Meaning of Compromise

‘Compromise’ means an amicable settlement of differences by mutual concessions by the parties to dispute or difference by agreeing not to try it out. In Sneath Vs. Valley Gold Ltd. [1983]1 Ch. 447, ‘Compromise’, was described as an agreement terminating a dispute between parties as to the rights of one or more of therr., or modifying the undoubted rights of a party which he has difficulty in enforcing.

The result of this case and others’ is that there can be no compromise unless there is some dispute, e.g., as to the power to enforce rights or as to what those rights are.

Meaning of Arrangement

An ‘Arrangement’, as the expression is used in the Companies Act, 1956, embraces a far wider class of agreements than a ‘Compromise’. It includes agreements which modify rights about which there is no dispute. Thus, ‘Arrangement’ includes a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by division of shares into shares of different classes or by both these methods. An arrangement may also involve: (i) Debenture holders being given an extension of time for equity shares in a new company; (ii) the creditors agreeing to receive cash in part payment of the claims and the balance in shares or debentures of the company; CUi) the preference shareholers giving up their rights to arrears of dividends, further agreeing to accept a reduced rate of dividend in the future, and so on.

Thus, when a company has a dispute with a member or a class of members or with a creditor or a class of them, a scheme of compromise may be drawn up. But, where there is no dispute but there is need for readjusting the rights or liabilities of a member or a class of them or of a creditor or a class of them, the company may resort to a scheme of arrangement with them. Section 390 provides that “the expression ‘arrangement’ includes a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes, or by both these methods.”

In what way does the Companies Act, 1956 regulate the appointment

In what way does the Companies Act, 1956 regulate the appointment of a Committee of Inspection, its composition, quorum at its meetings, and filing a vacancy, if caused after the appointment of the committee, for a company undergoing winding-up?

. RM Limited went for a public issue of Equity Shares (Rs. 10 crores) of Rs 10 each. The shares were subscribed to an extent of 95% of the total issue. The shares of the company were accepted for listing by Mumbai Stock Exchange but subsequently the permission was cancelled on certain grounds. On an appeal to the Central Government by the company, the decision of the Stock Exchange was held to be valid. As a result, the application money had become refundable to the allottees. The company, therefore, had no prospect of doing any business and there was a complete deadlock among the Directors. Looking at the circumstances, certain creditors filed a petition in the Court for winding-up of the company on the ground that the company had become commercially insolvent. The shareholders of the company object to the petition of the creditors. Decide, giving reasons:

( i) Whether the objection of the shareholders will sustain and the petition of

creditors for winding up of the company can be dismissed by the Court?

(ii) State the provisions of the Companies Act, 1956, in this regard.

[May, 1994]

All shareholders are members of a company but all members

Shareholder and Member. A ‘Shareholder’ is a person who holds shares in the company whereas a ‘member’ is a person whose name appears in

the Register of Members. For all practical purposes the words “shareholder” and “member” are used inter-changeably because in the normal course a

shareholder will also be a member and a member will also be a shareholder. But if looked at from a closer angle, we can see a few

exceptional cases where a shareholder may not necessarily be a member

and a member may not necessarily be a shareholder. For example, companies

limited by guarantee or unlimited companies having no share capital will have only members but no shareholders. Moreover, a subscriber to the

Memorandum is a member even though no shares are allotted to him-so he is a member without being a shareholder. Contrarily, a holder of share warrant

is a shareholder but not a member of the company as his name is removed from the Register of Members immediately on issue of share warrant.

Similarly, a transferee or the legal representative of a deceased member holds shares but does not become a member before the time the Board of

Directors approves the transfer or transmission and his name is entered in the Register of Members of the company. On the other hand, transferor or the

deceased person is a member so long as his name is on the register of members whereas he cannot be termed a shareholder.

.

Company Management and Project

(i) History and main objects and present business of the company.

(ii) Subsidiary (ices)

(i i i) Promoters and their background.

(iv) Location of the project.

(i) Collaboration agreements, if any.

(vi) Nature of the product(s), export possibilities, export obligations.

(vii) Future prospects.

(viii) Name, addresses and occupation of manager, Managing Director and other directors including nominee directors, whole-time directors.

(ix) Stock market date for share debenture of the company [high-low price in each of the last 3 years and monthly high-low during the last 6 months (where applicable)].

Memorandum of Association and Articles of Association

two important documents of a company. But they differ in the following respects:
1. Natalie. Memorandum of Associating is the fundamental Charter of the company. It contains those fundamental conditions upon which alone the
company is granted incorporation. Articles of Association contains the males and regulations framed to govern the internal management of the company.
2. Alteration. There are strict restrictions on the alteration of
. Memorandum and some of its clauses cannot be altered without the prior permission of the Company Law Board. On the other hand, Articles can be
altered by a special resolution and Government's approval is required only for converting a Public Company into a Private Company.
3. Contents. Memorandum defines the objects and powers of the company. It fixes up the scoop and the extent of the activities of the company. Articles
from the byelaws of the company provides those regulations by which the objects and powers of the company can be carried out.
4. Status. Memorandum of Association is a supreme document. It is subordinate to the Act only. It cannot include any clause contrary to the provisions of
the Companies Act. Articles of Association is subsidiary to both the Companies Act and the Memorandum of Association. Articles cannot be framed in
contravention of the provisions of Law and the Memorandum.
5. Relation Defined. Though both are public documents. the Memorandum defines the relation between the company and the outsiders while the Amices
regulate the relations between the company and the members as member or members inter .'Ie.
6. Legal Effect. Things done by a company beyond the scope of the Memorandum are absolutely void and cannot be ratified even by a unanimous vote of
the shareholders. But things done by a company beyond the Articles are simply irregular and not void and can easily be confirmed or ratified subsequently
by the shareholders.
7. Filing. Every company must file its Memorandum of Association at the time of incorporation. But a public compa!1Y limited by shares need not file its
own Articles as it can adopt Table A of the Companies Act.

Lord Justice Lindley.Section 3 of Companies Act, 1956

a company is meant an association of persons who contribute money or money , and those who share the profit and loss (as the case may be)arising therefrom common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs, are called members. The proportion of capital to which each member is entitled is his share. They are always transferable although the right to transfer them is often more or less restricted."-Lord Justice Findley.Section 3 of Companies Act, 1956, defines a company as, "a company formed and registered under this Act... .or under any previous company laws". This definition, however, fails to bring out the true nature of a company. It would be worthwhile, therefore, to rely on the views expressed by eminent judges in this regard "A company is an association of many persons united for a common object."