Members and Shareholders

i)According to Section 2(55) of Companies Act, a person can acquire the membership of a company, inter alia, by subscribing to the Memorandum of Association of a company and shall be deemed to have agreed to become a member of the company on its registration.

In this case Ananya is not a member of the company because the company never came into existence as the certificate of registration was denied by the Registrar of Companies. It is also strange that Articles of a proposed company contain the subscription clause. It is generally the practice to include the subscription clause in the Memorandum of Association of the Company.

ii)According to Section 11 of Indian Contracts Act, 1872, only a person who is competent to contract can become a member of a company, As Anand, aged 12 is obviously a minor, he is incompetent to enter into a contract and hence cannot become a member of the company. In this case, the Register of Members of the company maintained u/s 88 of the Act in Form MGT-1 needs to be rectified.

iii)The provision to section 56(1) of the Companies Act, 2013, provides that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period (within 60 days from the date of execution of the instrument of transfer), the company may register the transfer on such terms as to indemnity as the Board may think fit. The Board of the company should be satisfied that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost. The proof may be in the form of an affidavit from the transferor or the transferee and supported by the purchase or sale note of the broker and the registration receipt issued by the postal authorities. In addition, the Board can take an indemnity on such terms as it may think fit to safeguard its position and after that company may register the transfer.

Since the share certificates and the share transfer form sent by Amal never reached the company due to loss in postal transit, Vimal continues to be member of the company. Amal has to prove to the company that he is the genuine purchaser of the shares from Vimal and also give satisfactory evidence of loss of documents in postal transit before the shares can be transferred to him.

iv)According to Section 2(55) of the Companies Act, 2013, every person who agrees to become a member of a company and whose name is entered in its Register of Members shall be a member of the company.

However, according to Section 11 of Indian Contracts Act, 1872, only a person who is competent to contract can become a member of a company, As Ashok has been declared as a bankrupt by the competent Court, he is no more sui juris.

Hence, the shares held by Ashok will be transferred to the Bankruptcy Trustee appointed u/s 125 of Insolvency and Bankruptcy Code, 2016 on the order of NCLT u/s 126 as part of the Bankruptcy Estate u/s 155 of the Code. An insolvent may be a member of a company as long as he is on the register of members. He is entitled to vote, but he loses all beneficial interest in the shares and company will pay dividend on his shares to the Official Assignee.

v)A debenture holder is a creditor to the company. A debenture holder is not a member of the company. Even when the company defaults on the payment of interest or the repayment of the debenture principal amount, the relationship between the debenture holder and the company is one of creditor-debtor only. Hence, Arpita is not a member of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 4(a) (Syllabus 2022).

According to Section 2(55) of the Companies Act, 2013, member, in relation to a company, means,

a.The subscribers to the memorandum of a company who shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members;

b.Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members shall, be a member of the company;

c.Every person holding shares of a company and whose name is entered as a beneficial owner in the records of a depository shall be deemed to be a member of the concerned company.

A company is composed of members, though it has its own separate legal entity. The members of a company are the persons who, for the time being, constitute the company, as a corporate entity.

A subsidiary company as member / shareholder of its holding company

As per section 19 of the Companies Act, 2013, a subsidiary company cannot become a member of its holding company.

Exceptions:

However, a subsidiary can hold shares in its holding company only under the following exceptional circumstances –

•where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or

•where the subsidiary company holds such shares as a trustee; or

•where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.

Foreigners as members

A foreigner may take shares in an Indian company and become a member subject to the provisions of the Foreign Exchange Management Act, 1999, but in the event of war with his country, he becomes an alien enemy and his power of voting and his rights to receive notices are suspended.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4A(ii) (Syllabus 2022).

Answer of the given question is as below-

a)A partnership firm is not a legal person and as such it cannot, in its own, become a member of a company. MK Associates, which is a partnership firm, cannot be a member of Company.

b)A foreigner may take the shares in an Indian Company and become a member subject to the provisions of the Foreign Exchange Management Act, 1999, but in the event of war with his country, he become an alien enemy and his power of voting and his rights to receive notices are suspended. Thus, Devid can be a member of Company.

c)HUF is not a juristic person, although it is a person for purpose of the Income Tax Act, 1961. HUF is represented by its Karta. There is no legal bar on HUF to invest its money in shares and securities and the Companies Act does not prohibit membership of HUF. In case of an HUF, the shares can be registered in the name of Karta of HUF.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2(d) (Syllabus 2017).

i.A member who is a minor is wholly incompetent to enter into a contract/agreement and as such cannot become a member of a company. Consequently, an agreement by a minor to take shares is void ab-initio.

ii.An agreement in writing for a minor to become a member may be signed on behalf of the minor by his lawful guardian and the registration of transfer of shares in the name of the minor, acting through his or her guardian, especially where the shares are fully paid cannot be refused on the ground of the transferee being a minor [Miss Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972 dated 17.2.78].

iii.If shares are transferred to a minor, the transferor will remain liable for all future calls on such shares so long as they are held by the minor even if the transferor was ignorant of his minority.

iv.In this case, a minor is not required to restore the dividend received by him during his minority and the company cannot invoke the doctrine of estoppel against him. [Sadiq Ali v. Jai Kishori, (1928) 30 Bom. L.R. 1346].

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(c) (Syllabus 2022).

Difference between the Member and the Shareholder

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4A(a) (Syllabus 2022).

i.Insolvent as member: Yes, An insolvent may be member as long as he is on the Register of members. He is entitled to vote, but he loses all beneficial interest in the shares and company will pay dividend on his shares to the Official Assignee or Receiver (Morgan Vs. Gray, (1953) ALL E.R. 213)

ii.Receiver: A receiver whose name is not entered in the register of members cannot exercise any of the membership rights attached to a share unless in a proceeding to which company is a party and an order is made therein. Mere appointment of a receiver in respect of certain shares of a company without more rights cannot, deprive the holder of the shares whose name is entered in the Register of Members of the Company, the right to vote at the meeting of the company. [Balakrishna Gupta v. Swadeshi Polytex Ltd. (19B5) 58 Com Cases 563 (S.C.))

iii.In the case of pledge: Before creation of any pledge or hypothecation in respect of a security, the beneficial owner is required to obtain prior approval of the depository and on creation of pledge or hypothecation; the beneficial owner shall give intimation of such pledge or hypothecation to the depository. The depository shall make appropriate entries in its records which will be admissible as evidence.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 3(a) (Syllabus 2017).

Subject to the provisions contained in the Memorandum of Association and Articles of Association of the company, any person who is capable to contract can become a member of company.

1.Pawnee - A Pawnee cannot be treated as holder of shares pledged in his favour, and the pawner continues to be member and exercise the rights of member. Pawnee has no right to foreclosure since he never had the absolute ownership at law and his equitable title cannot exceed what is specifically granted by law.

2.A partnership firm is not a legal person and as such it cannot, in its own name, become a member of a company.

3.A trade union registered under the Trade Union Act, can be registered as member and can hold shares but unregistered trade union cannot become member of company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2A(ii) (Syllabus 2017).

As per Section 2(55) of the Companies Act, 2013, member in relation to a company means:

(i)the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;

(ii)every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;

(iii)every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;

Since, holder of Global Depository Receipts is neither the subscriber to the Memorandum nor a holder of the shares, his name cannot be entered in the Register of Members. Therefore, a holder of Global Depository Receipts cannot be called a member of the company. The Overseas Depository Bank as referred in the ‘Scheme’ is neither the Depository as defined in the Companies Act and the Depository Act nor holding the share capital, therefore, it cannot be deemed to be a member of the company. A holder of Global Depository Receipts may become a member of the company only on transfer/ redemption of the GDR into underlying equity shares after following the procedure provided in the “Scheme”/ provisions of the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(b) (Old syllabus).

A company is composed of, members, though it has its own separate legal entity. The members of the company are the persons who, constitute the company as a corporate entity.

In the case of a company limited by shares, the shareholders are the members. The terms “members” and “shareholders” are usually used interchangeably being synonymous, as there can be no membership except through the medium of shareholding. Thus, generally speaking every shareholder is a member and every member is a shareholder. However, there may be exceptions to this statement, e.g., a person may be a holder of share(s) by transfer but will not become its member until the transfer is registered in the books of the company in his favor and his name is entered in the register of members. Similarly, a member who has transferred his shares, though he does not hold any shares yet he continues to be member of the company until the transfer is registered and his name is removed from the register of members maintained by the company under Section 88 of the Companies Act, 2013. A member is a person who has subscribed to the memorandum of association of the company. A shareholder is a person who owns the shares of the company. The bearer of a share warrant is not a member, but the bearer of a share warrant can be a shareholder.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(d) (Syllabus 2017).

Expulsion of a Member

A controversy had arisen as to whether a public limited company had powers to insert an article in its Articles of Association relating to expulsion of a member by the Board of Directors of the company where the directors were of the view that the activities or conduct of such a member was detrimental to the interests of the company.

The Department of Company Affairs (now, Ministry of Corporate Affairs) clarified that an article for expulsion of a member is opposed to the fundamental principles of the Company Jurisprudence and is ultra vires the company, the reason being that such a provision against the provisions of the Companies Act relating to the rights of a member in a company, the powers of the Central Government as an appellate authority under Section 111 of the Act and the powers of the Court under Sections 107, 395 and 397 of the Companies Act, 1956. These sections correspond to sections 58, 48, 235 and 241 of the Companies Act, 2013 respectively.

According to Section 6 of the Companies Act, 2013, the Act overrides the Memorandum and Articles of Association and any provision contained in these documents repugnant to the provisions of the Companies Act, is void.

The Department of Company Affairs (now MCA) has, therefore, clarified that any assumption of the powers by the Board of Directors to expel a member by alteration of Articles of Association shall be illegal and void.

As, under Article 141 of the Constitution, the law declared by the Supreme Court is binding on all courts within the territory of India, any provision pertaining to the expulsion of a member by the management of a company which is against the law as laid down by the Supreme Court will be illegal and ultra vires. In the light of the aforesaid position, it is clarified that assumption by the Board of Directors of a company of any power to expel a member by amending its articles of association is illegal and void. [Circular: Letter No. 32/75, dated 1.11.1975].

Conclusion: Hence, the provision in the Articles empowering the board to expel the member from the membership is void ab initio. The decision taken by the board to expel Sampat, a member is therefore invalid under the Companies Act.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(a) (Syllabus 2022).

A controversy has arisen as to whether a public limited company had powers to insert an article in its Articles of Association relating to expulsion of a member by the Board of Directors of the company where the directors were of the view that the activities or conduct of such a member was detrimental to the interests of the company.

The Department of Company Affairs (now, Ministry of Corporate Affairs) clarified that an article for expulsion of a member is opposed to the fundamental principles of the Company Jurisprudence and is ultra vires the company, the reason being that such a provision will be against the provisions of the Companies Act relating to the rights of a member in a company, the powers of the Central Government as an appellate authority under Section 111 of the Act and the powers of the Court under Sections 107, 395 and 397 of the Companies Act, 1956.

These sections correspond to sections 38, 58, 48, 235 & 241 of the Companies Act, 2013 respectively having the same impact as earlier provisions.

Further, according to Section 6 of the Companies Act, 2013, the Act shall override the Memorandum and Articles of Association and any provisions contained in these documents repugnant to the provisions of the Companies Act, 2013 shall be void.

Therefore, any assumption of the powers by the Board of Directors to expel a member by alteration of Articles of Association shall be illegal and void.

The Supreme Court in the case of Bajaj Auto Ltd. v. N.K. Firodia [1971] 41 Com Cases 1 has laid down the law as to the conditions on the basis of which directors could refuse a person to be admitted as a member of the company. The principles laid down by the Supreme Court in this case, even though pertain to the refusal by a company to the admission of a person as a member of the company, are applicable even with greater force to a case of expulsion of an existing member. As, under Article 141 of the Constitution, the law declared by the Supreme Court is binding on all courts within the territory of India, any provision pertaining to the expulsion of a member by the management of a company which is against the law as laid down by the Supreme Court will be illegal and ultra vires. In the light of the aforesaid position, it is clarified that assumption by the Board of directors of a company of any power to expel a member by amending its articles of association is illegal and void.

If Ram Singh a files a suit against the company or the directors he will certainly win the case, as expulsion of a member is illegal and void as per the Companies Act 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(c) (Syllabus 2017).

In the case of a subscriber, no application or allotment is necessary to become a member. Since, by virtue of his subscribing to the memorandum, he is deemed to have agreed to become a member and he becomes ipso facto member on the incorporation of the company and is liable for the shares he has subscribed.

According to Section 10(2) of the Companies Act, 2013, all monies payable by any member to the company under the Memorandum of Association or Articles of Association of the company shall be debt due from him to the company. Further, a subscriber to the Memorandum must make payment for his shares, even if the promoters have promised him the shares for services rendered in connection with the promotion of the company. When the Subscriber subscribes to the Memorandum, he gives an undertaking to the company that he will pay to the company for the shares he has subscribed.

Further, Subscribers has to take these shares directly from the company and not through transfer from other member(s).

In the instant case, Manmeet is not absolved from his liability to the company by purchasing the shares from Sumeet. He has a statutory obligation to buy the shares from the company by making payment to the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2(a) (Syllabus 2017).

The Articles of Association of a company cannot impose a blanket ban prohibiting transfer of shares in favor of a minor, as such a restriction is unreasonable and not sustainable. Section 44 of the Companies Act, 2013 provides that shares in a company are movable property and are transferable in the manner provided by the Articles.

The expression “in the manner provided by the articles of association the company” can only be interpreted to mean the procedure to be opted for transfer and impose restrictions, which are meaningful and reasonable. In case, the restriction imposed on transfer to a minor is accepted, it would mean that the shares of a deceased member can never be inherited by the legal heir who might be a minor. This would lead to a highly unjust situation and cannot be accepted as tenable. Accordingly, if the shares can be transmitted in favour of a minor, there is no reason why the shares which are fully paid -up and in respect of which no financial liability devolves on the minor are to be held as not transferable merely because of the ban imposed in the Article of Association [Saroj v. Britannia Industries Ltd., Appeal No.5/80 decided 14.12.81 by CLB].

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(c) (Syllabus 2017).

Section 95 of the Companies Act, 2013 provides that the register, their indices and copies of annual returns maintained under section 88 and 94 shall be prima facie evidence of any matter directed or authorised to be inserted therein by or under this Act.

A register of members is prima facie evidence of the truth of its contents. Accordingly, if a person's name, to his knowledge, is there in the register of members of a company, he shall be deemed to be a member and onus lies on him to prove that he is not a member. He must promptly appeal to the Tribunal for rectification of the register under section 59 of the Companies Act, 2013 to take his name off the register, failing which the doctrine of holding out will apply.

In Re. M.F.R.D. Cruz, A.I.R. 1939 Madras 803, the court held "when a person knows that his name is included in the register of shareholders and he stands by and allow his name to remain, he is holding out to the public that he is a shareholder and thereby he loses his right to have his name removed".

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(c) (Syllabus 2017).

As per Rule 5(1) of the Companies (Management and Administration) Rules, 2014, the entries in the registers maintained under section 88 of the Companies Act, 2013, shall be made within 7 days after the Board of directors or its duly constituted committee approves the allotment or transfer of shares, debentures, or any other securities, as the case may be.

As per Rule 5(4) of the Companies (Management and Administration) Rules, 2014, if any change occurs in the status of a member or debenture holder or any other security holder whether due to death or insolvency or change of name or due to transfer to Investor Education Protection Fund or due to any other reason, entries thereof explaining the change shall be made in the respective register. As per Rule 5(3), since forfeiture results in a change in the status of the member, the corresponding entry in the Register of Members, consequent upon any forfeiture of shares should similarly be made within seven days of the Board’s approval.

As per Rule 8(1) of the Companies (Management and Administration) Rules, 2014, the entries in the registers maintained under section 88 and index included therein shall be authenticated by the company secretary of the company or by any other person authorised by the Board for the purpose and the date of the board resolution authorising the same shall be mentioned. The law does not require that the Board must authorize a director. It may authorize any person, including an officer such as the CFO of the company.

Hence, the authorisation of CFO and authentication of entries in the register of members by him under the Board’s authority is valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2(e) (Syllabus 2022).

The Companies Act, 2013, stipulates that every company must maintain and keep books, registers and copies of Returns, documents at its Registered Office. These books are known as Statutory Books.

Statutory books are official records kept by a company pertaining to all legal and statutory matters. They are also known as statutory registers and records. A few examples of Statutory Registers are Register of Members, Register of Deposits, Register of Charges, Register of Significant Beneficial Owners etc. Requirement to maintain the Statutory Registers and records arises due to the various applicable provisions of the Companies Act, 2013 & rules framed there under. Non-compliance of these sections and rules attracts huge penalties on the companies and on officers in default.

The statutory registers are maintained at the registered office of the company or at such other place as the Board may decide. Entries in the registers shall be authenticated by the company secretary of the company, if any or by any other person authorized by the Board for this purpose.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(i) (Syllabus 2017).

(i)Section 88(4) of the Companies Act, 2013 empowers companies to keep foreign registers of members or debenture- holders, other security holders or beneficial owners residing outside India. It states:

“A company may, if so, authorized by its articles, keep in any country outside India, in such manner as may be prescribed, a part of the register referred to in section 88(1), called “foreign register” containing the names and particulars of the members, debenture-holders, other security holders or beneficial owners residing outside India.”

A foreign register is deemed to be a part of the company’s principal register and it should be kept in the same manner as the principal register and be likewise open to inspection.

A duplicate of such register should be maintained at the registered office in India and all entries made in the foreign register should be made in the duplicate register at the registered office as soon as possible.

(ii)According to Rule 7(11) of the Companies (Management and Administration) Rules, 2014, the company may discontinue the keeping of any foreign register; and thereupon all entries in that register shall be transferred to some other foreign register kept by the company outside India or to the principal register.

Thus, in the given case the Company has the option to discontinue maintenance of foreign register of members.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(e) (Syllabus 2022).

Section 88(4) of the Companies Act, 2013 empowers a company to keep foreign registers of members or debenture-holders, other security holders or beneficial owners residing outside India. Company may maintain such register if it is authorised by its Articles of Association. It shall contain the names and particulars of the members, debenture-holders, other security holders or beneficial owners residing outside India. A foreign register is deemed to be a part of the company's principal register and it should be kept in the same manner as the principal register and be likewise open to inspection.

The company shall, within thirty days from the date of the opening of any foreign register, file with the Registrar notice of the situation of the office in Form No.MGT.3 along with the fee where such register is kept; and in the event of any change in the situation of such office or of its discontinuance, shall, within thirty days from the date of such change or discontinuance, as the case may be, file notice in Form No.MGT.3 with the Registrar of such change or discontinuance.

A duplicate of such register should be maintained at the registered office in India and all entries made in the foreign register should be made in the duplicate register at the registered office as soon as possible. The company may discontinue the keeping of any foreign register; and thereupon all entries in that register shall be transferred to some other foreign register kept by the company outside India or to the principal register.

If a company does not maintain foreign register of members or fails to maintain them in accordance as per the provisions of the Companies Act, 2013, the company and every officer of the company who is in default shall be punishable with fine. Based on the above provisions, advice may be given to chairman of Local Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(e) (Syllabus 2017).

Following are the relevant provisions regarding entries in the register of members, debenture holders and other security holders as contained in Rule 5 of the Companies (Management and Administration) Rules, 2014:

•The entries in register of members shall be made within seven (7) days of approval of allotment or transfer of shares, debenture or other securities.

•Entry shall be made within seven (7) days in case of forfeiture or issue of duplicate or new share certificates after the approval of board or committee.

Applying the above rules, it can be said that entries related to allotment of debentures, issue of duplicate share certificates and forfeiture of shares shall be made within period of seven (7) days.

In the present case, the entries for allotment of debentures and issue of duplicate shares are made beyond the period of seven (7) days and hence not in order. Whereas the entry related to forfeiture of shares is made within seven (7) days and the same is in order.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2A(v) (Syllabus 2017).

If more than one person apply for shares in a company and shares are allotted to them, each one of such applicant becomes a member [Narandas v. India Mfg. Co., A.I.R. 1953 Bom. 433]. Unless the Articles of the company otherwise provide, joint members can insist on having their names registered in any order they may require. They may also have their holding split into several joint holdings with their names in different orders so that all of them may have a right to vote as first named holding in one or the other joint holdings (Burns v. Siemens Brothers Dynamo Works Ltd. (1919) 1 Ch. 225).

In the given case since AoA did not restrict specifically the entering of joint names in the register of members or having a split in shares and entering each of the joint holders name as the first holder, the company is bound to accept their claims and cannot refuse it.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3A(iv) (Old syllabus).

As per Rule 7 of the Companies (Significant Beneficial Owners) Rules, 2018, the reporting company (Himmat Ltd.) shall apply to the Tribunal within a period of 15 days of the expiry of the period specified in Form No. BEN-4,

i.where any person fails to give the information required by the notice in Form No. BEN-4, within the time specified therein; or

ii.where the information given is not satisfactory.

In accordance with section 90(7) of the Companies Act, 2013, for order directing that the shares in question be subject to restrictions, including:

a)restrictions on the transfer of interest attached to the shares in question;

b)suspension of the right to receive dividend or any other distribution in relation to the shares in question;

c)suspension of voting rights in relation to the shares in question;

d)any other restriction on all or any of the rights attached with the shares in question.

Hence, the company can seek order from the Tribunal and the order may be subject to restrictions.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(d) (Syllabus 2022).

As per Section 90 read with Rule 2(1)(h) the Companies (Significant Beneficial Owners) Rules, 2018 “significant beneficial owner” in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:

(i)holds indirectly, or together with any direct holdings, not less than ten percent of the shares;

(ii)holds indirectly, or together with any direct holdings, not less than ten percent of the voting rights in the shares;

(iii)has right to receive or participate in not less than ten percent of the total distributable dividend, or any other distribution, in a financial year through indirect holding alone, or together with any direct holdings;

(iv)has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone.

Ambar is holding 8% of equity shares of XYZ Pvt. Ltd. directly and holds majority stake in PQR ltd, hence he holds rights indirectly also in XYZ Ltd i.e. 2% equity shares indirectly. As he holds not less than 10% of the equity shares of XYZ Pvt. Ltd. he is a significant beneficial owner of that company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(a) (Syllabus 2017).

As per Rule 2(h) of the Companies (Significant Beneficial Owners) Rules 2018, Significant Beneficial Owner in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:

(i)holds indirectly, or together with any direct holdings, not less than 10% of the shares;

(ii)holds indirectly, or together with any direct holdings, not less than 10% of the voting rights in the shares;

(iii)has right to receive or participate in not less than 10% of the total distributable dividend, or any other distribution, in a financial year through indirect holding alone, or together with any direct holdings

(iv)has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone.

a)Joy holds 7% of equity in Zed Ltd. directly. He is also the trustee of a discretionary trust that holds 4% equity in Zed Ltd. He is a Significant Beneficial Owner since he holds total 11% equity in Zed Ltd. through indirect and direct holdings. Holding by way of being a trustee of a discretionary trust is considered to be indirect holding.

b)Joy holds 6% of equity while Mahek holds 7% of equity in Zed Ltd. and they are deemed to act together — Joy and Mahek are not Significant Beneficial Owner as there is no indirect holding and their acting together is irrelevant.

c)Joy holds 9% of equity in Zed Ltd. directly. He is also the Karta of a HUF that holds 7% of equity in Zed Ltd. - He is a Significant Beneficial Owner since he holds total 16% equity through indirect and direct holdings.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(ii) (Syllabus 2017).

As per Section 90(5) of Companies Act, 2013,the Company shall give notice in Form BEN -4 to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe— to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; And according to Section 90(7) of the Companies Act, 2013,the company shall—

(a)where that person fails to give the company the information required by the notice within the time specified therein; or

(b)where the information given is not satisfactory, apply to the Tribunal within a period of fifteen days of the expiry of the period specified in the notice (Form BEN-4), for an order directing that the shares in question be subject to restrictions including:

(a)Restrictions on the transfer of interest attached to the shares in question;

(b)Suspension of the right to receive dividend or any other distribution in relation to the shares in question;

(c)Suspension of voting rights in relation to the shares in question

(d)Any other restriction on all or any of the rights attached with the shares in question.

In the light of the above Stunning Commodities Ltd. gave notice seeking information from Ujjwal (not a member of the company) whom the company has reasonable cause to believe to be having knowledge of the identity of the Significant Beneficial Owner (SBO) of the Company. It is observed that information given by Ujjwal is not satisfactory. Accordingly, the CEO has to be informed that the company can apply to Tribunal for order direction the shares in question be subject to restrictions.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2(e) (Syllabus 2017).

As per Section 90 of the Companies Act, 2013 read with Rule 2(1)(h) of the Companies (Significant Beneficial Owners) Rules, 2018, Significant Beneficial Owner (SBO) in relation to a reporting company means an individual referred to in Section 90(1), who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:-

(i)holds indirectly, or together with any direct holdings, not less than 10% of the shares;

(ii)holds indirectly, or together with any direct holdings, not less than 10% of the voting rights in the shares;

(iii)has right to receive or participate in not less than 10% of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;

(iv)has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct-holdings alone.

Further, Explanation III to above referred Rule 2(1)(h), for the purpose of definition of SBO, where the member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, then, an individual shall be considered to hold a right or entitlement indirectly in the reporting company, only if he holds a majority stake in that member; or if he holds a majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member.

Further, as per Rule 2(1)(d) of the SBO Rules, 2018 referred above, "majority stake" (as referred in Explanation III above) means;

(i)holding more than one-half of the equity share capital in the body corporate; or

(ii)holding more than one-half of the voting rights in the body corporate; or

(iii)having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate.

Accordingly, in respect of the shares of Spandan Ltd. is indirectly held by A, B and C (through Harsh Private Ltd), the SBO will be such individual who will meet at least one of the two criteria referred hereinafter:

Therefore, neither of A, B or C could be said to be the SBO in respect of the 50% shares of Spandan Ltd. held by them indirectly (through Harsh Private Limited).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(iii) (Old syllabus).

In terms of Section 90 of the Companies Act, 2013 every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India holds beneficial interests, of not less than 25% or such other percentage as may be prescribed, in shares of a company or the right to exercise or the actual exercise of significant influence or control as per as Section 2(27) of Companies Act, 2013, over the reporting company is a significant beneficial owner.

Such an individual being the Significant beneficial Owner holding such beneficial interest is required to make a declaration to the reporting company specifying the nature of his interest & other particulars as required.

From commencement of the Companies (SBO) Amendment Rules, 2019, every SBO in a reporting company, is required to give the requisite declaration of his beneficial ownership in Form No. BEN-1 to the reporting company within 90 days from such commencement

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(i) (Syllabus 2017).

In terms of Section 90 of the Companies Act 2013 read with Rule 2(1)(h) of the Companies (Significant Beneficial Owners) Rules, 2018, an SBO is an individual who either singly or jointly holds, indirectly or along with other direct holdings, not less than 10% of shares or 10% of voting rights or 10% of total distributable dividends in the Indian company or has been vested with the right of exercising significant influence or control, while also indirectly holding any one of the three rights mentioned above.

(i)S holds directly 10% of equity in A Ltd and he holds 55% of equity in H Ltd which holds 1% equity in A Ltd - He is a Significant Beneficial Owner since he holds 11% totally through indirect and direct holdings.

(ii)S holds 8% of equity while Mr M holds 7% of equity in A Ltd and they are deemed to act together - S and M are not Significant Beneficial Owner Significant Beneficial Owner as there is no indirect holding and their acting together is irrelevant.

(iii)S holds 8% of equity in A Ltd directly. Mr S is also the Karta of a HUF that holds 7% of equity in A Ltd. - He is a Significant Beneficial Owner since he holds total 15% equity through indirect and direct holdings.

(iv)S holds 8% of equity in A Ltd directly. Mr S is also the trustee of a discretionary trust that holds 3% equity in A Ltd. He is a Significant Beneficial Owner since he holds total 11% equity in A Ltd through indirect and direct holdings. Holding by way of being a trustee of a discretionary trust is considered to be indirect holding.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(a) (Old syllabus).

By virtue of section 91(1) of the Companies Act, 2013, a company may close the register of members or register of debenture holders or register of other security holders for any period or periods not exceeding in the aggregate forty-five days in each year, but not exceeding thirty days at any one time.

In the case given in question AEASPL has closed its register of members for 12, 10 and 15 days in May, August and October, 2025 respectively. Therefore, the closure is within the time limits prescribed in section 91(1) as each closure has not exceeded 30 days.

If the company closes the register again in December, 2025 for another 14 days, the aggregate closure during the year would be (12+10+15) plus 14 = 51 days which will exceed the prescribed time limit of 45 days.

Hence, the proposal of the Board of the company is not valid under Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 1(b) (Syllabus 2022).

According to section 91(1) of Companies Act, 2013 a company may close the register of members or register of debenture holders or register of other security holders for any period or periods not exceeding in the aggregate forty-five days in each year, but not exceeding thirty days at any one time. A previous notice of at least seven days or such lesser period as may be specified by SEBI is to be given by a listed company.

In the case given in question Vibgyor Ltd. has closed its register of members for 14 and 16 days in May and July 2023 respectively. Therefore, the closure is within the time limits prescribed in section 91(1) as each closure has not exceeded 30 days.

If the company closes the register again in November 2023 for another 20 days, the aggregate closure during the year would be 50 (14+16+20) days which will exceed the prescribed time limit of 45 days.

Hence, the proposal of Prakash, HOD (Finance) of the company, is not valid under the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(d) (Syllabus 2017).

In terms of section 91 of the Companies Act, 2013, a Company may close the register of members or the register of debenture-holders or the register of other security holders for any period or periods not exceeding in the aggregate 45 days in each year, but not exceeding 30 days at any one time, subject to giving of previous notice of at least 7 days or such less period as may be specified by Securities and Exchange Board for listed companies.

Applying the aforesaid provisions to the instant case, the said company had violated Sec 91 by closing at one go for a period beyond 30 days (in the given case, it was for 31 days) but not violated the aggregate period of 44 days in a year ( in the given case, it was for 45 days during the financial year 2017-18).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 5(d) (Old syllabus).

As per section 94(3) of Companies Act, 2013 read with Rule 14 of the Companies (Management and Administration) Rules, 2014, any member, debenture-holder, other security holder or beneficial owner or any other person may–

(a)take extracts from any register, or index or return without payment of any fee; or

(b)require a copy of any such register or entries therein or return on payment of such fees as may be specified in the Articles of Association of the company but not exceeding ₹10 for each page. Such copy or entries or return shall be supplied within seven days of deposit of such fee.

Such particulars of the register or index or return as may be prescribed shall not be available for inspection under section 94(2) of the Companies Act, 2013 or for taking extracts or copies under section 94(3) of the Companies Act. 2013.

For the purposes of this sub-rule, reasonable time of not less than two hours on every working day shall be considered by the company.

Since, the permissible cost per page is ₹10 and the copy should be supplied within 7 days, the action of the company is not valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2(c) (Syllabus 2022).

Inspection of Annual Return – Section 94 read with Rule 14 of the Companies (Management & Administration) Rules, 2014

•Copies of Annual returns prepared pursuant to Section 92, shall be open for inspection during business hours, of not less than two hours on every working day as the board may decide, by any member, debenture holder, other security holder or beneficial owner without payment of fee and by any other person on payment of such fee as may be specified in the articles of association of the company but not exceeding 50 rupees for each inspection.

•Any such member, debenture holder, security holder or beneficial owner or any other person may require a copy of return on payment of such fee as may be specified in the articles of association of the company but not exceeding 10 rupees for each page. Such copy of return shall be supplied within 7 days of deposit of such fee.

•The Central Government may also, by order, direct an immediate inspection of the document, or direct that the extract required shall forthwith be allowed to be taken by the person requiring it.

Return to be Evidence – Section 95

•Copies of annual returns maintained under Section 94 of the Companies Act, 2013 shall be prima facie evidence of any matter directed or authorised to be inserted therein by or under the Companies Act, 2013.

Shantilal falls in the category of ‘Other Person’ entitled for inspection of annual return and extracts thereof on payment of prescribed fees. If the company rejects his application, he can seek the relief from the Central Government.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6A(iii) (Syllabus 2022).

Following are the main differences between Minority Shareholders and Dissenting Shareholders-

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(c) (Old syllabus).

In India, the Companies Act, 2013 attempts to maintain a balance between the rights of majority and minority shareholders by admitting in, the rule of the majority but limiting it at the same time by a number of well-defined minority rights, and thus protecting the minority shareholders as well.

The rule of Foss V. Harbottle establishes the rule of majority but it is not absolute but subject to certain exceptions and the minority shareholders are protected by

(a)the common law; and

(b)the provisions of the Companies Act, 2013.

Section 241 to Section 245 of Chapter XVI of the Companies Act, 2013 deals with the provisions relating to prevention of oppression and mismanagement of a company. Oppression and mismanagement of a company mean that the affairs of the company are being conducted in a manner that is oppressive and biased against the minority shareholders or any member or members of the company. To prevent the same, there are provisions for the prevention and mismanagement of a company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(iv) (Syllabus 2017).

Justification: The justification for the rule laid down in Foss v Harbottle 67 E.R 189; (1843) 2 Hare 461 can be summarized as follows- the will of the majority prevails.

The Rule preserves the right of the majority to run the company as per the wish of the majority. Generally, if any wrong is done to the company, the company being a juristic person capable of suing and being sued, it is the company itself that can seek redressal from the appropriate legal forum and not an individual shareholder.

Advantages: The main advantage of the principles enunciated in the Foss v Harbottle case law are:

a)Recognition of the separate personality of the company

b)Need to preserve the right of majority to decide how the affairs of the company shall be conducted

c)Avoiding multiple suits by minority shareholders for petty grievances - real or imaginary

d)Futile litigation by minority if the irregularity complained of can be subsequently ratified by the majority shareholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(v) (Syllabus 2017).

Exceptions to the majority rule:

•The majority rule in Foss v Harbottle 67 E.R.189 ; (1843) 2 Hare 461 states that no action can be brought by a minority member against the directors in respect of a wrong alleged to be committed to the company. However, the rule in Foss v Harbottle is not absolute but is subject to certain exceptions. Apart from the protection by the Companies Act, 2013, the minority shareholders are also protected by common law i.e., unwritten customs and practices having the force of law.

•In a noted case ICICI v Parasurampuria Synthetics limited, the Delhi High Court has ruled that an automatic application of the rule of majority as enunciated in Foss v Harbottle to the Indian corporate realities case would not be proper. The Court has said that though financial institutions hold only a small percentage of the shares in a company, they provide the bulk of finance as working capital for the continuous day-to-day operations of the company and therefore, to exclude them or to render them voiceless on application of the principles of Foss v Harbottle Rule would be unjust and unfair.

•The Rule also does not apply in case of ultra-virus acts. Where the directors representing the majority of shareholders perform an illegal act or ultra-virus act for the company, an individual shareholder has the right to bring an action / law suit to restrain the company by an order or an injunction of the Court from the carrying on any ultra-virus act by the company as decided in Bharat Insurance Limited v Kanhya Lal (A.I R 1935) case.

•When an act done by the majority amounts to a fraud on the minority shareholders, an action to restrain the company or the wrong doers can be brought by even an individual shareholder. The Court will see whether the resolution passed by the majority is bonafide for the benefit of the company as a whole (Allen v Gold Reefs of West Africa case law).

•If the wrong doers are in control of the company, the minority shareholders can take legal action for fraud by the majority.

The Court may entertain the plea because, if the minority shareholders are denied the right of legal action, their grievance would never reach the Court as the wrongdoers themselves being in control of the affairs of the company, they will never allow the company to sue the majority shareholders as decided in a case law (Edwards v Haliwell (1970) 2 AII E.R)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(a) (Syllabus 2017).

The general principle of company law is that every member holds equal rights with other members of the company in the same class. The scale of rights of members of the same class must be held evenly for smooth functioning of the company. In case of difference(s) amongst the members the issue is decided by a vote of the majority.

Since the majority of the members are in an advantageous position to run the company according to their command, the minority of shareholders are often oppressed. The company law provides for adequate protection for the minority shareholders when their rights are trampled by the majority. But the protection of the minority is not generally available when the majority does anything in the exercise of the powers for internal administration of a company.

In Pavlides v. Jensen (1956) Ch. 565, a minority shareholder brought an action for damages against three directors and against the company itself on the ground that they have been negligent in selling a mine owned by the company for £ 82,000, whereas its real value was about £ 10,00,000. It was held that the action was not maintainable. The judge observed, it was open to the company, on the resolution of a majority of the shareholders to sell the mine at a price decided by the company in that manner, and it was open to the company by a vote of majority to decide that if the directors by their negligence or error of judgement has sold the company's mine at an undervalue, proceedings should not be taken against the directors".

Accordingly, the action of Ajit is not justified.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 1(c) (Syllabus 2017).

The Company Law provides for adequate protection for the minority shareholders when their rights are trampled by the majority. However, the protection of the minority is not generally available when the majority does anything in the exercise of their powers for internal administration of a company. The court will not usually intervene at the instance of shareholders in matters of internal administration, and will not interfere with the management of a company by its directors, so long they are acting within the powers conferred on them under the Articles of the company. In other words, the Articles are the protective shield for the majority of shareholders who compose the Board of directors for carrying out their object at the cost of minority shareholders. The basic principle of non-interference with the internal management of company by the court was laid down in a celebrated case of Foss vs. Harbottle that no action can be brought by a member against the directors in respect of a wrong alleged to be committed to a company. The company itself is the proper party of such an action.

However, the rule in Foss vs. Harbottle is not absolute but is subject to certain exceptions. In other words, the rule of supremacy of the majority is subject to certain exceptions and thus, minority shareholders are not left helpless, but they are protected by;

a)The common law and

b)The provision of the Companies Act, 2013

The cases in which the majority rule does not prevail are commonly known as exceptions to the rule in Foss vs. Harbottle and are available to the minority. In all these cases an individual member may sue for declaration that the resolution complained of is void, or for an injunction to restrain the company from passing it. The said rule will not apply in the following cases:

(1)Ultra Vires Acts- Where the directors representing the majority of shareholders perform an illegal or ultra vires act for the company, an individual shareholder has right to bring an action. The majority of shareholders have no right to confirm an illegal or ultra vires transaction of the company. In such case a shareholder has the right to restrain the company by an order or injunction of the court from carrying out an ultra vires act.

(2)Fraud on Minority- Where an act done by the majority amounts to a fraud on the minority; an action can be brought by an individual shareholder.

(3)Wrongdoers in Control of the company- If the wrongdoers are in control of the company, the minority shareholders’ representative action for fraud on the minority will be entertained by the court

(4)Resolution requiring Special Majority but is passed by a Simple Majority- A shareholder can sue if an act requires a special majority but is passed by a simple majority. Simple or rigid, formalities are to be observed if the majority wants to give validity to an act which purports to impede the interest of minority.

(5)Personal Actions- Individual membership rights cannot be invaded by the majority of shareholders. It is to be noted that shareholder is entitled to all the rights and privileges appertaining to his status as a member.

(6)Breach of duty- The minority shareholder may bring an action against the company, where although there is no fraud, there is a breach of duty by directors and majority shareholders to the detriment of the company.

(7)Prevention of oppression and mismanagement - The minority shareholders are empowered to bring action with a view to preventing the majority from oppression and mismanagement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 5(a) (Old syllabus).

In the case of Pavlides v. Jensen (1956) Ch. 565, a minority shareholder brought an action for damages against three directors and against the company itself on the ground that they have been negligent in selling a mine owned by the company for £ 82,000, whereas its real value was about £ 10, 00,000. It was held that the action was not maintainable. The judge observed, “It was open to the company, on the resolution of a majority of the shareholders to sell the mine at a price decided by the company in that manner, and it was open to the company by a vote of majority to decide that if the directors by their negligence or error of judgement has sold the company’s mine at an undervalue, proceedings should not be taken against the directors”.

Applying the above interpretation, the action for damages under taken by the minority shareholders of XYZ Ltd. is not maintainable. Hence an action for damages neither against the company nor against the directors is valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(v) (Syllabus 2017).

An insolvent may be a member of a company as long as he is on the register of members. He is entitled to vote, but he loses all beneficial interest in the shares and company will pay dividend on his shares to the Official Assignee or Receiver [Morgan v. Gray, (1953)]. Hence his claim is invalid and his dividend shall be paid to official assignee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(iii) (Syllabus 2017).

A trade union registered under the Trade Union Act, 1926 can be registered as a member and can hold shares in a company in its own corporate name [All India Bank Officers Confederation v. Dhanlakshmi Bank Ltd., (1997)]. Hence, a registered trade union can become members of a company.

If the Auto drivers association is a registered trade union then the rejection by the company to allot shares in the Association name is not justifiable.

But if it is not registered then the members of the association can hold the shares in their joint names only and shares cannot be allotted in the name of the trade union.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(a) (Old syllabus).

A foreigner may take shares in an Indian company and become a member subject to the provisions of the Foreign Exchange Management Act, 1999, but in the event of war with his country, he becomes an alien enemy and his power of voting and his rights to receive notices are suspended.

Accordingly, in the given case there was a war between India and Pakistan between 10th August, 2018 and 28th September, 2018, the act of the chairman to suspend voting shareholder of enemy country is valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 5(a) (Old syllabus).

The Companies Act, 2013 contains no provisions with regard to the registration of shares in the name of a public office. Shares cannot, therefore, be registered in the names of public offices like the Collector of Central Excise or Chief Commissioner of Income Tax etc.

Hence, the transfer lodged by Chief Commissioner of Income Tax to transfer the shares of Mr. Reddy is not tenable under the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 5(b) (Old syllabus).