A majority of the Board of directors of Mis. High Value Infotech Ltd

A majority of the Board of directors of Mis. High Value Infotech Ltd. have realised that some of the business activities carried out,in the name of the company are not in the interest of either the company or its members. They want that the company should make an application to the Central Government to appoint an

At a meeting of the shareholders of the company, the members have passed the

following special resolution:

“Resolved that the Central Government be approached to appoint an Inspector to carry out an investigation as to whether the following activities carried out in the name of the company are or are not in the interest of either the company or its members.

(i) The company contracted loans beyond its capacity to repay;

(ii) Again some of the directors are indulging in certain activities which are unlawful and contrary to public interest;

(iii) Managing Director has been withdrawing money from the company as his remuneration, in excess of the statutory ceilings.”

The said resolution was passed at an extraordinary general meeting of the Com

pany held on 10^th October, 2001.

It is, therefore, prayed that the Central Government may please appoint, as per Section 237 of the Companies Act, an inspector to investigate the affairs of the company regarding the matters mentioned in the above resolution and communicate its decision to the company.

A mere presence of a representative of a foreign company is not sufficient if his only authority is to solicit orders from customers but not to make contracts on behalf of the Company [P.J. Johnson Vs. Astrofiel (1989)3 Compo LJ 1].

Foreign Controlled Company

1)s against a foreign company which has to be a company incorporated outside India, a foreign controlled company means a company incorporate...d -in India in which the

‘-foreign citizens or body corporates have a controlling interest. l

requisite provision of Depository Act 1996 and regulations

There seems to be a drdfting mistake in this section. A company which is already listed cannot make an initial offer, The intention seems to be that all

issues ofRs. 10 crore or more when the company proposes to list those securities or when its securities are already listed, must be made in demat form].

SubsC(IUent Allotment of Shares. All the ‘Special Provisions’

regarding the ‘First Allotment of Shares’ (discussed above), except No.3 (minimum subscription must be received) and NO.4 (application money must be

deposited in a scheduled bank) apply equally to any subsequent allotment of shares offered to the public for subscription by a public company [Section

69(7)].

Allotment of Debentures. The ‘Special Provisions’ regarding the ‘First Allotment of Shares’ (discussed above) except No.2 (at least 5% of the face value to

be received as application money), No.3 (minimum subscription must be received), and No.4 (application money must be deposited in a scheduled bank)

apply to the allotment of debentures. whether initial or subsequent issue, in the case of a public company which invites public for subscription.

Irre’1Jlar Allotment and Its Effect (Section 71). An allotment is irregular where it does not comply with statutory provisions as laid down under the

Companies Act as discussed above. In other words, an allotment made by a public company shall be called ‘irregular allotment’ in the following cases:

case of an underwriting agreement [Sec. 56 (3)

where the shares or debentures are not offered to the public [Sec.56 (3) (b)],

(iii) where the company has issued right shares to the existing shareholders of the. company with or without the right of renunciation [Sec. 56 (5) (a)].(iv) in

respect of share or debentures which are similar to thosepreviously issued and dealt in on a recognised stock exchange.

The Companies (Amendment) Act 2000 has inserted a new Section 60A introducing a new concept of ‘Shelf Prospectus’. ‘Shelf prospectus’ mcans a

prospectus issued by a financial institution or bank or one or more issue or issues of the securities or class of securities specified in the prospectus. The

main advantage ofthe issue of such type of prospectus is that the company has not to issue prospectus at the time of every issue of shares and

debentures during the period of its validity. Such’ shelf prospectus’ is required to be filed with the Registrar of Companies. At subsequent stages, only

‘information memorandum’ is required to be filed.

Variation of the Rights of Shareholders

After the capital is reduced, any member of the company shall not bc liable for any call or contribution if the liability has been astonished.
However, if the name of any creditor has not been included in the list of creditors and he was not aware of the reduction proceedings the members who
were members on the date of reduction are still liable in respect of such debt, to the extent of unpaid capital extinguished. Sec. 104]
It must, however, be noted that forfeiture of shares for non payment of calls and redemption of redeemable l)reference shares are not treated as reduction
of capital because any of these activities does not diminish the funds out of which creditors are paid. However, surrender of shares shall be treated as
'reduction of capital' if a company pays some money against them because in that case, it will amount to purchase by the company of its own shares
which is not permissible us 77. If shares are surrendered to the nominee of the company or are gifted (surrendered without payment) to the company,
it will not amount to share reduction. .
(iii) Variation of the Rights of Shareholders.
The share capital of a company can be divided into two different classes of shares, namely, preference shares and equity shares. Frequently and

obviously, rights attached to one class of shares may be different from those attached to the other class. If it is proposed to change the rights of any

class, certain procedure has to be followed. Firstly. there should be a provision in the memorandum or articles of the company entitling it to vary such

class rights or, at any rate, there should be nothing in the terms of issue of the shares of that class prohibiting such a variation Section 106 (a) and (h)].

Secondly. the holders of three-fourths of the issued shares of that class nulls have given their consent in writing or.a special resolution sanctioning the

variation must have been passed at a separate meeting of the shareholders of the class affected. Thirdly, the holder of at least 10% of the shares of that

class who did not consent to or vote in favor of the resolution may apply to the High Court and then variation shall not take effect unless and until it is

confirmed by the court Section 107 (1)]. The application shall be made to the court within twenty-one days of the date on which the consent was given or

the resolution passed. The court shall grant a hearing to the applicant and any other persons who apply to the court to be hearted and appear to be

interested in the application Section 107 (3)]. If the court, after considering all the circumstances. is satisfied that the variation would unfairly prejudice the

shareholders of that class. it would be disallowed. But if the scheme appears to be reasonable and fair it would be confined. The decision of the court is

final. Section 107 (4)].The company must. within thirty days of tbe receipt of court's order,forward a copy thereof together wit a copy of special resolution

and a copy of changed memorandum (or articles as the case may be), to the Registrar who shall register the same. The change becomes effective from

tbe date of registration.

Trading Certificate" that the process of the formation of a public company

It is after getting this "Trading Certificate" that the process of the formation of a public company having a share capital is complete and it is now that such a

company can start its business and exercise its borrowing powers. Any contract made by the company before securing this certificate is provisional only

and shall not be binding on the company till such certificate has been obtained Section 149 (4)]. If the company does not commence’ its business within a
year of its incorporation, it may be wound up by the court. Section 433 (c)].
If the company, on receiving the certif. ketch of commencement of business wishes to start a new business not included in the 'main objects' (i.e. included

in the 'other objects'), it c.1n do so by passing a special resolution or by passing an ordinary resolution and the approval of Central Government. A

declaration by the secretary or a director that the requirement as to the resolution has been complied with must also be filed with the Registrar. Sec.

149(2A) and (2B)].