f GM06 Business Law Assignment No.

I Assignment Code: 2011GM06B1 2011 Last Date of Submission: 30th Sept Maximum Marks:100 Attempt all the questions. All the questions are compulsory and carry equal marks. Section-A Ques. 1 State the essentials of a contract under Sale of Goods Act, 1930 and distinguish between Sale and hire purchase agreement. http://www.slideshare.net/robinkapoor/chapter-04-sale-of-goods-act-presentation# Ques. 2 Mohan, the proprietor of a newspaper, is approached by his friend Rawat to publish libelous material against an actress, Kiran. Mohan is reluctant, as he fears the actress may sue him for libel if the material is published. Rawat gives a written promise to indemnify Mohan against the consequences of the publication and all costs and damages of any action in respect thereof. Reassured, Mohan goes ahead and publishes the offending material and sure enough, just as he had feared, is sued by Kiran and is required to pay damages and also incur expenses. Is Rawat liable to make good the financial less to Mohan? Justify your answer. Ans. Publishing libelous material against someone is an illegal act as per law. Business law doesnt allow doing some false or illegal act against someone even if the third person is ready to indemnify the consequences and costs of damages. Indian contract act doesnt allow to sign any contract to indemnify losses occurred in doing the illegal act. So Rawat is not liable to make good the financial loss to Mohan. Kiran can file the case of defamatory for which Rawat could get the punishment as per law. Law doesnt allow such agreement. One cant sign the contract with someone by saying you just kill this person and I will bear the consequences, law doesnt allow such illegal act. Mohan is not liable to bear the financial loss of Rawat but he is allegedly co-accused for defaming Kiran and can be fined as per Indian law. As Rawat is doing the business of newspaper so he must be well aware with the Indian law for publishing any defamatory martial against someone is an illegal act, so being a businessman business law doesnt allow him to claim for the financial loss occurred for defaming Kiran. He cant say Mohan is liable as the act been done by him. He is not minor who will say that I did unknowingly because directed to do so by someone. In brief business law doesnt allow doing any illegal act which hampers the prestige or results any kind of loss to anyone. It doesnt allow claiming against any written promise

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given for doing any illegal act. So here Mohan is not liable to bear the financial loss of Rawat but both are liable to be fined for publishing defamatory material as per Indian law

Ques. 3 Nagendra, a warehouseman, was entrusted with certain goods for safe custody. He had taken reasonable precautions for the safety of the goods by providing a safe building, safe locks and a round the clock security guard. But the goods were stolen due to negligence of the security guard. Nagendra denied his liability on the plea that there was no negligence on his part and that he had taken all possible precautions. Is Nagendra liable? Examine in the light of provisions of Indian Contract Act. Ans. Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as subsequently amended. It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties. In law, the relationship that exists when one person or party (the principal) engages another (the agent) to act for him, e.g. to do his work, to sell his goods, to manage his business. The law of agency thus governs the legal relationship in which the agent deals with a third party on behalf of the principal. The competent agent is legally capable of acting for this principal vis--vis the third party. Hence, the process of concluding a contract through an agent involves a twofold relationship. On the one hand, the law of agency is concerned with the external business relations of an economic unit and with the powers of the various representatives. As per Indian contract act 1872, Chapter 4 of performance contract which must be performed, the contract of Nagendra is not voidable. Nagendra was entrusted for safe custody of certain goods and he has signed on behalf of his team. He is liable to pay the compensation for loss to the promisee because it happens due to negligence of his team member. If the loss would be because of some non avoidable causes and also mentioned in the contract then Nagendra wouldnt be liable to pay any compensation. Bus as the dispute happens because of Negligence he is liable to pay for the loss Ques. 4 Explain clearly the meaning of agency of ratification. What conditions must be fulfilled for a valid ratification? Ans. An agent of necessity must act bona fide in the interests of all the parties. 18 These prerequisites mean that in practice it is difficult to establish an agency of necessity. Historically the doctrine arose with the difficulties of masters of ships when communications were difficult before the 20th century. A modern court is reluctant to create new classes of agent of necessity. e.g. Sachs v Miklos19 per Goddard C.J. Courts should be slow to increase the classes which should be looked upon as agents of necessity. Such an agency will generally only be implied where there is an existing agency which requires extending to provide for unforeseen events not generally provided for in the original contract. Formation of Agency by Ratification. A disclosed principal can choose to adopt and ratify transactions which were made without his authority. Agency of ratification arises

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where a principal subsequently ratifies i.e. affirms an unauthorised act, done on his behalf by someone who purports to be his agent. The operation of the doctrine is illustrated by Bolton Partners v Lambert.20 Lambert made an offer to an agent of Bolton. The agent acted without authority and purported to accept the offer on Boltons behalf. Lambert then tried to revoke his offer but after this attempted revocation Bolton ratified his agents act. The court held that Lambert was bound by the contract, because Boltons ratification related back to the agents acceptance and therefore revocation was too late. There are several exceptions to this rule and conditions that must be fulfilled. 1. The Principal must be named or identifiable from the outset An undisclosed principal cannot ratify an unauthorised act by an agent according to Keighly Maxted v Durant21 This rule is justified in that if it appears to a third party that he is dealing with a principal then it is not justifiable for the real Principal latter to ratify the agents actions. The C.A. thought the principal should be able to ratify, but the House of Lords disagreed. The case involved the purchase of wheat at a price higher than the agent had authority to pay. The principal having refused to ratify refused to take delivery. It was held that he was not bound to do so. 2. The contract must not be void. If the director of a company purports to make a contract which is ultra vires the companys memorandum of association, it was held that the shareholders could not subsequently ratify the contract. The doctrine has been diminished by s9(1) European Communities Act 1972.22 This provides that in favour of a person dealing with a company in good faith any transaction decided on by the directors shall be deemed to be one which it is within the capacity of the company to enter into. The old ultra vires rule protected shareholders to the prejudice of innocent third parties. 3. An illegal or void act cannot be ratified. Brook v Hook.23 A forged signature cannot be ratified. Greenwood v Martins Bank.24 The principal may be estopped from pleading forgery as a means of escaping liability if, knowing of the forgery he fails to complain quickly enough. A husband knew for some time that his wife was forging his signature on cheques but paid up on them nonetheless. He was estopped from later changing his mind and rejecting a cheque. 4. The principal must be in existence at the date of the contract. In Kelner v Baxter25 the promoters of a company entered into a contract on behalf of a company not yet formed. Held: the company could not ratify that contract and the promoters were held personally liable on it.26 5. The principal must have contractual capacity at the date of the contract and at the time of the ratification. In Boston Deep Sea Fishing Co v Farnham ( H.M.I. Taxes) 27 the principal was an enemy alien , when the contract was made by his agent. After the war the principal sought to ratify the contract Held. Ratification ineffective. Similarly in Kelner v Baxter 28 three co-promoters of a company bought goods (wine) on the companys behalf before the company had been incorporated. When it was formed the company purported to ratify. The court held that the company could not do so. In Newborne v Sensolid 29 a person who purported to sell goods on behalf of a company that had not yet been formed could not be held personally liable as an agent of the company. The company once formed was not able to ratify the contract and then sue the purchaser for breach of contract when he refused to go through with the contract. However since s9(2) European Communities Act 1972 30 promoters will be held personally liable for contracts made on behalf of unformed companies. 6 Principal at the time of ratification must have been aware of all the material facts in order to protect the principal. In Marsh v Joseph.31 a solicitors clerk acted fraudulently on behalf of his employer. The solicitor discovered certain aspects of the fraud. The clerk gave a partial account of the fraudulent actions, which the solicitor believed to be a full account. The solicitor then ratified the clerks actions. But the full story then came out and the court held that the ratification was inoperative.

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7 The principal must ratify in time. A principal cannot ratify a contract if the time fixed for its performance has passed, and if no time is fixed then it must be ratified within a reasonable time.

Section-B

Case Study A sold and delivered a motor car to B, Subsequently A gets possession of the same car on hire from B. A the former seller, who is now in possession of the car as the hirer sells and delivers it to C who, in good faith and without notice of the previous sale, purchases it for consideration. Has B any right to get the car from C? Decide stating reasons? Will your answer be different if A is minor? Ans. Yes B has the right to get the car from C depends upon the hire agreement he

agreed with A as before purchasing C has to check the ownership of the car. Sale is the transfer of ownership between two parties and in this case the ownership of the car is with B. One cant purchase goods from the person who doesnt have the ownership, however probably it can hire in that case depends on the agreement between other two parties Depends upon the agreement B signed with A, B can get his car back after expiring of agreement. If agreement states that the ownership will be transferred to A after completing all the installments and during this tenure A can resale/give on hire the car then probably B wouldnt have right to take it back otherwise B has full rights to take the car back If A is minor then the sale should be done with the guardian of A. Then the first sale should be between Guardian of A and B. in this case if the sale happened between A and B then B again does have the right to get it back but the settlement in this case can be done by complete reverse transaction

GM06 Business Law

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Assignment No.II Assignment Code: 2011GM06B2 2011 Last Date of Submission: 15th Nov Maximum Marks:100 Attempt all the questions. All the questions are compulsory and carry equal marks. Section-A Ques. 1 Discuss the principle laid down in the case of Foss Vs. Harbottle and state whether there are exceptions to this principle? Foss case stressed on Inhouse Management in which company was to decide whether there should be litigation against the company or not? But, LCR recommended an outdoor management remedy in form of Courts. It was made clear in Foss case that liability of directors is not towards share- holders but, towards the company. After suggestion of Jenkins Committee u/ S.459 of Companies Act, 1989 it is clear that wrong done to company may also bring a wrong to the interest of its members. Their can be a wrong done to the company or its members directly and which may in turn effect the companys share- holders. Or majority uses its power to avoid the litigation against company by minority. It is a wrong done to minority and it is called as unfair prejudice remedy. Unfair prejudice remedy means: an unlawful act, which is an indirect wrong done to company and its share- holders. There can be an informal agreement/ arrangement amongst members to run company. Consequence of such an agreement is that no power is left to court to scrutinize conduct of company controllers on basis of unfairness. Court has made it very clear that court will not interfere in the ordinary majority decision as court is not there to take management decisions. Court further observed that until the problem of a share- holder is not solved by controllers court will not interfere CHAPTER 2: - FACTS, JUDGMENT, AND ITS IMPACT Facts: - It was concerned with Park Land in Moss side, Manchester, which was the then leafy suburb of the city. Businessmen, in the city had grouped together to purchase land dedicate it to the then heiress to the throne, Princess Victoria. Park opened to great rejoicing. But, soon it was followed by difficulties. Two minority share- holders initiated legal proceedings against, among others, the directors of the company. They claimed that the directors had misappropriated the companies assets. It was alleged that the directors had sold land at an exorbitant price to company, out of the monies of company, for a price exceeding the value of land. Judge observed: - the Victoria park company is an incorporated corporation, and the conduct with which the defendants are charged in this suits are injury not to the plaintiffs exclusively; it is an injury to the whole corporation by individuals whom the corporation entrusted with powers to be exercised only for the good of corporation. This conduct of Directors is a wrong done to company and only company can sue. This principle was applied in the case of Mc Dougall v. Gardiner (1875) The court dismissed their claim and held that when a company is wronged by its directors it is only the company that has standing to sue. In effect the court established rules:

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 First, the proper plaintiff rule in which an action in respect of a wrong alleged done to a company is prima facie the company itself. Secondly, the majority rule principle. It states that if the alleged wrong can be confirmed or ratified by a simple majority of members in a general meeting, then the court will not intervene. Thirdly, a company is a separate entity from its share- holders. Fourthly, a company cant function effectively unless Will of majority prevails. The rule was later extended to cover cases where what is complained of is some internal irregularity in the operation of the company. However, the internal-irregularity must be capable of being confirmed by the majority. Because Foss v Harbottles leaves the minority in an unprotected position, exceptions have arisen and statutory provisions have come into being which provide some protection for the minority. By far and away the most important protections are to be found in sections 459-461 of the Companies Act. The rule in Foss v Harbottles has another important implication. A share- holder cannot generally bring a claim to recover any diminution in the value of his or her shares in circumstances where the diminution arises because the company has suffered an actionable loss. The proper course is for the company to bring the action and recoup the loss with the consequence that the value of the shares will be restored. Impact of case was principally effecting minority share- holders actions. S. 459(1) is the most relevant sub-section for these purposes. It can be deduced from, that a minority share- holder is within the ambit of the section if he can show that the value of his shareholding in the company has been seriously diminished due to the conduct of persons in de facto control of the company, which has been unfair to the member concerned. It must however affect or prejudice him. Meaning of unfairly- prejudicial conduct as defined by the courts includes: 1. exclusion from management; 2. allotting shares in breach of pre-emption rights; 3. convening a meeting of the company for a date unreasonably into the distant future; 4. failure to pay proper dividends; 5. diverting business away from the company; 6. making a rights issue in certain circumstances; 7. providing misleading information to a companys share-holders; 8. proposing to sell the companys business at a substantial undervaluation to connected persons; 9. And using the companys assets for the benefit of the companys controlling shareholders and family. Exceptions to Foss v. Harbottles have been brought by Judges through thread of justice. Through that fabric, over the years a number of exceptions to the Rule in Foss v Harbottles have developed. And exceptions are: a) Where the majority of Members commit a fraud on the minority;

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b) Where the majority of Members have been negligent so as to benefit one of themselves; c) To enforce AOA of Company; d) And, in any other instance where justice so demands. e) Special majoritys exception, If the majority by passes the required majority then individual share- holder can sue the company. f) If the company denies the right of individuals which are set out in the Articles of company. Ques. 2 Describe in brief the recommendations on corporate governance

In November 2004 The Tallinn Stock Exchange and Financial Supervision Authority conducted a roundtable of so called wise men, during which people associated with various economic sectors came together collectively as a group of experts. The purpose of the roundtable was to point out the principles of corporate governance necessary to be fixed as a matter of good practice from the vantage point of issuers, (minority) shareholders, managers, auditors and other interested parties. The purpose of this roundtable was also to formulate these principles of corporate governance into established Corporate Governance Recommendations. Presently, the proper and appropriate principles are assembled in these Corporate Governance Recommendations.

These Corporate Governance Recommendations are to be carried out primarily by companies whose shares have been admitted to trading on a regulated market operating in Estonia (Issuers), except for investment funds registered as public limited companies. Other companies may also choose to comply with these Corporate Governance Recommendations and shareholders and partners of such companies are encouraged to follow these principles upon organizing their management and management control of the company.

The principles described in these Corporate Governance Recommendations are recommended to be carried out by Issuers and each Issuer shall decide whether or not they will adopt these principles as a basis for organizing their management. Issuers shall describe, in accordance with the Comply or Explain principle, their management practices in a Corporate Governance Recommendations Report and confirm their compliance or not with the Corporate Governance Recommendations. If the Issuer does not comply with Corporate Governance Recommendations, it shall

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explain in the report the reasons for its non-compliance. The Corporate Governance Recommendations Report shall be a separate chapter of the Management Report contained in the Annual Report.

The Corporate Governance Recommendations describe conduct, which contributes to better and more transparent of management and management control of companies: From one side, the Corporate Governance Recommendations must be a model for Issuers to organize their management, above all taking into account the Issuers interests, and provide adequate opportunity for investors and other interested parties to supervise the management. From the other side, adherence to Corporate Governance Recommendations contributes to harmonization of disclosure and management requirements of Issuers, which is directed towards equality of treatment of investors and shareholders.

Based on these objectives, the Corporate Governance Recommendations will help structure the work of the management board, supervisory board, general meeting and also the disclosure of information related to the management and management control

These Corporate Governance Recommendations are prepared on the basis of Estonian legislation, structure of shareholders of Issuers acting in Estonia and taking into account the main problems that arise in company management. In rare cases,

behavior has been described where the requirements of Issuers are higher than those arising in legislation. The bases of these exemptions lie in the principle that an Issuer whose shares have been admitted to trading on a regulated market must be guided by increased diligence in organization of management of itself and ensure the equality of treatment of all shareholders.

Issuers must comply with the Comply or Explain principle as of 1 January 2006. For example, if an Issuers next financial year begins in 01 January 2006, it shall prepare a Corporate Governance Recommendations Report concerning the 2006 year. In this Report the Issuer shall reflect the compliance with the Corporate Governance Recommendations upon organization of the general shareholders meeting conducted

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in 2006 or upon resolving other issues related to company management. However, the Issuer may choose to comply with the Corporate Governance Recommendations before this deadline. Ques. 3 Explain the grounds on which a Tribunal may order winding up a company Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors. An administrator, called the liquidator, is appointed and he takes control of the company, collects its assets, pays debts and finally distributes any surplus among the members in accordance with their rights. At the end of winding up, the company will have no assets or liabilities. When the affairs of a company are completely wound up, the dissolution of the company takes place. On dissolution, the company's name is struck off the register of the companies and its legal personality as a corporation comes to an end. The procedure for winding up differs depending upon whether the company is registered or unregistered. A company formed by registration under the Companies Act, 1956 is known as a registered company. It also includes an existing company, which had been formed and registered under any of the earlier Companies Acts. Winding up a Registered Company The Companies Act provides for two modes of winding up a registered company. Grounds for Compulsory Winding Up or Winding up by the Tribunal

If the company has, by a Special Resolution, resolved that the company be wound up by the Tribunal.

If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting. A petition on this ground may be filed by the Registrar or a contributory before the expiry of 14 days after the last day on which the meeting ought to have been held. The Tribunal may instead of winding up, order the holding of statutory meeting or the delivery of statutory report.

If the company fails to commence its business within one year of its incorporation, or suspends its business for a whole year. The winding up on this ground is ordered only if there is no intention to carry on the business and the Tribunal's power in this situation is discretionary.

If the number of members is reduced below the statutory minimum i.e. below seven in case of a public company and two in the case of a private company.

If the company is unable to pay its debts.

If the tribunal is of the opinion that it is just and equitable that the company should be wound up.

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Tribunal may inquire into the revival and rehabilitation of sick units. It its revival is unlikely, the tribunal can order its winding up.

If the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years

If the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.

The petition for winding up to the Tribunal may be made by :

The company, in case of passing a special resolution for winding up.

A creditor, in case of a company's inability to pay debts.

A contributory or contributories, in case of a failure to hold a statutory meeting or to file a statutory report or in case of reduction of members below the statutory minimum.

The Registrar, on any ground provided prior approval of the Central Government has been obtained.

A person authorised by the Central Government, in case of investigation into the business of the company where it appears from the report of the inspector that the affairs of the company have been conducted with intent to defraud its creditors, members or any other person.

The Central or State Government, if the company has acted against the sovereignty, integrity or security of India or against public order, decency, morality, etc.

Winding up an Unregistered Company According to the Companies Act, an unregistered company includes any partnership, association, or company consisting of more than seven persons at the time when petition for winding up is presented. But it will not cover the following:

A railway company incorporated by an Act of Parliament or other Indian law or any Act of the British Parliament;

A company registered under the Companies Act, 1956;

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A company registered under any previous company laws.

An illegal association formed against the provisions of the Act.

However, a foreign company carrying on business in India can be wound up as an unregistered company even if it has been dissolved or has ceased to exist under the laws of the country of its incorporation. The provisions relating to winding up of a unregistered company:

Such a company can be wound up by the Tribunal but never voluntarily.

Circumstances in which unregistered company may be wound up are as follows:

If the company has been dissolved or has ceased to carry on business or is carrying on business only for the purpose of winding up its affairs.

If the company is unable to pay its debts.

If the Tribunal regards it as just and equitable to wind up the company.

Contributory means a person who is liable to contribute to the assets of a company in the event of its being wound up. Every person shall be considered a contributory if he is liable to pay any of the following amounts:

Any debt or liability of the company;

Any sum for adjustment of rights of members among themselves;

Any cost, charges and expenses of winding up;

On the making of winding up order, any legal proceeding can be filed only with the leave of the Tribunal.

Ques. 4 Describe in brief the CII recommendations on Corporate Governance. Recommendation 1: Nomination Committee The Task Force believes that having a well functioning Nomination

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Committee will play a significant role in giving investors substantial comfort about the process of Boardlevel appointments. It, therefore, recommends that listed companies should have a Nomination Committee, comprising a majority of independent directors, including its chairman. Recommendation 2: Letter of Appointment to Directors _ The Task Force recommends that listed companies should issue formal letters of appointment to NEDs and independent directors just as it does in appointing employees and executive directors. The letter should; _ Specify the expectation of the Board from the appointed director; _ The Boardlevel committee(s) in which the director is expected to serve and its tasks; _ The fiduciary duties that come with such an appointment; _ The term of the appointment; _ The Code of Business Ethics that the company expects its directors and employees to follow; _ The list of actions that a director cannot do in the company; _ The liabilities that accompany such a fiduciary position, including whether the concerned director is covered by any Directors and Officers (D&O) insurance; and _ The remuneration, including sitting fees and stock options, if any.1 Recommendation 3: Fixed Contractual Remuneration The Task Force recommends that the Companies Act, 1956, be amended so that companies have the option of giving a fixed contractual remuneration to NEDs and independent directors, which is not linked to the net profit or lack of it. Recommendation 4: Structure of Compensation to NEDs The Task Force recommends that listed companies use the following template in structuring their remuneration to NEDs and independent directors _ Fixed component: This should be relatively low, so as to align NEDs and independent directors to a greater share of variable pay. Typically, these are not more than 30% of the total cash remuneration package. _ Variable Component: Based on attendance of Board and Committee meetings (at least 70% of all meetings should be an eligibility pre-condition) _ Additional payment for being the chairman of the Board, especially if he/she is a non-executive chairman _ Additional payment for being the chairman of the Audit Committee _ Additional payment for being the chairman of other committees of the Board _ Additional payment for being members of Board committees: Audit, Shareholder Grievance, Remuneration, Nomination, etc. Recommendation 6: Audit Committee Constitution Listed companies should have at least a three-member Audit Committee comprising entirely of non-executive directors with independent directors constituting the majority. Recommendation 9: Executive Sessions

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To empower independent directors to serve as a more effective check on management, the independent directors could meet at regularly scheduled executive sessions without management and before the Board or Committee meetings discuss the agenda. The Task Force also recommends separate executive sessions of the Audit Committee with both internal and external Auditors as well as the Management. Recommendation 12: Certificate of Independence Every company must obtain a certificate from the auditor certifying the firms independence and arms length relationship with the client company. The Certificate of Independence should certify that the firm, together with its consulting and specialised services affiliates, subsidiaries and associated companies or network or group entities have not / has not undertaken any prohibited non-audit assignments for the company and are independent vis--vis the client company, by reason of revenues earned and the independence test are observed. Recommendation 16: Qualifications in Auditors Report ICAI should appoint a committee to standardise the language of disclaimers or qualifications permissible to audit firms. Anything beyond the scope of such permitted language should require the auditor to provide sufficient explanation. Recommendation 18: Risk Management The Board, its audit committee and its executive management must collectively identify the risks impacting the companys business and document their process of risk identification, risk minimisation, risk optimization as a part of a risk management policy or strategy. The Board should also affirm that it has put in place critical risk management framework across the company, which is overseen once every six months by the Board. Recommendation 19: Harmonization of Corporate Governance Standards The Task Force suggests that the Government and the SEBI as a market Regulator must concur in the corporate governance standards deemed desirable for listed companies to ensure good corporate governance. Section-B

Case Study Mr. X was a member of a company. He applied for the extracts of register of members. The company refused to give the same. Mr. X filed company petition before the CLB with a prayer to direct the company for an inspection and for issuing of extracts of its register of members. The Company resisted the petition contending that Mr. X had stated that he would not be in a position to come for the inspection and, therefore, he had no right to claim extracts of its register of members. The Company also contended that in terms of section 11 of the Depositories Act, 1996, the register of beneficial owners is maintained only by a depository and once the names of the depositories are entered in the register of members, the said register is complete in respect of the shares issued by the

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company, fulfilling the requirements of Act. The CLB even though held that the right to seek copy of the register of members is available only to the members, who inspected the register, yet did not decline the prayer of Mr. X considering his old age and directed the company to furnish an extract of its register of members, maintained in accordance with section 150, which would, however, not include the list of beneficial owners of shares of company. The appellant challenged the direction given by the CLB for not including the list of beneficial owners of the shares of the company in the membership list before the High Court. You are required to advise Mr. that will he succeed or not with reasons. Further will your advice be different if he is not the member of company. A member of a company has the following rights against the company: 1. Right to have the certificate of shares held or the certificate of stock issued to him within the prescribed time. 2. Right to have his name borne on the register of members. 3. Right to transfer shares subject to any restrictions imposed by the articles of the company. 4. Right to attend meeting of shareholders, received proper notice and to vote at the meetings. 5. Right to associate in the declaration of dividends and to apply to the Court for an injunction restraining the directors from paying dividends on an ultra virus declaration or out of capital. 6. Right to inspect the registers, indexes, returns and copies of a certificates etc. kept by the company and to obtain extracts or copy thereof. 7. Right to obtain copies of Memorandum and Articles on request and on payment of the prescribed fees.

According to Section 84(1) of the Companies Act, 1956, a share certificate once issued amounts to a declaration by the company to all the world that the person in whose name the certificate is made out and to whom it is given is a share holder in the company; in other

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words the company is estopped from denying his title to the shares. However, a forged transfer is a nullity. It does not give the transferee (Y) any title to the shares. 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 of X as the holder of the shares and to pay him any dividends which he ought to have received (Barton v. North Staffordshire Railway Co. 38 Ch D 456).

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