CORPORATE LAWS AND

PRACTICES
Cases for Practice- Version 1

Amitav Deb Nath ACA

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Corporate Law and Practices
Cases for Practice

Question 1
The Memorandum of Association of a company was signed by two adult members and by a
guardian of the other five minor members, the guardian signing separately for each minor
member. The Registrar registered the company and issued under his hand a Certificate of
Incorporation. The plaintiff contended that (al conditions of registration were not duly
complied with, and (b) that there were no seven subscribers to the Memorandum. Will
the Court uphold his contention?

Answer
Yes, (being a fundamental right under the Constitution of Bangladesh to go for legal
proceedingsl the registration of the company can be challenged but it will not in any way
affect or cancel the registration of the company and the Memorandum and Articles.

As per provision of the Companies Act 1994, the Memorandum and Articles shall, when
registered, bind the company and the members thereof, to the same extent as if they
respectively had been signed by the company and by each member, and contained
covenants on its and his part to observe all the provisions of the Memorandum and of the
Articles.

Question 2
The Directors of a company registered and incorporated in the name "Star Textile Ltd."
desire to change the name of the company entitled "National Textiles and Industries Ltd."
Advice as to what procedure is required to be followed under the Companies Act, 1994?

Answer
Change in the name ofcompany:
In the first instance, Star Textile Ltd., should ascertain from the Registrar of Companies
whether the proposed name viz. National Textiles and Industries Ltd. is available or not. For
this purpose, the company should file the prescribed Form with the Registrar along with the
necessary fees. The Registrar after examination will inform whether the new name is
available or not for registration.

In case the name is available, the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd. Thereafter the approval of the
Registrar of Companies should be obtained as provided in Section 11(5) of the
Companies Act, 1994. Thus, the company has to file an applicahon along with the prescribed
filing fee for change of name. The change of name shall be complete and effective only on
the issue of a fresh certificate of incorporation by the Registrar. The Registrar shall enter
the new name in the Register in place of the former name 11(7). The change of name shall
not affect any rights or obligations of the company and it shall not render defective any legal
proceedings by or against it.

Question 3
XY Ltd. has its registered office at Kawranbazar, Dhaka. For better administrative
conveniences the company wants to shift its registered office from Dhaka to Raishahi. What
formalities the company has to comply with under the provisions of the Companies Act,
1994 for shifting its registered office as stated above? Explain.

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Answer
The Companies Act, 7994 under section 12 provides for the process of altering the
Memorandum of a company. Since the location or Registered Office clause in the
Memorandum states that the registered office is situated in Dhaka, a change in address from
Kawranbazar, Dhaka to Raishahi, results in the alteration of the Memorandum and hence
the provisions of section 12 apply in this case.

However, under section 12(3] of the Act which deals with the change of registered office of
company must be approved by a special resolution of the company following high court
permission in this regard.

Question 4
RSP Limited, with a limited liability of its members by guarantee of Tk.L0 lac to each
member. The company increases the liability of the members from Tk.l0 lac to Tk.15 lac by
an alteration made in the liability clause ofthe Memorandum ofAssociation through is BoD
meeting. Referring to the provisions of the Companies Act, 1994 decide, whether the
members of the company are liable for the increased liability.
Answer
The limitation of liability is an essential clause in the Memorandum and on
registration of the company becomes binding on all present and future members. The
present question states that the liability of the members has been increased by the
company without clari$/ing the mode. The company can act only through its Board of
Directors or through its members. The Board of Directors does not have the authority to
alter the clause. However, section 12 of the Act which deals with the alteration of the
Memorandum provides guidelines for the alteration of its liability clause.

A limited liability company of its members by guarantee is formed under the section 7 of the
Act. A liability clause is considered as a condition ofMemorandum ofAssociation hence it is
required to get High Court's sanction before altering the liability clause.

Hence, the alteration of the liability clause by the BoD is invalid.

Question 5
The Articles ofAssociation of a Limited Company provided that'X' shall be the Law Officer
of the company and he shall not be removed except on the ground of proved misconduct.
The company removed him even though he was not guilty of misconduct. Decide, whether
company's action is valid?

Answer
Section 17 of the Companies Act 1994 states that the Articles of a company contain
the regulations for the management of a company. Further section 17 provides that the
Articles of a company shall contain all matters that are prescribed under the Act and also
such additional matters as may be considered necessary for the management of the
company.

Removal of Law Officer:

The Memorandum and Articles ofAssociation ofa company are binding upon company and
its members and they are bound to observe all the provisions ofmemorandum and articles
as ifthey have signed the same [Section 5]. However, the company and members are not
bound to outsiders in respect of anything contained in memorandum/articles by which
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such outsiders have been given any rights. This is based on the general rule of law that a
stranger to a contract cannot acquire any right under the contract.

In this case, Articles conferred a right on'X', the law officer that he shall not be removed
except on the ground of proved misconduct. In view of the legal position explained above,
'X' cannot enforce the right conferred on him by the articles against the company. Hence the
action taken by the company (i.e. removal of 'X' even though he was not guilty of
misconduct) is valid. However, by altering the Articles by a special resolution under section
20 of the Act and Mr. X can be removed.

Question 6
ABC Company Ltd. is holding 450lo of total equity shares in XYZ Company Ltd. The Board of
Directors ofXYZ Company Ltd. (incorporated on fanuary 7,2012) decided to raise the share
capital by issuing further Equity shares. The Board of Directors resolved not to offer any
shares to ABC Company Ltd, on the ground that it was already holding a high percentage of
the total number of shares already issued, in XYZ Company Ltd. The Articles of Association
ofXYZ Company Ltd. provides that the new shares be offered to the existing shareholders of
the company. On March 1, 2012 new shares were offered to all the shareholders except ABC
Company Ltd. Referring to the provisions of the Companies Act, 1994 examine the validity
of the decision ofthe Board ofDirectors ofXYZ Company Limited of not offering any further
shares to ABC Company Limited.

Answer
The legal issues in the presented problem in the question are covered under Section 155 of
the Companies Act, L994. Section 155(1) (a) ofthe Companies Act,1994 provides that il at
any time, a company having a share capital proposes to increase its subscribed capital
by the issue of further shares, such shares should be offered to the existing equity
shareholders of the company as at the date ofthe offer, in proportion to the capital paid up
on those shares. The company cannot ignore a section of the existing shareholders and must
offer the shares to the existing equity shareholders in proportion to their holdings.

As per facts of the case, the articles of XYZ company Ltd. provided that the new shares
should first be offered to the existing shareholders. However, the company offered new
shares to all shareholders excepting ABC Company Ltd., which held its controlling shares. lt
was held that XYZ Company Ltd. had no legal authority under the Companies Act to do so.

Therefore, in the given case, XYZ Ltd.'s decision not to offer any further shares to ABC Co.
Ltd on the ground that ABC Co. Ltd already held a high percentage of shareholding in XYZ
Co. Ltd. is not valid for the reason that it is violating the provisions of Section 155 (1) (a).

Question 7
Mr. Aftab, who is a resident of Dhaka, sent a transfer deed, for registration of transfer of
shares to the company at the address of its Registered Office in Chittagong. He did not
receive the shares certificates even after the expiry of two months from the date of dispatch
of transfer deed. He lodged a criminal complaint in the court at Dhaka. Decide, under the
provisions of the Companies Act, 1994, whether the Court at Dhaka is competent to take
action in the said matter?
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Answer
Jurisdiction of Court, now Tribunal, the Companies Act, 79941

According to Section 38 of the Companies Act, 7994 every company, shall deliver the
certificates of all shares transferred within a period of one month from the date of receipt
by the company of the instrument of transfer.

Further under section 38(5) Where any default is made in complying with the provisions of
sub-sections (1) to [a] of section 38 the company shall be liable to a fine not exceeding one
hundred taka for everyday during which the default continues and every director, manager
secretary other officer who is knowing by a party to the default shall, be liable to a like
penalty.

In the given case, the court in Dhaka is competent to take action in the matter.

Question 8
Mr. 'Y', the transferee, acquired 250 equity shares of Beximco Limited from Mr. 'X', the
transferor. But the signature of Mr. 'X', the transferor, on the transfer deed was forged. Mr.
'Y'after getting the shares registered by the company in his name, sold 150 equity shares to
Mr. 'Z' on the basis of the share certificate issued by Beximco Limited. Mr. 'Y' and 'Z' were
not aware of the forgery. State the rights of Mr. 'X', 'Y' and 'Z' against the company with
reference to the aforesaid shares.
Answer
According to Section 31 of the Companies Act, 1994, a share certificate once issued under
the common seal, if any, of the company speciffing any shares or stock held by any member
shall be prima facie evidence of the title of the member to the shares or stock therein
specified. Therefore, in the normal course the person named in the share certificate is for all
practical purposes the legal owner ofthe shares therein and the company cannot deny his
title to the shares.

However, a forged transfer is a nullity. lt does not give the transferee (YJ any title to the
shares. Similarly any transfer made by Y (to Z) will also not give a good title to the shares as
the title of the buyer is only as good as that of the seller. Therefore, if the company acts on a
forged transfer and removes the name of the real owner (X) from the Register of Members,
then the company is bound to restore the name ofX as the holder of the shares and to pay
him any dividends which he ought to have received.

In the above case, 'therefore, X has the right against the company to 8et the shares recorded
in his name. However, neither Y nor Z' have any rights against the company even though
they are bona fide purchasers.

However, since X seems to be the perpetrator of the forgery, he will be liable both
criminally and for compensation to Y and Z.

Question 9
A company refuses to register transfer of shares made by Mr. X to Mr. Y. The company does
not even send a.notice ofrefusal to Mr. X. or Mr. Y respectively within the prescribed period.
Has the aggrieved party any right(s) against the company for such refusal? Advise as per the
provisions ofthe Companies Act, 1994.

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Answer
Refusal of registration and appeal against refusal:
The problem as asked in the question is governed by Section 38 ofthe Companies Act, 1994
dealing with the refusal to register transfer and appeal against refusal.
ln the present case the company has committed the wrongful act of not sending the notice
of refusal of registering the transfer of shares.
Under section 38(4), if a company without sufficient cause refuses to register the transfer of
securities, the transferee and the transferor may, within a period of one month of such
refusal.

In the present case, the company shall be liable to a fine not exceeding one hundred taka for
everyday during which the default continues and every director, manager secretary other
officer who is knowing by a party to the default shall, be liable to a like penalty.

Question 10
A General Meeting was scheduled to be held on 15th April, 2018 at 11.00 A.M. As per the
notice the members who are unable to attend a meeting in person can appoint a proxy and
the proxy forms duly filled should be sent to the company so as to reach at least 48 hours
before the meeting. Mr. X, a member of the company appoints Mr. Y as his pro>ry and the
proxy form dated 10-04-2018 was deposited by Mr. Y with the company at its registered
Office on 7L-04-2018. However, Mr. X changes his mind and on 12-04-2018 gives another
proxy to Mr. Z and it was deposited on the same day with the company.

Similarly, another member Mr. W also gives two separate proxies to two individuals named
Mr. M and Mr. N. In the case of Mr. M, the proxy dated 12-04-2018 was deposited with the
company on the same day and the proxy form in favour of Mr. N was deposited on 14-04-
2018. All the proxies viz., Y, Z, M and N were present before the meeting.

According to the provisions of the Companies Act, 1994, who would be the persons
allowed to represent at proxies for members X and W respectively ?

Answer
A Proxy is an instrument in writing executed by a shareholder authorizing another
person to attend a meeting and to vote thereat on his behalf and in his absence. As per the
provisions of Section 85 of the Companies Act, 1994, every shareholder who is entitled to
attend and vote has a statutory right to appoint another person as his proxy. It is not
necessary that the proxy be a member of the company. Further, any provision in the
articles of association of the company requiring instrument of proxy to be lodged with the
company more than 48 hours before a meeting shall have effect as if 48 hours had been
specified therein. The members have a right to revoke the proxy's authority by voting
himself before the proxy has voted but once the proxy has voted the member cannot retract
his authority.

Where two proxy instruments by the same shareholder are lodged in respect of the same
votes before the expiry of the time for lodging there the proxies, the second in time
will be counted and where one is lodged before and the other after the expiry of the date
fixed for lodging proxies, the former will be counted. Thus, in case of Member X, the proxy Z
(and not Proxy Y) will be permitted to vote on his behalf. However, in the case of Member
W, the proxy M (and not Proxy N) will be permitted to vote as the proxy authorizing N to
vote was deposited in less than 48 hours before the meeting'

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Question 11
The Articles of Association of X Ltd. require the personal presence of 7 members to
constitute quorum of General Meetings. The following persons were present in the extra-
ordinary meeting to consider the appointment of Managing Director:
i. A, the representative of Ministry of Commerce, Bangladesh Government
ii. B and C, shareholders ofpreference shares
iii. D, representing Y Ltd. and Z Ltd.
iv. E, F, G and H as proxies ofshareholders.
Can it be said that the quorum was present in the meeting?

Answer
Quorum: In this case the quorum for holding a general meeting is 7 members to be
personally present. For the purpose of quorum, only those members are counted who are
entitled to vote on resolution proposed to be passed in the meeting.

Again, only members present in person and not by proxy are to be counted. Hence, proxies
whether they are members or not will have to be excluded for the purposes of quorum.

If a company is a member of another company, it may authorize a person by resolution to

act as its representative at a meeting of the latter company, then such a person shall be
deemed to be a member present in person and counted for the purpose of quorum Where
two or more companies which are members of another company, appoint a single person
as their representative then each such company will be counted as quorum at a
meeting of the latter company.

Further Ministry of Commerce, Bangladesh Government, if he is a member of a company,

may appoint such a person as he thinks fit, to act as his representative at any meeting of the
company. A person so appointed shall be deemed to be a member of such a company and
thus considered as member personally present.

In view of the above there are only three members personally present. 'A' will be included
for the purpose of quorum. B & C have to be excluded for the purpose of quorum because
they represent the preference shares and since the agenda being the appointment of
Managing Director, their rights cannot be said to be directly affected and therefore, they
shall not have voting rights. D will have two votes for the purpose of quorum as he
represents two companies 'Y Ltd.'and 'ZLtd.'E, F, G and H are not to be included as they are
not members but representing as proxies for the members.

Thus, it can be said that the requirements of quorum has not been met and it shall not
constitute a valid quorum for the meeting.

Question 12
The Annual General Meeting of KMP Limited was held on 30'h April, 2016. The Articles
of Association of the company is silent regarding the quorum of the General Meeting. only 4
members were personally present in the above meeting, out of the total2,750 members of
the company. The Chairman adjourned the meeting for want of quorum. Referring to the
provisions of the Companies Act, 1994, examine the validity of Chairman's decision.

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Answer
Quorum: Quorum means the minimum number of members who must be present in order
t; constitute a meeting and transact business thereat. Thus, quorum represents the number
of members on whose presence the meeting Of a company can commence its deliberations.

Section 85 of the Companies Ac! 1994 provides the law with respect to the quorum for the
meetings. The said seition provides that where the Articles of the company do not provide
for a laiger number, there the quorum shall depend on number of members as on date ofa
meeting. In case of a public company, five members personally present shall be a quorum.

consequences of no Quorum: If the quorum is not present within half-an-hour from the
time appointed for holding a meeting of the company-
a. the meeting shall stand adjourned to the same day in the next week at the same
time and place, or
b. to such other date and such other time and place as the Board may determine; or
c. the meeting, if called by requisitions, shall stand cancelled.
In the instant case, KMP Limited is a public company with total number of 2,750
members, hence at least 5 members should have been personally present in order to
constitute a valid quorum for the Annual General Meeting.

Thus, the meeting shall automatically stand adjourned to the same day in the next week -at
the same time indplace, if the quorum is not present within half -an-hour from the
time appointed for holding a meeting of the company.

Question 13
ihe Annual General Meeting of ABC Limited declared a dividend at the rate of 30 percent
payable on paid up equitylhare capital of the Company as recommended by Board of
birectors on 30th April, ZOt7. Sut the Company was unable to post the dividend warrant.to
Mr. Rajon, an equity shareholder of the Company, up-to 30th lune,2017 ' Mr' Rajon filed a
suit against the co.prry for the payment of dividend along with interest at the rate of.20
p"...it p". ,nrr- i.o. iefault peri,od. Decide in the light of provisions of the Applicable
Acts, whether Mr. Raion would succeed? Also state the directors' Iiability in
this regard
under the AcL

Answer
As per Regulation 28(1) of Dhaka Stock Exchange (Listing) Regulations'
2015 Dated' the
within 30 (thirtyJ days of declaration.or
:Ott June,"ZOlS, the isiuer oflisted securities shall,
p"v dividend through transfer ofcash dividend to the bank ofthe securities
"pp.irrr, "nthe into the securities holder's account'
hoider for depositing
AgainasperRegulation2S(2)anissueroflisted.securities,whichmakesadefaultinbe
shall
co'mpryinj with Ihe provision of sub-regulation (1), respective director/officer
of 00 (five
f","ify t"'a severally liable to pry to ih" Exchange a penalty Taka 5'000
itrouiandl only for every day during the default continues'
interest as the
Therefore, in the given case Mr. Raian will not succeed in his claim
for 2oo/o

Iaw has no such regulations is this regard'

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Question 14
The Board of directors of B Ltd. has a practical problem. The registered office of the
company is situated in a bacla,rrard area of Gazipur. The Board wants to keep its books of
account at its corporate office in Dhaka which is conveniently located. The Board seeks your
advice about t}re feasibility of maintaining the accounting records at a place other than the
registered office ofthe company. Advice.
Answer
According to section 181[3) of the Companies Act, 1994, the books of account shall be kept
at the registered office of the company and shall at all times be open to inspection by
directors during business hours.

Provided that all or any of the book of account may, for a period not exceeding six months,
be kept at such other place in Bangladesh as the board of Directors may decide and when
the board of Directors so decides, the company shall within seven days of the decision, file
with the Registrar a notice in writing giving the full address of that other place.

Therefore, the Board of B Ltd. is empowered to keep its books of account at its corporate
office in Dhaka by following the above procedure.

Question 15
State the procedure for the following, explaining the relevant provisions of the Companies
Act,1994:
(i) Appointment of First Auditor, when the Board of directors did not appoint the First
Auditor within one month from the date of registration of the company.
(iD Removal of Statutory Auditor (appointed in last Annual General Meeting) before the
expiry of his term.
Answer
(i) Section 210[6] ofthe Companies Act, 1994 lays down that the first auditor ofa company
shall be appointed by the Board of Directors within 30 days of the registration of the
company and the auditor or auditors so appointed shall hold office until the conclusion of
the first annual general meeting.

As per section 210(61(b) ofthe Companies Act, 1994 ifthe Board of Directors fails to
exercise its powers, the company in a general meeting may appoint the first auditor or
auditors.
(ii) Section 210(9) ofthe Companies Act, 1994 lays down that any auditor appointed may be
removed from office before the expire of his term only by a special resolution of the
company in the general meeting.

Question 16
Mr. lqbal a qualified chartered Accountant was appointed as an auditor of AMC Limited at
the Annual General Meeting held on 30th April, 2076 by an ordinary resolution. Mr.
Sazzad,, a shareholder ofthe Company objects to the manner of appointment of Mr. Iqbal on
the ground ofviolation ofthe Companies Act 1994.
Decide, whether the obiection of Mr. Sazzad is tenable? Also examine the consequences of
the above appointment under the said Act.

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Answer
Under section 210 of the Companies Act, L994, the appointment of an auditor by a
company vests generally with the members of the company except in the case of the first
auditors and in the filling up of the casual vacancy not caused by the resignation of the
auditor, in which case, the power to appoint the auditor vests with the Board of Directors.
The appointment by the members is by way of an ordinary resolution only and no
exceptions have been made in the Act whereby a special resolution is required for the
appointment of the auditors.
Therefore, the contention of Mr. Sazzad is not tenable. The appointment is valid under the
Companies Act, 1994.

Question 17
EF Limited appointed an audit firm, Akhtar & Co., Chartered Accountants, as Auditors ofthe
company at the Annual General Meeting held on 30't'September,2077. Mrs. Selina, wife of
Mr. Akhtar Ahmed, fEngagement partner of the audit of EF Limited) invested in the equity
shares, face value of Tk.1 million of EF Limited on 15th October, 2017 . B\t Akhtar & Co
continues to function as statutory auditors ofthe company. Advice
Answer
Disqualifi cation of auditor:
According to section 112[2)(e) of the Companies Act, 1994, a person who is a director, or
the holder of shares exceeding five percent in nominal value of the subscribed capital, of any
body corporate which is the managing agent of the company shall be disqualified for
appointment as auditor ofa company.
In the case Mr. Akhtar Ahmed, Chartered Accountants, did not hold any such security. But
Mrs. Selina, his wife held equity shares of EF Limited of face value of Tk.1 million.

Considering the above case, there is no legal obligation in the Companies Act, 1994 for
appointment of audit firm where close family members are shareholders of the company.
Howevel as per recent Draft corporate Governance guideline issued by Bangladesh
Securities and Exchange commission, condition no# 11, External/statutory auditors shall
submit a signed and dated declaration annually to demonstrate their independence. In that
contex! th;re is an independence threat and the auditor shall be deemed to have vacated
his office of auditor from the date of investment.

Question 18
fhe auditor of a company refuses to make their report on the annual accounts of a company
before it is signed on behalfofthe Board ofdirectors. Advise the company'

Answer
The auditor is right. Theoretically, accounts are presented to auditors only after they are
approved by the-Board and signed by authorized persons. The auditor is only expected to
suimit his- report on the accounts presented to him for audit after conducting an
examination of th" ne."$rry documents, analyzing relevant information and test
checking accounting records in order to be able to form an opinion of the financial
.trt"-""rt present;d to him. In practice, the checking of accounts is already completed
before accounts are approved by the Aoard. Auditor informally approves the draft
account with notes eli., before the accounts are approved by the Board However'
auditor signs the accounts only after these are approved by Board and signed by
person authorized by Board of the company.

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Question 19
The Articles of Association of Rajshahi Toys Private Limited provide that the maximum
number of Directors in the company shall be 10. Presently, the company is having I
directors. The Board ofdirectors of the said company desire to increase the number of
directors to 16. Advise whether under the provisions of the Companies Act, 1994 the
Board of Directors can do so.

Answer
Under section 90 of the Companies Act, 1994 every company shall have a Board of Directors
consisting of individuals as directors and shall have a minimum number of 3 directors in the
case ofa public company, 2 directors in the case ofa private company.

Section 20 states that a company may appoint more than 15 directors afterpassinga
special resolution for alteration of articles of Association. From the provisions of section
90(1) as above, though the minimum number of directors may vary depending on
whether the company is a public company, private, the was no maximum number of
directors. In the given case since the number of directors is proposed to be increased
to 16, the company will be required to comply with the following provisions:
(i) Alter its Articles ofAssociation under section 20 ofthe Act, so as to increase the number
ofdirectors in the Articles from 10 to 16;
(ii)Approval shall also be taken to be authorized to increase the maximum number of
directors to 16 by means of a special resolution of members passed at a duly convened
general meeting ofthe company.

Question 20
ADI Limited has 10 directors on its board. Two of the directors have retired by rotation
at an Annual General Meeting. The place of retiring directors is not so filled up and the
meeting has also not expressly resolved 'not to fill the vacancy'. Since the AGM could not
complete its business; it is adiourned to a later date. At this adiourned meeting also the
place of retiring directors could not be filled up, and the meeting has also not expressly
resolved 'not to fill the vacancy'. Referring to the provisions of the Companies Act, 1994,
decide:
(i) Whether in such a situation the retiring directors shall be deemed to have been re-
appointed at the adjourned meeting?
[ii)What will be your answer in case at the adjourned meeting, the resolutions for re-
appointment ofthese directors were lost?
(iii)Whether such directors can continue in case the directors do not call the Annual
General Meeting?

Answer
Retiring director -When to be deemed director?
In accordance with the provision of the Companies Act, 1994, if at the annual general
meeting at which a director retires and the vacancy is not so filled up and the meeting has
not expressly resolved not to fiIl the vacancy, the meeting shall stand adiourned to same day
in the next weeh at the same time and place, or if that day is a national holiday, till the next
succeeding day which is not a holiday, at the same time and place.

Again, if at the adiourned meeting also, the place of the retiring 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 adiourned meeting, unless at the
adjourned meeting or at the previous meeting a resolution for the re-appointment of such

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directors was put and lost or he has given a notice in writing addressed to the
company and the Board of Directors expressing his desire not to be re-elected or he is
disqualified.

Therefore, in the given circumstances answer to the questions as asked shall be:
(i) In the first case, applying the above provisions, the retiring directors shall be deemed to
have been re-appointed.
(ii)ln the second case, where the resolutions for the reappointment of the retiring directors
were lost, the retiring directors shall not be deemed to have been re-appointed.
(iii) Section 91 states that 1/3rd of the rotational directors shall retire at every AGM.
They retire atthe AGM and atits conclusion. Hence, they will retire as soon as the AGM
is held.
Further, as per section 81 (dealing with annual General Meeting) of the Companies
Act, 1994, every company shall in each year hold an Annual General Meeting. Hence,
it is necessary for the company to hold the AGM, whereby these directors will be liable
to retire by rotation.

Question 21
Prince Ltd. desires to appoint an additional director on its Board of directors. The
Articles of the company confer upon the Board to exercise the power to appoint such
a director. As such M is appointed as an additional director. In the light of the provisions
of the Companies Act, 1994, examine:
(iJ Whether M can continue as director if the annual general meeting ofthe company is not
held within the stipulated period and is adjourned to a later date?
(ii) Can the power of appointing additional director be exercised by the Annual General
Meeting?
(iii) As the Company Secretary of the company what checks would you make after M is
appointed as an additional director?

Answer
Section 91 of the Companies Act, 1994 provides that the articles of association of a company
may confer on its Board of Directors the power to appoint any person, other than a
person who fails to get appointed as a director at the general meeting, as an additional
director at any time and such director will hold office up-to the date of the next annual
general meeting or the last date on which such annual general meeting should have been
held, whichever is earlier.
(i) M cannot continue as director till the adjourned annual general meetinS, since he
can hold the office of directorship only up to the date of the next annual general
meeting or the last date on which the annual general meeting should have been held,
whichever is earlier. Such an additional director shall vacate his office latest on the
date on which the annual general meeting could have been held under Section 81 of
the Companies Act, 7994. He cannot continue in the office on the ground that the
meeting was not held or could not be called within the time prescribed.
(ii) The power to appoint additional directors vests with the Board of Directors and
not with the members of the company. The only condition is that the Board must be
conferred such power by the articles of the company.
(iii) As a company secretary, I would put the following checks in place in respect of
M's appointment as an additional director:
a. He must not has been found to be of unsound mind by a competent court;
b. he is not an un-discharged insolvent;

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 c. He must have given his consent to act as director and such consent has been filed
with the Registrar within 30 days of his appointment;
d. His appointment is made by the Board of Directors;

Question 22
The Board of directors ofXYZ Ltd. filled up a casual vacancy caused by the death of Mr.
P by appointing Mr. C as a director on 3'd April, 201.6. Unfortunately Mr. C expired on
15th May, 2016 after working about 40 days as a director. The Board now wishes to fill up
the casual vacancy by appointing Mrs. C in the forthcoming meeting ofthe Board. Advise the
Board in this regard as per the provisions under the Companies Act, 1994.
Answer
Section 91(1)(c) of the Companies Act, 7994 provides that in the case of a public
company, if the office of any director appointed by the company in general meeting is
vacated before his term of office expires in the normal course, the resulting casual
vacancy may, in default of and subiect to any regulations in the articles of the company, be
filled by the Board ofDirectors at a meeting ofthe Board.
Provided that any person so appointed shall hold office only up to the date up to which the
director in whose place he is appointed would have held office ifit had not been vacated.
In view of the above provisions, in the given case, the appointment of Mr. C in place of the
deceased director Mr. P was in order. In normal course, Mr. C could have held his office as
director up to the date to which Mr. P would have held the same. However, Mr. C expired on
15th May, 2 016 and again a vacancy has arisen in the office of director owing to death of Mr.
C who was appointed by the board to fill up the casual vacancy resulting from P's
demise. Vacancy arising on the Board due to vacation of office by the director appointed to
fill a casual vacancy in the first place, does not create another casual vacancy such
vacancy is created by the vacation of office by any director appointed by the company
in general meeting. Hence, the Board cannot fill in the vacancy arising from the death of Mr.
C.

The Board may however appoint Mrs. C as an additional director, provided the articles
of association authorizes the board to do so, in which case Mrs. C will hold the office up
to the date of the next annual general meeting or the last date on which the annual general
meeting should have been held, whichever is earlier.

Question 23
Mr. Doubtful was appointed as Managing Director of carefree lndustries Ltd. for a period of
five years with effect from 7.4.1994 on a salary of 12 lakhs per annum with other
perquisites. The Board of directors of the company on coming to know of certain
queitionable transactions, terminated the services ofthe Managing Director from 1.3.2016.
Mr. Doubtful termed his removal as illegal and claimed compensation from the company.
Meanwhile the company paid a sum of 5 lakhs on ad hoc basis to Mr. Doubtful pending
settlement of his dues. Discuss whether:
(i) The company is bound to pay compensation to Mr. Doubtful and, if so, how much'
[i1 fn" company can recover the amount of 5 lakhs paid on the ground that Mr. Doubtful
is not entitled to any compensation, because he is guiding of corrupt practice'

Answer
According to section 111 of the companies Act, 7994, compensation can be paid only to a
Managin[, Whole-time Director or Manager. Amount of compensation cannot excecd the
,".ri".ition which he would have earned if he would have been in the office for the

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 {r-t9<
unexpired term of his office or for 3 years whichever is shorter. No compensation shall be
paid, if the director has been found guilty of fraud or breach of trust or gross negligence in
the conduct of the affairs ofthe company.

In light of the above provisions of law, the company is not liable to pay any
compensation to Mr. Doubtful, if he has been found guilty of fraud or breach of trust or
it is not proper on the part of
gross negligence in the conduct ofaffairs ofthe company. But,
the company to withhold the payment of compensation on the basic of mere allegations.
The compensation payable by the company to Mr. Doubtful would be 25 Lacs calculated at
the rate of 12 Lacs per annum for unexpired term of 25 months.
Regarding adhoc payment of 5 Lacs, it will not be possible for the company to
recover the amount from Mr. Doubtful in view of the decision in case of Bell vs. Lever
Bros. [1932) AC 161 where it was observed that a director was not Iegally bound to disclose
any breach of his fiduciary obligations so as to give the company an opportunity to
dismiss him. In that case the Managing Director was initially removed by paying him
compensation and later on it was discovered that he had been guilty of breaches of duty
and corrupt practices and that he could have been removed without compensation.

Question 24
Mr. P and Mr. Q who are the directors of the Company informed the Company their
inability to attend the meeting because the notice of the meeting was not served on them.
Discuss whether there is any default on the part of the Company and the consequences
thereof.
Answer
Under section 95 of the Companies Act, 1994 a meeting of the Board shall be called by
giving notice in writing to every director at his address registered with the company
and such notice shall be sent by hand delivery or by post or by electronic means.

In the given case as no notice, was served on Mr. P and Mr' Q who is the directors of
the company, thus, under section 173[4J every officer of the company responsible for the
default shall be punishable with fine of 25,000.
The companies Act, 1gg4 does not lay down any specific provision regarding the validity of
a resolution passed by the Board of Directors in case notice was not served to all the
directors as siipulated in the Act. We shall have to go by the provisions of the Act which
clearly provide for the notice to be sent to every director failing which the resolutions
passed will be invalid. The Supreme court of India, in case of Parmeshwari Prasad vs.
ijnion of India (1974J has held that the resolutions passed in the board meeting shall
not be valid, since notice to all the Directors was not given in writing. Notice must be given
to each director in writing. Hence, even though the directors concerned knew about the
meeting, the meeting shall not be valid and resolutions passed at the meeting also
shall not be valid.
Question 25
.i di."ato. goes abroad for a period of more than 3 months and an alternate director has
been appoiited in his place under section 101. During the period of absence of the original
director, a board meeting was called. In this connection, with reference to the provisions of
the companies Act, 1gg4, advice that should the notice of Board meeting is given to the
"original director" or to the "alternate director"?

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Answer
According to Section 101 of the Companies Act, 7994, the Board of Directors of a
company may, if so authorized by its articles or by a resolution passed by the company in
general meeting, appoint a person, not being a person holding any alternate directorship for
any other director in the company, to act as an alternate director for a director during
his absence for a period of not less than three months from Bangladesh.

There is no legal precedence whether the notice of the meeting is to be sent to the original
director or the alternate director. But as matter of prudence the notice of the meeting
may be served to both the alternate director as well as the original director who is for the
time being outside Bangladesh.

Question 26
Mr. KMP is director of XLS Ltd. He intends to construct a residential building for his own
use. The cost ofconstruction is estimated at 1.50 Crores, which Mr. KMP proposes to finance
partly from his own sources to the tune of 60 lacs and the balance 90 lacs from
housing loan to be obtained from a housing finance company. For the purpose of
obtaining the loan, he has approached the housing finance company which has in
principle agreed to grant the loan, but has put a condition. The condition put by the housing
finance company is that the Company XLS Ltd. of which Mr. KMP is a director should
provide the guarantee for repayment of the Ioan and interest as per the terms of the
proposed agreement for granting the loan to Mr. KMP. You are required to advise Mr. KMP
on the matter with reference to the provisions ofthe Companies Act,1994.

Answer
According to section 104 of the Companies Act, 1994, no company shall, directly or
indirectly, advance any loan, to any of its directors or to any other person in whom the
director is interested or give any guarantee or provide any security in connection with any
loan taken by him or such other person.

Thus, guarantee by Company XLS Ltd. of which Mr. KMP is a director, for repayment ofthe
loan and interest as per the terms ofthe proposed agreement is not allowed.

Further if any loan is advanced or a guarantee or security is given or provided in

contravention ofthe above provisions, the company shall be punishable with the fine which
extend to five thousand taka or simple imprisonment for six months in lieu of fine and shall
be liable jointly.

Question 27
Mr. X, who was appointed as a Director ofthe company, failed to obtain qualification shares
within the specified time limit. State the Iegal position in this circumstance.
Answer
A share qualification is a specified number of shares, which a person must hold in the
company to qualiff him for appointment as a director of the company. The shareholding
qualification for directors may by fixed by the company is general meeting and unless until
so fixed no qualification shall by required.

when a qualification is imposed, a director not already qualified must obtain his
qualification within two months of his appointment or the shorter time fixed by the articles.
Ii a director fails to obtain his qualification within appropriate period, or if he thereafter
stop/discontinue/ ceases to hold it, his office is vacated.

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Question 28
What are the legal formalities required to be completed by a public company under the
companies Act 7994 after incorporation but before the commencement of business in case
no prospectus has been issued.

Answer
If the company does not issue a prospectus, a statement in lieu of prospectus must be filed
and issued most ofthe information which would be required in the prospectus in the form
prescribed in the schedule IV & V which make the issue of statement in lieu of prospectus
obligatory is that which no prospectus is issued.

Question 29
A & B are the only shareholders of A & B Trading Company Limited. Both ofthem died in a
road accident. What shall happen to the shares of A and B and the fate of A & B Trading
Company Limited?

Answer
A & B Trading Company Limited will not be dissolved with the death of the member as the
main characteristic of a limited company is that the Company has a perpetual succession or
indefinite life. It is iurisdic person with a common seal. It can sue or be sued. It can hold or
dispose off any moveable and immoveable assets. The legal representative ofthe deceased
member can be the member of the Company by transmission of shares.

Question 30
A company was incorporated in December, 2004. Due to an error; regulations relating to
the conduct of meetings of members were not included in the Articles of Association
submitted by the Company to the Registrar of )oint Stock Companies for registration. How
can the members' meeting would be regulated in the absence of such regulations in the
company's Articles? Can such regulations be included now in the Articles ofAssociation and,
ifso, how and what will be the status' ofsuch addition?

Answer
Regulations relating to the absence ofthe Articles
As per Section-18 of Companies Act 7994 the Company will conduct the meeting of its
member which shall be governed as per the regulation contained in the "Schedule-L"
The company can change the Article of Association by passing a special resolution as
contained in Section-Z0 subject to the limitations as specified in Section-85 and
Memorandum of Association.

Question 31
Is there any difference between loan defaulter and Non-performing loan? Please discuss
whether any non-performing loan is eligible for Ioan.

Answer
Defaulter Debtor means any debtor person or organization or company whose loans or
advances or any other financial benefits is overdue for 06 months. Non-performing loan
means loans classified as Sub-standard, Doubtful and Bad/Loss. A loan is overdue for equal
or above 6 months is classified as Doubtful whereas a loan is overdue for 3- 6 months is
classified as sub-standard. In this context a non performing loan classified as sub-standard
is eligible for loan.

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