Question 1

Which of the following criterion prompted Vishal Crockery Limited to mandatorily form a Corporate Social Responsibility (CSR) Committee for the current financial year?

Accepted Answer

**Answer: (A)**

Under **Section 135 of the Companies Act, 2013**, a company is mandatorily required to constitute a CSR Committee if, during the immediately preceding financial year, it has a **net worth of ₹500 crores or more**, OR a **turnover of ₹1,000 crores or more**, OR a **net profit of ₹5 crores or more**.

For FY 2019-20, the trigger year is FY 2018-19:
- Net worth = ₹250 crores → does **not** meet the ₹500 crore threshold.
- Turnover = ₹750 crores → does **not** meet the ₹1,000 crore threshold.
- Net profit = ₹6.60 crores → **exceeds** the ₹5 crore threshold. ✓

Therefore, the **net profit of ₹6.60 crores** (being more than ₹5 crores) is the sole criterion that triggered the mandatory formation of the CSR Committee for FY 2019-20. Options (B), (C), and (D) do not satisfy any of the prescribed thresholds under Section 135.

Question 2

What is the minimum amount (in percentage form) that Vishal Crockery Limited is required to spend during the Financial Year 2019-20 on the CSR activities after it formed a Corporate Social Responsibility Committee?

Accepted Answer

**Answer: (B)**

As per **Section 135(5) of the Companies Act, 2013**, every company covered under the CSR provisions shall ensure that it spends, in every financial year, **at least 2% of the average net profits of the company made during the three immediately preceding financial years**, in pursuance of its CSR Policy. Since Vishal Crockery Limited is required to spend on CSR activities in FY 2019-20, the average net profits of the three immediately preceding financial years (i.e., FY 2016-17, FY 2017-18, and FY 2018-19) would be considered. The percentage is 2% (not 2.5%), and the averaging period is three years (not two).

Question 3

In the given case scenario, Vishal Crockery Limited decided to undertake CSR activities at 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 Vishal 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 Vishal Crockery Limited wants it to accomplish?

Accepted Answer

**Answer: (C)**

As per Rule 4(2) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, a company may engage an external implementing agency (such as a Section 8 company not established by the company itself, nor by the Central/State Government, nor by any entity established under an Act of Parliament or a State Legislature) for undertaking CSR activities, provided such entity has an **established track record of at least three years** in undertaking similar programs or projects.

Question 4

JIWPL received an amount of Rs 25 Crores from Malini Shetty, wife of one of the promoter directors Mahesh Shetty of JIWPL. Mahesh Shetty wanted to know from Sachin Bhatt any compliance needed from the perspective of acceptance of deposits. The CS has to ensure:

Accepted Answer

**Answer: (C)**

Under **Rule 2(1)(c)(xiii) of the Companies (Acceptance of Deposits) Rules, 2014** read with **Section 73 of the Companies Act, 2013**, amounts received by a **private company** from the **relatives of its directors** are excluded from the definition of "deposits" — but only subject to a mandatory condition.

The condition is that the **relative (Malini Shetty)** must furnish a **written declaration** stating that the amount being given to the company **has not been sourced from borrowed funds** i.e., she has not taken loans or deposits from any other person to give this money. Additionally, the company must **disclose the details of such amount in the Board's Report**.

Since JIWPL is a **Private Limited Company** and Malini Shetty is the **wife of a promoter director (Mahesh Shetty)**, she qualifies as a **relative of a director** under the Act. Hence, the Rs. 25 Crores received from her will not be treated as a "deposit" if and only if this declaration is obtained and the disclosure is made in the Board's Report.

Options (A), (B), and (D) relate to compliance procedures applicable when an amount is treated as a formal deposit — which is not applicable here since the amount falls under an exempted category. The correct compliance step is the one in **Option (C)**.

Question 5

JIWPL was sanctioned an amount of Rs. 50 Crores for meeting the working capital needs of the expansion project, which included interchangeable limits of cash credit, foreign and inland bills for negotiation and acceptance. The security cover was floating charge on the book debts, inventory and other current assets of the expansion project of JIWPL. A floating charge, in general, is created by way of:

Accepted Answer

**Answer: (D)**

A floating charge is generally created by way of **hypothecation or lien**. Unlike a fixed charge, a floating charge does not attach to specific assets at the time of creation — it 'floats' over a class of assets (such as book debts, inventory, and other current assets) that change from time to time in the ordinary course of business. Hypothecation is the most common mode for creating such a charge over movable assets without transferring possession, making option (D) correct.

Question 6

The registered office of JIWPL is located in Manipal. Out of the company's 180 Members, 20 members, who are entered in the Register of Members (ROM) reside in Mangaluru, a nearby city. These members requested the company to maintain the Register of Members (ROM) in the company's liaison office in Mangaluru, instead of Manipal henceforth. Which of the following positions is legally correct?

Accepted Answer

**Answer: (B)**

Under **Section 94(1) of the Companies Act, 2013**, the Register of Members (ROM) shall ordinarily be maintained at the **registered office** of the company. However, the proviso to Section 94(1) permits the ROM to be kept at any other place in India, subject to the following conditions being satisfied:

1. **More than one-tenth (1/10th)** of the total members entered in the ROM must reside at that other place.
2. A **Special Resolution** must be passed at a General Meeting of the company.
3. An advance copy of the proposed Special Resolution must be filed with the **Registrar of Companies**.

In the present case, JIWPL has **180 total members**. One-tenth of 180 = **18 members**. Since **20 members** residing in Mangaluru are entered in the ROM, the threshold of more than 1/10th is satisfied. Accordingly, upon passing a Special Resolution in a General Meeting (and filing an advance copy with the RoC), the ROM can legally be maintained at the liaison office in Mangaluru.

**Option (A) is incorrect** — the Act does permit maintenance of ROM at a place other than the registered office if the statutory conditions are met.

**Option (C) is incorrect** — a mere Board Resolution is insufficient; a Special Resolution of the members in a General Meeting is mandatory.

**Option (D) is incorrect** — it incorrectly states the threshold as "more than 1/3rd" of members. The correct statutory threshold under Section 94(1) proviso is **more than 1/10th** of total members, n…

Question 7

For appointing an auditor other than the retiring auditor, which of the following is required?

Accepted Answer

**Answer: (A)**

Under Section 139(1) of the Companies Act 2013, when an auditor other than the retiring auditor is to be appointed, **special notice is required**. This provision protects the retiring auditor's interest by requiring special notice to be given before appointing a different auditor. The special notice requirement applies when the retiring auditor is willing to be reappointed but the members decide to appoint someone else in their place. This gives the retiring auditor an opportunity to make representations against their non-reappointment. The special notice must be given not less than 14 days before the meeting.

Question 8

Which one of the following requires ordinary resolution?

Accepted Answer

**Answer: (D)**

Declaration of dividends requires an **ordinary resolution** under Section 123 of the Companies Act, 2013. An ordinary resolution is approved by a simple majority (more than 50%) of votes cast by members present and voting at a general meeting. The shareholders at the annual general meeting approve the dividend recommended by the Board by passing an ordinary resolution. In contrast, changing the company name (Section 13), altering articles of association (Section 14), and reducing share capital (Section 64) all require **special resolutions**, which mandate a three-fourths majority and 21 days' notice.

Question 9

Swastik Private Limited passed a Special Resolution to change its name to Swastik Darshan Private Limited on 30th May, 2019. Relevant MCA filing was done on due time and then Company got its new stationery printed on 1st July, 2019. However there was a delay in issue of Certificate and Company received new certificate on 20th August, 2019 which was issued on 10th August, 2019. Company wants to enter into a lease agreement for new premise. When can they do such agreement in the new name of the Company?

Accepted Answer

**Answer: (D)**

The effective date of a company name change is the date on which the **Certificate of Incorporation** (with the new name) is **issued** by the MCA, not when it is received. Under Section 13 of the Companies Act, 2013, the change of name becomes effective from the date of issue of the Certificate. In this case, the Certificate was issued on 10th August, 2019, therefore the company can enter into a lease agreement in its new name (Swastik Darshan Private Limited) from 10th August, 2019 onwards. The date of receipt (20th August, 2019) and the date of printing new stationery (1st July, 2019) are not relevant for determining the effective date of name change.

Question 10

Extra Limited is a growing Company and requires additional funds for expansion from time to time. They are following the same process for making an offer to public and then issue those shares. This is very time and energy consuming for them. Kindly advise them if there is any way out.

Accepted Answer

**Answer: (D)** During first offer they shall file shelf prospectus with a validity of two years, so subsequent offer issued during the period of validity of that prospectus, no further prospectus is required.

A **shelf prospectus** is a mechanism provided under securities law for companies that require funds repeatedly over a period. Instead of filing a fresh prospectus for each public offering, the company files a single shelf prospectus valid for **2 years** from the date of filing with the Registrar of Companies. During this validity period, the company can make multiple issues of specified securities without filing fresh prospectuses, subject to filing of an **abridged prospectus** or an **offer document** for each tranche/issue. This streamlines the process and saves time and resources for companies making periodic public offerings for expansion purposes.

Question 11

Which of the following is not an Immovable Property?

Accepted Answer

**Answer: (C)**

According to Section 3 of the Registration Act, 1908, immovable property includes land, benefits arising out of land, and things attached to the earth or permanently fastened to anything attached to the earth. Land (A) is the primary immovable property. Buildings (B) are constructed on land and permanently attached to the earth, making them immovable. Machinery permanently attached to land or buildings (D) becomes part of the immovable property and is thus immovable. However, **timber**, once felled or separated from the earth, loses its connection to the land and becomes movable property. Only standing timber (as part of growing trees) would be immovable; once cut, timber is no longer attached to the earth and is therefore movable.

Question 12

As per the Negotiable Instruments Act, 1881, when the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the ______.

Accepted Answer

**Answer: (C)**

As per Section 20 of the Negotiable Instruments Act, 1881, when the day on which a promissory note or bill of exchange is at maturity falls on a public holiday or Sunday, the instrument shall be deemed to be due on the **next succeeding business day**. This rule ensures that the holder can present the instrument for payment on the first available business day, protecting both the holder and the payer from complications arising from non-banking days.

Question 13

Rule of Beneficial construction is also known as—

Accepted Answer

**Answer: (A)**

The **Rule of Beneficial Construction** is also known as **Purposive Construction**. Both terms refer to the same interpretive principle where statutes are construed in a manner that best achieves their legislative purpose and benefits the persons for whom they were enacted. This rule is particularly applied to statutes conferring benefits, exemptions, or welfare provisions on citizens, where the court interprets the language in a reasonable and beneficial manner rather than adopting a strict literal interpretation that might defeat the statute's benign purpose.

Question 14

Formal legal document which creates or confirms a right or records a fact is a—

Accepted Answer

**Answer: (B)**

A deed is a formal legal document that creates, confirms, or transfers a right and records a fact with intentional legal consequences. A deed is distinguished by its formal execution (typically signed, sealed, and delivered) and its binding legal effect. While a document is a general written record, a statute is legislation enacted by parliament, and an instrument is a broad category for any formal document, the term deed specifically denotes a formal legal document designed to create, confirm, or record legal rights. Deeds are commonly used in property transfers, contracts, and other significant legal transactions.

Question 15

A negotiable instrument drawn in favor of a minor is

Accepted Answer

**Answer: (C)**

A negotiable instrument drawn in favor of a minor is **Valid**. Although a minor has limited contractual capacity under general law, the Negotiable Instruments Act, 1881 specifically permits minors to be payees and holders of negotiable instruments. The Act makes no distinction between majors and minors as payees; a minor can validly receive a bill of exchange, promissory note, or cheque drawn in their favor. The validity of the instrument itself is unaffected by the payee being a minor. While the minor's capacity to perform certain acts (such as endorsing the instrument for consideration) may be limited, this does not make the instrument void or void-but-enforceable. The instrument remains valid and binding.

Question 16

The preamble is most important in any legislation, it:

Accepted Answer

**Answer: (B)**

The preamble is the introductory section of an Act that comes before the body of the legislation. Its primary function is to express the **scope, object and purpose of the Act**. The preamble sets out the mischief which the legislature intended to remedy and the reasons for enacting the legislation, thereby establishing the legislative intent. While it does not have binding legal force, it serves as an important aid to statutory interpretation, helping courts understand the objects and scope within which the Act is to be read and applied. The preamble does not provide definitions (those are in specific sections), nor is it a detailed summary of the entire Act.

Question 17

In Roopali Marketing Company Private Limited (Authorised capital 50,000 shares of Rs. 10 each and paid-up share capital of Rs. 4,50,000), 1000 shares are jointly held by Abeer and Abheek; another 800 shares are jointly held by Seema and Srividya; and another 1200 are jointly held by Ramesh, Raksha and Rajneesh. Further, 42,000 shares are held by 193 individual persons in their individual capacity. Is it possible for the company to induct more persons?

Accepted Answer

**Answer: (B)**

Under Section 2(71) of the Companies Act 2013, a **private company** must not have more than **200 members**. When counting members, the critical principle is that **joint holders of shares are counted as ONE member** — only the first joint holder in the joint shareholding counts toward the member limit.

Member count for Roopali Marketing Company Private Limited:

1000 shares (Abeer & Abheek jointly) = **1 member**
800 shares (Seema & Srividya jointly) = **1 member**
1200 shares (Ramesh, Raksha & Rajneesh jointly) = **1 member**
42,000 shares (193 individual persons) = **193 members**

**Total members = 1 + 1 + 1 + 193 = 196 members**

Maximum permitted = 200 members
Capacity available = 200 − 196 = **4 more persons**

The company is well within its limit and does not require ROC permission. Options (C) and (D) are irrelevant as those permissions apply when the 200-member limit would be exceeded. Option (A) is factually incorrect (196 ≠ 200).

Question 18

Atul contracts to indemnify Neha against the consequences of any proceedings which Chirag may take against Neha in respect of a sum of Rs. 15000/- advanced by Chirag to Neha. Now, Neha who is called upon to pay the sum of money to Chirag but she fails to do so. As per the provisions of the Indian Contract Act, 1872, advise the future course of action to be taken by Chirag.

Accepted Answer

**Answer: (A)**

Chirag can recover the amount only from Neha. The contract of indemnity is between **Atul (indemnifier) and Neha (indemnified person)** only. Chirag is a third party to this indemnity agreement and therefore has no privity of contract with Atul. Under the principle of privity of contract, only parties to a contract have rights and obligations; third parties cannot claim benefits from or enforce contracts to which they are not parties. Chirag's only legal remedy is to recover the amount directly from Neha (the original debtor). If Neha fails to pay, Chirag must pursue legal proceedings against Neha, not Atul. The indemnity by Atul protects Neha from Chirag's claims, but does not create any contractual obligation on Atul toward Chirag.

Question 19

Mr. Vishal parks his car at a parking lot, locks it, and keeps the keys with himself. Which of the following statement is correct in this regard?

Accepted Answer

**Answer: (C)**

When Mr. Vishal parks his car at a parking lot while locking it and retaining the keys with himself, the parking lot personnel acquire only **custody** of the car, not possession. Under the Indian Contract Act, 1872, **possession** implies complete control and dominion over goods (including the right to use and exclude others), whereas **custody** denotes mere physical custody without the right of control or use. Since the keys remain with Mr. Vishal, the parking attendant cannot operate, move, or meaningfully control the vehicle. This arrangement does NOT constitute bailment because bailment requires delivery of actual possession of goods from the bailor to the bailee under Section 148 of the Indian Contract Act. The retention of keys by the owner indicates no transfer of possession, only a situation of custody. Option (A) is incorrect as bailment requires delivery of possession; (B) is incorrect as possession requires control which the parking attendant lacks; and (D) is incorrect as mortgage involves security pledging, which is not applicable here.

Question 20

M drew a cheque amounting to Rs. 2 lakh payable to N and subsequently delivered to him. After receipt of cheque N endorsed the same to C but kept it in his safe locker. After sometime, N died, and P found the cheque in N's safe locker. State the nature of the instrument as amounting to endorsement under the Negotiable Instruments Act, 1881.

Accepted Answer

**Answer: (D)**

P's finding of the cheque does **not** constitute an endorsement because N had already endorsed the cheque to C, and a new endorsement cannot arise merely from possession through finding. Under Section 15 of the Negotiable Instruments Act, 1881, endorsement requires a deliberate act—the holder must sign the instrument with intent to transfer it. Mere physical possession following discovery does not satisfy this legal requirement. The endorsement chain was already established when N endorsed to C; P's status as a finder does not create a fresh endorsement in his favor. While P may have possessory rights as a finder under Section 50 of the NI Act, he cannot claim to be a "holder by endorsement" without a valid endorsement executed in his name. Since the cheque was endorsed by N to C and not to P, P remains outside the endorsement chain regardless of physical discovery.

CA Inter Corp Laws

Drill 5 questions from this paper — instant grading

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1The skeleton

2Examiner-rewarded phrases

3Common trap