Assignment 2

Company Act 2006

Submitted by:

Ekta Subedi

177114

Group- A

BBA- 3rd year- 2nd semester

Kathmandu University School of Management (KU SOM)

Balkumari, Lalitpur

Submitted to:

Mr Sharan Shankar Poudel

Faculty

Corporate Law

April 29, 2020

1) BHP Private Limited has obtained a loan of Rs. 3 million from XYZ Bank Limited

against the collateral of company. No shareholder has given any personal guarantee but

Managing Director has given guarantee for 1 million. The company ran into difficulties

and sustained losses. Bank issued a letter to the company for recovery of the loan. At the

time being company has only net value of the assets Rs.1,00,000. Discuss and answer the

following question with reason and legal ground.

Question: Who is liable for loan, Managing Director or company itself and why?

Answer: As per the case, the Managing Director had guaranteed for 1 million rupees whereas

the company has guaranteed for the rest while taking the loan.

Section 104 titled “Company to be bound|, subsection (1) says that “Any act done or action taken

by or document signed by at least one director authorized by a company or any person authorized

to act for the company shall be valid and binding for the company”. Thus, as mentioned in the

given case, both the company and the director are liable for the loan because the director signed a

guarantee for 1 million. The director is liable for 1 million rupees as per his/her personal

guarantee and the company is responsible for rest of the 2 million rupees.

As a claim is made under the guarantee, the director will be liable to pay the company's debt up

to the limit of his pledge and, if he does not do so, XYZ Bank will be able to take him to court

and ultimately enforce a judgment.

2) Mr. Auditor was appointed and fixed his remuneration by 10th Annual General

Meeting of EMB Company Limited. During the time of auditing Mr. Auditor asked

evidence of transaction with Chairperson. Chairperson issued a letter of termination with

Board decision to Mr. Auditor instead of providing such document stating that Mr.

Auditor concealed his disqualification. Discuss and answer the following question with

reason and legal ground.

Question: Whether the decision to terminate Mr. Auditor in his term of office was lawful?

Answer:

Section 112 of the Company Act 2063 (2006) talks about the Disqualifications of auditor.

Under sub-section (1), gives the conditions for disqualification. Any person who is a director or

advisor who is entitled regular remuneration or cash benefit from the company, or a person

involved in the management of the company or a partner of any of them or/and employee of any

of such partners or a close relative of a director or partner, out of them, or an employee of such

relative is considered disqualified. Also, a debtor who has borrowed money from the company in

any manner and has failed to pay any dues payable to the company, along with his/her close

relatives. A person who has been sentenced to punishment for an offense pertaining to audit or is

declared insolvent is also considered disqualified. Even the shareholders of the company holding

one percent or more of the paid up capital of the company or his close relative isn’t suitable to be

hired as an auditor of the firm, and neither is a allegedly corrupted, fraud or a criminal offender.

Along with the above situations, any person who works, whether full time or part time, for any

governmental body or any other body owned fully or partly by the Government of Nepal or any

other company or a partner of such person or a person who is working as an employee of such
partner or a person who is authorized to sign any documents or reports to be prepared by the

management of the company is also considered disqualified.

Since the above factors are not mentioned in the case about Mr. Auditor and he was appointed in

the 10th Annual General Meeting of EMB Company Limited, making his appointment entirely

valid. He was also supposed to give information in writing to the company that he/she is not

disqualified pursuant to the criteria mentioned above. Since there was a consent in AGM about

the appointment, he was verified as a qualified person to be employed as an auditor, thus making

the chairperson’s action invalid.

Also, the auditor has to, prior to his/her appointment, give information in writing to the company

that he/she is not disqualified according to Sub-section(1). Since Mr. Auditor had to give

information in writing prior to his appointment, there is no proof that he had concealed any sort

of information. Thus, the removal of Mr. Auditor was completely unlawful. Additional to that,

Section 119 Subsection (3) also has a provision that while removing an auditor, the auditor

should be provided with a reasonable opportunity to defend him/herself. Thus, removing Mr.

Auditor has to be considered unlawful, as it was done without any clarification and process

mentioned in the Company Act.