1) Main objects which the proposed company is to pursue on its incorporation.

(2) Also mention whether the proposed company will be a "Private" or "Public" company.

(3) Besides proposed name three alternative names in order of preference are also to be given in the application form.

(4) The place where the registered office of the company is to be located.

2. Names of promoters to tally with names of subscribers.-The name of the respective promoters given in the application should tally with the names of subscribers to the Memorandum and Articles of Association.

3. Preparation of Memorandum and Articles of Association.-On receipt of letter from the Registrar of Companies allowing the name, prepare the Memorandum and Articles of Association of the Company and get them printed.

4. Stamping of Memorandum and Articles.-A printed copy each of the Memorandum and Articles of Association of the proposed company is to be got stamped with the requisite value of adhesive stamps from the State/Union Territory Treasury. On receipt of the Memorandum and Articles of Association duly stamped from Treasury, complete two copies thereof as under:

(a) Below the subscription clause the subscribers to the Memorandum should write in his own hand-his full name and father's, husband's full name in block letters, full address, occupation, e.g., business executive, engineer, housewife, etc., number of equity shares taken and then put his signatures in the column meant for signature.

(b) Similarly at the end of the Articles of Association the subscriber should write in his own hand-his full name and father's full name in block letters, full address, occupation.

(c) The signatures of the subscribers to the Memorandum and Articles of Association should be witnessed by one person preferably by the person representing the subscribers for registration of the proposed company before the Registrar of Companies.

(d) Under column 'Total number of equity shares' write the total of the shares taken by the subscribers, e.g., 20 (Twenty) only.

(e) Mention date, e.g., 5th day of July, 2002.

(f) Place: 'New Delhi'.

5. Filing of form of declaration of compliance with the requirements of the Companies Act, 1956 (Section 33(2)).-File declaration as per Form No. 1 to the Companies (Central Government's) General Rules and Forms, 1956 along with the following documents:-

(1) Document evidencing payment of fee.

(2) Stamped copy along with one spare copy each of the Memorandum and Articles of Association of the proposed company.

(3) A copy of letter of the Registrar intimating the availability of name.

(4) Form No. 18 situation of registered office of the proposed company.

(5) Form No. 29-Consent to act as a director etc. dates on the consent Form and the undertaking letters should be the same as is mentioned in the Memorandum of Association.

(A private company and a wholly-owned Government company are not required to file Form No. 29 as they are exempt.)

(6) Form No. 32 (in duplicate). Particulars of proposed directors, manager or secretary.

(7) Power of attorney duly typed on a non-judicial stamp paper of the requisite value. The stamp paper should be purchased in the name of the persons (proposed directors) signing the authority.

(8) No objection letter from the persons whose name has been given in Form IA as promoters/ directors but are not interested at a later stage should be obtained and filed with the Registrar at the time of submitting documents for registration.

(9) The agreements, if any, which the company proposes to enter with any individual for appointment as managing or whole-time director or manager are also to be filed.

It is to be remembered that declaration in Form No. 1 to the Companies (Central Government's) General Rules and Forms, 1956 is to be presented to the Registrar within six months from the date of letter of Registrar allowing the name.

6. Declaration to be made on a non-judicial stamp paper.-This declaration is to be given on a non-judicial stamp paper of the requisite value prevalent in the State of execution. The stamp paper should be purchased in the name of the person signing the declaration.

7. Declaration to be filed by all companies.-This declaration is to be given by all the companies whether public or private at the time of registration.

8. Registration No. of Company to be left blank.-The Registration No. of the company should be left blank, or the words "New Company" may be mentioned there.

9. Person authorised to sign declaration.-The declaration has to be signed by an advocate of Supreme Court/High Court or an attorney or pleader entitled to appear before High Court or a Secretary or a Chartered Accountant in whole-time practice in India or person named in Articles as director, manager or secretary.

10. Rectification of defect in document.-Any defect in the documents has to be rectified either by all subscribers or their attorney.

11. Satisfaction of Registrar.-The Registrar has to be satisfied not only that the requirements of sub-sections (1) and (2) of section 33 have been complied with but also whether the provisions of other sections of the Act such as the requirements as to the number of subscribers, the lawful nature of the object for which the company is formed, the name being not undesirable within the meaning of section 20 are duly complied with.

12. Certificate of Registration.-If the Registrar is satisfied that all the requirements have been complied with by the company and that it is authorised to be registered then he shall retain and register the Memorandum, the Articles and the agreement, if any, which the company proposes to enter into with any individual for appointment as its managing or whole-time director or manager.

13. Effect of Registration.-On the registration of the memorandum of a company the Registrar is to certify under his hand that the company is incorporated and in the case of a limited company that the company is limited. One of the characteristics of a company is that it is an incorporated body of persons. It is constituted into a distinct and independent person in law and is endowed with special rights and privileges.

Registration of a company

S. 33-Registration of a company-Board Resolution

"WHEREAS the name "Rushabh Management & Infosys. " has been made available for registration by the Registrar of Companies, West Bengal;

AND WHEREAS the proposed company is desirous of entering into an agreement with Mr. K.K. Rushabh to be the managing director of the company on its incorporation;

NOW THEREFORE IT IS RESOLVED that Mr _______________ a secretary in whole-time practice be and is hereby instructed to file the Memorandum and Articles of the company as also the agreement which the company proposes to enter into with Rushabh to be the managing director of the company;

RESOLVED FURTHER that Rushabh subscribers to the Memorandum be and are hereby authorised to sign the aforesaid agreement as soon as the company is incorporated and as soon as the Registrar of Companies, West Bengal, so directs them to sign the aforesaid agreement."

PRACTICE NOTES

1. Filing of the Agreement.-The Agreement should be filed with the concerned Registrar of Companies alongwith Memorandum and Articles of Association, origi-nal name availability letter and a declaration in Form No. 1. Form Nos. 18 and 32 in duplicate should also be filed although they might be filed within thirty days from the date of the incorporation of the company. Form No. 29 is not required to be filed as the company to be incorporated is a private company.

2. Filing again after execution of the Agreement.-The Agreement with the Managing Director has to be again filed with the concerned Registrar of Companies in Form No. 23 within thirty days of its execution, under section 192(4)(a) of the Act.

Incorporation of a company

S. 34(l)-Certificate of Incorporation-Noting by Board only-First Board Meeting-Board Resolution

"RESOLVED that the certificate of incorporation, dated 21st March, 2002 issued by the Registrar of Companies, Uttar Pradesh along with the printed copy of the Memorandum and Articles of Association of the company be and is hereby perused and noted by the Board.

RESOLVED FURTHER that the Certificate of Incorporation be kept in the safe custody of the Company Secretary.

PRACTICE NOTES

1. Documents to be submitted for obtaining Certificate of Incorporation.-For obtaining the certificate of incorporation the following documents are to be submitted to be Registrar:

1. Memorandum and Articles of Association.

2. Declaration in Form No. 1.

3. Particulars of Directors in Form No. 32.

4. Situation of registered office in Form 18.

2. Certificate of Incorporation to be conclusive evidence.-The certificate of incorporation shall be conclusive evidence

(i) that all the requirements of the Companies Act, 1956, have been complied with in respect of registration and matters precedent and incidental thereto; and

(ii) that the association is a company authorised to be registered and duly registered under the Act, (S. 35).

3. Company becomes legal entity from date of Incorporation mentioned in Certificate of Incorporation.-The company from the date of incorporation mentioned in the certificate of incorporation becomes a legal entity capable of exercising all the functions of an incorporated company.

4. Company not a Citizen.-The company though an artificial juristic person, it is not a citizen so as to claim the fundamental rights granted to citizens by the Constitution. 4

5. Corporate entity disregarded if used for tax evasion.-The corporate entity of the company will be disregarded if it is used for tax evasion. 5

6. Corporate existence of Company does not come to an end merely another Company purchases its entire Share Capital.-Merely because a company purchases almost the entire shares in another company it will not serve as a means of putting an end to the corporate character of the other company. A company's corporate identity is not affected by any change in shareholding or membership even when such change is due to take over of the company by a French group. Memtec Ltd. v. Lunarmech, (2001) 103 Com Cases 1078 (Del). The change in the management of a company does not affect the liability structure of the company and therefore the guarantors of the company's debts are not discharged by reason merely of a change in management. Punjab National Batik v. Lakshnii Industrial and Trading Co. (P.) Ltd., (2000) 6 Comp LJ 450 (All).

7. Advantages of Incorporation.-The advantage of incorporation is that the company never dies. It has perpetual succession and remains in existence, however, often its members change until it is dissolved by liquidation.

8. Company criminally liable for breach of provisions of Act.-A company may be criminally liable for breach of any of the provisions of the Act or other statutory duty and may be convicted in all cases where mens rea is not an essential element .

9. Company distinct from its shareholders.-A company is distinct from its shareholders and its assets are also separate and distinct from those of its members. They also cannot enforce a right in their individual capacity which belongs to the company.

10. Government company as separate entity.-A Government company remains a separate legal person as much distinct from the Government as any private sector company is distinct from its shareholders. It cannot be said that a government company is carrying on its business under the authority of Government. It carries on its business independently of the Government. Cotton Corporation of India Ltd. v. G. C. Odusumeth, (1999) 33 CLA 458 (Kar).

11. Company as Indigent Person.-The word 'person' mentioned in Order 33 rule I of Code of Civil Procedure, 1908 includes not only natural persons but other juridicial persons also and a public limited company which is otherwise entitled to maintain a suit as a legal person can very well maintain an application under the said Order for permission to sue as an indigent person. Union of India v. Khader International Construction, (2001) 105 Corn Cases 856.

Adoption of New Common Seal

S. 34(2)/Regn. 84(2)-Common Seal-Board Resolution

"RESOLVED that the proposed New Common Seal submitted to this Meeting, the impression of which has been affixed on the Minute Book, be and is hereby adopted as the Common Seal of the company."

RESOLVED FURTHER that the Old Common Seal which has become defaced by wear and tear be and is hereby cancelled and destroyed.

PRACTICE NOTES

1. Designing of Common Seal.-First of all take a decision about the design of the Common Seal of the company. Usually a round metallic impression on which the name of the company is embossed with the name of the place in which the company is having the registered office is mentioned in the middle of it is used with the logo of the company if any.

2. Board Meeting.-Hold a Board Meeting and pass a resolution approving the Common Seal of the company. The impression of the Common Seal must be affixed on the Minute Book of the company.

3. Custody of Seal.-The seal shall be kept in the safe custody of the Secretary of the company.

4. Register of Sealing.-Maintain a register of documents on which the Common Seal is affixed.

5. Affixation of Common Seal.-The seal is to be affixed on any document only by a resolution of the Board in accordance with the Articles of Association of the Company.

6. Evidence of authenticity.-The Seal is impressed upon a document as evidence of authenticity or attestation and in the case of a company or other corporate body the presence of the corporate seal on any document executed by it, is evidence that it was duly executed by authority of that corporate body.

7. Presumption.-Where the seal purports to be affixed as required by the company's articles, the presumption is that it was duly affixed by persons duly appointed and their signature were duly made, the burden of proving the contrary being upon the party alleging it [Re County Life Assurance Co., (1870) 5 Ch 288].

8. Board Resolution.-Where, however, no provision is made by a company as regards the procedure for using the seal, it would appear that authorisation by a resolution of the Board of Directors will be sufficient, but in such case authentication of the affixing of the seal, if not in the manner provided by Regulation 84(2), should follow the procedure prescribed by section 54. In all cases the important point to be noted is that authorisation by a resolution of the Board is necessary for affixing the seal to any instrument. Where there is no such authorisation the affixing of the seal will not bind the company.

9. Format of Company's Seal.-General practice is to use metallic common seal. Thus only a metallic seal is to be used, (Deptt.'s letter No. 8170(147)164 PR, dated 8th December, 1964).

10. One Seal.-The Company should have only one Common Seal for use within India only. (Deptt.'s Letter No. 814(253) 163-PR, dated 25th January 1963). Under section 50 of the Act, a company whose objects require or comprise the transaction of business outside India may, if authorised by its articles, have for use in any territory, district or place not situate in India an official seal which shall be a facsimile of the common seal of the company, with the addition on its face of the name of the territory, district or place where it is to be used.

Adoption of the common seal of the company on shifting of

registered office from one State to another

S. 34(2)-Adoption of common seal on shifting of registered office- Board Resolution

"RESOLVED that the seal of the company, the impression of which has been affixed herein below and initialled by the Chairman, be and is hereby approved and adopted as the common seal of the company in place of the old common seal and the old common seal be cancelled and destroyed.

"Impression of the Common Seal"

RESOLVED FURTHER that the common seal of the company be kept in the safe custody of the Secretary of the company."

PRACTICE NOTES

1. Affixation of Common Seal governed by provisions contained in Articles.-The provisions contained in the Articles of Association of the company govern affixation of common seal to any document. On shifting of registered office from one place to another the name of the place of the registered office of the company mentioned in the common seal needs to be changed as the old common seal with the old name of the place of the registered office of the company cannot be used.

2. Common Seal affixed on authority of Board's resolution.-The common seal can be affixed on any document only when there is a Board's resolution to this effect.

3. Committee of Directors empowered to approve affixation of Common Seal.-A Committee of Directors can also be empowered to approve affixation of the common seal.

4. Possession of Common Seal statutory requirement of incorporated body.-The possession of a common seal with its name engraved on it in legible characters is a statutory requirement of an incorporated body, having a legal personality of its own.10

5. Registered Company to have one Common Seal for use within India.-A company registered under the Companies Act, 1956, should have only one common seal for use within India-"

6. Metallic Common Seal.-The general practice is to use a metallic common seal, and the said common seal being in the nature of signature of the company should be kept under safe custody."

Division of interest among members

S. 37(2)-Division of interest among members-Board Resolution

"WHEREAS ABC Ltd., XYZ Ltd., and PQR Ltd. have given guarantee of Rs. 20 lakhs each;

AND WHEREAS seventy other members have given guarantee of Rs. 2,000/- each;

NOW THEREFORE IT IS RESOLVED that each of the aforesaid three companies shall be entitled to 10% of the total dividend to be declared in any year, and all other members shall be entitled to 1% dividend each."

RESOLVED FURTHER that Secretary of the Company be directed to issue notices for convening a general meeting with Explanatory statements for this purpose as per the drafts placed before this meeting and approved.

PRACTICE NOTES

1. Applicability of the provision.-The aforesaid resolution can be passed only in the case of a guarantee company.

2. Provision for distribution of dividend.-Provision for distribution of dividend should be made in the Memorandum and Articles of Association of the guarantee company and that provision should not purport to give any person a right to participate in the divisible profit of the company otherwise than as a member.

3. Share capital-meaning of.-Suppose that a guarantee company has a provision in its Memorandum and Articles of Association purporting to divide the undertaking of the company into shares or interest. This shall be treated as a provision for share capital notwithstanding that the nominal amount or number of shares or interest is not specified thereby.

Division of interest among members

S. 38-Retrospective Alteration in the Articles of Association agreed to by members-Board Resolution

"WHEREAS the Articles of Association of the company have been altered to provide for contribution of Rs. 5 lakhs each by the members of the company;

AND WHEREAS Mr. A is the only member who had contributed only Rs. 10,000/- to the share capital of the company;

AND WHEREAS Mr. A has now agreed in writing by a letter addressed to the company (which letter initialled by the Chairman for the purpose of identification is placed before the meeting) that he will contribute the balance sum of Rs. 40,000/- as per the provisions of the altered Articles of Association of the company;

NOW THEREFORE IT IS RESOLVED that the consent of Mr. A to the aforesaid alteration in the Articles of Association of the company be recorded."

PRACTICE NOTES

1. Consent accepting retrospective liability.-Alterations of Articles of Association cannot increase the liability of any member retrospectively unless the member concerned has agreed in writing to do so and his consent is recorded in the minutes of the Board meeting in which the said consent letter of the member is tabled.

2. Bound by retrospective liability.-As per proviso (b) of section 38 of the Act, in the case of a company which is a club or an association, any alterations in the Articles which requires the member to pay recurring or periodical subscription or charges at a higher rate will be bound by the alterations although he does not agree in writing to be so bound.

Copies of memorandum and articles etc. to be given to members

S. 39-Supply of copies of the memorandum and articles of association Board Resolution

"RESOLVED that the Company do charge a fee of rupee one for the supply of the copy of the under noted documents to any member of the Company:

(1) Memorandum of Association

(2) Articles of Association

(3) Agreement and Resolution referred to in section 192 of the Act."

PRACTICE NOTES

1. Only a member entitled to documents.-A person who is not a member of the Company is not entitled to these documents.

2. Documents to be supplied along with agreement and resolution within seven days of requisition.-The Section requires that every agreement and every resolution referred to in section 192 should be embodied in the memorandum or Articles and that on being required by a member and within seven days of such requirements, a copy of each of them should be furnished to him on payment of a fee of Rs. one of the member.

3. Penalty.-If a Company makes a default in complying with the requirements of the Section, then the Company and every officer of the Company who is in default shall be punishable for each offence with fine upto Rs. 500/- . A complaint on failure to supply copies of memorandum and articles of association of a company within time can be entertained only by jurisdictional magistrate court situated at the place of the registered office of the company and not by the court where the shareholder resides. Karnataka Bank Ltd. v. B. Suresh, (2001) 105 Com Cases 110, followed Supreme Court's ruling in H. V Jayaram v. ICICI Ltd., (2000) 99 Com Cases 341.

Alteration of Memorandum or Articles to be noted in every copy

S. 40-Alteration of Memorandum or Articles to be noted in every copy-Board Resolution

"RESOLVED that the alteration made in the Memorandum and Articles of Association of the company, for which special resolutions have already been filed with the Registrar of Companies, be and are hereby incorporated in appropriate places in the said Memorandum and Articles of Association of the company filed with the Registrar of Companies.

RESOLVED FURTHER that the aforesaid alterations in the manner aforesaid be carried out in every copy of Memorandum and Articles of Association and that no copy of such Memorandum or Articles be issued without carrying out the alterations as aforesaid."

PRACTICE NOTES

1. Memorandum, a public document.-All alterations in the Memorandum of Association must be incorporated in the Memorandum filed with the Registrar of Companies. This will help all members of the public to be up-to-date with the company's Memorandum.

2. Penalty.-Any company which issues any copies of Memorandum or Articles of Association without the alterations made therein will be punishable with fine which may extend to Rs. 100/- for each copy so issued.

Allotment of Shares to Subscribers to the Memorandum of

Association

S. 41-Allotment of shares to subscribers to the Memorandum of Association-Board Resolution

As the company has received payment in full in respect of equity shares taken by the subscribers to the Memorandum of Association, it is

"RESOLVED that the subscribers to the Memorandum of Association having agreed to take and having made the payment be and are hereby allotted equity shares, the details whereof are mentioned below:

Name of the Subscriber	No. of shares Agreed to take		Distinctive Numbers		Amount Received Rs.
1. Mr. OPW (Director)		100		1 to 10		1000
2. Mr. KKW (Director)	100		11 to 20		1000
3. Mr. VKW (Director)	100		21 to 30		1000
4. Mr. SKW (Director)	100		31 to 40		1000
5. Mr. RPW (Promoter)	100		41 to 50		1000
6. Mr. RPA (Promoter)	100		51 to 60		1000
7. Mr. MLA (Promoter)	100		61 to 70		1000
	700				7000

RESOLVED FURTHER that the Secretary be directed to take necessary steps to issue allotment letters/share certificate to the subscribers under the Common Seat of the Company.

PRACTICE NOTES

1. Subscribers of memorandum deemed to be directors.-According to section 254 of the Companies Act, 1956, subject to any regulations in the Articles of a company, subscribers to the memorandum are deemed to be the Directors of the company until the Directors are duly appointed in the Annual General Meeting pursuant to section 255. So, in the first Board Meeting the subscribers to the Memorandum of Association become the Directors unless they themselves determine in writing the names and number of Directors other than themselves to hold office till the Annual General Meeting.

2. Payment of amount by subscribers in respect of shares taken.-Thus, the signatories to the Memorandum of Association of a company whether they become deemed Directors or not, must pay the full amount in respect of equity shares agreed to be taken by them and on such payment, they must be allotted equity shares which they have already agreed. This allotment must be passed by a Board Resolution and it is usually done in the first meeting.

3. Filing of return of allotment of shares.-Section 75 of the Companies Act, 1956, although provides that any allotment of shares made by a company having a share capital should be filed with the Registrar of Companies within thirty days of such allotment in Form No. 2 of the Companies (Central Government's) General Rules and Forms, 1956, but since there is no allotment of shares as the subscribers to the memorandum of association becomes entitled to and liable for the shares mentioned against their respective in the memorandum by virtue of the contract contained in the memorandum, such filing of allotment of shares is not necessary.

4. Trade Union as a member.-A trade union registered under the Trade Unions Act can be registered as a member and hold shares in its own name in a company can also enforce its rights as a member under the Companies Act, 1956. All India Bank Officers' Confederation v. Dhanalakshini Bank Ltd., (1997) 26 CLA 33 (CLB).

Subscribers to Memorandum of Association

S. 41(l)-Subscribers to Memorandum-Board Resolution

"RESOLVED that the following persons who had subscribed to the Memorandum of Association of the company and agreed to take the number of shares in the capital of the company as shown herein below opposite their respective names be called upon to subscribe to the share capital of the company at the rate of Rs. 10/- per equity share:

Name of the subscriber No. of equity shares

of Rs. 10/- each

(a)

(b)

(c)

PRACTICE NOTES

1. Subscribers to Memorandum.-The persons who subscribe to the memorandum shall be deemed to have agreed to become members of the company and on its registration their names shall be registered as members in the Register of Members of the company.

2. Necessary entry be made in Register of Members.-Make necessary entry in the Register of Members of the company, without delay.

3. Subscribers be asked to pay Share money for Shares agreed to be subscribed.-Write letters to the subscribers asking them to pay the share money payable by them for the number of shares agreed to be subscribed by them.

4. No application or allotment necessary for subscribers to become member.-In the case of the subscriber, no application or allotment is necessary to become a member. By virtue of his subscribing to the memorandum he becomes a member.

5. Entry in Register of members not necessary.-In the case of a subscriber, entry in the Register of Members is not necessary to constitute him a member.

Admission of member where company not limited by shares

S. 41(2)-Companies not limited by shares-Admission of Member-Board Resolution

"RESOLVED that the application in writing of Shri. AB is accepted and Shri AB be and is hereby admitted as a member of the Company (club, Chamber of Commerce etc.) and his name be entered in the register of members."

PRACTICE NOTES

1. Membership in guarantee companies.-Social clubs, political party organisations, Chambers of Commerce, professional associations are frequently incorporated as companies limited by guarantee and without share capital. The Articles of such companies will have detailed procedure for admission of members and these must be followed.

2. Application in writing.-Section 41(2) requires the application for membership to be in writing. There is no prescribed form for making an application for membership of a company. If there is no application in writing for an allotment nor any other form of request in writing and shares are allotted by converting loans into shares under an oral agreement, it is a non-compliance with requirements of section 41(2). Indglobal Investment and Finance Ltd. v. Rajasthan Breweries Ltd., (2001) 107 Com Cases 525 (CLB).

3. Minor as member.-Assuming that in terms of section 41(2) a minor cannot agree in writing to become a member, the settled law is that the natural guardian of a minor could enter into contracts, on behalf of the minor for the later's benefit and in such cases such contracts are binding on the minor. Master Gautam R. Padival (Minor) v. Karnataka Theatres Ltd., (2000) 100 Com Cases 124 (CLB-SR).

Admission of members and splitting of joint holding

S. 41(2)-Admission of joint members and splitting of their shareholding Board Resolution

RESOLVED that the application in writing of Mr. XYZ and Mr. PQE to become joint member of ___________ equity shares of Rs _________ each of the company be accepted and they be and hereby admitted as joint members of the company on receipt of the full consideration of these share and their names be entered in the register of members of the Company.

RESOLVED FURTHER that an application in writing of Mr. XYZ and Mr. PQE is also received by the company requesting the splitting of the aforesaid sharehold into equal proportion be accepted and _________ equity shares be and are hereby split up into _________ equity shares and _________ equity shares respectively in their respective names and said splitting up of joint holdings be entered in the register of members.

PRACTICE NOTES

1. Consideration a must.-Where the application for the buying of shares of the company is through stockinvest but where that mode of payment failed and the company received no consideration, the company has all the right to call upon the allottee to make payment within the stipulated period and can only issue share certificates on receiving the full payment. American Remedies Ltd. v. Prakash Chandra Gupta, (2001) 4 Comp LJ 138.

2. Splitting of joint holdings.-For splitting of joint holdings both the joint holders should make the application to the company with such a request and the company cannot do so on the application of any of the jointholders. Rajiv Das (Dr.) v. United Press Ltd., (2002) 1 Comp LJ 170 (CLB-Cal).

Beneficial Owner as Deemed Member

S. 41(3)-Name of beneficial owner mentioned in the records of the Depository to be member-Board Resolution

RESOLVED that the following persons who are the beneficial owners of the shares shown herein below opposite their respective names and whose names are entered in the records of the National Securities Depository Limited, as beneficial owners be and are hereby admitted as members of the Company and the name of the abovesaid depository be entered in the register of members as the registered owner:

Name of the subscriber No. of shares Distinctive Nos.

(a)

(b)

(c)

PRACTICE NOTES

1. The Depositories Act, 1996.-The Depositories Act, 1996 has added sub-section (3) to section 41 of the Act to make the beneficial owners mentioned in the records of the depository as deemed members under part 11 of its Schedule.

2. Register of Members.-Under section 152A of the Act, register and index of beneficial owners maintained by a depository is deemed to be an index of members.

Expulsion of Membership of Company

S. 41-Expulsion of a member-Board Resolution

"RESOLVED that Shri AB be and is hereby expelled from the membership of the company with effect from _________ and his name be removed from the Register of members."

PRACTICE NOTES

1. Expulsion justiciable.-There is nothing in the Companies Act to prevent a company without shares to include a provision for expulsion of any member if his acts or conduct should be considered detrimental to the interest of the company.

2. Natural justice.-The principles of natural justice must be followed before expulsion.

3. Resolution.-The reasons for expulsion may be incorporated in the body of the Resolution for expulsion.

4. Requisites of expulsion.-It is one of the requisites of a proper expulsion of a member that the power should be exercised in the interest of the company as a whole and not in the interest of a shareholder or a group of shareholders. Gothami Solvent Oils Ltd. v. Mallina Bliarathi, (2001) 105 Com Cases 710 (AP).

Increase in Membership of Company

S. 41-Provision for Increase in Membership-Board Resolution

"RESOLVED that subject to the approval of the members of the company by convening an Extraordinary General Meeting and passing a Special Resolution clause 5 of the Articles of Association of the company be altered by substituting the words and figures '50 members' by the words and figures '100 members'."

PRACTICE NOTES

1. Normal procedure.-The normal procedure for convening an extraordinary general meeting and for passing a special resolution therein should be followed.

2. Special resolution for alteration.-For alteration of articles of association special resolution is required to be passed under section 31 of the Act. The said special resolution should also be filed with the Registrar of Companies within 30 days of its passing in Form No. 23t. If default is made in complying with aforesaid filing, the company and every officer of the company who is in default will be punishable with fine of Rs. 200/- for every day during which the default continues.

Membership of Holding Company by Subsidiary

S. 42-Subsidiary becoming a member of the holding company-Board Resolution

WHEREAS Mr . __________________ a member of the company holding 1000 equity shares has died or;

AND WHEREAS the said member has bequeathed the said shares in favour of XYZ Ltd. a subsidiary of the company.

NOW THEREFORE IT IS RESOLVED that XYZ Ltd. a subsidiary of a company be and is hereby become a member under sub-section (2)(a) of section 42 of the Companies Act and 1000 equity shares of Mr . __________________ be transmitted in favour of XYZ Ltd.

PRACTICE NOTES

1. Membership of holding company prohibited.-Sub- section (1) of section 42 prohibits and membership of a holding company by any of its subsidiary and any allotment or transfer of shares in a holding company to its subsidiary will be void except in two situations as given in sub-section (2) of section 42.

2. Subsidiary's continuance as a member not prohibited.-A subsidiary is not prevented from continuing to be a member of its holding company if it was a member thereof either at the commencement of the Companies act, 1956 or before becoming a subsidiary of the holding company.

3. No right to vote.-Except in cases where a subsidiary becomes a member of a holding company as per sub-section (2) of section 42 the subsidiary company will have no right to vote at meeting of the holding company or of any class of members thereof.

4. Reference to shares to include interest of members.-In relation to a holding company which is either a company limited by guarantee or an unlimited company, the reference in section 4.2 to shares will construe as including a reference to the interest of its members as such, whatever the form of that interest.

5. Objections in scheme of amalgamation.-Objection to a scheme of amalgamation on the grounds of its resulting in a subsidiary holding shares of its holding company will be untenable, unless the acquisition of shares of the holding company is significant or substantial. Consolidated Coffee Ltd., In re, (1999) 35 CLA 54 (Kar).

Default in complying with conditions applicable to private

companies

(1) Board Meeting.-Hold a Board meeting and pass the resolution for making a petition to the Company Law Board seeking their approval to relieve the company from the consequences of the default committed by the company inadvertently.

(2) Who may present the petition.-The petition under proviso to section 43 to the Company Law Board can be made either by the company or any other person interested, e.g., any shareholder.

(3) Time Limit.-The section does not impose any time limit for seeking relief from the Company Law Board. However, the petition to the Company Law Board should be presented without any undue delay.

(4) Documents to be attached with the petition.-The following documents should accompany the petition:-

(a) Certified true copy of the Memorandum and Articles of Association.

(b) Certified true copy of the documents showing that the default has been committed in complying with the conditions laid down in clause (iii) of sub-section (1) of section 3.

(d) Bank draft evidencing payment of application fee. Fee payable on petition is Rs. 200/-.

(e) Memorandum of appearance with copy of the Board Resolution or the executed Vakalatnama, as the case may be.

Consequences of default

The consequences of default in complying with the provisions relating to a private company are that the provisions of the Act will apply as if it were not a private company and all the results flowing therefrom will follow. One of the results which follows is that the formal requirements of a public company must be complied with. A failure to do so may involve penalties. (Laxman Bharmji v. Emperor, AIR 1946 Bom 18).

Grounds on which a petition may generally contain

(a) That the failure to comply with the conditions was accidental or due to inadvertence or to some other sufficient cause; and

(b) That it is just and equitable to grant the relief prayed for.

Action to be taken on receipt of order of the Company Law Board

Filing.-File a certified copy of the order of the Company Law Board along with Form No. 21 with the Registrar of Companies concerned after paying the requisite filing fee.

Appeals

An appeal will lie to the High Court under section 10F, against the order of the Company Law Board passed under this section only on question law and such question of law should arise only out of such order of the Company Law Board. Scope of such appeal cannot be stretched beyond this permissible limit. Trackparts of India v. K.N. Bhargava, (2002) 109 Com Cases 350 (All).

Default in complying with conditions applicable to a private

company

S. 43-Default in complying with conditions applicable to a private company-Board Resolution

"RESOLVED that consent of the Board of Directors be and is hereby given to an application being made to the Company Law Board seeking their approval to relieve the company from the consequences of the default committed by the company inadvertently by approving transfer/allotment of shares resulting increase in the number of its members beyond fifty and the consequent cessation of the company as a private company.

RESOLVED FURTHER that the Managing Director/Secretary of the company be and is hereby authorised to take all necessary steps as may be required for filing a petition and all other necessary documents and papers before the Company Law Board and take every steps that may be necessary in connection therewith and incidental and ancillary thereto."

PRACTICE NOTES

1. Satisfaction of the Company Law Board as to the bona fides of the company.-It is the duty of the company to satisfy the Company Law Board that the failure to comply with the conditions of section 3(l)(iii)(b) of the Act was accidental or due to inadvertance or to some other sufficient cause and if there are no other sufficient cause then on the grounds that it is just and equitable to grant relief to the company.

2. Procedure.-The application should be made to the concerned regional bench of the Company Law Board in Form No. 2 of Annexure 11 to the Company Law Board Regulations, 1991, alongwith the prescribed fee of rupees two hundred and an affidavit verifying the said application."

Contravention of conditions by private company-Consequences

of default

The consequences of default in complying with the provisions relating to a private company are that the provisions of the Act will apply to it as if it were not a Private Company and all the results flowing therefrom will follow.

Petition to Company Law Board

Petition praying for relief from consequences of failure to comply with conditions constituting it a Private Company be made to the Regional Bench of the Company Law Board in Form No. 1 of Annexure 11 to the Company Law Board Regulations, 1991 along with an application fee of Rs. 200/- and accompanied by the following documents

(1) Certified true copy of Memorandum and Articles of Association.

(2) Certified true copy of document showing that the default has been committed in complying with the conditions laid down in clause (iii) of sub-section (1) of section 3.

(3) Affidavit verifying the petition.

(4) Bank draft evidencing payment of application fee.

(5) Memorandum of appearance/Vakalatnama.

Contravention of conditions by private company

S. 43-Contravention of conditions by private company-Board Resolution

"RESOLVED that an application be made to the Company Law Board for relieving the company from the consequences of being treated as a public company consequent upon the company's increasing its number of members beyond 50 by the accidental allotment of shares to the renouncee of the existing members."

PRACTICE NOTES

1. The time of making the application.-Although there is no time fixed within which the application is to be made to the Company Law Board but it should be made as soon as possible and within reasonable time.

2. Grounds of relief.-Accidental omission or commission, inadvertence or some other sufficient cause or such other grounds under which it is just and equitable to grant relief.

3. Procedure.-The application should be made to the concerned regional bench of the Company Law Board in Form No. 2 of Annexure 11 to the Company Law Board Regulations, 1991, along with prescribed fee of rupees two hundred and an affidavit verifying the said application.

Deemed public company (S. 43A)

By the Companies (Amendment) Act, 1988, the amendment to section 43A inter alia include removal of absolute monetary ceiling on turnover as contained in section 43A(1A). The power of prescribing the monetary limit in this behalf has now been vested with the Central Government. For reckoning the percentage shareholding for purpose of subsection (1) of section 43A, the shares held by 'bodies corporate' include only of public companies or of private companies which had become public companies by virtue of this provision as per the Explanation added by the Amendment Act, 1988. A new sub-section (1-C) has been added and accordingly only where a private company accepts after invitation is made by an advertisement or renews a deposit from the public other than its members, Directors or their relatives, such a private company will be deemed to be a public company. Thus, a private company shall become a deemed public company if-

(a) 25 per cent or more of its paid-up share capital is held by one or more bodies corporate;

(b) the average annual turnover of a private company is not less than Rs. Twenty five crores;

(d) a private company invites and accepts deposits from the public through an advertisement other than its members, Directors or their relatives.

Applicability of section 43A to public companies which are subsidiaries

of foreign body corporates

General Circular No. 23/2002, dated 30-9-2002.-Department of Company Affairs has clarified on the matter of applicability of section 43A(2A) on the erstwhile deemed public company when section 43A was in operation prior to the Companies (Amendment) Act, 2000 which came into force w.e.f.. 13-12-2000 to those public companies which are subsidiaries of foreign body corporates.

After amendment of the erstwhile Section 43A, since the provisions of Section 4 of the Companies Act are independent, a private company, being a subsidiary of a foreign body corporate, which, if incorporated in India, would not be a public company. As such, these deemed public companies are entitled to revert back to their initial status of private limited companies as the effect of Section 43A has been nullified by the amendment referred to.

Section 4(7) of the Act was an exemption available to Indian private companies when foreign body corporates were holding 100% share in them to retain their "private" status. After amendment of Section 43A, such exemption is not required. Therefore, applications under Section 43A(2A) shall be dealt with independent of section 4(7) of the Act. The legal position in the above circumstances would be that a private company would be the subsidiary of another private limited company even if the holding company happens to be a foreign body corporate and these companies do not need the exemption provided in Section 4(7) of the Act. Therefore, the private company status of such companies is a statutory one, and takes effect automatically. All that the company is required to do is to make an application to the Registrar that the company has become a private company and there upon the Registrar shall substitute the words "private limited" in lieu of the words "public limited".

Since no time limit has been prescribed in the statute for the companies to revert back, the Department has already issued a departmental circular no. 3/2002 dated 24.7.2002 (F.No.17/4/2002-CL.V) wherein it has been clarified that those companies which do not approach the Registrar of Companies seeking reversion back to private company status, are deemed to have chosen to remain as public companies.

Contravention of conditions by a private company

(Another format)

S. 43-Contravention of conditions by a private company-Board Resolution

"RESOLVED that an application be made to the Company Law Board under the proviso to section 43 for relieving the company from the consequences of contravening the provisions of sub-clause (a) Of clause (iii) of sub-section (1) of section 3 of the Companies Act, 1956, in so far as the Company had allowed by inadvertence of the secretary of the company, several transfer of shares, thereby making the company liable to be treated as a public company.

RESOLVED FURTHER that in the said application before the Company Law Board a prayer be made for annulment of the transfers already made inadvertently and for an order giving right to the company to decide as to whom the shares should be transferred as also the price at which the transfers should be effected not being the price less than what is indicated in the instrument of transfer.

RESOLVED FURTHER that the secretary of the company be authorised to take all necessary steps for filing a petition before the Company Law Board."

PRACTICE NOTES

1. Application to the Company Law Board.-An application should be made by way of a petition to the concerned Regional Bench of the Company Law Board mentioned in Annexure I which should be in Form No. 1 given in Annexure II along with documents mentioned in Annexure III to the Company Law Board Regulations 1991. The application fee should be Rs. 200/-. This application should be made to retain the status of a private company so that it can enjoy privileges of a private company.

2. Other consequences.-If the company wants to continue as a public company, it can do so without going to the Company Law Board for relief.

3. No penalty.-Although no penalty is imposed for the violation of the provisions of this section, the company will cease to be entitled to the privileges and exemptions enjoyed by a private company.

Contravention of conditions by a private company

(Another format)

S. 43-Contravention of conditions by a private company-Board Resolution

"WHEREAS the company is a Private Ltd. Co. and is prohibited from inviting subscription to shares or debentures;

AND WHEREAS the company has issued an advertisement inviting subscription to the issue of debentures of the total value of Rs. 1 crore;

AND WHEREAS, pursuant to the provisions of section 43 of the Companies Act, 1956, the company has, due to this inadvertance, disentitled itself to the privileges and exemptions of a Private Limited Co.;

AND WHEREAS the proviso to section 43 entitles the company to make an application to the Company Law Board seeking relief;

NOW THEREFORE IT IS RESOLVED that an application be made to the Company Law Board seeking relief from the aforesaid default on such terms and conditions as the Company Law Board may enjoin."

PRACTICE NOTES

1. Application to the Company Law Board.-An application should be made by way of a petition to the concerned Regional Bench of the Company Law Board mentioned in Annexure I which should be in Form No. 1 given in Annexure II along with documents mentioned in Annexure III to the Company Law Board Regulations, 1991. The application fee should be Rs. 200/-. This application should be made to retain the status of a private company so that it can enjoy privileges of a private company.

2. Other consequences.-If the company wants to continue as a public company, it can do so without going to the Company Law Board for relief.

Conversion of public into private company and vice versa

(S. 31(1)/43/43A(4))

Conversion of a public company into a private company will be allowed only if the applicant company is closely held one having no public interest involved in it. To protect the interests of unsecured creditors consent to conversion of every creditor to whom the company owes substantial amounts is required.

Filing of prospectus by converted private company

S. 44-Filing of prospectus by converted private company-Board Resolution

WHEREAS the Chairman placed before the Board a scheme of expansion with a detailed project report showing requirement of finance and in view of substantial capital outlay involved in the said project, AND WHEREAS it was unanimously decided to convert the company into a public company by altering the provisions of the articles relating to restriction for invitation to public and number of members pursuant to clause (iii) of sub-section (1) of section 3 of the Companies Act and in particular by deleting article _________ of the Articles of Association of the company subject to the approval of the company in a General Meeting by a Special Resolution;

NOW THEREFORE IT WAS RESOLVED that draft of prospectus dated the _________ 2002 _________ making an offer of 5,000 equity shares of Rs.100 each to the public for subscription at par as vetted by SEBI and initialed by the Chairman in authentication thereof, be and is hereby approved and adopted, and that the prospectus as approved be signed by all the Directors named therein and filed with the Registrar of Companies, Maharashtra, before the day of its publication under section 60 of the Companies Act, 1956, and that the Secretary be instructed to publish and distribute the prospectus.

RESOLVED FURTHER that the proposals for conversion of the company into a public limited company be placed before the members at an Extraordinary General Meeting to be held on _________, the ________, 2002 _______, at _______ a.m./p.m. at the registered office of the company, and a draft 'Notice' convening such Extraordinary General Meeting of the members, as authenticated under the signature of the Chairman hereof, be and is hereby approved and the Secretary of the company be and is hereby instructed to circulate the 'Notice' of the meeting to the members of the company in compliance with the provisions of section 171 of the Companies Act, 1956."

PRACTICE NOTES

1. Filing of statement in lieu of Prospectus by converted Private Company.-If a company, being a private company, alters its articles in such a manner that they no longer include the provisions which, under clause (iii) of sub-section (1) of section 3 are required to be included in the articles of a company in order to constitute it a private company, the company on the date of alteration of the relevant articles at a General Meeting of the members by means of Special Resolutions, cease to be a private company, and shall within a period of thirty days after the said date, file with the Registrar either a prospectus or a statement in lieu of prospectus in forms contained in Parts I, II and III of Schedule II and Schedule IV to the Companies Act, 1956.

2. Deletion in Articles be done at General Meeting by Special Resolution.-Deletion or alteration of any provisions of the Articles of Association must be done at a General Meeting of members by means of Special Resolution. For conversion of a private company into a public company, articles dealing with the following items which are specially applicable to a private company need deletion:

(a) the restrictive clauses mentioned in section 3(l)(iii) of the Companies Act;

(b) if there be any restriction of minimum number of members, such minimum number should be raised at least to 7 (seven) vide sections 12(l) and 45 of the Companies Act;

(c) if the minimum number of Directors provided in the old article is less than three, such number be raised to not less than three, pursuant to section 252.

3. Listed Companies must get draft Prospectus or Statement in lieu of prospectus approved by Stock Exchange.-If the shares of the company concerned are listed on a recognised Stock Exchange, then the draft prospectus or statement ill lieu of prospectus must be approved by the concerned Stock Exchange and its publication and distribution must also conform to the directions of the Stock Exchange.

4. Filing with SEBL-The draft prospectus should be filed with SEBI by the Lead Merchant Banker to the issue appointed by the company at least 21 days prior to the date of filing of draft prospectus with the Registrar of Companies provided that if within 21 days from the date of submission of draft prospectus, SEBI specifies changes if any, in the draft prospectus (without being under any obligation to do so) issuer or the Lead Merchant Banker must carry out such changes in the draft prospectus before filing the prospectus with ROC.

5. Penalty for default.-If default is made in complying with the provisions of subsection (1) & (2) of section 44, the company and every officer of the company who is in default will be punishable with fine of Rs. 5,000/- for every day during which the default continues.

Reduction of number of members below legal minimum

S. 45-Reduction of number of members below legal minimum-Board Resolution

"WHEREAS the company was incorporated on _______________ with seven members including Mr. A;

AND WHEREAS Mr. A had transferred these shares to Mr. B, another subscriber to the Memorandum of Association;

AND WHEREAS the aforesaid transfer was recorded in the register of members thereby reducing the number of members below seven and depriving the company of the privileges of a limited company and making the liability of members unlimited;

AND WHEREAS no debts have been contracted by the company to make the position of members vulnerable;

NOW THEREFORE IT IS RESOLVED that Mr. X be admitted as a new member so as to return to the status of a public limited company."

PRACTICE NOTES

1. Induction of members.-Requisite number of members should be inducted within six months to make the total number of members seven or more or two or more, as tile case may be.

2. Personal liability of member.-Members become personal liable for any debts contracted by the company during that time if the number of' members is not increased within six months. The directors of a private company will be personally liable for the payment of its debt contracted during a period exceeding 6 complete months during which its business is carried on when it had less than 2 members. Section 45 does not say that in no other case, the directors of the company can be made severally liable. It is for the creditor being the dominus lities to have persons of his choice sued. Madon Lal v. Himatlal and Co., (2000) 99 Coin Cases 266 (MP).

3. No penalty.-No penalty is imposed for the violation of the provisions of this section and where no specific penalty is provided in the Act provisions of section 629A relating to penalty where no specific penalty is provided elsewhere in the Act will be applicable. The penalty under this section is fine of upto Rs. 5,000/- for the company and every officer of the company who is in default or such other person and where tile contravention is a continuing, one, with a further fine of upto Rs. 500/- for every day after the first during which the contravention continues.

Contract by the company

S. 46-Contract by the company for distributorship agreement-Board Resolution

"RESOLVED that Mr __________________ a Director of the company, be and is hereby authorised to negotiate with the parties, detailed as per the list placed before the meeting, on the basis of the standard terms and conditions of the form of distributorship agreement, as approved by the Board at its meeting held on _________ 2002.

RESOLVED FURTHER that Mr __________________ be and is hereby authorised to alter or suitably change or modify the provisions of clauses 11, 13, 16 and 21 of the said standard agreement form in suitable cases at his sole discretion.

RESOLVED FURTHER that the said Mr __________________ be and is hereby authorised to sign such distributorship agreement(s) in the name and on behalf of the company."

PRACTICE NOTES

1. Requirements for a Company's Contracts.-Pursuant to section 46 of tile Companies Act, 1956 a contract on behalf of' a company may be made in writing signed by any person or may be made by word of mouth by any person acting under its authority, express or implied. Thus, a contract may be validly entered into without seal of the company and it is sufficient it' the contract is made by some person acting under the express or implied authority of the company. A contract to become binding, as per the provisions of section 46, need not even be in writing but the person who makes it must have the authority to make it on behalf of the company.

2. Directors incur no personal liability.-A company is an artificial person and can enter into contract through its agent, authorised by the Board of Directors of the company. The signing must show on the face of the contract that the person who is signing the same is acting for or on account of or on behalf of the company. The expression 'for and on behalf of A.B. & Co. Ltd.' is enough to signify that the responsibility and the benefit arising out of the contract is to go to the company and not to the signatory personally. Similarly, liability that may arise out of the contract signed on behalf of the company attaches to the company.

3. Mode of signing contracts on behalf of a Company.-In the form of contract, if it is desired that such instrument is to be executed under the seal of the company, the concluding wordings in the forms of contract should be: “As witness hereof, the common seal of the company was hereunto affixed in the presence of (name of the authorised Director or Directors) and witnessed by _________”

Acceptance of Contracts by Company

S. 46-Acceptance of offer made to the company-Board Resolution

"RESOLVED that the tender of RUSHABH MANAGEMENT & INFOSYS to supply 1000 tons of steel to the company be accepted and that the Secretary be authorised to intimate Rushabh Management & Infosys of the acceptance of the tender.

SUBMISSION OF OFFER BY COMPANY

RESOLVED FURTHER that an offer for supply of 1000 tons of steel at Rs _________ per ton to M/s. XYZ Ltd., be and is hereby made by the company and that Shri AB director of the company be authorised to negotiate with M/s. XYZ Ltd. in pursuance of such offer."

PRACTICE NOTES

1. Contract made in writing.-Any contract made on behalf of the company must be in writing and must be signed by some person who has the authority to do so. Such a contract may be varied or discharged in the same manner in which it was made.

2. Applicability of section 297.-If the company making the contract is having a paidup share capital of Rs. 1 crore and such contract is made between the company on the one hand and the director or his relative or a firm in which such director or relative is a partner or any other partner in such firm or a private company in which the director is a director or member on the other hand, previous approval of the Central Government is necessary to be obtained by making an application in Form No. 24A.

Authority to sign documents

S. 46-Authority to sign documents-Board Resolution

WHEREAS with the increase in the activities of the company and consequential increase in the volume of quotations against enquiries, it was decided to confer the authority of signing such documents and negotiating with the customers, where necessary, and carrying on all the necessary things in relation thereto, to Mr __________________ Mr __________________ and Mr __________________ ;

"NOW THEREFORE IT IS RESOLVED that Mr __________________a Director of the company, of 52, P.M. Shah Road, Mumbai, Mr __________________ a senior employee of the company, of __________________ Thana and Mr __________________ the sales executive of the company, be and are hereby severally authorised to sign all quotations and tenders in the name of the company and for and on behalf of the company to negotiate such quotations with the customers, to make necessary amendments either as to price or other terms and conditions attached or involving thereto, and to finalise otherwise any contract for the supply of any products of the company."

PRACTICE NOTE

1. Authority to act on behalf of the Company.-As regards authority to act on behalf of the company, outsiders may assume the authority of the persons concerned in such activities. A company, being a juristic person, can only function through its agents who are mainly its officers and employees.

2. Action outside objects.-The activities of a company, however, are limited to the ,objects' as contained in the Memorandum of Association of the company and any action outside the jurisdiction of such 'objects' is ultra vires the company. Powers conferred by the company for specific purposes help to maintain internal discipline and affords legal protection as well.

Simply because the company has unable to carry out the main object but instead carried out ancillary object mentioned in the memorandum of association with the intention of diversification that would not mean that the said act of carrying out such business was ultra vires the company. Ferrom Electronic (P.) Ltd. v. Vijaya Leasing Ltd., (2002) 109 Com Cases 467 (Kar).

Delegation of powers to the Managing Director

S. 46-Delegation of powers to the Managing Director-Board Resolution

"RESOLVED that Shri __________________ Managing Director of the Company be and is hereby authorised to exercise all powers and functions for and on behalf of the company as per draft of power of Attorney placed on the Table and initialled by the Chairman for purposes of identification.

RESOLVED FURTHER that the Managing Director of the Company be and is hereby authorised to delegate the powers to the Departmental Heads subject to such restrictions and limitations as he may deem fit and proper in the interest of the company.

RESOLVED FURTHER that the said power of attorney duly engrossed on the Stamp Paper in favour of Shri __________________ Managing Director be signed and executed by Shri __________________ Directorand Shri __________________ Secretary of the company and the common seal of the company be affixed thereon in their presence."

PRACTICE NOTES

1. Authority to act on behalf of company.-If the person dealing with the officer can show that the officer had ostensible authority, e.g. because the company held out that officer as having such authority or that such authority was within the ordinary scope of his duties, the company will be bound even if the officer had been expressly forbidden to do such acts. Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd., (1964) 1 All ER 630 (CA); Egyptian International Foreign Trade Co. v. Soplex Wholesale Supplies Ltd., (1985) 2 Lloyd's Rep 36.

2. Contract entered on behalf of company before incorporation not binding on company.-A contract entered into on behalf of a company before its incorporation is not binding on the company. (Seth Sobhag Mal Lodha v. Edward Mills Co. Ltd., (1972) 42 Com Cas 1 (Raj).

3. Act by director or an officer in excess of authority can be ratified by competent authority.-An act by the directors or an officer in excess of their or his authority may be ratified by the competent body. (Bamford v. Bmnford, (1969) 1 All ER 969 (CA).

4. Contracts made before incorporation.-According to the Common Law prevailing in England, a company cannot enter into a contract before its incorporation because it does not yet exist as legal person. Not for the same reason, it is bound by the contracts made by agents on its behalf before its Corporation. It is, however, open to the company to enter into a fresh contract after its incorporation. Under the general principles, it cannot even ratify such contracts made by the promoters before its incorporation. (Kelner v. Baxter, (1866) LR 2 CP 174).

5. Execution of base agreement.-Company director entering into a contract of lease agreement on company's behalf after being duly authorised by the company's articles of association and specifically authorised by its chairman cannot have any irregularity. Mohta Alloy & Steel Works v. Mohta Finance & Leasing Co. Ltd., (1997) 26 CLA 121 (Delhi).

Acceptance of Contracts and Deeds

S. 46-Authority to execute sale deed and affix seal-Board Resolution

"RESOLVED that the draft sale deed placed before the meeting and initialled by the Chairman for purposes of identification for the sale of Company's properties at __________________ to M/s. ABC Ltd. be and hereby is approved.

RESOLVED FURTHER that Shri __________________ and Shri __________________ directors of the company be jointly authorised to execute the sale deed and affix the seal of the company thereon and admit execution before the Sub Registrar of _____________ district."

PRACTICE NOTES

1. Power of Attorney.-The sale deed may also be executed by the power of attorney holder of the company if such a person has been empowered to do so by writing under its common seal.

2. Applicability of section 293(l)(a).-If the Company's properties to be sold amount to selling of whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, it amounts to selling of the whole or substantially the whole of any such undertaking then consent of the general meeting will be necessary for such sale. A private company unless it is a subsidiary of a public company is not required to take such consent under the aforesaid section.

Authority for signing bills etc. (S. 47)

In the case of bills and promissory notes as in the case of contracts generally the essential condition for their validity and enforceability is that they should be made, accepted or endorsed in the name of, or on behalf of or on account of the company by a person acting under its authority express or implied.

Authority for signing bills etc

S. 47-Authorityfor signing bills etc.-Board Resolution

"RESOLVED that Mr. NRB and Mr. ADG, the officers of the company, be and are hereby severally authorised to make, accept, draw or endorse on behalf of the company and in the name of the company any bill of exchange, hundi, promissory note or bills on customers."

PRACTICE NOTES

1. Authority may be express or implied- Section 47 of the Act speaks of both express or implied authority. The said section also talks of signing of bills on behalf of or on account of the company in order to convey the idea that the person making or accepting bills etc. is acting under the authority of the company.

2. Instrument when shown to be drawn, accepted or endorsed- Any instrument is shown to be drawn, accepted or endorsed by the company when the name of the company is shown on the instrument or the statement of the person making it that he is doing so on behalf of the company is made on the instrument. Orial Industries Ltd. v. Bombay Mercantile Bank, AIR 1961 SC 993.

Authority for signing bills etc

(Another format)

S. 47-Authority for signing bills etc.-Board Resolution

"RESOLVED that a banking account in the name of the company be opened with Bank Branch, Nagpur 440012, and that the said bank be and is hereby authorised to honour cheques, bills of exchange and promissory notes drawn, accepted or made on behalf of the company by Mr. NRB and Mr. ADG, the officers of the company, severally, and to act on any instruments so given relating to the account, whether the same be overdrawn or not, or relating to all transactions of the company."

PRACTICE NOTES

1. Authority for signing negotiable instruments.-Section 47 of the Companies Act, 1956 differs materially from the provisions of section 28 of the Negotiable Instruments Act, 1881. Under the Negotiable Instruments Act, 1881 drawing authority is required to be indicated. Section 47 of the Companies Act, 1956 on the other hand does not require that the authority making, accepting or endorsing should be indicated or expressed. Section 47 reads as follows:

"A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted, drawn or endorsed on behalf of a company if drawn, accepted, made or endorsed in the name of, or on behalf of or on account of, the company by any person acting under its authority express or implied."

2. Mode of authentication of negotiable instruments on Company's behalf.-Nevertheless, there should be specific authority to persons to carry out the functions on behalf of the company and the above resolutions may be suitably adopted for such purposes. Under the provisions of section 47, although it is not necessary to indicate expressly the agency of the person acting for the company, in law, it is important that a person signing an instrument indicates expressly his agency and authority. A person signing an instrument otherwise than in the above manner may incur personal liability on execution of such an instrument. If an instrument is signed by a Director, without stating on the face of it that the execution of the instrument was made on behalf of or that he is acting on behalf of the company, he would attract personal liability on the instrument. [Elliot v. Box Irionside, (1925) 2 K13 301].