1

Define Section 8 Company ?

u) Define ‘Company’ and its features. A "company" in the context of company law
refers to a legally recognized business entity formed by a group of individuals or entities to
engage in commercial activities. It is a distinct legal person with its own rights, obligations,
and liabilities. In India, the definition and features of a company are primarily governed by the
Companies Act, 2013.

Here are the key features of a company :-

A) Features of a Company :-
1. Incorporated Legal Entity :-
a) A company is a distinct legal entity separate from its members (shareholders).
b) It can enter into contracts, own property, sue or be sued, and conduct business in its
own name.
c) Section 2(20) of the Companies Act, 2013, defines a company as "a company
incorporated under this Act or under any previous company law."

2. Limited Liability :-
a) One of the most significant features of a company is limited liability for its
shareholders.
b) Shareholders' liability is limited to the extent of their investment in the company. Their
personal assets are generally protected from the company's debts and obligations.
c) For example, if Mr. A holds 1,000 shares in XYZ Ltd., his liability is limited to the value
of those shares, and his personal assets are not at risk if the company incurs debts.

3. Perpetual Succession :-
a) A company has perpetual succession, meaning it continues to exist regardless of
changes in its membership.
b) The death, insolvency, or transfer of shares by individual shareholders does not affect
the company's existence.
c) ABC Pvt. Ltd. continues to exist even if some of its shareholders change over time.

4. Separation of Ownership and Management :-

a) In a company, ownership (shareholders) is separate from management (directors and
officers).
b) Shareholders elect a board of directors to manage the company's affairs on their
behalf.
c) This separation allows for professional management and better decision-making.

5. Transferability of Shares :-
a) Shares in a company are typically freely transferable, subject to any restrictions
mentioned in the company's articles of association.
b) Shareholders can buy and sell shares without the need for the company's approval.
c) Mr. B can sell his shares in LMN Ltd. to Mr. C without seeking LMN Ltd.'s permission,
unless the articles of association restrict such transfers.

6. Raise Capital Through Share Capital :-

a) Companies can raise capital by issuing shares to the public or private investors.

b) Share capital is divided into shares of a fixed denomination, and shareholders invest in
the company by purchasing these shares.

7. Statutory Compliance :-
a) Companies are subject to various statutory regulations and compliance requirements
under the Companies Act, including maintaining financial records, conducting annual audits,
and holding annual general meetings.
b) Failure to comply with these regulations can result in legal consequences.

8. Common Seal :-
a) Companies typically have a common seal, which is an official stamp used to
authenticate documents.
b) The common seal is used for signing contracts, share certificates, and other important
documents.

B) Relevant Sections of the Companies Act, 2013 (India) :-

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- Section 2(20) defines the term "company" in the Companies Act, 2013.
- Section 3 specifies the formation and incorporation of companies.
- Section 12 discusses the registered office of a company.
- Section 13 outlines the memorandum of association of a company.
- Section 14 deals with the articles of association of a company.

In summary, a company is a legally recognized business entity with distinct characteristics

such as limited liability, perpetual succession, and separation of ownership and management.
It is created and governed by the Companies Act, 2013, in India, and it offers several
advantages for businesses, including the ability to raise capital, manage operations, and
protect shareholders' personal assets.

A Section 8 Company, also known as a Section 8 Company under the Companies Act, 2013
(previously known as Section 25 Company under the Companies Act, 1956), is a type of
nonprofit organization formed with the primary objective of promoting commerce, art, science,
sports, education, research, social welfare, religion, charity, protection of the environment, or
any other charitable purpose. The name "Section 8" is derived from Section 8 of the
Companies Act, 2013, which outlines the legal framework for the formation and regulation of
such companies.
### **Key Features of a Section 8 Company:** ####
**1. Non-Profit Nature:**
- A Section 8 Company is established for promoting charitable or not-for-profit objectives.
Any profits or income generated by the organization must be used for the promotion of its
objectives and cannot be distributed among its members.

#### **2. Limited Liability:**

- Members of a Section 8 Company have limited liability, meaning their personal assets
are not at risk for the company's debts or obligations.

#### **3. No Dividend Distribution:**

- Unlike other types of companies, Section 8 Companies are prohibited from distributing
dividends to their members. All income generated is to be utilized for promoting the
company's objectives.

#### **4. Application of Income and Profits:**

- The income and profits generated by the Section 8 Company are solely applied towards
promoting its objectives. The organization cannot distribute any part of its income or profits to
its members.

#### **5. Exemption from Certain Compliance Requirements:**

- Section 8 Companies enjoy certain exemptions and relaxations in compliance
requirements compared to other types of companies. For example, they may have simplified
procedures for conducting annual general meetings and board meetings.

#### **6. Name Clause:**

- The name of a Section 8 Company should end with the words "Foundation,"
"Association," "Council," "Club," "Organization," "Institute," "Society," or any other term
indicating its nonprofit nature.

#### **7. Use of Profits:**

- Any profits generated by the Section 8 Company are reinvested in its charitable or not-
for-profit activities. The utilization of funds is strictly regulated, and financial records are
subject to scrutiny.

#### **8. Board of Directors:**

- Section 8 Companies have a board of directors or managing committee responsible for
overseeing the organization's activities. The directors may receive reimbursement for their
expenses but are not entitled to any other remuneration.

#### **9. Registration Process:**

- The registration process for a Section 8 Company involves obtaining a license from the
Central Government. The application includes the organization's memorandum of association
and articles of association, details of the proposed directors, and a declaration of its objectives.
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#### **10. Regulatory Authority:**

- The regulatory authority overseeing Section 8 Companies is the Registrar of Companies
(RoC) and the Ministry of Corporate Affairs (MCA) in India.

### **Procedure for Incorporation:**

The process for incorporating a Section 8 Company involves the following steps:

1. **Name Reservation:**
- Apply to the Registrar of Companies (RoC) for name reservation.

2. **License Application:**
- Submit an application to the Central Government for a license under Section 8.

3. **Memorandum and Articles of Association:**

- Prepare the memorandum of association and articles of association in accordance with
the guidelines.

4. **License Issuance:**
- Upon approval, the Central Government issues a license.

5. **Incorporation:**
- Complete the incorporation process with the Registrar of Companies.

6. **Tax Exemptions:**
- Apply for tax exemptions under Section 12A and 80G of the Income Tax Act. ###
**Conclusion:**
A Section 8 Company plays a crucial role in advancing charitable, social, and developmental
causes. By combining the features of a nonprofit organization with the legal structure of a
company, Section 8 Companies contribute significantly to various sectors, promoting social
welfare and community development. The regulatory framework ensures that these
organizations adhere to their stated objectives and operate transparently to fulfill their
philanthropic purposes.

What are meetings in a company ? Explain the types of shareholders meetings.

Meetings in a Company and Types of Shareholders' Meetings under Company Law :

In the context of company law, meetings are gatherings of various stakeholders of a company
to discuss and make decisions on important matters related to the company's governance,
management, and operations. The Companies Act, 2013, in India, governs the conduct of
meetings in companies. There are several types of meetings in a company, with shareholders'
meetings being one of the most significant.

Types of Shareholders' Meetings under Company Law :

1. Annual General Meeting (AGM) :-

- An AGM is a mandatory annual meeting of shareholders that every company is required
to hold within six months from the end of its financial year.

- The primary purpose of an AGM is to:

- Approve the company's financial statements (including the balance sheet and profit
and loss account).
- Declare dividends, if any.
- Appoint or reappoint auditors.
- Elect or re-elect directors.
- Discuss and address any other matters specified in the notice of the meeting.
- Section 96 of the Companies Act, 2013, prescribes the requirements for holding an
AGM.

Illustration :- XYZ Ltd. conducts its AGM on September 30th each year to present its financial
results, elect directors, and distribute dividends.

2. Extraordinary General Meeting (EGM) :-

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- An EGM is a meeting called at any time other than the AGM to address specific urgent
matters that require shareholders' approval.
- EGMs are convened when the board of directors believes that certain decisions cannot
wait until the next AGM.
- Shareholders can also request an EGM under certain circumstances.
- Section 100 of the Companies Act, 2013, deals with the calling of EGMs.
Illustration :- ABC Ltd. calls an EGM to seek shareholder approval for a major merger with
another company, which is time-sensitive.

3. Class Meetings :-
- In companies with multiple classes of shares (e.g., preference shares and equity
shares), class meetings may be held to address issues that specifically affect one class of
shareholders.
- Matters discussed at class meetings may include changes to the rights and privileges of
a particular class of shares.
- Section 48 of the Companies Act, 2013, covers the rights of different classes of shares.

Illustration:- DEF Corporation holds a class meeting for its preference shareholders to seek
their consent for altering the dividend payment terms.

4. Meeting of Debenture Holders :-

- Companies that issue debentures or bonds may be required to hold meetings of
debenture holders.
- These meetings are held to discuss matters related to the debentures, such as interest
payments, redemption of debentures, and amendments to debenture terms.
- Sections 71 and 71A of the Companies Act, 2013, outline the provisions related to
debentures and meetings of debenture holders.

Illustration :- GHI Ltd. holds a meeting of its debenture holders to approve the issuance of
additional debentures to raise capital.

5. Postal Ballot :-
- In addition to physical meetings, the Companies Act, 2013, allows companies to
conduct certain types of resolutions by means of a postal ballot.
- Shareholders vote on resolutions by sending their votes through postal or electronic
means, without the need for a physical meeting.
- This method is often used for routine and non-controversial matters.
- Section 110 of the Companies Act, 2013, provides details on conducting resolutions
through a postal ballot.

Illustration :- JKL Ltd. conducts a postal ballot to seek shareholder approval for the
appointment of an independent director.

Provisions of the Companies Act, 2013 :-

- Section 96 :- Mandatory provisions for conducting AGMs.
- Section 100 :- Provisions related to calling EGMs.
- Section 48 :- Rights of different classes of shares.
- Sections 71 and 71A :- Provisions regarding debentures and meetings of debenture
holders.
- Section 110 :- Provisions for conducting resolutions through a postal ballot.

In conclusion, meetings in a company serve as forums for shareholders and other stakeholders
to participate in decision-making processes and exercise their rights. The types of
shareholders' meetings, such as AGMs, EGMs, class meetings, and meetings of debenture
holders, are defined and regulated by the Companies Act, 2013, in India. These meetings play
a vital role in ensuring transparency, accountability, and effective governance within a
company.
5

Explain the legal position and duties of Director of company ?

In accordance with the Companies Act, 2013, in India, a "Director" is a key officer of a
company responsible for its management and decision-making. Directors play a pivotal role in
the corporate governance and administration of a company. The Companies Act, 2013,
provides a comprehensive definition of a director and also recognizes different types of
directors based on their roles and functions within a company.

A. Definition of Director under Companies Act, 2013 (India) : Section 2(34) of the
Companies Act, 2013, provides the definition of a director : "A director is a person appointed to
the board of a company."
This definition is quite broad and encompasses various types of directors who serve on a
company's board. Directors collectively form the board of directors, which is responsible for
making strategic decisions, overseeing the company's affairs, and ensuring compliance with
statutory obligations.

B. Different Types of Directors under Companies Act, 2013 :- 1. Managing

Director (MD) :-
- A Managing Director is an individual appointed by the board of directors or by the
articles of the company to be in charge of the day-to-day operations and management of the
company.
- An MD typically has substantial decision-making authority and is often the top
executive responsible for implementing the company's strategies. Section 2(54) of the
Companies Act, 2013, defines a Managing Director. Illustration :- Mr. A is appointed as the
Managing Director of XYZ Ltd. He is responsible for overseeing the company's daily operations
and executing its business plans.

2. Whole-Time Director (WTD) :- A Whole-Time Director is a director who is in full-time

employment of the company and is involved in the company's management on a full-time
basis.
- Similar to an MD, a WTD has significant operational responsibilities and is generally
involved in the day-to-day running of the company. Section 2(94) of the Companies Act, 2013,
defines a Whole-Time Director. Illustration :- Ms. B is appointed as a Whole-Time Director at
ABC Ltd. She works full-time for the company and is responsible for key managerial decisions.

3. Independent Director :- An Independent Director is a non-executive director who

does not have any material or pecuniary relationship with the company, its management, or its
promoters.
- Independent Directors play a crucial role in ensuring corporate governance, providing
unbiased advice, and monitoring the management's actions.Section 149(6) of the Companies
Act, 2013, provides details about Independent Directors' qualifications and roles.
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Illustration :- Mr. C is an Independent Director at DEF Ltd. He does not have any
financial interests in the company and is responsible for offering impartial advice to
the board.

4. Nominee Director :-A Nominee Director is appointed by a specific shareholder or

entity (often a financial institution or a government) to represent their interests on the board.
- Nominee Directors are expected to advocate for the interests of the appointing entity
while fulfilling their fiduciary duties to the company.Illustration :- The government appoints Mr.
D as a Nominee Director on the board of GHI Corporation to safeguard its investment in the
company.

5. Additional Director :-An Additional Director is appointed by the board of directors

between annual general meetings (AGMs).The appointment of an Additional Director is
provisional and subject to ratification by shareholders at the next AGM.Section 161(1) of the
Companies Act, 2013, deals with the appointment of Additional Directors. Illustration :- XYZ
Ltd.'s board appoints Ms. E as an Additional Director to fill a vacancy. Her appointment will be
confirmed by shareholders at the upcoming AGM.

6. Executive Director :-An Executive Director is a director who is actively involved in the
day-to-day management and operations of the company. Executive Directors can include
Managing Directors, Whole-Time Directors, or other directors who hold executive positions
within the company. Illustration :- Mr. F serves as the Executive Director of PQR Ltd. He is
responsible for both strategic decisions and operational matters.

7. Non-Executive Director :-A Non-Executive Director is a director who is not actively

engaged in the company's day-to-day operations.They provide oversight, guidance, and
strategic input to the company but do not have full-time executive roles. Illustration :- Dr. G is
a Non-Executive Director at LMN Corporation. He attends board meetings and provides
valuable insights on the company's healthcare sector.
These are some of the common types of directors recognized under the Companies Act, 2013,
in India. Each type of director has distinct roles, responsibilities, and qualifications, and their
appointment and functioning are subject to various provisions and regulations outlined in the
Act. It is essential for companies to have a
diverse board of directors with a mix of executive and non-executive directors to ensure
effective governance and decision-making.The legal position and duties of a director in a
company are critical aspects of corporate governance and are primarily governed by the
Companies Act, 2013, in India. Directors play a pivotal role in the management and decision-
making of a company. Below are the key aspects of the legal position and duties of directors:
1. Legal Position :-a) Appointment
- Directors are appointed by shareholders through resolutions at general meetings.
- Different types of directors include Executive Directors (involved in day-to-day
management) and Non-Executive Directors (who may be independent or non-independent).

(b) Board of Directors -Directors collectively constitute the Board of Directors, which is
responsible for the overall management and strategic direction of the company.

(c) Fiduciary Position :- Directors are considered fiduciaries and owe a duty of loyalty, good
faith, and utmost care to the company.

(d) Statutory Positions :-Some directors, like Managing Director, Whole-time Director, and
Independent Director, have specific roles and responsibilities defined by law.

2. **Duties of Directors:**:(a) **Duty of Care and Skill (Section 166):**

- Directors must exercise their duties with reasonable care, skill, and diligence.
- They should use their expertise and judgment for the benefit of the company.
(b) **Duty to Act in Good Faith (Section 166):**
- Directors are required to act in good faith and in the best interests of the company.
- They must not misuse their powers for personal gain or advantage.
c) **Duty to Act in the Interest of Shareholders (Section 166):**
- Directors must act in a manner that promotes the success of the company and benefits
its shareholders as a whole.
(d) **Duty to Avoid Conflict of Interest (Section 184):**
- Directors should avoid situations where their personal interests conflict with the
interests of the company.Any conflict must be disclosed to the Board.
(e) **Duty to Disclose Interest (Section 184):**
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- Directors must disclose their interest in any contract or arrangement entered into by
the company.
- This disclosure is made at the board meeting.
(f) **Duty Not to Achieve Unauthorized Gains (Section 166):**
- Directors must not achieve unauthorized gains from their position or use the company's
property, information, or opportunities for personal advantage.
(g) **Duty to Attend Board Meetings (Section 167):**
- Directors are required to attend board meetings and contribute to decision-making.
- Absence without leave in certain consecutive board meetings may lead to
disqualification.
(h) **Duty to Prevent Oppression and Mismanagement (Section 241):**
- Directors have a duty to prevent oppression and mismanagement and, if necessary,
bring it to the notice of the authorities.
(i) **Duty to Exercise Independent Judgment (Section 166):**
- Independent Directors are expected to bring an independent judgment to the board's
decision-making process. ### 3. **Liabilities of Directors:**
#### (a) **Civil Liability:**
- Directors may be held personally liable for breach of duties leading to losses for the
company or its stakeholders. (b) **Criminal Liability (Section 447):**
- Certain offenses under the Companies Act may lead to criminal liability, including
imprisonment and fines.

(c) **Disqualification (Section 164):**

- Directors may be disqualified for specific reasons, such as non-filing of financial
statements or annual returns.

#### (d) **Compounding of Offenses (Section 441):**

- Some offenses can be compounded, meaning the company and its directors may settle
the matter by paying a penalty. ### 4. **Obligations in Case of Resignation (Section 168):**
- Directors who resign must file a resignation letter with the company and the Registrar
of Companies.
- They must also disclose reasons for resignation if there are concerns about the
company's affairs. ### Conclusion:
The legal position and duties of directors are designed to ensure the responsible and ethical
management of companies. Directors are expected to act with integrity, diligence, and in the
best interests of the company and its stakeholders. Compliance with these duties is essential
for corporate governance and to foster trust among investors, employees, and the public.
Directors should stay informed about their legal responsibilities and seek professional advice
when needed.

g) Explain the Doctrine of Indoor Management along with exceptions if any ?

The Doctrine of Indoor Management, also known as the Turquand Rule or the Rule in Royal
British Bank v Turquand, is a legal principle that protects outsiders dealing with a company
from the internal irregularities or unauthorized acts of the company's officers. The doctrine is
an important aspect of corporate law and serves to strike a balance between the need for the
company's internal affairs to be managed efficiently and the protection of third parties dealing
with the company.

A) Key Principles of the Doctrine of Indoor Management :-

1. Presumption of Regularity :-
- Outsiders dealing with a company are entitled to assume that internal proceedings
have been regularly conducted.

2. Protection for Outsiders :-

- The doctrine is designed to protect third parties who, in good faith, rely on the external
manifestations of authority and regularity in a company's actions.

3. Knowledge of Articles :-
- The doctrine operates on the presumption that third parties dealing with a company are
not expected to know the company's internal regulations, such as its articles of association.
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4. Exception to Constructive Notice :-

- It is an exception to the rule of constructive notice, which normally imputes knowledge
of a company's public documents (like its memorandum and articles) to anyone dealing with
the company.

B) Exceptions to the Doctrine of Indoor Management :-

While the Doctrine of Indoor Management protects outsiders in many situations, there are
certain exceptions where outsiders may not be protected:

1. Knowledge of Irregularity :-
- If a third party has actual knowledge of irregularities or unauthorized acts within the
company, the protection of the doctrine may not apply.

2. Forgery or Fraud :-
- If the outsider's act involves forgery or is tainted by fraud, the doctrine may not protect
them.

3. Notice of Restriction in Articles :-

- If a third party has notice of any specific restrictions or limitations placed on the
authority of the company's officers by the company's articles of association, the doctrine may
not apply.

4. Act Beyond Apparent Authority :-

- If an officer's act is clearly beyond their apparent authority, the Doctrine of Indoor
Management may not protect the outsider.

Case Law :-
Royal British Bank v Turquand (1856) :-
The Doctrine of Indoor Management was established in the case of Royal British Bank v
Turquand. In this case, the company's articles required that certain actions, such as borrowing
money, had to be authorized by a resolution at a general meeting. However, the defendant,
who was an outsider, entered into a contract with the company without verifying compliance
with the internal regulations.

The court held that the outsider was entitled to assume that the internal procedures had been
followed, and the company was bound by the contract. The court emphasized the need to
protect outsiders who, acting in good faith, rely on the external appearances of authority.

Conclusion:-

The Doctrine of Indoor Management is a crucial principle in corporate law, striking a balance
between the internal management of a company and the protection of third parties dealing
with the company. While it provides a measure of protection to outsiders, there are exceptions
to ensure that the doctrine is not abused and that parties with actual knowledge or engaged in
fraudulent activities do not benefit from its protection

l) Discuss the Doctrine of ‘Ultra Vires’ with special reference to Ashbury

Railway Carriage and Iron Co.Ltd. Vs Riche.

The Doctrine of Ultra Vires is a fundamental principle in company law that addresses the limits
of a company's

powers as defined in its memorandum of association. "Ultra Vires" is a Latin term that means
"beyond the powers." This doctrine aims to protect the interests of shareholders, creditors, and
others dealing with the company by ensuring that the company operates within the scope of
its authorized powers.

### **Key Elements of the Doctrine of Ultra Vires:**

1. **Powers Defined in Memorandum:**

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- The powers of a company are defined in its memorandum of association, which outlines
the objects for which the company is incorporated.

2. **Acts Outside the Memorandum:**

- Any act performed by a company beyond the scope of its authorized powers, as stated
in the memorandum, is considered ultra vires and, therefore, void.

3. **Protection of Third Parties:**

- The doctrine primarily serves to protect third parties who may engage in transactions
with the company. If a company acts ultra vires, the third party may have legal recourse.

### **Ashbury Railway Carriage and Iron Co. Ltd. vs. Riche (1875):**

The case of Ashbury Railway Carriage and Iron Co. Ltd. vs. Riche is a landmark case that
established and illustrated the application of the doctrine of ultra vires.

#### **Facts of the Case:**

- The Ashbury Railway Carriage and Iron Company's memorandum of association

authorized the company to lend money to railway companies and others for the purpose of
railway construction.
- The company entered into a contract with Riche to finance the construction of a railway
in Belgium.
- Subsequently, the company's shareholders passed a resolution to ratify the contract.
- However, before the completion of the railway construction, the company's directors
repudiated the contract, arguing that it was ultra vires.

#### **Legal Issues:**

1. Whether the contract entered into by the company for financing the construction of a
railway in Belgium was ultra vires.
2. Whether the subsequent resolution passed by the shareholders could validate an ultra
vires act.

#### **Judgment:**
- The House of Lords held that the contract was ultra vires because it fell outside the
objects specified in the company's memorandum.
- The subsequent resolution passed by the shareholders could not validate an ultra vires
act.

#### **Significance:**
- The case reinforced the importance of adhering to the objects clause in a company's
memorandum of association.
- It highlighted that an ultra vires act remains void even if shareholders later ratify it.
### **Impact on Company Law:**
1. **Emphasis on Objects Clause:**
- The case emphasized the importance of the objects clause in a company's memorandum.
Any act outside the specified objects is considered ultra vires.

2. **Validity of Subsequent Resolutions:**

- The case clarified that a subsequent resolution passed by shareholders cannot validate an
ultra vires act.

3. **Protection of Third Parties:**

- The doctrine of ultra vires serves as a protective measure for third parties entering into
transactions with companies, ensuring that they are dealing within the company's authorized
powers.

### **Conclusion:**

The Ashbury Railway Carriage and Iron Co. Ltd. vs. Riche case played a pivotal role in
establishing and reinforcing the doctrine of ultra vires in company law. It highlighted the
significance of the objects clause in a company's memorandum and emphasized the void
nature of acts performed beyond the authorized powers. This doctrine continues to be a
fundamental principle in company law, providing clarity on the limits of a company's powers
and safeguarding the interests of stakeholders.
10

o) Explain the rule in Foss Vs Harbottle with exceptions.

Ans.
The Rule in Foss v Harbottle is a fundamental principle in company law that addresses the
issue of who has the right to bring a legal action on behalf of a company. The rule, established
through judicial decisions, limits the circumstances under which individual shareholders can
bring a lawsuit in the name of the company. The rule is based on the idea that the company,
as a separate legal entity, is the proper party to initiate legal proceedings for wrongs done to
it.

### **Rule in Foss v Harbottle:**

The Rule in Foss v Harbottle is derived from two cases, Foss v Harbottle (1843) and
subsequent cases that followed similar principles. The rule can be summarized as follows:

1. **Proper Plaintiff:**
- The proper plaintiff to bring an action for a wrong done to a company is the company itself.

2. **Majority Decision:**
- Decisions on whether to bring legal proceedings on behalf of the company are generally
made by a majority of the shareholders in a general meeting.

3. **Minority Cannot Sue:**

- Individual shareholders, except in exceptional circumstances, cannot bring a derivative
action (a legal action on behalf of the company) if the majority of shareholders have decided
not to sue or have already ratified the actions in question.

### **Exceptions to the Rule in Foss v Harbottle:**

While the Rule in Foss v Harbottle establishes a general principle, there are exceptions that
allow minority shareholders to bring a derivative action in specific situations:

#### 1. **Ultra Vires Acts:**

- Minority shareholders may bring a derivative action if the company has engaged in
ultra vires acts, i.e., acts beyond the scope of its legal powers as defined in the memorandum
of association.

#### 2. **Fraud on Minority:**

- Minority shareholders can bring an action if the wrongdoers are themselves in control of
the company and are committing fraud against the minority shareholders.

#### 3. **Acts Contrary to the Articles:**

- A derivative action may be brought if the company's actions are in violation of its
articles of association.

#### 4. **Personal Rights:**

- If the alleged wrong results in a violation of the individual rights of a shareholder
(rather than the company's rights), that shareholder may bring a personal action.

#### 5. **Breach of Statutory Rights:**

- If a statute grants individual shareholders specific rights that are being violated, those
shareholders may bring a derivative action.

#### 6. **Wrongdoers in Control:**

- When the wrongdoers are in control of the company, and the majority is implicated in
the wrongdoing, minority shareholders may be allowed to bring a derivative action.

#### 7. **Improper Ratification:**

- If the majority's decision to not sue or to ratify the actions is tainted by fraud or is
improper, minority shareholders may challenge it.

### **Conclusion:**
11

The Rule in Foss v Harbottle is a cornerstone principle in company law, emphasizing the
company as a separate legal entity and conferring the right to bring legal actions on its behalf
to the majority of shareholders. However, the exceptions to the rule acknowledge situations
where minority shareholders need protection and can bring derivative actions to safeguard
their rights and the interests of the company. These exceptions aim to balance the need for
corporate governance and protect shareholders from abuse or fraud.

Explain the circumstances in which a company may be wound up by Tribunal and its
powers ?What is winding up of company ? What are the grounds U/sec. 271 of
Companies Act, 2013 by which Tribunal may order winding up of a company ?

**Winding up of a company** refers to the process by which a company's existence is brought

to an end, its assets

are liquidated, and its debts are paid off. This may happen voluntarily by a resolution of the
members or involuntarily through an order of the National Company Law Tribunal (NCLT). In
the context of the Companies Act, 2013, there are various grounds under Section 271 by which
the Tribunal may order the winding up of a company. These grounds are categorized into two
main types: **compulsory grounds** and **discretionary grounds**.

### **Compulsory Grounds for Winding Up (Section 271):**

1. **Inability to Pay Debts (Section 271(1)(a)):**

- The company is unable to pay its debts. This is a crucial ground for winding up, and the
company must be deemed unable to pay its debts for the Tribunal to order compulsory
winding up.

2. **Just and Equitable (Section 271(1)(b)):**

- The Tribunal is of the opinion that it is just and equitable that the company should be
wound up. This is a broad ground and often used in cases where there is a deadlock among
the members or oppression and mismanagement.

### **Discretionary Grounds for Winding Up (Section 271(2)):**

1. **Default in Annual Return (Section 271(2)(a)):**

- The company has failed to file its annual returns or financial statements for five consecutive
financial years.

2. **Failure to Commence Business (Section 271(2)(b)):**

- The company, within one year of its incorporation or within one year of its re-
registration as a public company, has not commenced its business or has suspended its
business for a whole year.

3. **Subjection to Regulatory Action (Section 271(2)(c)):**

- The company appears to be conducting its affairs in a manner that is prejudicial to
public interest or the interests of its shareholders.

4. **Conduct Prejudicial to Creditors (Section 271(2)(d)):**

- The company's business is conducted in a manner that is prejudicial to the interests of
its creditors, shareholders, or the public.

5. **Suppression of Material Facts (Section 271(2)(e)):**

- The company was formed for fraudulent or unlawful purposes or the persons concerned
in its formation or management have been guilty of fraud, misfeasance, or misconduct in
connection with its promotion or management.

6. **Oppressive Conduct (Section 271(2)(f)):**

- The affairs of the company are being conducted in an oppressive or prejudicial manner
to any member or members.

7. **Financial Soundness (Section 271(2)(g)):**

- The company has failed to repay its deposits or interest thereon within the time
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specified in the law.

8. **Members Reduced (Section 271(2)(h)):**

- The number of members of the company has been reduced to less than seven in the
case of a public company or two in the case of a private company.

### **Procedure for Winding Up (Section 272):**

1. **Petition for Winding Up:**

- A petition for winding up can be filed by various parties, including the company,
creditors, contributories, or the Registrar of Companies.

2. **Jurisdiction of Tribunal:**
- The NCLT has the jurisdiction to entertain the petition for winding up.

3. **Interim Order:**
- The Tribunal may pass interim orders during the pendency of the winding-up petition.

4. **Advertisement of Petition:**
- The Tribunal may order the advertisement of the winding-up petition to give notice to
creditors and others.

5. **Order for Winding Up:**

- If the Tribunal is satisfied that the grounds for winding up are established, it may pass
an order for winding up.

6. **Appointment of Liquidator:**
- The Tribunal appoints a liquidator to carry out the winding-up process.

7. **Orders for Costs:**

- The Tribunal may make orders regarding the costs of the winding-up proceedings.

Winding up is a complex legal process, and it is crucial for all parties involved to seek legal
advice and follow the legal procedures laid down in the Companies Act, 2013.

The winding up of a company is a legal process that involves the dissolution of the company
and the realization of its assets to pay off its debts. The National Company Law Tribunal (NCLT)
in India has the authority to order the winding up of a company under various circumstances
as outlined in the Companies Act, 2013. The circumstances in which a company may be wound
up by the Tribunal, along with its powers, are explained below:
### **Circumstances for Winding Up by Tribunal:** #### 1. **Inability to Pay Debts (Section
271(1)(a)):**
- The company is unable to pay its debts, and the Tribunal is satisfied that the company
should be wound up.

#### 2. **Just and Equitable (Section 271(1)(b)):**

- The Tribunal is of the opinion that it is just and equitable that the company should be
wound up. This ground is often used in cases involving oppression and mismanagement.

#### 3. **Failure to Commence Business (Section 271(2)(b)):**

- The company, within one year of its incorporation or within one year of its re-
registration as a public company, has not commenced its business or has suspended its
business for a whole year.

#### 4. **Members Reduced (Section 271(2)(h)):**

- The number of members of the company has been reduced to less than seven in the
case of a public company or two in the case of a private company.

#### 5. **Subjection to Regulatory Action (Section 271(2)(c)):**

- The company appears to be conducting its affairs in a manner that is prejudicial to
public interest or the interests of its shareholders.

#### 6. **Conduct Prejudicial to Creditors (Section 271(2)(d)):**

- The company's business is conducted in a manner that is prejudicial to the interests of
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its creditors, shareholders, or the public.

#### 7. **Default in Annual Return (Section 271(2)(a)):**

- The company has failed to file its annual returns or financial statements for five
consecutive financial years.

#### 8. **Oppressive Conduct (Section 271(2)(f)):**

- The affairs of the company are being conducted in an oppressive or prejudicial manner
to any member or members.

#### 9. **Financial Soundness (Section 271(2)(g)):**

- The company has failed to repay its deposits or interest thereon within the time
specified in the law.

#### 10. **Fraudulent Activities (Section 447):**

- If the company has been involved in fraudulent activities, the Tribunal may order its
winding up. ### **Powers of the Tribunal in Winding Up:**
#### 1. **Order for Winding Up:**
- The Tribunal has the power to pass an order for the winding up of the company based
on the circumstances mentioned above.

#### 2. **Appointment of Liquidator:**

- The Tribunal appoints a liquidator who takes over the management of the company,
realizes its assets, pays off its debts, and distributes any surplus among the shareholders.

#### 3. **Advertisement of Petition:**

- The Tribunal may order the advertisement of the winding-up petition to give notice to
creditors and others.

#### 4. **Interim Orders:**

- The Tribunal may pass interim orders during the pendency of the winding-up petition.

#### 5. **Examination of Promoters and Officers:**

- The Tribunal has the authority to examine the promoters, directors, and officers of the
company under oath during the winding-up proceedings.

#### 6. **Fraudulent Preference:**

- The Tribunal can set aside any fraudulent preferences made by the company to certain
creditors before the commencement of winding up.

#### 7. **Power to Stay Proceedings:**

- The Tribunal has the power to stay any legal proceedings against the company once a
winding-up petition is presented.

#### 8. **Avoidance of Transfers:**

- The Tribunal can avoid any transfer of property or alteration in the status of the company's
property made after the commencement of winding up.

#### 9. **Powers to Examine Officers:**

- The Tribunal may summon and enforce the attendance of persons for examination
concerning the company's affairs.

#### 10. **Power to Order Public Examination:**

- The Tribunal can order the public examination of officers, promoters, or any other
persons in connection with the company's affairs.

### **Conclusion:**

The winding-up powers of the Tribunal are exercised in the best interest of creditors,
shareholders, and the public. The Tribunal's intervention is crucial to ensure a fair and orderly
winding-up process, prevent fraudulent activities, and protect the interests of stakeholders
involved with the company. The winding-up process is a legal remedy that aims to address
situations where a company is unable to continue its operations or where its continued
existence is prejudicial to the interests of various stakeholders.