Question 1

The company can create charge in favour of the lender on the assets which are:

Accepted Answer

**Answer: (C)**

Under **Section 77 of the Companies Act, 2013**, a company is required to register a charge created on its property or assets or any of its undertakings. The scope of 'property or assets' is wide and includes **both tangible and intangible assets** (such as buildings, patent rights, trademarks, etc.) as well as assets situated **within India or outside India**. There is no geographic restriction limiting charge creation only to assets in India. Therefore, Shiv IT Solutions Ltd. can create a charge on its buildings in Bengaluru as well as Brussels (Belgium), and also on its intangible assets like patent rights and trademark.

Question 2

The Board of Directors of Stamp Limited, a listed company appointed Mr. Chatterjee, Chartered Accountant as its first auditor within 30 days of the date of registration of the company to hold office from the date of incorporation to conclusion of the first Annual General Meeting (AGM). At the first AGM, Mr. Chatterjee was re-appointed to hold office from the conclusion of its first AGM till the conclusion of 6th AGM. In the light of the provisions of the Companies Act, 2013, examine the validity of appointment/reappointment in the following cases:

Accepted Answer

**Relevant Provisions:** **Section 139 of the Companies Act, 2013** governs the appointment and re-appointment of auditors. Specific provisions for the first auditor are contained in **Section 139(6)**, while the general appointment at AGM is governed by **Section 139(1)**. For listed companies, mandatory rotation provisions apply under **Section 139(2)**.

**(i) Appointment of Mr. Chatterjee by the Board of Directors:**

As per **Section 139(6) of the Companies Act, 2013**, the first auditor of a company, other than a Government company, shall be appointed by the **Board of Directors within 30 days from the date of registration** of the company. In the event of failure by the Board to appoint, the members shall appoint the first auditor within 90 days at an Extraordinary General Meeting (EGM). The auditor so appointed shall **hold office till the conclusion of the first Annual General Meeting**.

In the present case, the Board of Directors of Stamp Limited appointed Mr. Chatterjee, a Chartered Accountant, as the first auditor **within 30 days** of the date of registration, to hold office till the conclusion of the first AGM. This is **exactly in accordance with Section 139(6)**.

**Conclusion:** The appointment of Mr. Chatterjee by the Board of Directors is **valid and in accordance with the law**.

**(ii) Re-appointment of Mr. Chatterjee at the first AGM:**

As per **Section 139(1) of the Companies Act, 2013**, every company shall, at the **first AGM**, appoint an individua…

Question 3

Virjesh Limited is a company in which Hrishkesh Limited is holding 60% of its paid up share capital. One of the shareholders of Hrishkesh Limited made a charitable trust and donated his 10% shares in Hrishkesh Limited and Rs. 50 crores to the trust. He appoints Virjesh Limited as the trustee. All the assets of the trust are held in the name of Virjesh Limited. Can a subsidiary company hold shares in its holding company in this way?

Accepted Answer

**Relevant Provision:** Section 19 of the Companies Act, 2013 governs the prohibition on a subsidiary company holding shares in its holding company.

**General Rule [Section 19(1)]:** No company shall hold any shares in its holding company. No holding company shall allot or transfer its shares to any of its subsidiaries. Any such allotment or transfer shall be **void**.

**Facts of the Case:**
- Hrishkesh Limited holds 60% paid-up share capital of Virjesh Limited → Hrishkesh Limited is the **holding company** and Virjesh Limited is the **subsidiary company**.
- A shareholder of Hrishkesh Limited created a **charitable trust**, donating 10% shares in Hrishkesh Limited and ₹50 crores to the trust.
- **Virjesh Limited** (the subsidiary) has been appointed as the **trustee**, and all assets of the trust are held in its name.

**Exception — Section 19(2)(b):** Nothing in Section 19(1) shall apply to a case where the **subsidiary company holds such shares as a trustee**, provided the holding company or any of its subsidiaries is **not beneficially interested** under the trust.

**Analysis:**
In the present case, Virjesh Limited holds the 10% shares in Hrishkesh Limited purely in the capacity of a **trustee** — not as a beneficial owner. The trust is a **charitable trust**; neither Hrishkesh Limited (the holding company) nor any of its subsidiaries is a beneficiary under the trust. Both conditions of Section 19(2)(b) are satisfied.

**Voting Rights — Section 19(3):** A subsidiary ho…

Question 4

Masoom owns a residential property at Kailash Colony, Delhi. Masoom has given his residential property on rent amounting to Rs. 50,000 per month to Kamal. Pankaj became the surety for payment of rent by Kamal. Subsequently, without Pankaj's consent, Kamal agreed to pay higher rent to Masoom. After a few months of this, Kamal defaulted in paying the rent. Evaluate the position of Pankaj in this regard as per the provisions of the Indian Contract Act, 1872.

Accepted Answer

A surety's liability is strictly governed by the Indian Contract Act, 1872. The critical issue is whether Pankaj is discharged from his suretyship obligation due to the variation in the rent contract without his consent.

**Legal Framework Under Section 133:**
Section 133 of the Indian Contract Act, 1872 provides for "Discharge of surety by variation of terms of contract." This section states that if the creditor, without the consent of the surety, agrees with the principal debtor to vary the terms of the original contract (such as postponing the time or mode of payment, accepting property in satisfaction of the debt, releasing the principal debtor, or doing any other act that would discharge the principal debtor), the surety is discharged from liability.

The underlying principle is that a surety's obligation cannot be increased or materially altered without explicit consent. A surety agrees to guarantee a specific contract with defined terms. Any material alteration in those terms without the surety's consent discharges him.

**Application to the Given Facts:**
The original contract was between Masoom (creditor) and Kamal (principal debtor) for rent of Rs. 50,000 per month, with Pankaj acting as surety. Subsequently, without seeking Pankaj's consent, Masoom and Kamal agreed to increase the rent amount. This constitutes a material variation in the contract terms. The increase in rent directly increases Kamal's debt obligation and correspondingly increases Pankaj's potential …

Question 5

On a Bill of Exchange for Rs. 1 lakh, X's acceptance to the Bill is forged. 'A' takes the Bill from his customer for value and in good faith before the Bill becomes payable. State with reasons whether 'A' can be considered as a 'Holder in due course' and whether he (A) can receive the amount of the Bill from 'X'. Answer as per the provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Can A be considered a Holder in Due Course?** Yes, A qualifies as an HIDC under Section 9 of the Negotiable Instruments Act, 1881. An HIDC must take an instrument: (1) for value — A took the bill for value from his customer; (2) in good faith — A acted in good faith without notice of the forged acceptance; (3) before it became payable — A took the bill before maturity; and (4) without notice of defect in the title of the transferor — A had no notice that X's acceptance was forged. All four conditions are satisfied, so A qualifies as an HIDC. **Can A recover from X?** No, A cannot recover the amount from X despite being an HIDC. Under Section 128 of the NI Act, 1881, a forged signature is wholly inoperative. The section states: "Where a signature on an instrument is forged or placed thereon without authority, the forged signature is wholly inoperative, and no right to retain the instrument or enforce payment thereof against any party thereto can be acquired through or under that signature." Since X's acceptance is forged, X never actually accepted the bill. The forged signature creates no liability for X. Therefore, even as an HIDC, A cannot proceed against X. **Exception:** A may still recover from the drawer or genuine indorsers, as their signatures remain valid and they remain liable to an HIDC. The forged acceptance affects only X's liability, not that of other parties with genuine signatures. The critical principle is that a forged acceptance completely absolves the dra…

Question 6

Where the company fails to get the registration of charge, whether the Best Bank Ltd, in whose favour the charge was to be created, can move the application for creation of charge:

Accepted Answer

**Answer: (D)**

Under **Section 78 of the Companies Act, 2013**, where a company fails to register a charge within the prescribed period of 30 days, the person in whose favour the charge is created (i.e., the lender/charge-holder) may apply to the Registrar for registration of the charge. The Registrar may allow registration within 14 days after giving notice to the company. Accordingly, **Best Bank Ltd., being the charge-holder, is entitled to apply for registration of the charge on its own** if the borrower company (Shiv IT Solutions Ltd.) fails to do so within the prescribed timeline.

Question 7

Happy Limited received a proxy form 54 hours before the time fixed for the start of the meeting. The company refused to accept the proxy form on the ground that the Articles of the company provided that a proxy form must be filed 60 hours before the start of the meeting. Define proxy and decide under the provisions of the Companies Act, 2013, whether the proxy holder can compel the company to admit the proxy in this case?

Accepted Answer

**Proxy** is a person appointed by a member of a company to attend and vote at a general meeting in the member's absence. The proxy is authorized to exercise all or any of the rights of the member at the meeting, including the right to vote on resolutions.

**Analysis under Companies Act, 2013:**

Section 105 of the Companies Act, 2013 governs the appointment of proxies. Critically, Section 105(6) stipulates: "The instrument appointing a proxy shall be deposited at the registered office of the company **not less than forty-eight hours before the time fixed for the start of the meeting** or adjourned meeting."

The statutory requirement is a **MINIMUM of 48 hours**, meaning the proxy form can be deposited anytime 48 hours or more before the meeting. In this case, the proxy form was received 54 hours before the meeting, which clearly satisfies the statutory requirement.

However, the company's Articles prescribe a 60-hour requirement, which is **more stringent** than the statutory minimum. The critical legal question is: Can Articles of Association impose requirements more restrictive than those prescribed by the statute?

**Legal Principle:** Under Indian corporate law, Articles of Association cannot restrict, curtail, or make more stringent the exercise of rights granted by statute. While Articles can provide more liberal/relaxed provisions than the Act, they cannot impose requirements that restrict the statutory rights of members. If an Article provision exceeds the statutor…

Question 8

Explain the following as per the provisions of the Companies Act, 2013:

Accepted Answer

**Part (i): Signing of Board's Report [Section 134(6) of the Companies Act, 2013]**

As per **Section 134(6)** of the Companies Act, 2013, the Board's Report and any annexures thereto shall be signed as follows:

**In case of a company having a Board of Directors:**
- The Board's Report shall be signed by the **Chairperson of the company**, provided he is authorised by the Board of Directors to do so.
- Where the Chairperson is **not so authorised**, the Report shall be signed by **at least two directors, one of whom shall be the Managing Director** (where there is one).
- Where there is **only one director**, the Board's Report shall be signed by that sole director.

**In case of a One Person Company (OPC):**
- The Board's Report shall be signed by **only one director** (since an OPC has only one director).

**Part (ii): Filing of Financial Statements with the Registrar when AGM is not held [Section 137(2) of the Companies Act, 2013]**

As per **Section 137(1)** of the Companies Act, 2013, the financial statements duly **adopted at the Annual General Meeting (AGM)** are required to be filed with the Registrar of Companies within **30 days** of the date of the AGM.

However, where the **AGM is not held**, **Section 137(2)** provides as follows:

- The financial statements, along with all documents required to be attached thereto under the Act, shall be filed with the Registrar **within 30 days of the last date before which the AGM should have been held**.
- The financial stat…

Question 9

Examine whether the following constitute a contract of 'Bailment' under the provisions of the Indian Contract Act, 1872:

Accepted Answer

**Definition and Essential Elements of Bailment**

Under Section 148 of the Indian Contract Act, 1872, bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

The essential elements of bailment are: (a) delivery of goods; (b) by one person (bailor) to another (bailee); (c) for some specific purpose; (d) on contract; (e) with condition of return or disposal as directed; (f) bailee must have exclusive possession and control; (g) ownership remains with bailor, possession with bailee.

**Analysis of Scenario (i): Golu parks car at parking lot, locks it, keeps keys**

This does NOT constitute a contract of bailment. Although Golu leaves his car at the parking lot, he retains the keys and thereby retains effective control and possession of the vehicle. The essential element of 'delivery of possession' to the bailee is absent. The parking lot attendant does not have exclusive possession and control—Golu can access and use the car at any time as the keys are with him. This transaction is a **contract of licence** where the parking lot grants Golu the right to use the parking space, not a bailment. The attendant's role is merely to provide safe parking space, not to take custody of the goods. Without complete transfer of possession to the bailee, no bailment can exist.

**Analysis of Scenario (ii): Seiz…

Question 10

What are the parties to a promissory note and a bill of exchange?

Accepted Answer

**Parties to a Promissory Note:**

A promissory note, as defined in Section 4 of the Negotiable Instruments Act, 1881, is an instrument containing an unconditional written promise by one party to pay a certain sum to another. The parties are:

**Maker (or Promisor)** — The person who issues and signs the promissory note, making an unconditional promise to pay a specified sum of money. The maker is the debtor and is primarily liable on the instrument.

**Payee (or Promisee)** — The person to whom the promise is made and to whom payment is due. The payee is the creditor and is the original holder of the instrument. Thus, a promissory note involves only two primary parties.

**Parties to a Bill of Exchange:**

A bill of exchange, as defined in Section 5 of the Negotiable Instruments Act, 1881, is an unconditional written order by one person directing another to pay a specified sum to a third person or as directed. The parties are:

**Drawer** — The person who draws or issues the bill of exchange. The drawer is the creditor who initiates the instrument and orders payment.

**Drawee** — The person on whom the bill is drawn; the person to whom the order to pay is directed. When the drawee accepts the bill, he becomes the **acceptor** and assumes primary liability for payment.

**Payee** — The person to whom payment is ordered to be made. The payee may be the drawer himself, a third party, or the bearer.

A bill of exchange thus involves three parties at inception: drawer, drawee, a…

Question 11

Pratham Limited has decided to spend Rs. 40 lakhs on project of CSR. The average net profit of the company is Rs. 10 crores. But due to some reasons, company was able to spend only Rs. 30 lakhs. Now what will be the option for the company for the rest Rs. 10 lakhs.

Accepted Answer

**Answer: (D)** The company is required to transfer the amount to a separate fund. Under Rule 7 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, any amount remaining unspent after the end of a financial year must be transferred within six months to a separate bank account known as the 'Unspent CSR Account'. In this case, Pratham Limited spent Rs. 30 lakhs against the voluntary commitment of Rs. 40 lakhs, exceeding the mandatory 2% CSR spend requirement (2% of Rs. 10 crores = Rs. 20 lakhs). Since the minimum statutory obligation has been met, no penal provision applies. The unspent Rs. 10 lakhs must be transferred to the Unspent CSR Account for spending in subsequent financial years. Additionally, the Board Report must contain an explanation for the unspent amount as required under Section 135(5) of the Companies Act, 2013.

Question 12

Shilpi Developers India Limited owed to Sunil Rs. 10,000. On becoming this debt payable, the company offered Sunil 100 shares of Rs. 100 each in full settlement of the debt. The said shares were allotted to Sunil as fully paid-up in lieu of his debt. Examine the validity of this allotment in the light of the provisions of the Companies Act, 2013.

Accepted Answer

**Validity of Allotment of Shares in Lieu of Debt**

**Relevant Provisions under the Companies Act, 2013:**

Under the Companies Act, 2013, a company is permitted to allot shares for **consideration other than cash**. When a company owes a debt to a person and allots shares in full satisfaction of that debt, the extinguishment of the debt constitutes valid non-cash consideration for the allotment. Such shares, if allotted at a value equal to the nominal (face) value, are validly treated as **fully paid-up shares**.

Section 53 of the Companies Act, 2013 prohibits the issue of shares at a **discount** to their nominal value (except sweat equity under Section 54). However, where shares are allotted at par against a debt that exactly equals the nominal value of shares, no discount arises, and Section 53 is not violated.

**Analysis of the Given Case:**

The facts are as follows: Shilpi Developers India Limited owed Rs. 10,000 to Sunil. On the debt becoming payable, the company offered 100 shares of Rs. 100 each (total nominal value = Rs. 10,000) in full settlement of the debt, and allotted these shares as fully paid-up.

The debt of Rs. 10,000 owed by the company to Sunil constitutes valid consideration for the allotment of shares. The amount of the debt (Rs. 10,000) is exactly equal to the aggregate nominal value of the shares allotted (100 × Rs. 100 = Rs. 10,000). Therefore, the shares are allotted at **par** and not at a discount.

**Conclusion:**

The allotment of 100 shares…

Question 13

The Annual General Meeting of Angels Limited held on 30th May, 2022, declared a dividend at the rate of 30% payable on its paid-up equity share capital as recommended by Board of Directors. However, the Company was unable to post the dividend warrant to Mr. A, an equity shareholder, up to 25th July, 2022. Mr. A filed a suit against the Company for the payment of dividend along with interest at the rate of 20 percent per annum for the period of default. Decide in the light of provisions of the Companies Act, 2013, whether Mr. A would succeed? Also, state the directors' liability in this regard under the Act.

Accepted Answer

**Relevant Provisions — Section 123(4) and Section 127 of the Companies Act, 2013**

**Time Limit for Payment of Dividend:**
As per **Section 123(4) of the Companies Act, 2013**, the dividend declared by a company in its Annual General Meeting shall be paid to the shareholders within **30 days from the date of declaration**.

In the given case, the AGM of Angels Limited declared dividend on **30th May, 2022**. Accordingly, the dividend ought to have been paid on or before **29th June, 2022**. The company failed to post the dividend warrant to Mr. A even up to **25th July, 2022**, which clearly constitutes a **default in payment of dividend**.

**Whether Mr. A Would Succeed:**
Mr. A would **partially succeed**. He is entitled to receive:
1. **The dividend** declared at 30% on his paid-up equity share capital; and
2. **Simple interest at the rate of 18% per annum** for the period of default under Section 127 of the Companies Act, 2013.

However, Mr. A's claim for interest at **20% per annum will NOT succeed**, as the statute prescribes the rate of **18% per annum** and not 20%. Courts apply the statutory rate; the shareholder cannot demand a higher rate of interest than what is prescribed under the Act.

**Directors' Liability under Section 127:**
As per **Section 127 of the Companies Act, 2013**, where a dividend has been declared but not paid within 30 days from the date of declaration, **every director of the company** who is knowingly a party to the default shall be punisha…

Question 14

A promissory note was made without mentioning any time for payment. The holder added the words 'on demand' on the face of the instrument. Whether this may be treated as material alteration in the instrument? Give answer referring to the provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Yes, this constitutes a material alteration of the promissory note.**

**Definition of Material Alteration:** Section 87 of the Negotiable Instruments Act, 1881 defines material alteration as an alteration which alters the amount payable, or the **time or place of payment**, or the number or order of the parties to it, or any other alteration which alters its character as an instrument.

**Application to the Given Case:** In the present scenario, the holder has added the words 'on demand' to a promissory note that originally contained no mention of the time for payment. This addition constitutes a material alteration for the following reasons:

1. **Alteration of Time of Payment:** The original note did not specify any fixed date or time for payment. By adding 'on demand', the holder has specified that the note is payable on the demand of the payee. This fundamentally changes the time element of payment, which is a crucial term under Section 87.

2. **Change in Character of Instrument:** The addition changes the character of the instrument itself. A promissory note without any specified time and one payable 'on demand' have different legal implications regarding when the obligation becomes enforceable and when the drawer's liability crystallizes.

3. **Alteration of Rights and Liabilities:** The addition affects the rights and liabilities of the drawer. A note payable on demand creates an immediate liability whenever the payee demands payment, whereas a note with no specifi…

Question 15

Viraj, a director of the company, not being personally concerned or interested, financially or otherwise, in a matter of a proposed motion placed before the Board Meeting, did not disclose his interest although he has knowledge that his sister is interested in that proposal. He restrains from making any disclosure of his interest on the presumption that he is not required by law to disclose any interest as he is not personally interested or concerned in the proposal. He made his presumption relying on the 'Rule of Literal Construction'. Explaining the scope of interpretation under this rule in the given situation, decide whether the decision of Viraj is correct?

Accepted Answer

**Answer on Rule of Literal Construction and Viraj's Decision:**

**Scope of Rule of Literal Construction:**
The Rule of Literal Construction is a principle of statutory interpretation that requires words of a statute to be read in their plain, ordinary, and literal sense without adding, taking away, or substituting anything. Under this rule, the statute is interpreted exactly as written, without reference to external circumstances or assumed legislative intent.

However, this rule has important limitations. Indian courts consistently reject purely literal interpretation when: (i) it leads to absurdity or incongruity; (ii) it defeats the manifest purpose of the statute; (iii) it creates an obvious loophole defeating the statutory object; or (iv) it is inconsistent with the scheme and related provisions of the Act.

**Application to Director's Disclosure Requirements:**
Section 184 of the Companies Act, 2013 mandates that every director must declare their interest in contracts or arrangements. The fundamental purpose of this disclosure requirement is to ensure transparency in corporate governance and prevent conflicts of interest that may compromise a director's objectivity and decision-making.

Viraj's reliance on the Rule of Literal Construction to escape disclosure is flawed and his decision is **incorrect**. A purely literal reading—that only "personally" interested directors must disclose—undermines the statutory purpose in multiple ways:

**Why Viraj's Decision is Incorr…

Question 16

The company X plans to cover its skilled as well as semi-skilled workers of its units under medical health insurance plan, for which the company X will bear the expenses. Will this expenditure be permissible under CSR activities as per the provisions of the Companies Act, 2013:

Accepted Answer

**Answer: (D)**

Expenditure on employee health insurance, whether for skilled or semi-skilled workers, is **not permissible under eligible CSR activities** as per the Companies Act, 2013.

**Reason:** CSR activities, as defined in Schedule VII of the Companies Act, 2013, are meant to benefit the **community and society at large**, not employees of the company. Employee health insurance constitutes an **employee welfare/benefit expense**, which is part of employee remuneration and HR benefits, not societal development. The distinction is critical: CSR focuses on external social impact (poverty eradication, education, health of the general public, etc.), whereas employee insurance is an **internal benefit** to persons employed by the company. This classification applies uniformly irrespective of the skill level of workers. Section 135 read with Schedule VII makes clear that CSR funds cannot be utilized for employee-centric benefits, even if such benefits appear socially beneficial in isolation.

Question 17

State the purposes for which the securities premium account can be utilized?

Accepted Answer

**Utilisation of Securities Premium Account under the Companies Act, 2013**

**Meaning:** When a company issues shares at a price higher than the face value, the excess amount received over the nominal value is transferred to the **Securities Premium Account** as required under **Section 52(1) of the Companies Act, 2013**.

**Restriction on Utilisation:** The securities premium account is treated on par with the paid-up share capital of the company. Accordingly, it cannot be freely distributed as dividend or utilised for general purposes. It can only be applied for the specific purposes enumerated under **Section 52(2) of the Companies Act, 2013**.

**Purposes for which Securities Premium Account can be utilised [Section 52(2)]:**

**(a) Issue of fully paid-up Bonus Shares:** The securities premium account may be applied towards the issue of unissued shares of the company to its members as **fully paid-up bonus shares**.

**(b) Writing off Preliminary Expenses:** The account may be used in **writing off the preliminary expenses** of the company (i.e., expenses incurred before or at the time of incorporation).

**(c) Writing off Expenses, Commission, or Discount on Issue of Shares or Debentures:** The account may be applied in writing off the expenses of, or the commission paid or discount allowed on, **any issue of shares or debentures** of the company.

**(d) Premium payable on Redemption of Preference Shares or Debentures:** The securities premium account can be used in **p…

Question 18

Examine the validity of the following different decisions/proposals regarding change of office by A Limited under the provisions of the Companies Act, 2013:

Accepted Answer

The validity of both proposals can be examined under **Section 12 of the Companies Act, 2013**, which prescribes different procedures for changing registered office depending on the extent of change.

**Sub-part (i): INVALID**

The company has shifted the registered office from Thane (Local Limit of Thane District) to Dadar (Local limit of Mumbai District). Although both places fall within the jurisdiction of the same Registrar of Mumbai, they fall within **different local limits**. According to **Section 12(1) of the Companies Act, 2013**, when a company changes the location of its registered office from one local limit to another local limit within the same State, it must: (a) pass a **Special Resolution**, and (b) obtain the **approval of the Regional Director**. In this case, while the company has correctly passed a special resolution, it has **failed to obtain the approval of the Regional Director**, which is mandatory. Therefore, this decision is **INVALID** — the approval of the Regional Director is essential and cannot be omitted, regardless of both jurisdictions being under the same Registrar.

**Sub-part (ii): VALID**

The proposal to shift the registered office from one place to another within the **same local limits** of the same city, authorized by Board Resolution, is **VALID**. According to **Section 12(2) of the Companies Act, 2013**, when the change of registered office is within the same local limit, it shall be done by **Board Resolution only**. No special …

Question 19

Yellow and Pink had a long dispute regarding the ownership of a land for which a legal suit was pending in the court. The court fixed the date of hearing on 29.04.2022, which was announced to be a holiday subsequently by the Government. What will be the computation of time of the hearing in this case under the General Clauses Act, 1897?

Accepted Answer

The computation of time regarding the hearing date will be governed by **Section 13 of the General Clauses Act, 1897**, which specifically addresses computation of time when a date falls on a public holiday.

**Relevant Provision:**
Section 13(a) of the General Clauses Act, 1897 states: "If the last day of the period prescribed for the doing of any act be a day which, under the law relating to the observance of holidays by the Courts in India in force for the time being, is a holiday in the Court, that act shall be deemed to be in time if it is done on the next day which is not such a holiday."

**Application to the Present Case:**
In this case, the court fixed the hearing date as 29.04.2022. Subsequently, the Government announced that 29.04.2022 would be observed as a public holiday. Since courts would be closed on a public holiday, proceedings cannot be conducted on that date. According to Section 13(a), the hearing will be automatically shifted to the next day that is not declared as a public holiday, which would be 30.04.2022 (assuming it is not also a holiday).

**Computation of Time:**
The original date (29.04.2022) becomes ineffective when declared as a holiday. The computation of time is extended automatically to 30.04.2022, which is the next non-holiday date. Parties appearing on 30.04.2022 will be deemed to have appeared within the prescribed time, and such appearance will be valid as if made on the originally fixed date.

**Conclusion:**
The hearing date stands **p…

Question 20

Explain the following in context of use of definitional sections in Interpretation of Statutes:

Accepted Answer

**Definitional sections** in statutes provide meanings for terms used in legislation, and their application is guided by principles of statutory interpretation.

**Definitions Subject to a Contrary Context:** Statutory definitions, while general in nature, are not inflexible and absolute. Most legislative definitions are qualified by language such as "unless the context otherwise requires" or "in this Act unless the context implies otherwise." This principle operates as follows: (1) The definition provided is the prima facie meaning applicable throughout the statute; (2) However, in specific contexts or situations, the literal application of the definition may lead to absurdity, inconsistency, or defeat the Act's purpose; (3) In such cases, courts are empowered to modify or restrict the application of the definition to suit the contextual requirement; (4) This doctrine prevents rigid literalism and promotes purposive interpretation. For example, the term "person" in statutes generally includes natural persons, corporations, associations, and partnerships, but in the context of criminal liability, it may be restricted to natural persons only. Similarly, the term "child" defined as "unmarried person under 21 years" in one context may require modification when applied to inheritance laws. This principle reflects the cardinal rule that words must be understood in their surrounding context rather than in isolation.

**Ambiguous Definitions:** An ambiguous definition is one that is…

Question 21

Which among the following companies is not required to provide its members the facility to exercise right to vote by electronic mode under the provisions of the Companies Act, 2013?

Accepted Answer

**Answer: (C)**

Under Section 105A of the Companies Act, 2013, read with Rule 20 of the Companies (Management and Administration) Rules, 2014, the e-voting facility must be provided by **listed companies**. The key term is "listed company," which refers to a company whose **equity shares** are listed on a recognized stock exchange, not preference shares.

Analyzing each option:

(A) B Limited has equity shares listed → e-voting required ✓
(B) A Limited has equity shares listed → e-voting required ✓
(C) C Limited has only **preference shares** listed (equity shares not listed) → e-voting **NOT required** ✗
(D) D Limited has equity shares listed (along with preference shares) → e-voting required ✓

The e-voting requirement is triggered by the listing of equity shares on a recognized stock exchange. Listing of preference shares alone does not trigger this obligation. Therefore, C Limited is not required to provide e-voting facility under the Companies Act, 2013.

Question 22

With a view to transact some urgent business, Ratna, Rimpi and Ratnesh, the three directors of Shilpkaar Constructions Limited are desirous of calling a general meeting of shareholders by giving shorter notice than 21 days' clear notice. The fourth director, Nilesh is of the opinion that such an action will attract penalty provisions since there is contravention. The paid-up share capital of the company is Rs. 30 crores divided into 3 crores shares of Rs. 10 each. Keeping in view the applicable provisions of the Companies Act, 2013, discuss the possibility of calling a general meeting by giving shorter notice.

Accepted Answer

**Provision for Calling General Meeting at Shorter Notice:**

As per **Section 101(1) of the Companies Act, 2013**, a general meeting of a company may be called by giving not less than **21 days' clear notice** in writing or through electronic mode. However, the **proviso to Section 101(1)** creates an exception: a general meeting may be called by giving **shorter notice** if **consent is given in writing or through electronic mode** by members who are entitled to vote and who hold **not less than 95%** of the paid-up share capital giving a right to vote at the meeting.

**Application to Shilpkaar Constructions Limited:**

The paid-up share capital of the company is **Rs. 30 crores**, divided into **3 crore equity shares** of Rs. 10 each. To call a general meeting with shorter notice, consent must be obtained from members holding at least **95% of 3 crore shares = 2,85,00,000 shares** (representing a paid-up value of **Rs. 28.5 crores**).

The meeting can validly be called on shorter notice if this threshold of member consent is met. The consent of **members** (shareholders) — not directors — is the operative requirement here.

**Whether Nilesh's Apprehension is Correct:**

Nilesh's opinion that calling a meeting on shorter notice will attract penalty provisions **is not correct**. No contravention or penalty arises when the requisite consent under the proviso to Section 101(1) is duly obtained. The law expressly permits shorter notice meetings subject to this condition. Pena…

Question 23

Enumerate the amounts which when received by a company in the ordinary course of business are not to be considered as deposits. (Write any three)

Accepted Answer

**Amounts Excluded from the Definition of Deposits under Section 73, Companies Act, 2013:**

The following amounts, when received by a company in the ordinary course of business, are NOT considered deposits:

**1. Amounts received as consideration for sale of goods or services payable within six months** – When a company receives money from customers for sale of goods or rendering of services, and such amount is payable within six months from the date of transaction, it is ordinary business revenue and not a deposit. This is standard trading income arising from the company's regular business operations.

**2. Amounts received against allotment of shares and convertible debentures** – Monies received from investors against allotment of equity shares, preference shares, or convertible debentures represent capital contribution and investment, not deposits. These are amounts for acquisition of shares and securities and hence excluded from the deposit definition.

**3. Amounts received as advances against supplies of goods or services payable within six months** – Advances received from customers for future supply of goods or services, payable within six months, are not deposits but part of the normal business operating cycle. This covers scenarios like advance payments for manufacturing or supply contracts.

Question 24

Explain the following as per the provisions of the Indian Contract Act, 1872:

Accepted Answer

**Meaning of Agent and Principal:**

As per **Section 182 of the Indian Contract Act, 1872**, an **'agent'** is a person employed to do any act for another person, or to represent another in dealings with third persons. The agent is essentially an intermediary who acts on behalf of another and binds the principal through their actions within the scope of authority granted.

As per **Section 183 of the Indian Contract Act, 1872**, a **'principal'** is a person for whom such act is done, or who is so represented. The principal is the person who appoints the agent and is bound by the acts of the agent performed within the agent's authority.

**Key Characteristics of Agent and Principal:** The agent is not ordinarily a party to the contract made on behalf of the principal, but the principal becomes bound by the agent's acts. The relationship is one of agency, which is contractual in nature. The agent acts under the control and instructions of the principal and owes fiduciary duties to the principal.

**Who Can Appoint an Agent:**

As per **Section 184 of the Indian Contract Act, 1872**, "Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent."

Therefore, the capacity to appoint an agent requires:

1. **Age of Majority:** The principal must have attained the age of majority as per the law applicable to him. Generally, this means 18 years of age under the Indian Majority Act, 1875.

2. **Sound Mind:** The…

Question 25

The Income Tax Act, 1961 provides that the gratuity paid by the government to its employees is fully exempt from tax. You are required to explain the scope of the term 'government' and clarify whether the exemption from gratuity income will be available to the State Government Employees? Give your answer in accordance with the provisions of the General Clauses Act, 1897.

Accepted Answer

**Scope of 'Government' under General Clauses Act, 1897:**

The General Clauses Act, 1897 contains definitions of terms used in Central Acts. Section 3(26) of this Act defines 'Government' to include the Government of India. However, the definition is not limited in the absolute sense and recognizes that in the context of various statutes, the term may extend to include State Governments as separate governmental entities.

**Application to Gratuity Exemption:**

Section 10(10)(ii) of the Income Tax Act, 1961 provides exemption for gratuity received by an employee from **the Government** upon termination of employment. The use of the term 'Government' without explicit qualification has been interpreted expansively in tax jurisprudence.

**Inclusion of State Government Employees:**

Yes, the exemption from gratuity income **is available to State Government employees** based on the following reasoning:

(1) **Constitutional Recognition**: State Governments are constitutionally recognized entities with their own governmental status under the Indian Constitution. They exercise sovereign powers within their jurisdiction.

(2) **Interpretation of 'Government'**: In the context of Section 10(10)(ii), the term 'Government' is interpreted to mean 'any Government in India', which includes both the Union Government and State Governments. The Income Tax Act uses this term in a broad sense to encompass all governmental entities.

(3) **General Clauses Act Application**: The General Clauses…

Question 26

The Corporate Social Responsibility Committee of the board shall consist of:

Accepted Answer

**Answer: (B)** Three or more directors out of which at least one director shall be Independent Director.

Per Rule 5 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, the CSR Committee must comprise a minimum of three members of the Board, with the mandatory inclusion of at least one Independent Director. This composition ensures adequate independence and accountability in CSR governance while maintaining adequate board representation. Option (A) incorrectly specifies two Independent Directors; Option (C) is overly restrictive by requiring all to be independent; Option (D) contradicts the statutory requirement by excluding independent directors altogether.

Question 27

New Ltd. is incorporated on 3rd January, 2022. As per the Companies Act, 2013, what will be the financial year for the company:

Accepted Answer

**Answer: (A)**

According to Section 3 of the Companies Act, 2013, the financial year of every company is the period of twelve months ending on 31st March every year. For a newly incorporated company, the first financial year extends from the date of incorporation to the end of the current financial year (31st March).

New Ltd. is incorporated on 3rd January 2022, which falls within the financial year 2021-22 (1st April 2021 to 31st March 2022). Since the incorporation date is before 1st April 2022, the company's first financial year will end on 31st March 2022. The company will maintain books of accounts from 3rd January 2022 to 31st March 2022.

Question 28

"Associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. Here, the words 'significant influence' means:

Accepted Answer

**Answer: (C)**

Under Section 2(1)(f) of the Companies Act, 2013, **significant influence** in relation to an Associate company means the power to participate in financial and operating policy decisions of an enterprise, but not control or joint control. Quantitatively, significant influence is presumed to exist when a company **holds control of at least 20% of the total voting power** in another company, provided it is not a subsidiary (which would require 50% or more control). The 20% threshold distinguishes an Associate company from a mere investment or joint venture where voting control is lower, and from a Subsidiary where voting control exceeds 50%.

Question 29

First annual general meeting of the company should be held within ……… from the closing of the first financial year.

Accepted Answer

**Answer: (B)**

Under Section 96(1) of the Companies Act, 2013, every annual general meeting shall be called and held within **nine months from the close of the financial year** to which it relates. This provision applies to all AGMs, including the first AGM.

While Section 96(2) provides an extended timeline for the first AGM (allowing it to be held within 15 months from the date of incorporation), the question specifically asks for the deadline measured from the closing of the first financial year, which is 9 months as per the standard provision in Section 96(1).

Question 30

Victory Limited was incorporated in January 2015. How much expenditure Victory Limited shall ensure to spend in pursuance of its Corporate Social Responsibility Policy:

Accepted Answer

**Answer: (B)**

Under Section 135 of the Companies Act, 2013, a company meeting the CSR threshold criteria must ensure that it spends in every financial year, at least **2% of the average net profits** of the company made during the **3 immediately preceding financial years**. The 3-year lookback period smooths profit volatility, and the measurement is based on net profits (not gross profits) as per the statutory definition in Section 2(48A) of the Act.

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