CHRIST (Deemed to be University), Bengaluru – 560 029

School of Business and Management

MID SEMESTER EXAMINATION – March 2023
UG III Semester-Answer Scheme

Programme Name: BBA Max. Marks: 50

Course Name: Corporate Law and Governance
Time: 2 Hrs
Course Code: BBA 435
SECTION A

1a. What is Corporate Veil? In what condition can it be pierced.?

Meaning (2 marks)

The Corporate Veil Theory is a legal concept that separates the identity of the company
from its members. Hence, the members are shielded from the liabilities arising out of the
company’s actions. Therefore, if the company incurs debts or contravenes any laws, the
members are not liable for those errors and enjoy corporate insulation. In simpler words, the
shareholders are protected from the acts of the company.

Piercing Corporate Veil (Any 3 with points explained briefly)

1] To Determine the Character of the Company

2] To Protect Revenue or Tax
3] If trying to avoid a Legal Obligation
4] Forming Subsidiaries to act as Agents
5] A company formed for fraud or improper conduct or to defeat the law

1b. A company incorporated under the Companies Act 2013 never dies except when it is wound
up as per the law. Comment

Students should be able to identify the feature “Perpetual succession” (I mark)

Meaning (2 marks)

In company law, perpetual succession is the continuation of a company’s/corporation’s or other

organization’s existence despite the death, retirement, bankruptcy, insolvency, insanity, change in
membership or an exit from the business of any owner or member, or any transfer of stock etc.

Explanation (2 marks)

An incorporated company never dies except when it is wound up as per law. A company, being a
separate
legal person is unaffected by the death or departure of any member, and it remains the same entity,
despite the total change in the membership. Perpetual succession means that the membership of a
company may keep changing from time to time, but that shall not affect its continuity. The
membership of an incorporated company may change either because one shareholder has
sold/transferred his shares to another or his shares devolve on his legal representatives on his death, or
he ceases to be a member under some other provisions of the Companies Act. Thus, perpetual
succession denotes the ability of a company to maintain its existence by the succession of new
individuals who step into
the shoes of those who cease to be members of the company.

2a..“A scientific whistle-blower of a company will enhance the glory of good corporate
governance. “Is it true? Substantiate the statement in the context of elements of good
governance.

Yes, the given statement is true. (1 mark)

As per Sec.177 of the Companies Act 2013, companies must establish Vigil/Whistle-blowing
mechanism to report any unethical behavior or other concerns to the management. (2mark)

Justifying it in the context of 4 elements of Corporate Governance ( 2marks)

 Accountability. ...
 Transparency. ...
 Fairness. ...
 Responsibility.

2b.“Majority has its way, but the minority has its say.” Discuss the statement regarding
shareholders’ rights under the company act 2013.

The statement should be explained for shareholders’ rights and Veto rights.
Shareholders Right (3 marks- Any 3 points briefly explained)
1. Appointment of directors
2. Legal action against directors
3. Right to appoint the company auditors.
4. Voting rights
5. Right to call for general meetings
6. Right to inspect registers and books
7. Right to get copies of financial statements
8. Winding up of the company
9. Dividend

Veto Rights (2 marks)

Veto rights are a legal arrangement that does not allow the investors to take decisions on behalf of the
majority shareholders unilaterally. However, at the same time, they allow the minority shareholders to
unilaterally prevent the implementation of any decision the majority stakeholder makes.

3a.” The introduction of one person company in the Company Act 2013 was a game changer.
Examine this statement by highlighting the definition and features of OPC.
Meaning (2 marks)
According to Section 2 (62) of the Companies Act 2013, One Person Company is a company that
has only one person as a member.
It is incorporated as a private company that has only one member. Therefore, a corporation can be
registered with only one shareholder or member. The main aim of One Person Company was to
encourage the corporatization of micro-businesses and entrepreneurship.
Any three characteristics briefly explain how OPC is a game changer. (3 marks)
Features of a One-Person Company
1. Private Company
2. Single-Member
3. Nominee
4. No Perpetual Succession
5. Minimum One Director
6. No Minimum Paid-up Share Capital
7. Special Privileges

3b.” If legitimacy is to be restored to the system, the chain of accountability must be made more
effective.” In light of the above statement, list down the recommendations from Kumar
Mangalam Birla Committee 2000 on corporate governance. (Any five recommendations ----
1*5=5marks)
The Securities and Exchange Board of India (SEBI) 1999 set up a committee under Shri Kumar
Mangalam Birla, a member SEBI Board, to promote and raise the standards of good corporate
governance.
The committee's primary objective was to view corporate governance from the perspective of the
investors and shareholders and prepare a ‘Code’ to suit the Indian corporate environment.
The committee divided the recommendations into two categories: mandatory and non-mandatory.
Mandatory Recommendations
 The mandatory recommendations apply to the listed companies with paid-up share capital of 3
crores and above.
 Composition of the board of directors should be the optimum combination of executive & non-
executive directors.
 Audit committee should contain three independent directors with one having financial and
accounting knowledge.
 Remuneration committee should be set up
 The Board should hold at least four meetings in a year with a maximum gap of 4 months
between 2 meetings to review operational plans, capital budgets, quarterly results, and minutes
of the committee’s meeting.
  Director shall not be a member of more than ten committees and shall not act as chairman of
more than five committees across all companies
 Management discussion and analysis report covering industry structure, opportunities, threats,
risks, outlook, and internal control system should be ready for external review
 Any Information should be shared with shareholders in regard to their investments.
Non-Mandatory Recommendations
The committee made several recommendations with reference to:
 Role of Chairman
 Remuneration committee of the board
 Shareholders’ right to receive half-yearly financial performance.
 Postal ballot covering critical matters like alteration in memorandum
 Sale of the whole or substantial part of the undertaking
 Corporate restructuring
 Further issue of capital
 Venturing into new businesses

Section-B

4a. “Memorandum of association contains the essential clauses usually described as the
conditions of the company’s incorporation.” Discuss the memorandum of association clauses in
light of the above observation.
(Explanation of the Statement: 2 marks, Definition of MoA: 2 marks, Each clause with a
brief explanation: 6*1mark=6 marks, )

Definition of Memorandum of Association

“The memorandum of association of a company is the charter and defines the limits of
the power of the company established under the Act”.
Thus, a Memorandum of Association is a document that sets out the company’s constitution It clearly
displays the company’s relationship with the outside world. It also defines the scope of its activities.
MoA enables the shareholders, creditors, and people who have
dealing with the company in one form or another to know the range of activities.
According to the Companies Act, the Memorandum of Association of a company must contain
the following clauses:
(i) Name Clause of Memorandum of Association
(ii) Situation Clause
(iii) Registered Office
(iv) Object Clause
(v) Liability Clause
(vi) Capital Clause.
 4b Write an essay on the evolution of Corporate Governance in India.
Introduction (2 marks)
History (2 marks)
Committees (2 marks)
The trajectory of changes in the regulation of CG (2marks)
Present Status (2 marks)

Governance was not on the agenda of Indian Companies until the early 1990s, and no one would find
many references to this subject in the book of law till then. In India, weaknesses in the system, such as
undesirable stock market practices, boards of directors without adequate fiduciary responsibilities,
poor disclosure practices, lack of transparency, and chronic capitalism, were all crying for reforms and
improved governance. The most important initiative of 1992 was the reform of the Securities and
Exchange Board of India (SEBI). The main objective of SEBI was to supervise and standardize stock
trading, but it gradually formed many corporate governance rules and regulations. An industry
association, the confederation of Indian industry, initially drove the initiative in India. In December
1995, CII created a task force to design a voluntary corporate governance code. The final draft of this
code was widely circulated in 1997. In April 1998, the code was released. It was called Desirable
Corporate Governance – A Code. Between 1998 and 2000, over 25 leading companies voluntarily
followed the code – Bajaj Auto, Infosys, BSES, HDFC, ICICI, and many others.

In India, the CII took the lead in framing a desirable corporate governance code in April 1998. The
recommendations of the Kumar Mangalam Birla Committee on corporate governance followed this.
This committee was appointed by SEBI. SEBI accepted the recommendations in December 1999 and
they are now enshrined in Clause 49 of the listing agreement of every Indian Stock Exchange.

Companies (Amendment) Bill, 2003, which contained several important provisions relating to
corporate governance

The enactment of the Companies Act 2013 was a major development in corporate governance in
2013. The new Act replaces the Companies Act 1956 and aims to improve corporate governance
standards simplify regulations, and enhance the interests of minority shareholders.

5a.“The Central Government introduced the Investor Education and Protection Fund (IEPF) to
protect investors’ interests and promote awareness.” Discuss the provision of Unpaid dividends
in the Company Act 2013 and the role of IEPF.
(3 marks for the meaning of Unpaid dividend+ seven marks for IEPF)
When a company fails to distribute dividends to shareholders after they have been announced, such
dividends are called unpaid dividends. Such dividends are needed to be claimed by shareholders
within 30 days of the declaration of such dividends. Such dividends are kept in a separate unpaid
dividend account. .
Investor Education and Protection Fund, commonly known as IEPF, promotes investors’ awareness
and protection of their interests. It is utilized for the followings:
  Refund of unclaimed dividends, matured debentures, matured deposits, and application money
due for refund and interest.
 Promotion of investor education, protection, and awareness
 Distribution of disgorged amount among eligible and identifiable applicants for shares or
debentures, debenture-holders, shareholders, or depositors who have suffered losses because of
any other person, as per the court’s order of disgorgement
 Reimbursement of all legal expenses incurred in pursuing the class action suit under Sections
245 and 37 by members, debenture-holders or depositors as sanctioned by Tribunal
 Any other purpose incidental thereto, in accordance with such rules as prescribed, that the
investor whose amounts as mentioned under Clauses (a)-(d) of Sub-section (2) of Section 205C
is transferred/sent to Investor Education and Protection Fund (IEPF), after the period of seven
years expires, according to the Companies Act, 1956, is entitled to get a refund from the
Investor Education and Protection Fund in respect of such claims as per the rules made under
this Section.

5b. “Companies Act 1956 has been revamped and modernized in Company 2013. “Explain any
five salient features of the Companies Act 2013
(Any 5 points with a detailed explanation or 10 points with a brief explanation… 5* 2
marks/10*1=10 marks)
Highlights of Companies Act, 2013
 Concept of one person company
 More than 30 new definitions
 Prescribes uniform financial year
 Private companies- maximum 200 members
 Object clause of MOA- main, ancillary, other objects
 Unspent money (public issue)- cannot be used unless a special resolution
 Requirement of a detailed prospectus
 Empowered SEBI to prescribe classes of companies can file shelf prospectus (ROC)
 GDR- a special resolution
 Buy back of shares- fairly liberalized provisions
 NBFCs- governed by RBI
 Switching over to electronic media- documents
 NACAS(National Advisory Committee on ASs) – NFRA (National Financial Reporting
Authority)
 CSR
 One woman director
 1/3rd – independent directors
  Resignation copy of director-ROC
 At least 4 meetings in a year (gap between 2 not exceed 120 days)
 Political contribution limit- from 5% to 7.5%
 Loan – not include debentures
 Needs government approval for;
 Loan to directors by company
 To enter RPT
 Appointment of any director
 Definition for fraud- punishment
 Fraud by director, KMP, officer- government can file it to tribunal (it can not be stopped or
stayed)
 Submission of auditors certificate-mandatory
 Company law board- NCLT
 Class action suit – initiated by shareholders against company
 Registered valuer- evaluates company’s assets
 Revival and rehabilitation of sick companies
 Nidhi companies – borrowing/lending money b/w their members
 Mediation or conciliation panel
 Insider trading & price sensitive information
 Dormant Company
 Electronic filing
Section C
Case Study
Introduction of the case (2 marks)
What, according to you, are the governance issues involved in this case? (4marks)

 There was the oppression of minority shareholders.

 Control remained with the family.
 Abuse of a few Articles by Tata Sons and control of Tata Trust over the board of Tata Sons,
which they alleged to be an unethical corporate government practice.
 Articles of Association of Tata Sons came under Specific challenge.
 Ownership structure
 Conflict between the interest of the Promoter and the Company.
What do you think was the cause of conflict between Ratan Tata and Mistry, despite the strong
support extended by Ratan Tata initially.?(4 marks)
Based on Student’s perception (Indicative answer: Conflict of Interest should be explained at length)

What lessons of corporate governance does this case teach us?(4 marks)
(i) For a corporation's founders and major stakeholders, it is important to understand that
following legal compliances does not result in an effective corporate structure.
(ii) The corporation must effectively mold its governance policies that protect the rights of
shareholders,
(iii) It should not draft one-sided policies which favor only promoters and
(iv) oversee the policies that benefit every stakeholder involved in the business process..
(v) Clear guidelines for code of conduct
(vi) Agency theory.
Conclusion(1 mark)

Note:
Neat & structured presentation, lucid explanation ,providing relevant real time example and
supporting answers with correct section no. Of company act 2013 will spur better score