Unsolved_Practical Problems_1

ARIHNAT Ltd company incorpoated in India, want to start FM Radio services and for the same purpose company wants to allott certain shares to USA company for providing technology for starting radio services....Advice the board of directors of company what steps or formalities are required to be observed in this regard if it is allowed under the FEMA ? What maximum number of shares can be issued to foreign company ? Which kind of shares can be issued ?

Companies Act_practical problems_10

A group of promoters approach you for advise regarding the formation of a Guarantee Company. Advise them briefly about the types of organizations for which it is suitable to form a Guarantee Company and the advantages that can be derived by registering a Guarantee Company

A company limited by guarantee means a company which, by its memorandum of association, restricts the liability of its members to a certain fixed amount, for payment of the debts and liabilities of the company in the event of its winding up. A past member shall not be liable to contribute if he had ceased to be a member for 1 year or upwards before the commencement of the winding up. Further, a past member shall not be liable in respect of any debt or liability of the company contracted after he ceased to be a member.

A guarantee company may also have a share capital, wherever necessary. In that event, the members will be liable for the amount, if any, remaining unpaid on the shares subscribed by them, in addition to the above guaranteed amount.

A guarantee company has all the features of a limited company except those related to liability of members, as explained above.

A guarantee company has all the features of a limited company except those related to liability of members, as explained above.

A guarantee company is a convenient from of organization for associations such as clubs, chambers of common trade associations, societies set-up for carrying on charitable work incorporated under section 25. The advantages of a guarantee company are as follows :

(i) A guarantee company is an incorporated body having a legal personality, perpetual succession and a common seal. It can own property, enter into contracts, can sue and can be sued by others.

(ii) Unless a guarantee company also has a share capital, the liability of the members arises only in the event of its winding up.

Companies Act_practical problems_9

As per provisions of the Companies Act, 1956, what is the status of XYZ Ltd., a company incorporated in London, U.K., which has a share transfer office at Mumbai ?

As per section 591, a company shall be a foreign company if –

(a) it is incorporated outside India; and
(b) it has established a place of business in India.

The answer to the given problem is as follows :

(i) A share transfer office or share registration office constitutes a place of business (Section 602). Since, the company incorporated outside India has a share registration office at Bombay, it is clear that the company has established a place of business in India and is therefore a foreign company.

(ii) In this case, Indian citizens have formed a company outside India. Since, the company has not established any lace of business in India, the company cannot be said to be a foreign company. The fact that Indian citizens have formed a company in a foreign country is immaterial in deciding whether the company is a foreign company or not.

Companies Act_practical problems_8

ABC Ltd. a foreign company having its Indian principal place of business at Kolkata, West Bangal is required to deliver various documents to registrar of companies under the provisions of the Companies Act, 1956. You are required to state, where the said company should deliver such documents.

As per section 597, all the returns and documents required to be delivered to the registrar by a foreign company shall be sent to –

(a) the registrar of companies; New Delhi; and
(b) the registrar of the State in which the principal place of business of the company is situated.

However, fees in respect of filing of documents is to be paid only at the registrar of companies, New Delhi.

Companies Act_practical problems_7

The aggregate shareholding of nationalized Banks, LIC and IDBI exceeded 55% of the paid up share capital of the company.

LIC and IDBI are the corporations owned by the Central Government, which hold 55% of the paid up share capital of the company. Therefore, the appointment of auditors will be made by the Comptroller and Auditor General of India and the remuneration of auditors shall be determined in the general meeting.w will the auditors of the company be appointed.

Companies Act_practical problems_6

The paid up share capital of AJD Limited is Rs. 10 crores consisting of 70 lakhs equity shares of Rs. 10 each fully paid-up and 30 lakhs preference shares of Rs. 10 each, fully paid up. Nationalised Banks, LIC and IDBI hold among themselves 30 lakhs equity shares and 25 lakhs preference shares. With reference to the provisions of the Companies Act, 1956, examine whether AJD Limited is a Government company. Explain the manner in which you would proceed in the matter of appointment of auditors for the said company.

The paid up share capital of AJD Limited is Rs. 10 crores (Paid up capital includes both equity share capital and preference share capital). Rs. 5.5 crores of paid up share capital of AJD Limited is held by Nationalised banks, LIC and IDBI. However, no share in AJD Limited is held by the Central Government or any State Government and therefore AJD Limited is not a Government company.

LIC and IDBI are the corporations owned by the Central Government, which hold more than 51% of the paid up share capital of AJD Limited. Therefore, the appointment of auditors of AJD Limited will be made in the same manner in which auditors of a Government company are appointed, i.e., the appointment of auditors shall be made by the Controller and Auditor General of India and the remuneration of auditors shall be determined in the general meeting.

Companies Act_practical problems_5

M/s Rao & Rao, a firm of chartered accounts have to be appointed as the auditors of M/s ABC Co. Ltd., a Government company. Explain the steps to be taken regarding the appointment and payment of remuneration to the auditors.

The provisions of section 619 are explained as under :
1. Appointment of auditor
The auditor of a Government company shall be appointed or re-appointed by the Comptroller and Auditor-General of India (CAG). However, the limits specified in sub-section (1B) of section 224 shall apply, i.e., the auditor can conduct the audit of a maximum of 20 companies out of which not more than 10 companies shall have a paid up capital of Rs. 25 lakhs or more.

2. Remuneration of auditor
The remuneration of the auditor of a Government company shall be fixed by the shareholders in general meeting. Alternatively, the shareholders may determine the manner in which the remuneration shall be fixed.

3. Directions by CAG
The CAG has the power –
(a) to direct the manner in which the accounts shall be audited;
(b) to give instructions to the auditor regarding conduct of the audit; and
(c) to appoint a person to conduct a supplementary or test audit of the company’s accounts.

4. Audit report
The auditor shall submit a copy of his audit report to the CAG who shall have the right to comment upon or supplement the audit report in such manner as he may think fit.

Any such comments or supplement shall be placed before the annual general meeting of the company at the same time and in the same manner as the audit report.

However, while preparing the Board’s report, the Board is not required to give any information or explanation in respect of comments or supplement made by CAG, since there is no such requirement under section 217 or any other provision of the Act.