IGNOU ASSIGNMENT, COMPANY LAW (BCOC - 135), SOLVED PAPER – (2024 - 25)| (B.COM) (GENERAL)| ENGLISH MEDIUM
TUTOR MARKED ASSIGNMENT
COURSE CODE: BCOC-135
COURSE TITLE: COMPANY LAW
ASSIGNMENT CODE: BCOC-135/TMA/2024-25
COVERAGE: ALL BLOCKS
Maximum Marks: 100
Note: Attempt all the questions.
Section-A
(Attempt all the
questions. Each question carries 10 marks.)
1. Define a holding company and a subsidiary company. When can a company be called a subsidiary of another company? Explain. 10
Ans:- A holding company is a company whose one
specific function is to control subsidiary companies. It typically does not
provide services or products like a normal business. Instead, its sole purpose
is to control and manage other companies in which it owns a majority of shares.
In this way, it provides the structure for creating a corporate group.
Holding
companies will either own a majority of shares in a subsidiary or, in some
circumstances, fully own all of the shares in a company. Either way, they will
exercise control over a subsidiary. As a result, they can influence and control
the subsidiary's strategic decisions, policies, and governance.
A subsidiary
is a company that is controlled by another company, known as a holding company.
As per the Companies Act, 2013 in India, a company is considered a subsidiary
if:-
(a) The holding
company controls the composition of the board of directors of the subsidiary
company
(b) The holding
company holds more than 50% of the total share capital of the subsidiary
company
The holding
company may hold the shares of the subsidiary company directly or through one
or more of its other subsidiaries.
A company can
be said to be a subsidiary of another company if:-
(i) The holding
company controls the composition of the board of directors of the subsidiary
company. This means that the holding company has the right to appoint or remove
a majority of the directors of the subsidiary company.
(ii) The holding
company either on its own or together with one or more of its other
subsidiaries holds more than 50% of the total share capital of the subsidiary
company.
(iii) If holding
company A has a subsidiary company B, and subsidiary company B has a subsidiary
company C, then subsidiary company C automatically becomes a subsidiary of
holding company A.
So in short,
a company is considered a subsidiary when the holding company has control over
the management of the subsidiary and has a majority stake in its share capital.
This control may be exercised directly or indirectly through other
subsidiaries.
2. What do you understand by preliminary contracts?
Discuss (a) the position of the company in relation to the preliminary
contracts, and (b) the liability of the promoter for preliminary contracts. 10
Ans:- Preliminary contracts, also known as
pre-incorporation contracts, are agreements entered into on behalf of the company
before it is officially incorporated. These contracts outline the obligations
and conditions that will later be formalised in the main contract after the
company is established. The legal status and implications of these contracts
are important for both the company and its promoters.
Position of
the company in relation to preliminary contracts:-
(i) Legal
status: A company does not exist as a legal entity until it is
incorporated. Therefore, any preliminary contracts entered into before
incorporation cannot legally bind the company. The company is not liable for
these contracts as it has no legal personality at that time.
(ii)
Ratification: Once the company is incorporated, it has the option to ratify
these preliminary contracts. This means that the company can choose to adopt
the agreements entered into by the promoters on its behalf. However, this
ratification must be explicit and is usually done through a formal resolution
by the board of directors.
(iii)
Enforceability: As per the Specific Relief Act, if the preliminary contract
is warranted by the terms of the company’s incorporation, the company can
enforce it after incorporation. This provides a way for the company to benefit
from agreements entered into before its legal existence, provided they align
with its objectives.
Promoter’s
Liability for Preliminary Contracts:-
(i)
Personal Liability: Promoters entering into preliminary contracts do so in
their capacity as agents for the future company. Since the company is not yet a
legal entity, the promoters are personally liable for the obligations under
these contracts. This means that promoters can be held accountable if the
company does not ratify the contract or if it fails to fulfil the obligations.
(ii) Scope
of liability: The liability of promoters is important because they are
acting on behalf of a non-existent entity. If the company does not adopt the
contract after incorporation, the promoters remain liable for any losses or
obligations arising from the contract. They must ensure that the terms of the
preliminary contracts are favourable and align with the interests of the future
company.
(iii) Legal
protection: Promoters can minimise their risks by ensuring that preliminary
contracts include clauses that allow the company to adopt the agreements after
incorporation. This can help clarify the transition of liability from the
promoters to the company once the company is formed.
In short,
preliminary contracts play a vital role in the formation of a company, allowing
necessary agreements to be established before incorporation. However, the
promoters bear the responsibility for these contracts until such time as the
company legally recognizes and chooses to approve them.
3. "The Certificate of incorporation is a conclusive
proof that all the requirements of the Act in respect of formation of the
company, have been complied with”? Explain. 10
Ans:- The Certificate of Incorporation issued by the
Registrar of Companies serves as conclusive evidence that all the requirements
for the formation of a company under the Companies Act have been duly complied
with. This legal document marks the official birth of the company as a separate
legal entity distinct from its shareholders and directors.
Once the
Certificate of Incorporation is issued, it is deemed that:-
(i) the
company has been duly registered under the Act
(ii) all the
requirements of the Act regarding registration and matters precedent and
incidental thereto have been complied with
(iii) the
company is authorised to carry on business
The certificate
contains essential details such as the name of the company, registration
number, date of incorporation, registered office address and the jurisdiction
under which it is incorporated. It is evidence that the company has fulfilled
all the statutory requirements, including:-
(a) Obtaining
a unique name complying with the naming rules
(b) Appointing
a registered agent and office address
(c) Submitting
the memorandum and articles of association
(d) Meeting
the minimum requirements for directors, members and paid-up capital
The conclusive
nature of the certificate of incorporation means that once issued, it cannot be
challenged or questioned, even if certain irregularities are found later. This
provides stability and confidence to investors, creditors and other
stakeholders in dealing with the company.
However, the
conclusive nature of the certificate is limited to the fact of incorporation
and compliance with the formalities required for registration. It does not
validate the objectives of the company or the validity of the powers granted to
it by the memorandum and articles of association.
In short,
the certificate of incorporation is a fundamental document that serves as
conclusive evidence of the legal existence of the company and compliance with
the incorporation requirements under the Companies Act. This provides the
company with legitimacy, stability and credibility in its dealings with various
stakeholders.
4. Explain the legal effect of the Articles of Association.
How far they are binding on outsiders? 10
5. Explain the procedure of forfeiting the shares. What is
the effect of forfeiture? How forfeiture is different from surrender of shares?
10
Section-B
(Attempt all the
questions. Each question carries 6 marks.)
6. When auditor's report is given? What information is
given in auditor's report? 6
Ans:- The auditor's report is issued at the end of
the audit of a company's financial statements. It is an opinion written by an
independent auditor on the accuracy and fairness of the company's financial
statements. The auditor's report is usually published with the company's annual
report. Banks, creditors and regulators require a company to audit its
financial statements before they grant it a loan or approve its financial
statements.
The auditor's
report includes the following key information:-
(i) Title:
The report should include the title "Report of the Independent Registered
Public Accounting Firm."
(ii)
Addressee: The report is addressed to shareholders and boards of directors,
or equivalents for companies not organized as corporations.
(iii)
Opinion on financial statements: This section contains the auditor's
opinion as to whether the financial statements fairly present, in all material
respects, the company's financial position and the results of its operations
and cash flows in conformity with the applicable financial reporting framework.
(iv) Basis
of opinion: The auditor states the basis for his opinion, including a
reference to the auditing standards to be followed.
(v) Going
business: If applicable, the auditor includes an assessment of the company's
ability to continue as a going concern.
(vi)
Auditor's signature and date: The report includes the auditor's signature
and the date of the report.
The auditor's
report may be unmodified (clean), qualified, adverse or a disclaimer of
opinion, depending on the auditor's findings and conclusions.
7. What do you understand by winding up of a company? How is
it different from dissolution of a company? 6
8. Explain the liability of directors towards the company
and third parties. Can a director be held liable for criminal liability? 6
9. What is private placement of securities? Discuss the
conditions to be satisfied for private placement of shares. 6
10. Write a note on 'Equity shares with differential rights
as to dividend, voting or otherwise'. Can a company issue non-voting shares? 6
Section-C
(Attempt all the
questions. Each question carries 5 marks.)
11. Discuss the powers and constitution of the National
Company Law Tribunal. 5
Ans:- The National Company Law Tribunal (NCLT) is a
quasi-judicial body established under Section 408 of the Companies Act, 2013,
and began operations on June 1, 2016. It was created following the recommendations
of the Justice Eradi Committee, which aimed to consolidate and simplify the
adjudication of corporate disputes and bankruptcy proceedings in India.
Powers of
NCLT: The NCLT has wide-ranging powers, including:-
(i)
Adjudication of corporate disputes: The NCLT has exclusive jurisdiction
over matters relating to company law, including disputes arising out of
mergers, amalgamations and winding up of companies. It can also handle issues
relating to mismanagement and oppression within companies.
(ii)
Insolvency proceedings: As a tribunal under the Insolvency and Bankruptcy
Code, 2016, the NCLT is responsible for initiating and managing bankruptcy
proceedings for companies and limited liability partnerships (LLPs).
(iii)
Investigative powers: Under Section 213 of the Companies Act, the NCLT can
order an investigation into the affairs of a company, if there are allegations
of fraud, misconduct or oppression. It can also be initiated by a certain
number of members or by outsiders under certain conditions.
(iv) Powers
to freeze assets: The NCLT can freeze the assets of a company during an
investigation, ensuring that the assets are protected for potential recovery or
penalties.
(v) Binding
decisions: The decisions of the tribunal are binding on all concerned
parties, including the company's members, auditors and advisers. Non-compliance
with its orders may result in penalties including fines and imprisonment for
corporate officers.
Composition
of NCLT: The NCLT is structured to ensure effective functioning and access:-
(i)
Composition: The tribunal consists of a chairperson and various judicial
and technical members. The total number of members shall not exceed eleven, who
are appointed by the Central Government through notifications.
(ii)
Benches: Initially, the NCLT had eleven benches in different cities across
India to facilitate access to justice for corporate entities. These benches are
strategically placed to cover different jurisdictions.
(iii)
Procedural flexibility: While the NCLT functions in a similar way to a
court, it is not bound by strict procedural rules and can customize its
procedures to ensure fairness and efficiency in resolving disputes.
In short,
the NCLT serves as a key institution in India’s corporate governance framework,
equipped with significant powers to adjudicate disputes, manage bankruptcy
proceedings, and enforce corporate compliance, while it is structured to
enhance access and efficiency in corporate law matters.
12. What is the purpose of Memorandum of Association? 5
13. "The secretary is a link between the directors and
shareholders of a company." Explain. 5
14. Explain the 'just and equitable grounds' for winding up
of a company. 5
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