What are the restrictions under the Companies Act in the matter of loans by a company

to its Directors and their relatives? Would you consider sale of

a company’s flat to its Director as a lom, if the consideration for the sale of flat is

to be paid in instalments by the Director? [May, 1994]

30. Mr. X was convicted for an offence under the Companies Act, 1956 and was fined Rs. 3,000 in June, 1993. He was appointed Managing Director of a

Public Company for a period of 5 years with effect from 1^st August, 1993 on a consolidated remuneration of Rs. 6,000 per month. The appointment was

duly approved by the company in its General Meeting held on 30^th September, 1993. The company continuously suffered losses for the last 3 financial

years ended 31.3.91,31.3.92 and 31.3.93. and on account of these losses about 60 per cent of the net worth of the Company was eroded. The Company

did not seek the approval of the Central Government for the appointment of Mr. X as Managing Director. Discuss the following:

(i) The validity of appointment of Mr. X as Managing Director and of the acts done by him as Managing Director.

(ii) Will your answer be different if Mr. X was appointed without remunera tion? [May, 1994]

31. Explain whether it is in order for a Director liable to retire by rotation at the next

Annual General Meeting to continue to function as a Director in the following cases :

(i) The company defaulted in holding the Annual General Meeting.

(ii) The Annual General Meeting was held in time but the vacancy caused by his retirement was not filled up. . [May, 1994]

32. Explain whether it is in order for a company to continue to pay its Directors, sitting fees at the rate of Rs. 3,000 for each Board Meeting as provided in its Articles of Association even after it has become a Deemed Public Company.

[May, 1994]

33. A is the managing director of a public limited company with a paid-up capital of Rs. 5 crores. He is also a partner of a firm of which the other partners

are his wife and two sons. The company proposes to enter into a contract with the firm for the sale of its own products of the value of Rs. 3 lakhs, on

credit.

(j) When can such a contract be entered into?

(ii) What are the duties of A in such a case?

(iii) Will it make any difference if the contract is entered into with a private limited company in which the wife of the Managing Director and his two sons are members? [November, 1993]