Question 1

According to the case scenario, the company is desirous of raising deposits from its members to augment the funding requirements. In case, the company also contemplates to raise deposits from public in addition to its members, which of the following option is applicable:

Accepted Answer

**Answer: (D)**

Under Section 76 of the Companies Act, 2013, a public company (other than a banking company) may accept deposits from persons other than its members only if it has a **net worth of not less than Rs. 100 crores OR a turnover of not less than Rs. 500 crores**, and complies with the prescribed conditions. The condition is conjunctive (OR), not cumulative (AND), meaning satisfaction of either threshold is sufficient.

Question 2

According to the case scenario, during the mid of the current financial year, the company offered 5,00,000 shares to 120 persons at a premium of Rs. 10 per share on private placement basis. During the remaining part of the current financial year, the company is desirous of tapping more prospective investors by offering them equity shares on private placement basis. How many more such prospective shareholders can be invited by the company for investment in the capital of the company?

Accepted Answer

**Answer: (C)**

Under **Section 42 of the Companies Act, 2013**, read with **Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014**, a company making a private placement cannot offer or invite subscriptions to more than **200 persons in aggregate in a financial year** (excluding Qualified Institutional Buyers and employees offered shares under an Employee Stock Option Scheme).

In the current financial year, the company has already made a private placement offer to **120 persons**. Therefore, the number of additional persons who can be invited for private placement in the remaining part of the same financial year = 200 − 120 = **80 persons**.

Hence, the company can offer equity shares to a maximum of **80 more prospective shareholders** in the remaining part of the current financial year.

Question 3

In the given case scenario, suppose the company has failed to allot the shares within the statutorily allowed period. In such a case, the only remedy available with the company is to refund the application money. State the time period within which the company is required to refund the application money to the subscribers if it has failed to allot the shares within the statutorily allowed period.

Accepted Answer

**Answer: (C)**

As per **Section 42(6) of the Companies Act, 2013**, if a company fails to allot shares within the statutorily allowed period (60 days from receipt of application money under private placement), the company must refund the application money to the subscribers **within 30 days** from the expiry of that period. If the company fails to refund within this period, it shall be liable to repay the money with interest at the rate of 12% per annum from the expiry of the 60th day.

Question 4

Which of the following factors would have prompted Krishnakant Limited to mandatorily form a Corporate Social Responsibility (CSR) Committee for the current financial year?

Accepted Answer

**Answer: (B)**

Under **Section 135(1) of the Companies Act, 2013**, every company having **net worth of ₹500 crore or more**, or **turnover of ₹1,000 crore or more**, or **net profit of ₹5 crore or more** during the immediately preceding financial year must constitute a CSR Committee. Krishnakant Limited's turnover of ₹750 crore does not meet the ₹1,000 crore threshold, its net worth of ₹250 crore does not meet ₹500 crore, but its **net profit of ₹6.60 crore exceeds the ₹5 crore threshold** — making net profit the triggering factor.

Wait — re-reading the options: Option (B) refers to turnover of ₹750 crore. However, the correct legal trigger here is actually the **net profit of ₹6.60 crore exceeding ₹5 crore**. None of the other options correctly state a threshold. Option (A) describes net profit of ₹6.60 crore but attributes it to the increase rather than the absolute threshold breach. Option (B) cites turnover of ₹750 crore which does NOT breach the ₹1,000 crore threshold. Option (C) cites net worth of ₹250 crore which does NOT breach the ₹500 crore threshold. Option (D) cites paid-up capital which is not a criterion under Section 135.

The correct answer is **(A)** — the net profit of ₹6.60 crore (exceeding the ₹5 crore threshold under Section 135(1) of the Companies Act, 2013) is the factor that mandatorily triggered CSR Committee formation, even though the option phrases it in terms of the increase.

Question 5

What is the minimum amount (in percentage) that Krishnakant Limited is required to spend during the Financial Year 2020-21 on the CSR activities?

Accepted Answer

**Answer: (B)**

As per **Section 135(5) of the Companies Act, 2013**, every company covered under the CSR provisions is required to spend, in every financial year, at least **2% of the average net profits of the company made during the three immediately preceding financial years**. Since Krishnakant Limited is spending on CSR in FY 2020-21, the average net profits are calculated for FY 2017-18, FY 2018-19, and FY 2019-20 — i.e., the three immediately preceding financial years. The percentage is 2%, not 2.5%.

Question 6

In the given case scenario, Krishnakant Limited decided to undertake CSR activities on its own. In case, it had decided to engage an external Section 8 company for undertaking its CSR activities and such charitable company is not established by Krishnakant Limited nor it is established by the Central/State Government or by any entity established under an Act of Parliament or a State Legislature, then what should be the established track which this Section 8 company should have in undertaking similar programs or projects which Krishnakant Limited wants it to accomplish?

Accepted Answer

**Answer: (C)**

As per Rule 4(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, a company may engage a Section 8 company (not established by the company itself, or by Central/State Government, or by any entity established under an Act of Parliament or a State Legislature) to implement its CSR activities, provided such implementing agency has an **established track record of at least three years** in undertaking similar programs or projects.

Question 7

The instrument creating a charge or modification thereon shall be preserved for a period of ______ years from the date of satisfaction of charge by the company.

Accepted Answer

**Answer: (C)**

Under Rule 11 of the Companies (Management and Administration) Rules, 2014, which prescribes the preservation period for documents maintained by a company, the instrument creating a charge or any modification thereon shall be preserved for a period of **8 years from the date of satisfaction of the charge** by the company. This preservation requirement applies even after the charge has been discharged or satisfied, ensuring that the company maintains proper documentary evidence of the transaction history. This 8-year period aligns with the general statutory retention requirements for corporate records and facilitates audit trails and regulatory compliance.

Question 8

Neha is a director of Primus Limited. She intends to participate in the board meeting through video conferencing and has intimated the same to the chairperson at the beginning of calendar year. Advise, Neha for how long such declaration shall be valid.

Accepted Answer

**Answer: (C)**

According to Rule 3 of the Companies (Management and Administration) Rules, 2014, when a director intimates their intention to participate in board meetings through video conferencing or other electronic means, such declaration is valid for the entire financial year (or calendar year, as applicable). Since Neha has made the intimation at the beginning of the calendar year, it remains valid for the entire calendar year (12 months or 1 year) unless she revokes or modifies it during that period. She is not required to furnish a fresh declaration for each individual meeting, nor is the declaration limited to 1 month or 6 months. The declaration once made at the beginning of the year covers all board meetings during that 1-year period.

Question 9

Abhilasha and Amrita have incorporated a 'not for profit' private limited company which is registered under Section 8 of the Companies Act, 2013. One of their friends has informed them that their company can be categorized as a 'small company' because as per the last profit and loss account for the year ending 31st March, 2019, its turnover was less than Rs. 2.00 crores and its paid up share capital was less than Rs. 50 Lacs. Advise.

Accepted Answer

**Answer: (C)**

The status of 'small company' cannot be bestowed upon a company registered under **Section 8 of the Companies Act, 2013**, regardless of whether it meets the financial criteria. Section 2(71) of the Companies Act, 2013 defines a 'small company' as a company with paid-up share capital not exceeding Rs. 50 lakhs and turnover not exceeding Rs. 2 crores. However, the definition contains an explicit proviso: **"a company registered under section 8 shall not be a small company."** This proviso creates an absolute exemption for Section 8 (not-for-profit) companies from small company classification. Therefore, even though Abhilasha and Amrita's Section 8 company satisfies the turnover and paid-up capital thresholds, it cannot be categorized as a small company. The other options incorrectly suggest that Section 8 companies can acquire small company status through acquisition of stakes, financial timing, or ROC permissions, none of which override the legislative exclusion in Section 2(71).

Question 10

Mr. Sharad has recently shifted from Delhi to Noida. During the shifting some of the furniture was damaged. Mr. Sharad gave the items to Asian Arts, Greater Noida for repair, refabrication, and painting, etc. Asian Arts deals in the sale of furniture and repair thereof. It was decided that the whole work will be done on a lumpsum amount of Rs. 50,000. In between this period, the workshop at Asian Arts caught fire and there was no fault of the proprietors. Goods bailed by Mr. Sharad along with another furniture destroyed in this fire incident. Mr. Sharad has lost furniture due to fire at workshop of Asian Arts. What is the correct statement considering there was no specific contract?

Accepted Answer

**Answer: (D)**

Under Sections 152 and 161 of the Indian Contract Act, 1872, a bailee is not liable for loss, destruction, or deterioration of bailed goods if the bailee has exercised the reasonable care of an ordinarily prudent person with goods of the same bulk, quantity, and value. In this case, the furniture was destroyed by fire with no negligence or fault on the part of Asian Arts. The bailee is not an insurer of the goods; liability arises only when the bailee fails to exercise reasonable care or commits a breach of duty. An act of God (fire of unknown origin) without any contributory negligence falls outside the bailee's liability. Therefore, Asian Arts is not liable for the loss.

Question 11

An interest or lien created on the property or assets of a company or any of its undertakings or both as security is known as:

Accepted Answer

**Answer: (B)**

A charge is specifically defined under Section 2(16) of the Companies Act, 2013 as "any interest or lien created on the property or assets of a company or any of its undertakings or both as security for the performance of an obligation or the payment of a debt." The question's wording directly mirrors this statutory definition, making charge the correct answer. Debt refers to the obligation itself, liability is a broader term for any obligation, and hypothecation involves pledge without transfer of possession—none match the definition of this security interest mechanism.

Question 12

Validity period for the presentment of cheque in bank is—

Accepted Answer

**Answer: (B)**

Under Section 144 of the Negotiable Instruments Act, 1881, a cheque must be presented for payment to the bank within **six months from the date of issue**. After this period, the cheque becomes a "stale cheque" and the bank is not obligated to honour it. The payee or holder loses the right to demand payment from the bank beyond this validity period, though the drawer remains liable to the payee.

Question 13

A contracts to save B against the consequences of any proceedings, which C may take against B in respect of a certain sum of 500 rupees. This is a:

Accepted Answer

**Answer: (C)**

A is entering into a contract to save (indemnify) B against the consequences of any legal proceedings that C may initiate. Under Section 124 of the Indian Contract Act, 1872, indemnity is defined as a contract by which one party promises to save the other from loss caused by the conduct of any other person. Here, A explicitly promises to protect B from the consequences arising out of C's potential legal proceedings regarding the 500 rupees liability.

This is distinguished from a guarantee (Section 126) because: (1) A is not undertaking to discharge B's existing liability to C, but rather promising to save B from any loss or consequences that may result from the proceedings; (2) The focus is on protecting B from the ultimate consequences rather than ensuring performance of B's obligation; and (3) Unlike a guarantee (which is a three-party conditional contract where the guarantor is liable only upon the principal debtor's default), this is essentially a two-party contract where A unilaterally promises indemnification.

Question 14

In a company if any change of right of one class also affects the right of other class, then:

Accepted Answer

**Answer: (C)** When a change in the rights of one class of shares also affects the rights of another class, the company must obtain the **written consent of three-fourth majority of the members of that other affected class**. Alternatively, a separate class meeting of the affected class can be convened to pass a resolution. This safeguard ensures that no class of shareholders has their rights altered without their explicit approval. A general meeting resolution alone is insufficient for class rights variations. Joint class meetings are not the prescribed procedure—each affected class must separately approve the variation through either written consent or its own class meeting.

Question 15

A is residing in Delhi and has a house in Mumbai. A appoints B by a power of attorney to take care of his house. State the nature of agency created between A and B:

Accepted Answer

**Answer: (D)** A power of attorney is an explicit and formal document through which the principal (A) expressly appoints an agent (B) to act on their behalf. **Express agency** is created by express agreement between the principal and agent, either written or oral. Since A has explicitly appointed B via power of attorney to manage the house in Mumbai, this clearly constitutes express agency. This is distinct from implied agency (arising from conduct or circumstances), agency by ratification (unauthorized acts later accepted), and agency by necessity (created by law in emergencies without consent).

Question 16

A negotiable instrument that is payable to order can be transferred by:

Accepted Answer

**Answer: (B)**

An instrument payable to order can be transferred only by **indorsement and delivery**. Under Section 16 of the Negotiable Instruments Act, 1881, indorsement is the writing of the payee's name on the back of the instrument with his signature, which shows his intention to transfer the instrument. However, indorsement alone is insufficient—the instrument must also be **delivered** to the transferee to complete the transfer of ownership. Simple delivery (option A) is inadequate because order instruments require the prior step of indorsement. Indorsement without delivery (option C) does not transfer the instrument. Registered post (option D) is merely a mode of transmission, not the legal requirement for transfer.

Question 17

A negotiable instrument drawn in favour of a minor is

Accepted Answer

**Answer: (C)**

A negotiable instrument drawn in favour of a minor is **valid**. Under the Negotiable Instruments Act, 1881, a minor possesses full capacity to be a payee or holder of a negotiable instrument such as a cheque, bill of exchange, or promissory note. The instrument itself remains perfectly valid and enforceable. The minor can receive the benefit of the instrument and enforce it against the drawer or maker. However, while the minor can claim benefits, the minor cannot incur liability on the instrument—meaning a minor cannot be held responsible if they act as an endorser, acceptor, or maker. The limitation on capacity relates to incurring obligations, not to receiving the instrument or claiming its benefits.

Question 18

The Rule in Heydon's case is also known as—

Accepted Answer

**Answer: (B)** The Rule in Heydon's case is also known as the **Mischief Rule**. Established in Heydon's case (1584), this rule of statutory interpretation directs courts to identify the mischief (defect or problem) in the common law that the statute was intended to remedy and interpret the statute to suppress that mischief and advance the remedy. The core principle requires courts to look beyond literal words and examine the legislative intent to cure the specific evil or defect the statute addressed.

Question 19

Pick the odd one out of the following aids to interpretation—

Accepted Answer

**Answer: (D)**

The three options - Preamble, Marginal Notes, and Proviso - are all **internal aids to statutory interpretation** because they form part of the statute itself. The Preamble sets out the objects and purposes of the Act; Marginal Notes provide headings and explanatory notes within the statute; and Provisos are conditions and exceptions contained within the sections of the Act.

**Usage**, conversely, is an **external aid to statutory interpretation**. It refers to the accepted usage, practice, custom, and previous interpretation of similar provisions by courts and practitioners. External aids come from sources outside the statute.

Therefore, Usage is the odd one out as it belongs to a different category (external) compared to the other three options (internal).

Question 20

Where an act of parliament does not expressly specify any particular day as to the day of coming into operation of such Act, then it shall come into operation on the day on which

Accepted Answer

**Answer: (A)**

When an Act of Parliament does not expressly specify any particular day for its coming into operation, it shall come into operation on the day on which it receives the **assent of the President**. This is established under Article 111 of the Indian Constitution and the General Clauses Act, 1897. Presidential assent is the final and conclusive step that converts a passed Bill into enforceable law. Absent specific commencement provisions in the Act, this date of assent is the default operative date.

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