The Hindu Business Line : Facts of a fax case

THE Articles of Association of Mars Company Ltd provide that documents may be served upon the company only through fax. Ramesh dispatches a document to the company by post, under certificate of posting. The company does not accept it on the ground that it is in violation of the Articles of Association. As a result, Ramesh suffers loss. Examine with reference to the provisions of the Companies Act, 1956:

i) Whether refusal of document by the company is valid?

ii) Whether Ramesh can claim damages on this basis?

Section 51 of the Companies Act contains the law relating to service of documents on company. The Section provides that a document may be served on a company or an officer thereof by sending it to the company or officer at the registered office of the company by post under a certificate of posting or by registered post, or by leaving it at its registered office.

Since, as per Section 9 of the Companies Act, any provision in the Articles contrary to the provisions of the Act shall be void. The requirement in the Articles that documents shall be served on the company only through fax is not valid. Accordingly, company's refusal to accept the document is not valid and the company shall be held liable in damages to Ramesh.

Counting days

DESCRIBE the procedure provided under the Payment of Bonus Act, 1965 for computing the number of days for determining the amount of minimum bonus payable to an employee. How is proportionate reduction in bonus made?

As per Section 8 of the Payment of Bonus Act, an employee shall be entitled to be paid bonus (including minimum bonus) only if he has worked in the establishment for not less than 30 working days in that year. As per Section 14 of the Act an employee shall be deemed to have worked in an establishment in any accounting year also on the day on which:

a) he has been laid off under an agreement or as permitted by Standing Orders under the Industrial Emp1oyment (Standing Order) Act, 1946, or under the Industrial Disputes Act, 1947, or under any other law applicable to the establishment;

b) he has been on leave with salary or wage;

c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and

d) the employee has been on maternity leave with salary or wage during the accounting year

Proportionate reduction: Where an employee has not worked for all the working days in an accounting year, the minimum bonus of Rs 100 or, as the case may be, of Rs 60 (in case of an employee who has not completed 15 years of age), if such bonus is higher than 8.33 per cent of his salary or wage of the days he has worked in that accounting year, shall be proportionately reduced.

PF transfer

AN EMPLOYEE leaves the establishment in which he was employed and gets re-employment in another. He desires that his Provident Fund Account be transferred to the establishment wherein he has been employed. Explain the procedure laid down in the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 in this regard.

Section 17A of the EPF Act, 1952 provides for the transfer of accounts of an employee in case of his leaving the employment and taking up employment in another establishment and deals with the case of an establishment to which this Act applies and also to which it does not apply. The option to get the amount transferred is that of the employee.

Where an employee of an establishment to which this Act applies leaves his employment and obtains re-employment in another establishment to which this Act does not apply, the amount of accumulations to the credit of such employee in the Fund or, as the case may be, in the provident fund in the establishment left by him shall be transferred to the credit of his account in the provident fund of the establishment in which he is re-employed, if the employee so desires and the rules in relation to that provident fund permit such transfer.

This transfer has to be made within such time as may be specified by the Central Government in this behalf [Sub-section (1)].

Conversely, when an employee of an establishment to which this Act does not apply leaves his employment and obtains re-employment in another establishment to which this Act applies, the amount of accumulations to the credit of such employee in the provident fund of the establishment left by him, if the employee so desires and the rules in relation to such provident fund permit, may be transferred to the credit of his account in the Fund or, as the case may be, in the provident fund of the establishment in which he is re-employed [Sub-section (2)].

Multi-State co-op

DESCRIBE the procedure of registration of a Multi-State Cooperative Society laid down in the Multi-State Cooperative Societies Act, 2002. Which are the documents required to be filed at the time of registration of such a society? (6 marks)

Application for registration of a multi-state cooperative society: For the purposes of registration of a multi-State cooperative society under the Multi-State Cooperative Societies Act, 2002, application shall be made to the Central Registrar in such form and with such particulars as may be prescribed.

The application must be signed:

a) in the case of a multi-State cooperative society of which all the members are individuals, by at least 50 persons from each of the State concerned;

b) in a multi-State cooperative society of which the members are co-operative societies, by duly authorised representatives on behalf of at least five such societies as are not registered in the same State; and

(c) in a multi-State co-operative society of which another multi-State co-operative society and other co-operative societies are members, by duly authorised representatives of each of such societies.

However, not less than two of the co-operative societies referred to in this clause, shall be such as are not registered in the same State;

d) in a multi-State co-operative society of which the members are co-operative societies or multi-State co-operative societies and individuals, by at least i) 50 persons, being individuals, from each of the two States or more; and ii) one co-operative society each from two States or more or one multi-State co-operative society.

As per the Multi-State Cooperative Society Rules, 2002, application may be sent by registered post or delivered by hand to the Central Registrar in his office.

Documents to accompany application: The application must be accompanied by the following documents:

a) four copies of the proposed bye-laws of the multi-State co-operative society, duly signed by each of the persons who sign the application for registration;

b) a list of persons who have contributed to the share capital, together with the amount contributed by each of them, and the admission fee paid by them;

c) a certificate from the bank or banks stating the credit balance in favour of the proposed multi-State co-operative society;

d) a scheme showing the details explaining how the working of the multi-State co-operative society will be economically sound and the registration of such multi-State co-operative society will be beneficial for social and economic betterment of its members through self-help and mutual aid in accordance with the co-operative principles;

e) certified copy of the resolution of the promoters which shall specify the name and address of one of the applicants to whom the Central Registrar may address correspondence under the rules before registration and dispatch or hand over registration documents.

If the Central Registrar is satisfied:

a) that the application complies with the provisions of this Act and the rules;

b) that the proposed multi-State co-operative society satisfies the basic criterion that its objects are to serve the interests of members in more than one State;

c) that its bye-laws provide for social and economic betterment of its members through self-help and mutual aid in accordance with the co-operative principles;

d) that the proposed bye-laws are not contrary to the provisions of this Act and the rules,

e) he may register the multi-State co-operative society and its bye-laws [Section 7(1)].

The application for registration shall be disposed of by the Central Registrar within four months from the date of receipt thereof by him [Section 7(2)].

Where the Central Registrar refuses to register a multi-State co-operative society, he shall communicate, within four month from the date of receipt of the application for registration of refusal together with the reasons therefore, to the applicant or applicants, as the case may be [Section 7(3)].

However, no order of refusal shall be made unless the applicants have been given a reasonable opportunity of being heard.

If the application for registration is not disposed of within four months specified in sub-section (2) or the Central Registrar fails to communicate the order of refusal within that period, the application shall be deemed to have been accepted for registration and the Central Registrar shall issue the registration certificate in accordance with the provisions of this Act and the rules made thereunder.

Membership withdrawal

MOHAN, a member of co-operative society, registered with unlimited liability, desires to withdraw from the membership of the society. Advise in the light of the provisions of the Cooperative Societies Act, 1912, whether Mohan can do so. What will be the consequences of such withdrawal from the society?

Section 43(2)(m) of the Cooperative Societies Act permits a member to withdraw from membership of a society subject to the following:

He shall continue to remain liable as a past member for the debts that existed at the time he ceased to be the member.

Where a member ceases to reside within the area of the society, both the member and the society may insist on withdrawal. The share value is paid to the member but he has no claim on the reserve or other assets and may be made to pay off his share of any deficit.

If the society is dissolved within six months of the withdrawal, the withdrawal shall be null and void.

The legal claim of a member in the share capital lapses in two years.

Thus, Mohan can withdraw as per the aforesaid rules.

Cheque dishonour

STATE the grounds on the basis of which a cheque may be dishonoured by a banker, in spite of the fact that there is sufficient amount in the account of the drawer.

In this context, a paying banker may dishonour a cheque on the following grounds:

Where the drawer countermands (stops) the payment.

On receipt of notice of death, insolvency or customer's insanity.

On receipt of Garnishee order.

On receipt of a notice of assignment signed by the customer of the credit balance of his account.

In the case of trust accounts, if the banker feels suspicious that the trustee intends to use the amount of the cheque for his personal use.

Where the banker believes that the person presenting the cheque is not entitled to receive the payment thereon. For example, where the banker believes it has been stolen.

In the case of a joint account to be operated by all jointly, where the cheque is not signed by all of the joint account-holders.

Where the cheque is irregular, ambiguous or otherwise materially altered.

Where the cheque is presented after six months from the date it bears — that is, it has become stale.

If the cheque is post-dated.

Where a cheque is not duly presented. For instance, a cheque presented after business hours shall be deemed not to have been duly presented.

Private company

STATE the conditions of restrictions with which a private company is incorporated under the Companies Act, 1956.

As per Section 27 read along with Section 3(1) (iii) of the Companies Act, 1956, a private company for its registration must have a minimum paid-up capital of Rs 1 lakh (except Section 25 companies, that is, associations not for profit) and its articles must contain the following restrictions:

restriction(s) on the right of members to transfer shares;

a) limitation on the number of its members to 50, not including:

persons who are in the employment of the company;

persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and

where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of membership, be treated as a single member.

b) prohibition on invitation to the public to subscribe for any shares in or debentures of, the company.

c) prohibition on any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Ultra vires

THE word `ultra' means beyond and the word `vires' means the powers. Ultra vires, therefore, means beyond the powers. So, when used with reference to a company, it means beyond the powers of the company. The powers of a company are essentially derived from the statute constituting it and the memorandum of association.

This doctrine was first laid down by the House of Lords in Ashbury Rly. Carriage & Iron Company vs Riche (1875 LR 7 HL 653). In this case, the object of the doctrine was explained by Lord Justice Cairns as follows:

i) to protect investors of the company so that they may know the objects in which their money is to be employed; and

ii) to protect the creditors by ensuring that the company funds, to which they must look for payment are not dissipated in unauthorised activities.

The doctrine of ultra vires has been upheld in a large number of Indian cases also.

Effects of ultra vires transactions:

Void ab initio: Ultra vires acts are null and void ab initio. The company is not bound by these acts; even the company cannot sue or be sued upon it,

Injunction: In case a company is about to undertake an ultra vires act, the members (even a single member) can get an order of injunction from the court restraining the company from going ahead with the ultra vires act.

Personal liability of directors: The directors guilty of ultra vires acts shall be personally liable to indemnify the company for the loss.

Directors personally liable to third parties: Though company cannot be held liable for ultra vires acts, but directors and other officers at fault shall be personally liable for those transactions to third parties.

Ultra vires, acquired property: However, ultra vires acquired property shall belong to the company.

(Suggested answers to the November 2003 CA (PE-II) paper on business and corporate laws.)

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