Stay of Any Suit or Proceedings.

After an application for compromise or arrangement is made, the Court may at any time stay the commencement or continuation of any suit or proceedings against the company on such terms as it thinks fit, until the application is disposed of [Section 391(6)].

2. The Class must have been Fairly Represented. The Court must be satisfied that those who attended the meeting are fairly representatives of the class and that the statutory majority did not coerce, the minority in order to promote interest adverse to those of the class whom they purport to represent.

This requirement is, in part, an off-shoot of the first. As regards the majority, there are two requirements. The majority who vote in favour of the scheme must be first a majority in number of those members of the class (whether of creditors or shareholders) who are present and voting; and, second, it must be 3/4ths in value of the holding of such persons.

Thus, if there are 100 members voting, of whom (to take an extreme example) one member holds 901 shares and the remainder hold one each, the 99 shareholders holding one share each cannot force a scheme against the vote of the holder of the 901 shares, because they do not muster 3/ 4ths in value. Conversely, that shareholder and 49 of the others cannot force a scheme against the votes of the remaining fifty because there would not be a majority in number. The same principle applies to creditors.

It may be noted that the majorities are of those voting and not of those entitled to vote nor of those who are present-Re Bessemer Steel & Ordnance Co. [1875] 1 Ch. 0251. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored.

However, this is not the whole requirement because, in addition, the Court requires to be satisfied that the class is fairly represented. If, for instance, there were altogether one thousand shareholders holding ten thousand shares in all, the Court, it is unlikely would be satisfied by the statutory majority at a meeting at which ten members holding hundred shares in all were present and voted [Palmer’s Company Law, 24^th Edition, page 1146].

Petition of Majority In Guarantee Companies. Problems in computing this percentage are likely to arise in case of guarantee companies and others not having share capital. In such cases, it will be assumed that each shareholder holds one share in the company and the percentage is calculated accordingly:

3. The Scheme Should be Fair and Reasonable. Even on the face of the fact that a scheme of compromise or arrangement was approved by the requisite majority and without coercion on minority, the Court is not bound to confirm the scheme.

There is no doubt that the Court will be strongly influenced by a big majority vote”

provided the scheme is fair and equitable. The Court will not itself judge the commercial merits of the compromise or arrangement, which is the function of the class itself. But, the Court should not be taken to be a mere rubber stamp. The Madras High Court in Calicut Bank Ltd. V s. Devani Ammal AIR 1940 Mad. 621 observed “that the Court does not sit merely to see that the requirements of law have been complied with, nor does it simply register a resolution passed by the majority of shareholders or creditors. The

Court is bound to consider the proposal and decide whether they are fair and reasonable taking everything into consideration.”

Thus, if the Court concludes that there is “such an objection to it as that any reasonable man might say that he could not approve it”” then the Court may refuse to confirm the scheme. In a case where income tax or sales tax or similar other tax liability has arisen and has crystallised, the Court will not interfere in such a case so far as the incidence of tax on the company is concerned.

4. The Scheme Should be Bona Fide to Save the Company From Liquidation. I t should not be directed to set up a part or whole of the principal and interest of a particular class of its creditors:”

Powers of the Court

The Court has very wide powers in sanctioning or rejecting a scheme of compromise or arrangement. The Court shall have, inter alia, the following powers:

The Company may make an application by passing special resolution

For passing an order for investigation, it is not necessary that a proceeding be pending before the court, even a petition simplicitor can be entertained [Delhi Flour Mills Co. Ltd., In re (1975)].

It has been contended in several cases that the power and discretion of the Government were uncontrolled and the court could direct an investigation whenever it suspected that all was not well with the company, and it was not necessary for the petitioner to prove his allegations before the court for, he could prove them before the Inspectors. However, in Mrs. U.A. Sumathy Vs. Digvijay Chit Fund (P) Ltd. (1983), the High Court observed:

No doubt, clause (a)(ii) of Section 237 does not lay down what circumstances are to be proved before the Court and on what materials, the Court could act but that does not mean that meagre allegations are sufficient. A Court can act only on the materials placed before it and those materials should at least be such as to satisfy the Court that a deeper probe into the company’s affairs is desirable in the interest of the company itself.

back of Securities) Rules 1999.

(vii) The operation of buy-back must be completed within 12 months from the date of special resolution in this regard.

(vi i i) The securitiesshares bought shonld be phY5ically destroyed without seven days from the completion of buy-back process [Sec. 77 A

(7»).4. Buy-hack from Whom. A company can buy-back its own securities

shares for the following

(i) from existing shareholders on a proportionate b

(i i) from open market,

(iii) from odd lots i.e. the holding of shares which is listed on a recognised stock exchange’ and which is less than a marketable lot. e.g. .

(iv) From employees to whom sharessecurities have been issued under the Employees Stock Option plan or ‘sweat equity’.

A private company or a public unlisted company can buy-back securities! shares from (0) existing shareholders ona proportionate basis through private

offers, and (h) purchasing securities issued to employees of the company pursuant to a scheme stock-option sweat equity.

5. No Re-issue ifter Buy-back [Sec. 77A (8)]. After completion of buy-back. the company cannot i:;;sue the same kind of sharessecurities within 24

mClJ1ths fr0111 the date of completion of buy-back. Allotment of rights issue renounced by members is also not pennissible within this period. However.

the following arc permitted-(a) bonus issue. (b) discharge of subsisting obligation such as conversion of warrants, (c)stock option scheme, (d) sweat

equity, (e) conversion of preference shares or debentures into equity shares. () issue of securities of other class i.e” other than one which was bought

as security for loans unlike the uncalled capital

it as security for loans unlike the uncalled capital. Moreover, reserve capital cannot be turned into ordinary capital without leave of the court nor it can be

cancelled in reduction of capital (Natal Land Company T(” Paulin Colliery Syndicate). It must however, be noted that reserve capital of a

company is different from its capital reserve which is always created out of company’s profit.

the directors cannot issue the new shares at their discretion. Because. if it is allowed, they may aIrot the new shares to their relatives, friends or their

nominees. Section 81. therefore, lays down that such shares must be offered to the existing equtiy shareholders of the company in proportion. as nearly

as the circumstances admit, of the shares held by them. This restriction is applied only when a public company proposes to increase its subscribed

capital by allotment ‘of further shares (whether equity or preference). after the expiry of two years from the incorporation of the company or after the expiry

of one year from the first allotment of shares, whichever is earlier.

When a company is to increase its authorized capital to accommodate the further issue of capital. then as per Sec. 94, a sanction ofthe shareholders in

the general meeting is required by passing an ordinary resolution after the board’s resolution.

exemptions and privileges available to a private company

The minimum number of members to form a private company is two.Such a company must add the words 'private limited' at the end of its name. A private company enjoys certain exemptions and privileges under the Act which are given below. The exemptions and privileges available to a private company, as provided in the Act are as follows:
1. Only two persons are sufficient to form a private company. (Section12).
2. A private company may start business immediately after its incorporation. There is no need of certificate of commencement of business.(Section 149).
3. At the time,of getting the company incorponlted with the Registrar of companies, the directors are not required to file with the Registrar their consent in
writing to act in that capacity and their undertaking to take up qualification shares, if any [Section 266 (5)].
4. A private company is not required to issue or file a prospectus or statement in lieu of prospectus with the Registrar of Companies. (Section 70).
5. It can proceed to allot shares without having to wait for any such thing as 'minimum subscription' . (Section 69). The reason is that a private company is not required to offer shares to the public.
6. It needs not to have an index of members. (Section 151).
7. A private company has not to hold a statutory meeting or file a statutory report. (Section 165).
8. It is not required to offer new shares to existing shareholders in proportion to their shareholdings. (Section 81).
9. A private company need to have a minimum of two directors only [Sec. 252 (2)].
10. All the directors may be appointed by a single resolution.
II. The directors of a private company need not to retire by rotation(Sec.255), i.e. they can be permanent life directors.
12. Directors of a private company can vote on a contract in which they arc interested. (Sec. 300) .
13. Only two persons can constitute the quorum for the meeting of a private company. [Section 174 (1)].
14. In case of a private company, poll ca!l be demanded by one person present in person or by pro"y, if not more tban seven persons are present; I. These may he Tgarded as advantages of private companies over puhlic companies.if the number of members present is more than seven, two members present in person or by proxy can demand a poll [Sec. 179 (1) (a)].
15. It can give financial assistance directly or indirectly for purchase or subscription of its own shares.
16. The provisions of Sees. 85 to 89 as to kinds of share capital (Sec.85), new issue of share capital (Sec. 86), Voting rights (Sec. 87), issue of new issue of share with disproportio:1ate voting rights (Sec. 88) and termination of disproportionately excessive voting rights in existing comt>anies (Sec. 89), do not apply to a private company.
17. If the Articles provide otherwise, the provision of Sections 171 to 186 of the Companies' Act, 1956, shall not apply to general meetings of private companies. (Section 170).
18. If a private company refuses to register a transfer or transmission of shares, the aggrieved person cannot appeal to the Company Law Boardfor battledress. (Section 111). .
19. The Balance Sheet and Profit and Loss Account of an independent private company filed with the Registrar cannot be inspected by general. public(Section 220).
20. A private company is exempted from many provisions of the Act relating to directors, managing directors or manager. These exemptions are given below:
(i) Directors are not required to file withal tile Registrar, within 30 days of their first appointment, their consent in writing to act as such director [Section 264
(3)].
(ii) A private company may, by its articles, provide additional disqualifications for appointment of directors. [Sec. 274 (3)]
(iii) The appointment, re-appointment and remuneration of whole-time or managing director does not require permission of the Central Government (Sections 268 & 198).
(iv) No restrictions on loan to directors apply to such a company. (Section 295).
(v) The restrictions imposed by the Companies' Act regarding tile remuneration of directors are not applicable to a private company, nor it is required to
obtain sanction of ilie Central Government to increase h remuneration of directors. (Section 309, 310).
(vi) The Company Law Board has no power to prevent changes inboard of Directors (Section 409). .
(vii) The restriction on period of appointment of a managing director/manager (5 years in case of a public company) does not apply touch a company
(Sec. 317).
(viii) No restriction on the number of companies to be managed by a(15 in case of public companies) or by a managing director(two companies in case of
public companies) or by a manager (two companies in case of public companies) apply to such a company (Sees. 275, 316 and 386).
21. It can make inter-corporate loans and investment without any limits or restrictions (Sec. 372A).

Company and main feauters of company

Explain. Or 'A company is a legal person distinct from its members taken individually or collectively' comment on tbe statement. In general, the term
'Company' means a voluntalY as!':odation of persons for some common purpose. The purpose may be to cal1'Y on for profit or some charitable or social
actiYlty without profit motive. legal entity or persona All incorporated company may be defined as "an artificial person,created by law having a perpetual
succession and a common seal." In other words, a company is defined as an association of persons, registered under the law having a distinctive name,
recognised as a separate legal entity, with a common capital contributed by the members and comprising transferable shares of a fixed denomination,
carrying limited liability, and having a continuous existence and a common seal. "An incorporated company is a totally different person or tbing or entity
from its members-tbe individuals comprising it". Explain and illustrate.' Or Like a natural person, a company can enter into contracts, and sue and be sued


in its own name, but unlike a buman being, you cannot sbake it by bands, or knock it down in a fit of temper, as it is inanimate and bas no pbysical shape
or form. Comment. Or A sbareholder of a company has no in Urable interest in its property.