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Saturday, December 29, 2007

Issue of share warrants to bearer (Section 114)

A ‘share warrant’ is a document issued by a public company stating that its bearer is entitled to the shares specified therein. It is transferable by mere

delivery and is a substitute for the share certificate. It will be interesting to know that a share warrant is a negotiable instnnnent.

A public company limited by shares may convert its fully paid-up shares into share warrants. One great advantage of issuing warrants is that shares can

be transferred by mere delivery of tbe warrant. Tbe registration of the transfer of shares in such a case with tbe company is

not necessary. .

Follmvjng ure the legul I)rovisions us to the validity of I shure

wurnmt (Section 114) : . .

I. It must bave the common seal of tbe company affixed on it.

2. It must be issued only in respect of fully paid sbares.

3. It 11111St specify tbe number of sbares.

4. It must state that its bearear is entitled to the shares specified in it. 5. It can be issued only by a public company limited by shares.

6. The Articles n1l1st have autborised the issue of share warrants. 7. The prior approval of tbe. Central Government must have been

obtained for the issue of share warrant. .

Remedies Against the Company

1. Rescission of the Contract to hakc Shares. According to the Indian Contract Act, a contract induced by a mis-statement of any material fact, either innocent or fraudulent. is voidable at the option of the aggrieved party. The subscriber (i.e.. a person who takes shares by allotment directly from the company). therefore, is entitled to rescind his contract and return the shares and receive back his money. If necessary, he may apply to the court for a declaration of rescission of the contract.

To avail this right, the allotted must prove that. (0) the prospectus was issued by or on behalf of the company; or it was deemed to be a prospectus issued by the company by implicati011 us 64.

(h) there was a material misrepresentation off act. The misrepresentation of law or that of opinion does not entitle the allotted to avoid the tr’m<;action.

© The misrepresentation (whether innocent or fraudulent) must be material in the sense that it was one likely to influence the judgment of a reasonable man in deciding whether or not to take shares or debentures.

(d) Lastly, it must be proved that the subscriber has actually relied upon the str.tcment in question while applying for shares. Thus, where it is proved that the allottee did not read it or he knew that the statement was untrue or he made tlle investigation to verify the fact or purchased share’ in’ the open market he is not entitled to rescind the contract.

Thursday, December 27, 2007

legal significance of the 'registered office' clause in the Memorandum of Association

Discuss the legal significance of the 'registered office' clause in the Memorandum of Association. Indicate the steles to be taken by a compliancy to effect
change in the location of its registered office in different situations,
'Registered Office' Clause. This clause of 'memorandum of association' contains the name of the state in which the Registered Office of the company is to be situated. The situation of a company's registered office determines the domicile of the company. The domicile is important to detention the jurisdiction of the courts in which the legal actions are to be brought by or against the company.
Procedure for change of Registered Office. Change of registered office of a company implies a shift in the place of its registered office. Such a change can be of the following four types:
I. Change of registered office from one place to another within the sane city:
2. Change of registered office from one city to another but within the jurisdiction of another Registrar of Companies.
3. Change of registered office from one city to another but within the jurisdiction of the same Registrar of Companies.
4. Change of registered office from one State to another. The procedure for change of registered

statutory power conferred by Section 31 of the Companies Act

A company may alter its Articles of Association. It is a statutory power conferred by Section 31 of the Companies Act and therefore the company cannot
deprive itself of this power either by a provision in the articles or by a contract with the third party. Therefore, a provision in the articles that the original
articles would not be altered is bad in' law and therefore void
Thus, the Companies Act gives absolute power of alteration of its Articles to a company. However, the power to alter Articles by a company is subject to
certain restrictions. These restrictions are as follows:
1. The alteration must not be inconsistent with the revisions of the Companies Act or :my other Statute Sec. 31]. For example, an alteration to the Articles

cannot be made so as to increase the liability of any member . without his written consent because such alteration shall be contrary to
Sec.
4. Alteration must not be inconsistent with the alteration made by the Company Law Board. The company Law Board has power under Sections 397 and
398 to remedy oppression and mismanagement of the company by ordering alteration of Memorandum and Articles. If CLB has amended the Articles, the
company has no power to further amend the Articles which is inconsistent with the alteration made by the Company Law Board without its permission.
5. Certain provisions cannot be in the Articles altered except with the approval of the Central Government. For example, the conversion of a private
company into a public company needs Central government approval. Such provision cannot be altered by the company unless the primal of the Central
Government is obtained (Sec. 31).
6. The alteration must be made bona fide for the benefit of the compliancy as a whole and not for the benefit of a particular class of
shareholders Brown Vs. British Abrasive 1+!heel Co. Ltd.] Moreover, alteration made bona fide in the interest of the company must be valid even if it is
likely to affect the personal interest of some of the members adversely.
7. The '.Iteration must not constitute a formed on the minority, euthenics it will he void being OIJIJ restive to them .Meier Vs. Hooper's Telegraph 1forks]
8. The dictation must not result in a breach of contorts with outsiders. Such an alteration shall be void and the company shall be liable to pay damages to
the other party Southern Foundries Ltd. Vs. Shirley]. For example. a director has been appointed under the Articles at Rs. 5000 p.m. under al)
independent service contract. Now the company cannot alter the Articles to reduce his remuneration to Rs. 2000 p.m. under the contract.
9. The amended regulation in the articles cannot 0IJerate retrace)ecth'ely, but only from the date of amendment Ware Lal Sharma Vs. Managing
Director, .J & K Industries LId.].
10. Once the alteration is made, it shall have effect as if originally contained in the Articles. The altered Articles will bind the members just in the same
way as did the original Articles. The altered Articles may again be altered by passing a special resolution. Alteration of Articles (Sec. 31]. Being internal
regulations, Articles can be altered freely by the company. The right to alter or add to the Articles is expressly conferred by Sec. 31 of the Companies Act.
Articles may be altered by the company, as often as required by passing a special resolution only. The copy of the resolution together with the printed
copy of the altered Articles must be filed with the Registrar within 30 days of the passing of resolution. The alteration win be detective from the date of
registration of alteration by the Registrar, The power of the company to.alter the Articles is a statutory power. An
alteration cannot deprive the company of this statutory power either by inserting a clause in the Articles or by entering into a contact with anyone
Where the alteration has the effect of converting a public company into a private company, an application (in Form lB) should be made to the Central
Government for approval within three months from the date when the special resolution was passed. After such an alteration has been approved by the
Centre) Government, a printed copy of the Articles as altered must be filed with the Registrar within one month of the date of receipt of the order of
approval Section 31 (2A»).