Chapter 7: Law of Company and Insolvency Arbitration

Very Short Question Answer

1. What includes by a special resolution?

A special resolution includes:

• Increase of authorized capital of the company.
• Decrease of share capital.
• Conversion of company from private to public or public to private company.
• Amalgamation or merger of company.
• Issue of Bonus share
• Change of name and objectives of the company.

2. What is meant by quoram?

The term quoram refers the minimum number of shareholders presented in the meeting of a company to be a meeting valid. Section 73 of the companies Act 2063, the quorum of the AGM of a private limited company depends upon it article of association and in case of a public company 3 shareholders representing more 50% of the total number of the share of the company distributed is the quorum for a valid meeting. If the meeting is cancelled by reason of quorum a notice of 7 days is to be given and in that meeting if 3 shareholders representing 25% of shares present the quorum is completed.

3. State any five matters to be included in the director’s report.

The matters to be included in the director’s report:

• Review of the transaction of the previous year.
• Impacts, if any, caused on the transactions of the company from national and international situations.
• Achievements in the current year as at the date of report and opinions of the board of directors on matters to be done in the future.
• Industrial or professional relation of the company.
• Alterations in the board of directors and the reasons thereof.

4. Who is an auditor?

Auditor is a person or officer of a company appointed to verify the financial documents and to make a report to the shareholders in the general meeting. An auditor can be appointed by the board of directors, by the general meeting or by the office of the company registrar or by the office of the Auditor General in case of a government company.

• Who can apply for the insolvency proceedings? The following entity can apply for the insolvency proceedings:
• In the case of a bank or financial institution carrying on banking and financial business, the Nepal Rastra Bank, or
• In the case of an insurance company carrying on insurance business, the Insurance Board formed pursuant to the Insurance Act, 2049, or
• In the case of a company which cannot undergo voluntary liquidation without approval of the competent body or authority, except that mentioned in Clause (a) or (b), such authority.

5. What is arbitration?

Arbitration is an alternative depute resolution process where the parties of a dispute refer their disputes and difference relating to civil matters to settle them in a judicial manner to a person a group of persons, called arbitrators, appointed by them without recourse to a court of law whereby the parties of dispute agrees to follow the decision given by them.

6. Who is an arbitrator?

Arbitrator refers a person or group of person to whom a dispute is referred by the parties of the dispute for impartial decision and the parties agreed to follow the decision given by them whatsoever it may be. Generally, arbitrators are those persons who are experts in the particulars nature of dispute and the parties have trust and confidence upon them.

7. State any two matters which cannot be referred to arbitration.

The following matters are not referable to arbitration:

• Disputes relating to matrimonial relation, e.g., a suit for divorce or restitution of conjugal right.
• Testamentary matters; e.g., the questions of genuineness of proofs, evidence or a will documents.

8. What is award?

Award is a judgment or final decision of an arbitrator or Arbitral Tribunal on all matters referred to arbitration. It is, in fact, a document containing the decision of the arbitrator. The arbitrator shall deliver the decision within 120 days from the date of submission of documents as asked by the arbitrator.

9. How an award is executed?

[2] Section 34 of the Act has provided various provisions for the execution of the award taken in the foreign country by foreign arbitration tribunal. For this, the party willing to implement the award by foreign arbitration shall submit an application to the Appellate Court with the necessary documents. If the Appellate Court is satisfied with all the requirement, it gives an order to the District Court of its execution.

Short Question Answer

1. What is minute? How minutes are kept in a company meeting.

Minute is an official record of the proceedings of the meetings either ordinary general, extra-ordinary general meeting of shareholder or meeting of board of directors of a company. The decisions taken, whatever may be, are recorded in writing and signed by the person having authority and necessary by law. Decision taken in meetings to be valid, in general, must be stated in minutes.

PROVISIONS REGARDING THE KEEPING OF MINUTES

1. Fulfillment of particulars: Particulars which are to be mentioned must be fulfilled in the minute. For example, the date, and place of meeting; who has chaired the meeting; about the presence, validity of meeting; about quorum, the proposals put for two discussions; and the decision taken by unanimously or majority etc.
2. Signatory in the minute: The minute with the particulars stated above must be signed by the chairperson, or company secretary and a shareholder of the company otherwise minute can not be valid.
3. Keeping minute openly: Every member of a company has right to see and study of the minute during the office time of the company and such is to be managed by the directors of the company. The minute should be kept in the registered office of the company.
4. Notice of particulars of minute: Within 30 days of the general meeting all the particulars stated in the minute should be sent to the shareholder or should be published in a daily newspaper of national level. Any shareholder if intends to obtain the photocopy of the particular of general meeting the company should provide photocopy by taking fees as per the articles of association.

2. What are the different modes of winding up of a company in Nepal? Explain.

MEANING OF WINDING-UP OF A COMPANY

Winding up or liquidation of a company refers the last stage of its life. It is a process by which the life of a company can be brought to an end. It means the proceedings by which the management of a company’s affairs is taken out of the director’s hands, the assets of a company are disposed of, the debts are paid off, and the surplus, if any, distributed among the members in proportion to their holdings in a company.

Thus, it is a process by which the management of company’s affairs it taken out of its director’s hand, its assets are realized by a liquidator, and its debts paid out of the proceeds of realization and any balance remaining is return to its members. At the end of the winding up, the company will have no assets or liabilities and will therefore, be simply a final step for it to be dissolved. Then, its legal personality as corporation to be brought to an end.

COMPULSORY WINDING UP

A company under specified circumstances wound up either by members or creditor, or by the order of a court. If winding up of a company under a resolution of member or creditor is known as voluntary winding up. Where winding up of a company under the order of a court is known as compulsory winding up.

CIRCUMSTANCES FOR COMPULSORY WINDING-UP

Section 136 of the Companies Act, 2063, lays down that under the following circumstances or grounds the company registrar may order for winding up of a company:

1. When a public company in general meeting, by a special resolution, decides to liquidate and file an application to that effect.
2. When a private company submits an application for the liquidation of a company in accordance with the provisions of memorandum, articles, or an unanimous agreement.
3. When a meeting is not convened or report is not submitted to the company registrar office within time limit.
4. When creditors of a company, holding at lest half of the loans, file and application for dissolution of a company after committing default by the company.
5. When the bank or any other financial institution takes ove or sells the assets of the company.

If the company registrar issues an order for the liquidation of a company the business of a company shall be ceased and all the powers of the directors shall ipso facto lapse with effect form the date of the issuance of such order.

In England, U/S. 122 of Companies Act, 1985 and in India U/s 433 of the Companies Act, 1956, the court can issue such order under the following grounds:

A company may be wound up by the court:

1. If the company has, by a special resolution, resolved that it may be wound up by court.
2. If the company defaults in delivering the statutory report to the registrar of companies or in holding the statutory meeting.
3. If the company does not commence its business for a whole year.
4. If the number of members is reduced in the case of a public company below 7, and in the case of a private company below 2.
5. If the company is unable to pay its debts.
6. It the court is of opinion that it is just and equitable that the company should be wound up.

3. Point out the various kinds of company meetings and distinguish between ordinary and extra ordinary general meetings. [10]

MEETING OF A COMPANY

Company is a legal person. Though it has got separate legal existence and capable to sue and be sued has not its own body and mind. Therefore, the business and act of a company is carried out by its members. There are two basic organs of a company, namely, General meeting of a company and Meeting of board of director. All the authorities of a company are exercised by these two organs where different member. Generally, human beings act in the name and on behalf of company. In other hand, these meeting are the safeguards of money invested by the public at large, and company is run and business is transacted by few persons. In such situation, there should be a system by which the members can understand the affairs of the company and its present condition. That system is fulfilled by the meetings where every member can ask and know the current position of the company and about their money. In a company, there are two general meetings of shareholders. They are:

• Ordinary general meeting
• Extra-ordinary general meeting

Ordinary general meeting also called as Annual General Meeting (AGM) which is to be held once in each fiscal year. Similarly, Extra-ordinary general meeting is held to discuss and take decision over an issue which may arise subsequent to the ordinary general meeting and that is important for the life and operation of the company, therefore, a quick decision is to be taken immediately, for that, the company itself or the shareholders can call the Extra-ordinary general meeting.

DIFFERENCE BETWEEN ORDINARY GENERAL MEETING & EXTRA-ORDINARY GENERAL MEETING

The main difference between ordinary general meeting & extra-ordinary general meeting are as follows:

Basis	Ordinary general meeting	Extra-ordinary general meeting
Time of meeting	It is held in each fiscal year.	It is held as per necessary.
Reason for the meeting	Special situation need not necessary to held the meeting.	Special situation is necessary for this meeting.
Liability of company	If not held company is liable.	There is no liability.
Apply for the meeting	Members need not apply for this meeting.	Member need to apply to the company for it.
Nature of agendas	The agendas to be submitted in general meeting are fixed by law.	The agendas are fixed by the company or members.
Calling of meeting	The meeting is to be called by company itself.	Meeting may be called by auditor, shareholders or office of the companies Registrar.
Prior notice	A prior notice of 21 days must be given to the shareholder.	A prior notice of 15 days must be given to the shareholders.

4. Explain the provisions of the Company Act relating to the right and power of an auditor.[5+5]

 INTRODUCTION

In a public limited company, numbers of people they invest their money without their control. In such situation there is always danger that whether their monies are properly managed or misappropriated. To save the interest of the interest of the investors, the company law has provided a mechanism which the member or investor can check and inspect what is done with their monies or what is the present situation of their monies’ value. That mechanism is the ‘Auditor’, who is appointed by the member to inspect and make report about the affaires of the company and about their monies. To conduct such business the auditor has provided various important rights and imposes duties.

RIGHT OF AUDITOR

An auditor has the following rights:

• Right of access to books, account and vouchers: An auditor of a comapny shall have right of access, at all time to the books, accounts and voucher of the company, whether kept at the head office of the company or else where. Under section 114 of the Act, company must furnish to the auditor accounts and records, for the purpose of audit in case he so demands.
• Right to obtain information and explanation: Under Section 90 provides further, the appropriate directors or employees must give correct reply to such explanation as asked the auditor. As to what information and explanations a necessary is left entirely to the discretion of the auditor. If the directions refuse to provide such information or explanations, the auditor shall report to the members that he has not obtained all the information and explanations required by him.
• Right to receive notice of general meeting and to attend general meeting: The auditor has right to receive notice of any general meeting of a company. He shall also have a right to attend any general meeting and be heard on any party of the business which concerns him as an auditor..
• Right to visit branch offices: Where a company has a branch office or any subsidiary, he has right to visit and access to books etc. for the performance of his duties as an auditor.
• Right to claim Remuneration: The auditor shall have the right to receive remuneration for auditing the accounts of the company.

DUTIES OF AN AUDITOR

The main duty of an auditor is to report on the accounts for a financial year of the company. He must certify the balances sheet, the profit and loss accounts and the statement of cash flow on the basis of the account and records audited by him. The duties of an auditor are as follows:

Duty to certify: It is the main duty of an auditor to certify the balance-sheet, the profit and loss accounts and the statement of cash flow on the basis of the account and records audited by him.

Duty to make a report to the member of the comapny in following points:

• Where the information and explanation needed for the purpose of audit were given to him or not.
• Whether the balance sheet, the profit and loss accounts and others have been prepared according to Company Act or not.
• Whether the company has accurately maintained the accounts and records according to law or not.
• Whether any information or explanation supplied to him, the balance sheet, accounts, statement of cash flow truly represent the economic condition of a company or not.
• Whether any director or representative or employee of the company has acted contrary to law or committed misappropriation or caused losses or damages to the company or not.

Duty of care and caution: The auditor shall be honest and shall exercise reasonable care and skill in the performance of his duties otherwise he may be sued for damages and subjected to penalties. If he performs his duty without exercising reasonable care and skill and then proceed to give an unqualified statement, he is in a breach of his statutory duty.

5. State and explain the modes of winding up of a company in Nepal.

Winding up or liquidation of a company refers the last stage of its life. It is a process by which the life of a company can be brought to an end. It means a proceeding by which the management of a company’s affairs is taken out of director’s hands, the assets of a company are disposed of, the debts are paid off, and the surplus, if any, distributed among the members in proportion to their holdings in a company.

Prof. Gower defines: Winding up a company is a process, whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator, called liquidator is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.

Thus, it is a process by which the management of company’s affairs it taken out of its directors’ hand, its assets are realized by a liquidator, and its debts paid out of the proceeds of realization and any balance remaining is return to its members. At the end of the winding up, the company will have no assets or liabilities and will therefore be simply a final step for it to be dissolved. Then its legal personality as corporation to be brought to an end.

COMPULSORY WINDING UP

A company under specified circumstances wound up either by members or creditor, or by the order of a court. If winding up of a company under a resolution of member or creditor is known as voluntary winding up. Where winding up of a company under the order of a court is known as compulsory up.

CIRCUMSTANCES FOR COMPULSORY WINDING-UP

Section 126 of the Companies Act, 2063, lays down that under the following circumstances or grounds the company registrar may order for winding up of a company:

1. When a public company, in general meeting, by a special resolution, decides to liquidate and file an application to that effect.
2. When a private company submits an application for the liquidation of a company in accordance with the provisions of memorandum, articles, or an unanimous agreement.
3. . When a meeting is ot convened or report is not submitted to the company registrar office within time limit.
4. When creditors of a company, holding at least half of the loans, file an application for dissolution of a company after committing default by the company.
5. When the bank or any other financial institution takes over or sells the assets of the company.

If, the company registrar issues an order for the liquidation of a company the business of the company shall be ceased and all the powers of the directors shall ipso facto lapse with effect from the date of the issuance of such order.

MEANING OF VOLUNTARY WINDING-UP

Voluntary winding up always starts with a resolution of the company. If the articles has fixed a period for the duration of the company or specified an event on the occurrence of which it is to be dissolved. For that it is required resolution in general meeting otherwise by special resolution the company may be wound up, and in other circumstances, where, because of its liabilities it can not continue its business, it can be done by passing an extraordinary resolution. A voluntary winding up is deemed to commence on the passing of resolution. As from the commence of the winding up the company must cease to carry on its business except when it is necessary to continue such business to ensure its liquidation in a profitable manner. Voluntary winding up may be carried out by two ways: an ordinary

1. Member’s winding up: Section 126 (2) of the Act, states a public company may be liquidated through a special resolution of its general meeting in the following circumstances:
2. When prescribed time period of a company has been expired.
3. When the company decided to liquidation itself voluntarily in consideration of its liabilities, or for any other reasons.,

A private company may be wound up according to the procedure provided for in the memorandum, articles or unanimous agreement. Under Section 132 of the Act, if any public company passes a resolution for its voluntary liquation, it must publish a notice there of in a national newspaper for two times, furthermore, the companies registrar also must be informed within 7 days from the date of passing of such resolution.

1. Creditors winding up: In contrast with members winding up, the company is, assumed to be insolvent and it is the creditors in whose interests the winding up is undertaken and they who have the whip hand. If no declaration of solvency has been made, the company must call a meeting of its creditors to be summoned and make notices to be sent by post to the creditors. At the respective meetings the creditors and the company may nominate a liquidator and if the creditors do so, he becomes the liquidator of the company.

6. What are company meetings? Explain the legal formalities to be fulfilled for an annual general meeting of a company.

MEANING OF ANNUAL GENERAL MEETING (AGM)

There are different kinds of general meeting of a company. The company law provides various general meeting, such as, primary general meeting annual general meeting and Extra-ordinary general meeting. Annual general meeting is one which is to be held, at least, once in a year of its shareholders. Under section 76 (1) of the Companies Act, 2063, every Public Co. shall hold its first annual general meeting within one year after commencement for its business. There after the Co. shall hold its AGM every year within six months form the date of expiry of its financial year. If any public company fails to hold AGM within the stipulated time and applied for the extension of the time limit to the company register and, if the company register is satisfied, it may extend the meeting by not more than three months.

PURPOSES OR IMPORTANCE OF MEETING

Since company is an artificial person, it cannot act itself. It is the director who have powers of control and management of a company. The Board of directors have rights to decide the matter for the company. In a company the monies of ordinary persons are managed by a few numbers of director. Thus, there should have a mechanism by which the shareholders can control and inspect the affairs of the company, whether their monies are properly used or misused by the directors. the proper mechanism is the meeting of shareholders in which they can elect a new director who, they think, can act best for the company’s benefit as well as they can direct the Board of directors by making policies an laying down various provisions for the betterment of the company. The Importance of AGM are as follows:

1. The shareholders, by AGM, can control the board of directors & look after their interests by exercising their powers.
2. The meeting provides an opportunities to communicate opinions of shareholder to make decision in favour of the company.
3. The directors can be dismissed, if the shareholders chose so, in the general meeting of shareholders. As well as other new directors can be appointed in the meeting.
4. The Board of directors are bound to disclose the affairs of the company. So the share holders can know the real state of the company and their monies.
5. By appointing auditor the shareholder can inspect the true business of the company.
6. Various directions towards the Board of directors can be made by shareholders in the AGM.

PROCEDURE OF ANNUAL GENERAL MEETING

1. Proper Authority: The valid meeting must be conveyed by a proper authority. This is the first requisite of valid meeting. The Board of directors and the company Registrar’s office has power to call the meeting.
2. Notice: Every members of company is entitled to a notice of every general meeting of company. The shareholder of a company must be notified of the agenda as well as the date and venue of the meeting in advance of at least 21 days for AGM.
3. Quorum: Another formalities of the meeting is quorum. Quorum is the minimum number of shareholders required to be present for valid meeting. In case of public limited company, 3 shareholders representing 51% of the total number of the shares of the company is the quorum for a valid meeting.
4. Chairman: The chairman of the general meeting is the chairperson of the Board of directors. In his absence, the majority of shareholders of a company may elect a person as the chairman of the meeting.
5. Resolutions: Under 74(2) of the Companies Act 2063 all the matters to be discussed at the general meeting shall be presented in the form of resolutions.
6. Voting: The resolutions are to be passed by voting, if necessary. The shareholders can vote with proportional to the number of shares held by them. The majority decision will be the decision of the meeting.
7. Minutes: company. Minutes are the official record of the proceedings of the meeting of a The decisions of company are minutes and signed by the 18 chairperson, at least a director and a share holder.

7. State the functions duties and power of liquidator under the Insolvency Act, 2063.

FUNCTIONS, DUTIES AND POWERS OF LIQUIDATOR

Section 40 (1) of the Insolvency Act, 2063 has mentioned the functions, duties and powers of the liquidator are as follows,

1. To institute or defend any case or legal action on behalf of the company;
2. To appoint employees to assist in the discharge of his or her functions;
3. Where any installment on any share of the company is due, to make a call on the shareholder for payment of such installment;
4. To do and execute, or cause to be done and executed, all such acts and deeds. or documents as required to be done and executed on behalf of the and in the name of the company and use the seal of the company for that purpose;
5. To borrow loans against security of the assets of the company;
6. Where the liquidator considers that the sale and disposal of any property or termination of any contract or liability will render benefits to the company, to sell and dispose of such property or terminate such contract or liability;
7. To enter into compromise with any creditor of the company or any person who claims to be a creditor of the company in relation to the claim made by such creditor or person;
8. To enter into compromise with any person against whom the company may make a claim in relation to any loan, liability or any other claim;
9. To sell the assets of the company and distribute the proceeds of such sale pursuant to this Act; and
10. To perform, or cause to be performed all such other acts as may be necessary to liquidate the company.

It shall be the duty of the liquidator to perform the following functions, in addition to those set forth in Sub-section (1):

1. To collect, protect and sell the assets of the company;
2. To examine the business and financial situation of the company;
3. To accept debt claim of any creditor subject to Chapter-6;
4. To distribute the proceeds of sale of the assets of the company subject to the order of priority determined for the payment of liability pursuant to this Act;
5. To call and conduct the meeting of creditors;
6. To prepare a report on his or her acts and actions and present it to the Court and the Office;
7. To facilitate the cancellation of registration of the company; and
8. To examine or inquire into whether any director or employee or shareholder of the company or any person has committed any fraud, cheating or deception against the company or its creditors and institute necessary legal action against such person.

In addition to the functions, duties and powers set forth in Subsection (1) or (2), the liquidator may also perform other functions such as to get back any property of the company if such property is used by any person or to institute legal action to get back such property or amount involved in a void transaction.

8. What is arbitration? Who can refer disputes to arbitration?

In simple words, ‘An Arbitration is the reference of dispute between not less than two parties, for determination, after hearing both sides in a judicial manner, by a person or persons other than the court of competent Jurisdictuon.

In a case, it has been held that An Arbitration is a reference to the decision of one or more persons, ether with or without umpire of a particular matter in difference between the parties. Therefore:

• It is reference of dispute between the parties.
• The reference is made for determination.
• It made to one or more person other than the competent court of jurisdiction. d. The persons should act judicially.
• The parties agree to bind themselves by the decision of the persons whatever may be.

WHO CAN REFER TO ARBITRATION

The persons who are under duty to perform or to perform certain act by contract or law of the land, if he fails to do so, the disputes are raised. In such a case certain rights of one party are violated and duties are not perform by other. It creates dispute between the parties which is to be resolved by judicial processes. If the matter is not of public law and criminal matters or dispute, the party can refer the dispute to arbitration. The all person can not refer the dispute to arbitration. There are certain person who can refer the dispute to arbitration. According to the Arbitration Act, 2055 these person can refer the dispute to an arbitration.

• The parties of the dispute of agreement: If there is a contract between the parties and one fails to perform, the other party of a contract agreed for arbitration, he can file a case or refer the dispute to arbitration.
• The Karta of joint Hindu family: The main person may be father or grandfather or mother or brother who acts on behalf of the joint Hindu family, can refer the dispute to arbitration.
• Trustee: In case of trust, the trustee can refer the dispute to arbitration to preserve the interest of the trust and beneficiaries.
• Guardian or committee: On behalf of minors and unsound minded person their Guardian or committee can refer the matter to arbitration.
• Agent: If he is duly authorized he can refer the disputes to arbitration.
• Heirs or legal representatives: In case of death or in capacity of a person his Heirs or legal representatives can refer the dispute to the arbitration.
• Official assignee or receiver/liquidator: In case of liquidation of company or insolvency matter the official assignee or receiver can refer the dispute to arbitration.

Except these persons, no one can refer the dispute to arbitration.

9. Who can refer disputes to arbitration? Also explain what may be referred to arbitration.

The persons who are under duty to perform or to perform certain act by contract law of the land, if he fails to do so, the disputes are raised. In such a case certain rights of one party are violated and duties are not perform by other. It creates dispute between the parties which is to be resolved by judicial processes. If the matter is not of public law and criminal matters or dispute, the party can refer the dispute to arbitration. The all person can not refer the dispute to arbitration. There are certain person who can refer the dispute to arbitration. According to the Arbitration Act, 2055 these person can refer the dispute to an arbitration. or

• The parties of the dispute of agreement: If there is a contract between the parties and one fails to perform, the other party of a contract agreed for arbitration, he can file a case or refer the dispute to arbitration.
• The Karta of joint Hindu family: The main person may be father or grandfather or mother or brother who acts on behalf of the joint Hindu family, can refer the dispute to arbitration.
• Trustee: In case of trust, the trustee can refer the dispute to arbitration to preserve the interest of the trust and beneficiaries.
• Guardian or committee: On behalf of minors and unsound minded person their Guardian or committee can refer the matter to arbitration.
• Agent: If he is duly authorized he can refer the disputes to arbitration..
• Heirs or legal representatives: In case of death or in capacity of a person his Heirs or legal representatives can refer the dispute to the arbitration.
• Official assignee or receiver/liquidator: In case of liquidation of company or insolvency matter the official assignee or receiver can refer the dispute to arbitration.

Except these persons, no one can refer the dispute to arbitration.

WHAT MAY BE REFERRED TO ARBITRATION

Though arbitration is an effective means to decide dispute in a speedy manner all the disputes cannot be decided by it. There are certain disputes which are to be decided only by the regular courts through litigation and due procedures.

The Arbitration Act, 2005, does not mention what types of dispute are allowed to be referred to arbitration by the parties. The dispute is arisen or will arise about the subject matter of private law can be referred to arbitration. The dispute about public law and criminal matter can not referred by the party to arbitration. Generally following matters can not be referred to arbitration.

• Disputes relating to matrimonial matter, eg. divorce, partition, or restitution of conjugal rights.
• Testamentary matters, e.g. genuineness of documents, proofs or will etc.
• Insolvency matters.
• Suit relating to public charity or charitable organization/trust
• Criminal matters and disputes.

The parties of these matters and disputes cannot refer to arbitration to decide the matter but matters of civil nature relating to personal rights dignity and respect are referable to arbitration.

9. What is arbitration? Describe the provisions relating to arbitration in Nepal. Define arbitration. Explain the provisions relating to ‘Madhyasthata Ain’ in Nepal.

MEANING OF ARBITRATION

In simple words, ‘An Arbitration is the reference of dispute between not less than two parties, for determination, after hearing both sides in a judicial manner, by a person or persons other than the court of competent Jurisdictuon.

In a case, it has been held that An Arbitration is a reference to the decision of one or more persons, ether with or without umpire of a particular matter in difference between the parties. Therefore:

• It is reference of dispute between the parties.
• The reference is made for determination.
• It made to one or more person other than the competent court of jurisdiction. d. The persons should act judicially.
• The parties agree to bind themselves by the decision of the persons whatever may be.

MAJOR PROVISIONS OF MADHYASTHAT AIN/ PROVISIONS RELATING TO ARBITRATION IN NEPAL

In Nepal, at the first time, the law relating to arbitration has formally enacted and codified by the legislative in the year of 2038 under the name of Arbitration Act, 2038. It was simple and limited provisions relating to arbitration has incorporated in it. So, to make a complete and perfect law by inserting modern principles of arbitration developed in other countries a new Act has been made by replacing the old Act, in the year of 2055, i.e. the Arbitration Act/Madhyasthata Ain 2055. The major provisions of the Act can be shown as under:

• Definitions: Under section 2, the Act has defined the different terms such as, dispute, rejoinder arbitrator, counter claim etc.
• Matters referable to arbitration: The Act under Section 3 has given list of disputes which are to be referred to arbitration and stated the different dispute which can not be referred to arbitration. Section 3 is not complete.
• Number of Arbitrators and their appointment: The numbers of arbitrators and the process of their appointment is mentioned under Sections 5 to 8. If number of arbitrator has been prescribe in the agreement. The number arbitrator shall be under such and if not prescribe there shall normally be three arbitrators. The number of arbitration shall be in odd number.
• Qualification of Arbitrator: Arbitrator must have contractual capacity or must not be declared as insolvent as well as he should not be punished in criminal charges of moral turpitude. Such provisions are mentioned under Section 9 and 10.
• Revocation of Arbitrator’s authority: Under Section 11, the Act has provided Ivarious grounds for the removal of an arbitration from his post. In case of partiality, fraud, mistake delay in proceedings not possessing qualification, etc parties can apply for the removal an Arbitrator in the arbitration tribunal.
• Powers & duties of Arbitrators: Chapter 4 of Arbitration Act deals with arbitral proceedings and powers and duties of an arbitrator. Under Section 21 the different powers are mentioned. For example, power to present the parties before him. Examine place product and proofs, appoint experts, make interim or conditional order and finally issue an award over the dispute. Similarly, the different duties as duty to equal treatment and duty to give full opportunities of being heard are stated under Section 22 of the Act.
• Award: Section 24 of the Act has made a compulsory provision as to times of award that after the submission of all proofs and documents the award shall be issued within 120 days. And the execution must be made within 45 day from the date of issuance of award. Parry challenging the award can file and appeal before the court of appeal within 30 days for the issuance of award.

10. What is arbitration? Explain its importance to business community.

In simple words, ‘An Arbitration is the reference of dispute between not less than two parties, for determination, after hearing both sides in a judicial manner, by a person or persons other than the court of competent Jurisdictuon. In a case, it has been held that An Arbitration is a reference to the decision of one or more persons, ether with or without umpire of a particular matter in difference between the parties. Therefore:

1. It is reference of dispute between the parties.
2. The reference is made for determination.
3. It made to one or more person other than the competent court of jurisdiction.
4. The persons should act judicially.
5. The parties agree to bind themselves by the decision of the persons whatever may be.

IMPORTANCE OF ARBITRATION

To resolve the dispute the party must go before the court with litigation by traditional and common method. But in commercial world it has been thought that the formal procedures of the courts and decisions are not as fruitful as a decision of a person or group of persons to whom both of the parties do trust and handover their dispute for impartial decision. This method is a very old particle in business but becoming more important and crucial and effective in present time. Thus , Arbitration is a method of alternative dispute resolution than the decision of a court. In international commercial dispute the importance of arbitration is visible and prominent because of differences of the laws between the countries regarding the same dispute. In this situations, there has to be a mechanism to solve the dispute in speedy manner which is applicable to the parties. The best mechanism is the arbitration where the parties of the disputes agree that if any dispute arise, it will be delivered to the persons nominated by them whatever may be. Thus, the process of arbitration has been an inbuilt competent of business law. Its importance can be enumerated as follows:

1. It is speedy: The arbitrator can decide the matter without following the lengthy court procedures. Unless otherwise agreed by the parties, the arbitrator shall decide the matter within 30 days after making final order or within 120 day after. the submission of all the documents and proofs. And within 45 days, the party must apply to execution of a Award (Judgment).
2. Simple procedure: The procedure arbitration is quite simple as compare with court procedure. The procedure can be fixed by the parties in agreement.
3. It is more expertise service: The parties of dispute can appoint an expert to decide the matter. Therefore, the parties can be benefited by the expertise service.
4. It is less expensive: Because of speedy and simple procedure it is less expensive as compare with litigation. e. It is confidential: In ordinary court every person can go and hear the matters and proceedings before the bench but in arbitration tribunal if parties so intended, the ordinary people cannot go and hear the proceeding. Thus, it is confidential.
5. Convenient in international disputes: As we stated, the importance of arbitration is visible and prominent in international disputes because of its common and speedy procedures which is applicable both of the parties form different countries.
6. The arbitrators decision is normally final: The party can be assured about his rights when it is decided by the arbitrators. Only in some few grounds the losing party can challenge its decision to the Court of Appeal after completing difficult condition for review.

11. What is award? State the matters to be included in the award.

Award is a judgment or final decision of an arbitrator or Arbitral Tribunal on all matters referred to arbitration. It is, in fact, a document containing the decision of the arbitrator. The Act has not provided a fixed form or words for the arbitration. It must be signed by the arbitrators. In case there are three or more arbitrator the decision of the majority shall be deemed to be the decision of arbitrator. And the arbitrator not agreeing with the decision of arbitration he may express his dissenting opinion. Section 24 lays down that except when otherwise provided for in the agreement, the arbitrator shall deliver the decision within 120 days from the date of submission of documents as asked by the arbitrator.

MATTERS TO BE MENTIONED IN THE AWARD

Section 27 of the Act is concerned with the matters Therefore, the arbitrator must explicitly include in the award:

• Brief particulars of the matter referred to them.
• Matter of jurisdiction if asked. to be mentioned in the Award.
• Issues raised in hearing to be given the award.
• About the documents, proofs or other evidences examined by the arbitrator.
• Claims, counter claims or particulars of rejoinder.
• Award and its reason
• Cost of arbitration.
• Date place or venue of arbitration, etc.

11. State the provision relating to appeal to the award and its execution.

PROVISION RELATING TO APPEAL TO THE AWARD

Section 30 of the Arbitration Act, 2055 has laid down the circumstances and procedure of appeal against the deciding of the arbitral tribunal and setting aside of the Award made by them.

Any party dissatisfied with the decision taken by the arbitrators and wishes to invalidate the decision may file a petition to the Appellate Court along with the related documents and a certified copy of the decision within 35 days from the date the decision heard or notice received thereof under this Act. Petition shall also supply a copy of that petition to the arbitrator and the other party. If the petitioner establishes that the decision of arbitrators contains any of the following matters, the Appellate Court may set a side the decision in question. 1. If the agreement is not valid being entered into by or with an incompetent party, or against the law of the country or not clear.

• If due notice was not given to appoint an arbitrator or about the arbitration proceedings.
• If the decision has been given beyond the jurisdiction prescribed for the arbitrator or decision has been given to other matter which were not referred to the arbitrators.
• If the arbitrators have acted in such a manner against the provisions of the agreement between the parties or against the provision of the Act.

Further, the Appellate Court may invalidate the decision of the arbitrator in the following circumstances:

• In case the dispute settled by the arbitrator cannot be settled through arbitration under the laws of Nepal.
• In case the decision taken by the arbitrator is likely to prove detrimental to the public interests or policies.

EXECUTION OF AWARD

Pursuant to Section 31 of the Act, the concerned parties shall be under obligation to execute the award within 45 days from the date when they receive a copy thereof. In case the parties fail to perform or execute the award within the period of 45 days, the concern party may file a petition to the Execution Section of the District Court. When such an application filed, the District Court shall execute or implement the award within 30 days as if its own judgment. Therefore, the District Court being the execution court has to implement the decision given by the arbitration tribunal.

Similarly, Section 34 of the Act has provided various provision for the execution of the award taken in the foreign country by foreign arbitration tribunal. For this, the party willing to implement the award by foreign arbitration shall submit an application to the Appellate Court with the necessary documents. If the Appellate Court is satisfied all the requirement, it gives an order to the District Court of its execution.

Long Question Answer

1.”Auditor is watch dog but not a blood hound.” Comment the statement in the light of appointment, rights and duties of an auditors under the Companies Act, 2063. [15]

In a company, the shareholders invest their money without their direct involvement in the business of the company. The money of shareholders is in the use or hands of some few persons called directors and other officer appointed by the directors in such situation there may be a possibility of misappropriation of property by the negligent acts of the board of directors. To protect the money of the shareholders, the company law has provided the various provisions and one of them is the provision of Auditor. In fact, monetary transaction or financial records are complex in nature and all the shareholders may have not such skill to know and verify the records prepared by the officers of the company. Therefore, to check and verify the trueness of the documents prepared by the Board of Directors or officer, there should be a provision between the Board of Directors and the shareholders by which the shareholders can be assured about the trueness of the business of the company and the documents presented before them. This provision is the ‘Auditor’. The Auditor is a person with required skill appointed by the shareholders in general meeting who verifies the financial documents of the company. The basic function of the Auditor is to check and verify the documents and present his reports of his acts to the shareholders in the general meeting while performing his obligation, the Auditor does not investigate the trueness of the documents but he verifies that whether the document represents the transactions or business done by the company. Therefore, the Auditor is said as a ‘watch dog but not a blood hound.’

APPOINTMENT OF AUDITOR

Auditor may be appointed in a company either one of any following ways:

1. By the board of directors: Pursuant to the proviso of Section 111 (1) of the Companies Act, 2063, if the company has not called its first general meeting, the auditor is appointed by the meeting of the board of directors. The auditor appointed so must be ratified by the general meetings of shareholders called by the company. The auditor appointed pursuant to subsection (1) shall hold office only until the next general meeting.
2. By the general meeting of shareholders: It is the regular way of appointing the auditor by the annual general meeting of the shareholders. Pursuant to Section 111 (1) of the Companies Act, 2063 the auditor of a company shall be appointed from amongst the auditors licensed to carry out audit under the prevailing law by the general meeting. An auditor as the representative of the shareholders has authority to examine each and every business and financial documents kept in the company either in its head office or in any branch offices if any. The auditor resents his report to the shareholders in general meeting.
3. By the Office of the Company Registrar: Section 113 of the Companies Act, 2063 provides that where the annual general meeting of a company fails to appoint and auditor for any reason or where the annual general meeting itself cannot be held or where the auditor appointed pursuant to this Act ceases to continue his office for any reason, the Office may, at the request of the board of directors of the company, appoint another auditor.
4. By the Auditor General Office: Where a company is fully owned by the government of Nepal, the Auditor General shall audit or the Auditor General Office may appoint the auditor for the audit of the company. Similarly, if the company is substantially owned by the Government of Nepal, the auditor is appointed by the General Meeting of the concerned company as per its articles in consultation of the Auditor General and the auditor shall audit under the directives of the Auditor General.

RIGHTS AND POWERS OF AUDITORS

The rights and power of an auditor are as under

• Right of access to books, accounts and vouchers.
• Right to obtain information and explanations.
• Right to visit branch offices and right of access to books kept therein.
• Right to receive notice of general meeting and to attend the meeting.
• Right to receive remuneration.
• Right to prepare and present his report to the members.

FUNCTIONS AND DUTIES OF AUDITORS

Section 115 of the Companies Act, 2063 has provided various functions and duties of auditor. The fundamental function and duty of the auditor is he shall, addressing the shareholders or the appointing authority submit to the company his report, certifying the balance sheet, profit and loss account and cash flow statement based on the books of account, records and accounts audited by him.

Similarly, the auditor shall have to prepare the audit report in accordance with the prevailing law or in consonance with the audit standards prescribed by the competent body; and such report shall state matters to be set out under this Act, as per necessity. While performing his function, the auditor shall have to comply with the following duties:

• Duty of care and caution.
• Duty to verify the accounts.
• Duty to conduct necessary interrogations and inquires.
• Duty to report the members with the matters to be stated in his report as per sub-section (3) of section 115.
• Duty to give suggestions if any to the company.
• Duty to attend the meeting.

2. The process of arbitration has been an inbuilt component of business law. In the light of this statement define arbitration and discuss the part who can refer to arbitration.

According to Halsbury’s law of England-‘An Arbitration is the reference or dispute of difference between not less than two parties, for determination, after hearing both sides in a judicial manner, by a person or persons other than the court of competent Jurisdiction.

In Collins v. Collins 1958. It has been held that An Arbitration is a reference to the decision of one or more persons, ether with or without umpire of a particular matter in difference between the parties. Therefore:

• It is reference of dispute between the parties.
• The reference is made for determination.
• It made to one or more person other than the competent court of jurisdiction. d. The persons should act judicially.
• The parties agree to bind themselves by the decision of the persons whatever may be.

ARBITRATION AS AN INBUILT COMPONENT OF BUSINESS LAW

The strength and success of an organization or a company mainly depends upon the factor business environment which are beyond the capacity of that business firm and its managers. Therefore the success and failure always is determined how the business firm and its managers have utilized and managed these environmental factors for the benefit and betterment of their firm. One of these environmental factors is legal environment which includes business law, legal administration and judicial administration.

 To decide the dispute by litigation is a traditional and common method which can be filed before the regular courts of law. But in modern commercial world it has been thought that the formal procedures of the court and its decision is not fruitful as a decisions of a person or group of persons to whom both the parties do trust and handover their dispute for impartial decision. In the business field, it is be coming more important and effective day-by-day, specially at the present time. In arbitration process dispute between two parties is referred to a person or group of persons selected by themselves other than the court for an impartial decision and also agreed that they will follow the decision given by them whatever may be. It is the best mechanism to decide the commercial dispute because of its speedy, less expensive confidential, expertise service, simple procedure and authenticity of decision. Therefore at present the arbitration process is an inbuilt component of business law.

WHO CAN REFER TO ARBITRATION

The persons who are under duty to perform or to perform certain act by contract or law of the land, if he fails to do so the disputes are raised. In such a case certain rights of one party are violated and duties are not perform by other, it creates dispute between the parties which is to be resolved by judicial processes. IF the matter is not of public law and criminal matters or dispute, the party can refer the dispute to arbitration. The all person can not refer the dispute to arbitration. There are certain person who can refer the dispute to arbitration. According to the Arbitration Act, 2055 these person can refer the dispute to an arbitration.

• The parties of the dispute of agreement: If there is a contract between the parties and one fails to perform, the other is a contract agreed for arbitration, he can file a case or refer the dispute to arbitration.
• The Karta of joint Hindu family: The main person may be father or grandfather or mother or brother who acts on behalf of the joint Hindu family, he can refer the dispute to arbitration.
• Trustee: In case of trust the trustee can refer the dispute to arbitration to preserve the interest of the trust and beneficiaries.
• Guardian or committee: On behalf of minors and unsound minded person their Guardian or committee can refer the matter to arbitration.
• Agent: If he is duly authorized he can refer the disputes to arbitration.
• Heirs or legal representatives: In case of death or in capacity of a person his Heirs or legal representatives can refer the dispute to the arbitration.
• Official assignee or receive: In case of liquidation of company or insolvency matter the official assignee or receiver can refer the dispute to arbitration. Except these persons no one can refer the dispute to arbitration.