CASE STUDY ON THE COMPANIES ACT, 1994

Programme: MBA Course Title: Legal Environment of Business Course Code: L501

Submitted To: Rehan Husain Course Instructor

Submitted by: Md. Raihan Shourov Roll-139 Batch- MBA 46D

Submission Date: January 14, 2012

Institute of Business Administration University of Dhaka

Table of Content Content Analysis of the case

Company Formation.

Page
1 1

Transfer of Share 1 Withdrawal made by Mr. Sattar.. 1 Witholding remuneration and Work Barriers (no entry and no desk). 2 Formation of Sattar Real Estate Ltd 2 Winding up of Sattar Homes Ltd 3 Transferring the entire fund and using office space. 4

Answer to the Questions

Analysis of the case

Company Formation:
Section 90(2) states that a private company shall have at least two directors.

Since the exact number of appointed directors has not been provided in the case, it is assumed that all the five shareholders were made directors and the analysis will be carried on accordingly.

Transfer of share:
Section 30(1) -states that shares of a company are movable property and shall be transferable. Section 38 -states the registration process of transfer of shares. Subsection 7 permits the company to refuse the registration of the transfer thereof.

Since the transfer did comply with these sections, it can be inferred that the aforesaid transfer is legal assuming that it was approved in general meeting of the board of directors.

Withdrawal made by Mr. Sattar:

Section 103(1) states that a director of a private company can obtain loan from the company provided that the loan amount will not exceed 50% of the paid up value of the shares held by such director in his own name and the loan has to be sanctioned by the Board of Directors of the company and approved by the general meeting. Subsection 2 states a person violating subsection 1 will be penalized with the fine which extend to five thousand taka or simple imprisonment for six months. Section 108(1) (g) states the office of a director shall be vacant if he accepts loan from the company in contravention of section 103.

Since the incident took place does not comply with these sections it can be assumed illegal and thus Mr Sattar should be fined or imprisoned and in

addition, his office should be vacant upon application made by Mr Titu to the court.

Witholding remuneration and Work Barriers (no entry and no desk):

Section 195 (a, b) states that inspectors will investigate the reported activities upon application filed by member(s) having not less than one-tenth share capital or being one-fifth of members as registered. Section 233 (1-5) states that upon successful completion of section 195 (a, b) any member of a company may bring to the notice of the court by application that his or their interests are being or likely to be discriminated owing to the affairs or acts of the company, the power of the directors or a resolution of the members, debenture holders or any class of them and thus the legal proceedings will be carried out accordingly.

These incidents can be identified and solved based on these aforesaid sections (195 and 233) again upon application made by Mr. Titu.

Formation of Sattar Real Estate Ltd:

Setting up a new company without Mr. Titu, is not an illegal activity. However the problem is the name of the new company i.e. Sattar Real Estate Ltd which sounds nearly identical to Sattar Homes Ltd.

Section 11 (1, 2, 3) states that a company can not be registered with a name identical, to the name of an existing company or with a similar name as to deceive. However if the existing company is being dissolved and signifies written consent then the new company can be registered and failure to obtain this will compel the newer one to change its name within 120 days and subsequent failure will fine the company 500tk per day and its officers 100tk per day.

Without further analysis, it is difficult to determine whether the name of Sattar Real Estate Ltd should be changed or not since it is unknown whether Sattar Homes Ltd is going to be dissolved and providing its written consent. So this report carries on towards next argument and comes back to the point.

Winding up of Sattar Homes Ltd:

Section 234 states that the winding up of a company may be voluntary. Section 286 (1, 2) states that a company may be wound up voluntarily when fixed by the articles or occurrence of an event or by special resolution or by its liabilities.

Based on these sections and case scenario(no over burdening liability), it appears that Sattar Homes Ltd can only be wound up by special resolution assuming that the duration was not fixed by articles. Moreover, it is clear that this special resolution was not presented to the board of directors as Mr. Titu came to know it later on. However, Mr. Sattar and other shareholders still may try to wind up Sattar homes Ltd and make application to the court.

Section 253 states that the winding up of a company may be stayed upon application of creditor(s) or contributor(s) bringing satisfactory proof to the court after making the order for winding up. Section 254 states that the court shall consider the wishes by sufficient evidence of the creditors or contributories relating to winding up.

As to the matter of law Sattar Homes Ltd can not be wound up and to stop the efforts in doing so, Mr. Titu can plead under above mentioned sections before the court.

Transferring the entire fund and using office space:

Having 80% approval from the board of directors, Mr. Sattar along with others is trying to transfer the fund and use the office space and Mr. Titu owning 20% share capital cannot stand against the board and thus becomes a victim. However, legal assistance is available to him as like as previous issues discussed. Section 191 states that every member of the company is entitled to the reports of balance sheet, profit and loss account and other related materials of the company in which he is a member. Thus, Mr. Titu has legal right to these key reports of financial performance. As illustrated in section 233(1-5) Mr. Titu can apply to the court in this regard after fulfillment of section 195 (a, b) and this procedure has been stated in presentation of these sections earlier in this report. Then this transfer and use of space will be scrutinized by competent inspectors.

Answer to the Questions

Will Mr. Titu obtain his remuneration? Since Mr. Titu served as marketing director he is entitled to remuneration. If he pleads before court under section 195 and 233, he is likely to get his remuneration. However, a brief analysis of this fact has been presented earlier in this report.

Can the business of Sattar Real Estate Ltd be stopped?

The name of Sattar Real Estate might be changed if Mr. Titu files an application under section 11 to the court alleging that this company is likely to deceive customers by using a name similar to Sattar Homes Ltd. He might try to stop business of Sattar Real Estate under section 346 stating that the business in not in operation. However, this approach is less likely to be effective. In this case, applying under section 195 and 233 he might claim that Sattar Real Estate is: Using office space illegally, Transferring fund illegally and Using loan of 5000,000tk made by Mr. Sattar This might result in a stop to the business of Sattar Real Estate Ltd.

Can the bank account of Sattar Homes Ltd be frozen?

The bank account of Sattar Homes Ltd can be frozen by the order of the court upon application filed under section 195 and 233 if it appears that Loan of 5000,000tk was illegal (violation of 103) Transferring the entire fund is illegal

How can he know the income and expenditure of both the companies?

According to section 191, Mr. Titu has legal rights to the financial statements of Sattar Homes Ltd. Since he is not a member of Sattar Real Estate Ltd he is not entitled to the reports of this company. However, he may plead for such, claiming fraudulence therein under section 195 and 197.

What other illegalities do you think have been committed?

A group of illegalities have been discussed earlier. Those are listed below as asked in the question: Withholding remuneration of Mr. Titu Loan of 5000,000tk made by Mr. Sattar Office desk removal and no entrance Using office space of Sattar Homes Ltd by Sattar Real Estate Ltd Attempt to wind up Sattar Homes Ltd

Can he get more shares in Sattar Homes Ltd?

Initially Mr. Titu owned 100 shares of Sattar Homes Ltd. But later on, he was offered 100 more shares at 100,000tk and he paid for in cash. In the analysis, it has been assumed that this transfer has been approved by the board of directors. Thus Mr. Titu is provided with 100 more shares which totals into 200 shares. However, if he seeks to have more shares then it is difficult to predict whether there will be any transfer or not.