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3.1 The internal regulations of the Company are contained in the Articles of Association (hereinafter ‘the Articles’). A copy of the articles of association is annexed hereto as Annexure 4¹.

3.2 The regulations contained in Table ‘A’² to the Act, shall not apply to the Company except as adopted by the articles.

3.3 The articles authorise the Company to issue shares at a premium or at par or subject to the provisions of section 79 of the Act³, at a discount and “to give to any person the option to call for or be allotted any shares either at par or at a premium during such time and for such consideration as the Board thinks fit”.

(Article 11)

3.4 Certain restrictions are placed on the transfer of shares to a person who is not a member of the Company. Therefore, a member desirous of selling his shares shall offer the same to the existing members at the first instance by giving a notice to the Board of Directors (Article 23 to Article 27 contain the procedure

1. For a company limited by shares, the amount of the share capital with which the Company is to be registered is called the authorised capital, which must be stated in the Memorandum. The Authorised capital sets the limit of capital available for issue and the issued capital can never exceed that limit. [Section 13 (4) of the Companies Act].

for transfer of shares to non-members). However, such restrictions as contained in Articles 20 to 25 and Article 27 shall not apply to transfer of shares to existing members or to a person selected by the Board and in certain other cases (Article 28).

3.5 Article 29 provides that “the Directors may, in their absolute and uncontrolled discretion and without being bound to give any reason, refuse to register transfer of any share”¹. Articles 31 to 34 contain the procedure as to transfer of shares.

3.6 The provisions relating to joint holders of a share are contained in Article 42.

3.7 Article 45 provides, that any General Meeting (annual or extra ordinary) of the Company may be called by giving not less than 7 days notice in writing². However, a General Meeting³ may be called by giving a shorter notice than 7 days⁴.

3.8 Article 46 provides, that “where any special business¹ is to be transacted at a general meeting, no explanatory statement need to be annexed to the notice of the meeting”. The Article excludes the applicability of section 173(2)².

3.9 To constitute a quorum for a General Meeting, two members are required to be present in person³.

1. Under section 9 of the Act, any provision contained in the memorandum, articles, Agreement or Resolution to the extent to which it is repugnant to the provisions of this Act become or be void, as the case may be.

2. As per section 28 of the Companies Act, the Articles of Association of a company limited by shares may adopt all or any of the regulations contained in Table A in Schedule I.

3. Section 79 of the Act:

(1) A Company shall not issue shares at a discount except as provided in this Section.

(2) A Company may issue at a discount shares in the company of a class already issued, if the following conditions are fulfilled, namely—

(i) the issue of the shares at a discount is authorised by a resolution passed by the company in a general meeting, and sanctioned by the Company Law Board;

(ii) the resolution specifies the maximum rate of the discount at which the shares are to be issued;

(iii) not less than one year has at the date of the issue elapsed since the date on which the company was entitled to commence business; and

(iv) the shares to be issued at a discount are issued within two months after the date on which the issue is sanctioned by the Company Law Board or within such extended time as the Company Law Board may allow.

(3) Where a company passes a resolution authorising the issue of shares at a discount, it may apply to the Company Law Board for an order sanctioning the issue; and on any such application the Company Law Board, if, having regard to all the circumstances of the case, it thinks proper so to do, may make an order sanctioning the issue on such terms and conditions as it thinks fit.

(4) Every prospectus relating to the issue of the shares shall contain particulars of the discount allowed on the issue of the shares or of the shares or of so much of that discount as had not been written off at the date of the issue of the prospectus.

3.10 The Articles provide as under with respect to voting rights of members⁴: (a) Upon a show of hands or on poll, every member present in person or the proxy shall be entitled to vote in proportion to his share of the paid-up equity capital viz. he shall have one vote for one equity share.

(b) In the case of equality of votes, the Chairman of the General Meeting shall, have a second or casting vote, both on show of hands and on a poll, in addition to the vote/votes to which he may be entitled as a member. (Article 52)

(c) Article 53 provides that a member can only appoint another member as a proxy to attend and vote instead of himself. Article 53 contains the provisions relating to Proxies⁵.

3.11 Unless otherwise determined in a General Meeting, the Company is

1. Section 111 of the Companies Act, deals with power to refuse registration and appeal against refusal:

If a Company refuses, whether in pursuance of any power of the Company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the rights to, any shares or interest of a member in, or debentures of, the Company, it shall within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to a Company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal to the transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Company Law Board against any refusal of the Company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1) either to register the transfer or transmission or to send notice of its refusal to register the same.

2. Section 171(1) of the Act

Length of notice for calling meeting: A general meeting of a company may be called by giving not less than twenty one days notice in writing.

The said provisions are not applicable to private companies unless otherwise specified in its Articles (Section 170).

3. Section 166 of the Act:

(1) Every company shall in each year hold in addition to any other meeting, a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a Company and that of the next.

4. Section 171(2) of the Act:

A general meeting may be called after giving shorter notice than that specified in sub section (1), if consent is accorded thereto:

(i) in the case of an annual general meeting, by all the members entitled to vote thereat;

and

(ii) in the case of any other meeting, by members of the company (a) holding, if the company has a share capital, not less than 95 per cent of such part of the paid up share capital of the company as gives a right to vote at the meeting, or (b) having, if the company has no share capital, not less than 95 per cent of the total voting power exercisable at that meeting.

required to have not less than two and not more than seven Directors (Article 59).

No qualification by way of holding shares is required of any Director (Article 63).

The Directors are empowered to fill up a casual vacancy or as an addition to the Board. A Director so appointed shall hold office up to the date up to which the Director in whose place he is appointed would have held office if it had not been vacated. Any Director appointed as Additional Director shall hold office only up to the date of the next Annual General Meeting but shall be eligible for re-appointment at such meeting (Article 62).

3.12 The provisions of sections 255¹ and 256² of the Act shall apply to appointment and retirement by rotation of Directors (Article 60).

3.13 The meeting of Board of Directors shall be held once in every three months and at least four such meetings shall be held every year¹. (Article 66(b)) 3.14 Article 67 provides as under with respect to quorum for a Board Meeting:

“a. The quorum for a meeting of the Board of Directors shall be one-third of the total strength of the Board of Directors (any fraction contained in that one-third being rounded off as one) or two Directors, whichever is higher.

1. Under section 173(1)

In the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exception of business relating to:

(i) the consideration of the accounts, balance sheets and the reports of the Board of Directors and auditors,

(ii) the declaration of the dividend,

(iii) the appointment of directors in the place of those retiring, and (iv) the appointment of and the fixing of the remuneration of the auditors.

2. Section 173(2):

Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular, the nature of concern or interest,

A private company, which is not a subsidiary of a public company, may exclude the application to itself of the provisions of section 173(2).

3. This is in accordance with section 174(1) of the Act.

Section 174(1):

(1) Unless the articles of the company provide for a larger number, five members personally present in the case of a public company (other than a public company which has become such by virtue of section 43A) and two members personally present in the case of any other Company, shall be the quorum for a meeting of the Company.

4. Section 41 of the Companies Act defines ‘Members’ as:

(1) the subscriber of the memorandum of a Company shall be deemed to have agreed to become members of the Company, and on its registration, shall be entered as members in its register of members.

(2) every other person who agrees in writing to become a member of a Company and whose name is entered in its register of members, shall be a member of the Company.

5. Section 176 of the Act deals with proxies. The said section applies to the Company with such modifications as stated in the clause to Articles 53.

b. For the purpose of clause (a) ‘total strength’ means the total strength of the Board of Directors of the Company as determined in pursuance of the Act after deducting therefrom the number of the Directors, if any, whose places may be vacant at the time.”

3.15 Powers of Directors are contained in Articles 70 to 75². Clause 21 of Article 70 empowers the Board to delegate its powers, authorities and discretions to any person, firm, company or fluctuating body of persons.

3.16 Article 79 provides as under with respect to the inspection of accounts, books and documents of the Company:

“(1) The Board of Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or

1. Section 255 of the Act:

Appointment of directors and proportion of those who are to retire by rotation (1) Unless the articles provide for the retirement of all the directors at every annual

general meeting, not less than two-thirds of the total number of directors of a public company, shall—

(a) be persons whose period of office is liable to determination by retirement of directors by rotation; and

(b) save as otherwise expressly provided in this Act, be appointed by the Company in a general meeting.

(2) The remaining directors in the case of any such Company, and the directors generally in the case of a private company which is not a subsidiary of a public Company, shall, in default of and subject to any regulation in the articles of the Company, also be appointed by the company in general meeting.

2. Section 256 of the Act:

Ascertainment of directors retiring by rotation and filling of vacancies

(1) At the first annual general meeting of a public company, or a private company which is a subsidiary of a public company held next after the date of the general meeting at which the first directors are appointed in accordance with section 255 and at every subsequent annual general meeting one-third of such of the directors for the time being as are liable to retire by rotation, or if their number is not three or a multiple of three, then, the number nearest to one-third, shall retire from office.

(2) The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any Agreement among themselves, be determined by lot.

(3) At the annual general meeting at which a director retires as aforesaid, the Company may fill up the vacancy by appointing the retiring director or some other person thereto.

(4) (a) If the place of the retiring director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place.

(b) If at the adjourned meeting also, the place of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless—

(i) at that meeting or at the previous meeting a resolution for the reappointment of such director has been put to the meeting and lost;

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regulations the accounts and books of the Company or any of them shall be open to the inspection of members not being Directors.

(2) No member (not being a Director) shall have any right of inspecting any books of account or documents of the Company except as conferred by law or authorised by the Board or by the Company in general meeting.”

3.17 The provisions relating to Dividends are contained in Regulations 85 to 94 of the Table ‘A’ in the First Schedule to the Act.

4. Directors

4.1 At present, the Company has four Directors. A List of Directors of the Company is annexed hereto as Annexure 5.

4.2 A copy of the list of shareholders as of ..., is annexed hereto as Annexure 6.

4.3 List of companies in which the Directors are interested is annexed hereto as Annexure 7.

5. Agreements

5.1 Certain charges are required to be registered with the Registrar of Companies within 30 days of making the charge¹.

5.2 The Company has maintained a Register of Charges².

5.3 An Equitable Mortgage was created in respect of Company’s immovable property, ... on ... for Rs. ...(amount) for credit facilities in favour of ... (bank). The charge was modified subsequently and presently the amount of charge has been enhanced to Rs. ...(amount).

5.4 The Company entered into a Hypothecation of Goods Agreement dated

(ii) the retiring director has, by a notice in writing addressed to the company or its Board of Directors, expressed his unwillingness to be so re-appointed;

(iii) he is not qualified or is disqualified for appointment;

(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act;

1. Section 285 of the Act:

In the case of every Company, a meeting of its Board of Directors shall be held at least once in every three months and at least four such meetings shall be held in a year.

2. Section 292 of the Act

Certain powers to be exercised only at Meetings:

(1) The Board of Directors of a Company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:

(a) the power to make calls on shareholders in respect of money unpaid on their shares;

(b) the power to issue debentures;

(c) the power to borrow money otherwise than on debentures;

(d) the power to invest the funds of the Company; and (e) the power to make loans.

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..., with ... Bank for credit facilities wherein a charge of Rs. ...(amount) was created on existing and future plant and machinery installed/to be installed at the premises of the Company at ... or elsewhere. By a Supplemental Agreement dated ..., the credit limit was enhanced to Rs. ...(amount) as and by way of second modification.

5.5 Under the Agreement for Hypothecation of Movable Assets dated ..., a charge of Rs. ...(amount) was created on one gluer machine installed at Company premises at ... or elsewhere for term loan facility for the purchase of machinery. The aforesaid term loan is repayable by monthly instalments of Rs. ...(amount) per month, commencing from ... until the loan account is fully adjusted.

5.6 Under the Hypothecation of Goods Agreement dated ..., with ... (bank) for banking facilities a charge of Rs. ...(amount) was created on existing and future plant machinery installed/to be installed at the premises of the Company at ... or elsewhere. By way of Hypothecation of Assets Agreement for Cash Credit/Overdraft/Demand Loan Facility dated ..., the credit limit was enhanced to Rs. ...(amount) as and by way of first modification.

5.7 An equitable mortgage of the Company’s immovable property at ... was created on ..., for Rs. ...(amount) in favour of the ... (bank). The charge was modified on ..., and the credit limit was enhanced to Rs. ...(amount).

5.8 The Company entered into an Agreement for Hypothecation of Movable Assets to secure a Term Loan of Rs. ...(amount) dated ..., for

1. Section 125 of the Act deals with charges, which includes a mortgage. Section 125(4) applies to the following charges:

(a) a charge for the purpose of securing any issue of debentures;

(b) a charge on uncalled share capital of the Company;

(c) a charge on any immovable property, wherever situate, or any interest therein;

(d) a charge on any book debts of the Company;

(e) a charge, not being a pledge, on any movable property of the Company;

(f) a floating charge on the undertaking or any property of the Company including stock-in-trade;

(g) a charge on calls made but not paid;

(h) a charge on a ship or any share in a ship;

(i) a charge on goodwill, on a patent or a licence under a patent, on a trade mark, or on a copyright or a licence under a copyright.

2. Section 143(1): Every company shall keep at its registered office a register of charges and

2. Section 143(1): Every company shall keep at its registered office a register of charges and