Dr. Pardeep Singh Walia.

Transcription

1 Dr. Pardeep Singh Walia

2 SYLLABI AND COURSES OF READING FOR B. COM. SECOND YEAR PAPER-1 : COMPANY LAW AND AUDITING UNIT-I Company Meaning, Features, Types, Promotion and Registration, Preliminary contracts, Memorandum of Association, Articles of Association. Prospectus, Shares and Share Capital, Directors, Borrowing powers (excluding debentures), Members, Meetings (including Board Meetings). UNIT-II Definition and Objectives of Auditing, Classes of Audit, Internal Check and Internal Audit, Internal Control, Distinction between Audit and Investigation : Audit Program, Audit Evidence, Introduction to statements of standard audit practices. Vouching, Verification of Assets and Liabilities, Company Auditors Appointment, Removal, Rights, Duties and Liabilities, Auditor s Report. Practical Work : Audit report preparation. Procedure of opening a new company, Practical Training about notice of meeting, Agenda, Quorum, Proxy, Reports, Minutes of meeting, Resolutions, Share Certificates, Share Warrant. The teacher should use simulation method and will hold at least One Statutory Meeting, One Annual General Meeting, One Extra-ordinary Meeting and One Board Meeting.

3

4

5

6

7

8

9

10

11

12 Company is not a Citizen A Company is a Legal Person, although Artificial. It can hold property, can sue and be sued in its own name. A Company has a domicile, nationality and residence. (Registered Office Clause) But there is no provision in the Companies Act or in Indian Constitution expressly conferring citizenship on a company.the Citizenship Act,1955, denies citizenship to associations or body of individuals as they are not persons for the purpose of this Act.

13 Lifting of Corporate Veil The general rule is that a company is distinct from its members. (Saloman Vs. Saloman & Co. Ltd.) This Rule of separate Legal Entity is regarded as a Veil or shield between the company and its members ; shielding members from the liabilities of company. But when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime the law will not regard the company as a separate legal entity. The circumstances under which the court may lift the corporate veil are discussed under two heads: Common Law Exceptions (Established by Court) Statutory Exceptions (Given under Law)

14 Common Law Exceptions 1. Determination of Character: A company may assume an Enemy Character when persons in de facto control are residents in any enemy country or wherever the residents are acting under the control of enemies.

15 2. Where company is a sham : The court will lift the veil where company is a mere sham i.e. where the device of incorporation is used for some illegal or improper purpose. Case Study : P.N.B. Finance Vs Shital Prashad (1983) A person borrowed money from a company and invested it in three different companies in which he and his son were the only members. The lending company was permitted to attach the assets of all the three companies as the companies were created to hoodwink the lending company.

16 3.Prevention of Fraud & Improper Conduct: The court will refuse to uplhold the separate existence of the company where it is formed for a fraudulent purpose or to avoid legal obligations. Case: Gilford Motor Co. Ltd. Vs Horne

17

18

19

20 Statutory Exceptions 1. Investigation into the Affairs of the Company: Sec-219 If an inspector is appointed under section 210 or 212 or 213 of the Companies Act 2013 to investigate the affaires of the company, he has the powers to investigate also the affairs of any other related company in the same management.

21 2. Failure to refund application money : Sec-39(3) Where the Minimum Subscription (90% of subscription) has not been received within 30 days of issue of prospectus, all money received should be returned. If the money is not returned within 45 days after the issue of the prospectus then every director shall be jointly and severally liable to repay the amount with 15 % per annum from the expiry of 45 the day.

22 3. Company not mentioned on Bill of Exchange: (Section 147) Where an authorized person signs on behalf the company a Bill of Exchange, Promissory Note, Cheque, or Order for money or goods and the name of the company is not fully or properly mentioned, The person becomes personally liable, unless the amount is paid by the company.

23 4. Group Accounts: (Section 212): In the eyes of law Holding Company and its Subsidiary Companies enjoy separate legal entities. But Where at the end of the financial year, a company having subsidiaries, must not only lay its own account in AGM but also a set of Group Accounts showing the profit earned or loss suffered by the holding company and its subsidiaries collectively and their collective state of affairs (Balance sheet)

24 5. Fraudulent Trading : (Section 339) If at the time of winding up it may appear that some business was conducted fraudulently or with an intention to defraud creditors or any other person, The court may declare that any persons who were knowingly parties to such fraud are personally liable to an unlimited extent for all or any of the debts and other liabilities of the company.

25 6.Misrepresentation in prospectus: Sec-34 In case of misrepresentation in prospectus, every director, promoter and every other person who authorizes the issue of the prospectus incurs liability towards those who subscribe for shares on the faith of untrue statements contained therein.

26 7. Fraudulent Conduct of Business-Sec 339 If in the course of the winding up of a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the Tribunal, on the application of the Official Liquidator, or the Company Liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct