Question 1

Mr. X, in association with his relative formed a company to promote education for the children of poor section. A licence was issued by the Central Government allowing the said company to be registered under section 8 of the Company. Government aids and lot of funds were contributed by public for the fulfilment of the benevolent object. However, on the compliant against the company, CG came to know about the manipulation of the funds in the company and so order to revoke the licence of the company. Further, directed for the amalgamation with another company registered under this section with an object to save girl child. Examine the legal position as to the order passed by the Central government in the given situation in the light of the Companies Act, 2013.

Accepted Answer

**Legal Position on Revocation of Licence and Amalgamation of Section 8 Company under the Companies Act, 2013**

**Nature of Section 8 Company:** Under **Section 8 of the Companies Act, 2013**, the Central Government (CG) may allow a company to be registered as a Section 8 company where it is formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment, or any such other object, provided the profits (if any) or other income are applied for promoting only the objects of the company and no dividend is paid to its members. In the given case, the company was formed by Mr. X and his relative to promote education for children of the poor section, which is a valid charitable object qualifying for Section 8 registration.

**Revocation of Licence — Section 8(6):** The Central Government is empowered under **Section 8(6) of the Companies Act, 2013** to revoke the licence granted to a Section 8 company where:
(i) the company contravenes any of the requirements of Section 8 or any condition subject to which a licence was issued; or
(ii) the affairs of the company are conducted **fraudulently** or in a manner violative of the objects of the company; or
(iii) the affairs of the company are conducted in a manner **prejudicial to public interest**.

In the present case, on a complaint received, the CG came to know about **manipulation of funds** contributed by the public and Government aids. Such manipulation amounts t…

Question 2

The Director of Rom Limited proposed dividend at 12% on equity shares for the financial year 2016-17. The same was approved in the annual general meeting of the company held on 20th September, 2017. The Directors declared the approved dividends. They seek your opinion on the following matters:

Accepted Answer

**(i) Adjustment of Calls in Arrears against Dividend Payable to Mr. A**

As per the proviso to **Section 127 of the Companies Act, 2013**, a company is bound to pay declared dividend within 30 days. However, one of the exceptions to this obligation is where the **dividend is lawfully adjusted by the company against any sum due to it from the shareholder**.

Calls in arrears represent a debt owed by the shareholder to the company. Therefore, the **Directors of Rom Limited are entitled to adjust the unpaid call money of ₹1 lakh against the dividend payable to Mr. A**. The dividend will be payable only on the balance amount after such adjustment.

In the present case, Mr. A holds shares of face value ₹10 lakhs and has not paid ₹1 lakh towards call money. The company may lawfully set off this ₹1 lakh against his dividend entitlement, and only the net dividend (after adjustment) need be paid to him.

**(ii) Entitlement to Dividend — Ms. N or Mr. R?**

The key principle under **Section 123 of the Companies Act, 2013** is that dividend shall be paid only to **registered shareholders** or their order or to their banker. The entitlement to dividend is determined based on who is the **registered holder** at the time the dividend is declared or on the **record date** fixed by the company.

In the present case:
- Ms. N was the registered holder of 1,000 equity shares on **31st March, 2017** (end of FY 2016-17).
- She transferred the shares to Mr. R, whose name was registered in the comp…

Question 3

Mr. Ram was employed as financer in "Swaraj Ltd" on the surety of his good conduct, given by Mr. Janak, a good friend of the director of the company. Mr. Ram was kept on the salary of Rs. 45,000 per month. After 3 years, the company went into losses and so company decided for the cost cutting by retrenching of many employees and reducing the salaries of the employees. Mr. Ram was also proposed either to quit the job or continued with the lower salary of Rs. 35,000 per month. He accepted and continued with the job. After few months, it was reported by accounts department of the company that Mr. Ram manipulated with the funds of the company. As per the provisions of the Indian Contract Act, 1872, analyse the legal positions of Mr. Janak, in the given situations:

Accepted Answer

**Surety Liability and Discharge by Variation of Contract**

Janak assumed the position of a **surety** for Ram's good conduct under Section 124 of the Indian Contract Act, 1872. The critical issue is whether his surety liability is discharged by the material variation (salary reduction from ₹45,000 to ₹35,000 per month) made without his knowledge or consent.

**Legal Framework:**
Section 141 of ICA, 1872 provides that if, after accepting a guarantee, the creditor (company) enters into any agreement with the principal debtor (Ram) varying any material part of the contract **without the knowledge or consent of the surety**, the surety is **discharged**. The surety cannot be held liable for breaches occurring after such unauthorized variation.

**(i) Manipulation from time of appointment:**
In this scenario, Ram's breach of good conduct was continuous from his appointment. The legal position of Janak:

- The breach of conduct existed during the original contract period (₹45,000 salary)
- When the company unilaterally reduced the salary to ₹35,000 after 3 years **without informing or obtaining Janak's consent**, this constituted a **material variation** of the employment contract
- The variation fundamentally altered the nature and conditions of the guarantee
- **Janak is discharged from his surety obligation** under Section 141, as the essential requirement of the surety's knowledge and consent was not satisfied
- The company cannot recover from Janak despite the established br…

Question 4

Excel Ltd. declared dividend for its shareholder in its Annual General Meeting held on 30th September, 2017. Under the provisions of the Companies Act, 2013, company is required to pay declared dividend within 30 days from the date of declaration. As per the provisions of the General Clauses Act, 1897, discuss what will be the commencement and termination time for posting of declared dividend.

Accepted Answer

Under the General Clauses Act, 1897, the computation of time periods is governed by specific statutory provisions that determine when a prescribed period begins and ends. **Commencement of Period:** Section 13 of the General Clauses Act, 1897 provides that when an act is directed or allowed to be done within a certain time after the happening of any event, the time within which such act is to be done shall be calculated exclusive of the day on which such event happens. In this case, the triggering event is the declaration of dividend on 30th September, 2017. Accordingly, the day of declaration itself (30th September, 2017) is excluded from the computation of the 30-day period. The commencement of the period therefore begins from 1st October, 2017, which is the day immediately following the date of declaration.

**Termination of Period:** Section 14 of the General Clauses Act, 1897 states that when an act is directed or allowed to be done within a certain number of days, the number shall not include the first day from which the period is to be reckoned, but shall include the last day. Applying this provision, we must count 30 days starting from 1st October, 2017 (the commencement date). Counting 30 consecutive days from 1st October onwards—with 1st October being day 1 and continuing through the calendar—brings us to 30th October, 2017 as the 30th day. The last day of the period (30th October, 2017) is included in the computation, meaning the company may post or pay the declare…

Question 5

Examine the validity of the following with reference to the provisions of the Companies Act, 2013:

Accepted Answer

**Relevant Provision:** Section 141(3)(d) of the Companies Act, 2013 deals with disqualification of an auditor on account of holding of securities.

As per Section 141(3)(d)(i), a person shall not be eligible for appointment as an auditor of a company if he or his relative or partner is holding any **security of or interest in the company** or its subsidiary, or of its holding or associate company or a subsidiary of such holding company.

However, the proviso to Section 141(3)(d)(i) carves out a relaxation **only for relatives** — a relative may hold securities or interest in the company of face value **not exceeding ₹1,00,000**. No such relaxation is available for the auditor himself.

**(i) Mr. A holding securities of XYZ Ltd. (Face Value ₹900):**

Mr. A, the practicing Chartered Accountant himself, is holding securities of XYZ Ltd. with a face value of ₹900. Under Section 141(3)(d)(i) of the Companies Act, 2013, there is **no monetary threshold or de minimis exemption** for the auditor himself — holding ANY security of the company, irrespective of the amount, disqualifies him from being appointed as its auditor. The relaxation of ₹1,00,000 is available only to a **relative** of the auditor, not to the auditor personally.

**Conclusion:** Mr. A is **NOT qualified** for appointment as Auditor of XYZ Ltd., as he himself holds securities of that company.

**(ii) Mr. Q (relative of Mr. P) holding securities of ABC Ltd. (Face Value ₹90,000):**

Mr. Q is a relative of Mr. P, the …

Question 6

What are the powers of Registrar to make entries of satisfaction and release of charges in absence of intimation from company? Discuss as per the provisions of the Companies Act, 2013.

Accepted Answer

**Powers of Registrar to Make Entries of Satisfaction and Release of Charges in Absence of Intimation from Company**

**Statutory Provision — Section 83 of the Companies Act, 2013**

Generally, when a charge is satisfied or released, the company is required to intimate the Registrar of Companies (RoC) in **Form CHG-4** within 30 days. However, Section 83 of the Companies Act, 2013 empowers the Registrar to act on his own motion (suo motu) even where no such intimation is received from the company.

**When can the Registrar exercise this power?**

The Registrar may, on evidence being given to his **satisfaction**, exercise this power in respect of any registered charge under either of the following circumstances:

(a) **Satisfaction of Debt:** The debt for which the charge was given has been paid or satisfied in **whole or in part**; or

(b) **Release of Property:** A part of the property or undertaking charged has been **released from the charge**, or has **ceased to form part** of the company's property or undertaking.

**Nature of Entry Made**

Upon satisfaction of the above conditions, the Registrar shall enter in the **Register of Charges** a memorandum of satisfaction — either in whole or in part — or, as the case may be, record the fact that part of the property or undertaking has been released or has ceased to form part of the company's assets. This entry is made **notwithstanding** the fact that no intimation has been received from the company.

**Obligation to Inform…

Question 7

Give the answer of the following as per the provisions of the Negotiable Instruments Act, 1881:

Accepted Answer

**Sub-part (i): Forged Acceptance — Status of 'A' as Holder in Due Course and Right to Recover from 'X'**

**Relevant Law:** Section 9 of the Negotiable Instruments Act, 1881 defines a **'Holder in Due Course' (HiDC)** as a person who, for consideration, becomes the possessor of an instrument before the amount becomes payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derives his title.

**Whether 'A' is a Holder in Due Course:**

On the facts given, 'A' took the Bill of Exchange:
- For **value** (from his customer);
- In **good faith** (bona fide);
- **Before** the Bill became payable;
- Without notice of any defect or forgery.

All conditions under Section 9 are satisfied. Therefore, **'A' IS a Holder in Due Course.**

**Whether 'A' can recover from 'X':**

Despite being a HiDC, 'A' **CANNOT recover** the amount from 'X'. The reason is that **a forged acceptance is a complete nullity** — it is void ab initio. Forgery of a signature creates no legal obligation whatsoever on the person whose signature has been forged. 'X' never accepted the Bill; his purported acceptance was fabricated without his knowledge or authority. No title, however bona fide, can be founded on a forgery. Even the most privileged position in negotiable instrument law — that of a Holder in Due Course — cannot cure the fundamental nullity of a forged signature.

The rule is absolute: **forgery confers no rights against the person whose s…

Question 8

What is meant by "Abridged Prospectus"? Under what circumstances an abridged prospectus need not accompany the detailed information regarding prospectus along with the application form? What are the penalties in case of default in complying with the provisions related to issue of abridged prospectus?

Accepted Answer

**Meaning of Abridged Prospectus**

As per **Section 2(1) of the Companies Act, 2013**, an **"Abridged Prospectus"** means a memorandum containing such salient features of a prospectus as may be specified by the **Securities and Exchange Board of India (SEBI)** by making regulations in this behalf. In essence, it is a condensed version of the full prospectus that provides investors with the key material information needed to make an informed investment decision, without requiring them to read the entire detailed prospectus.

**Statutory Requirement under Section 33(1)**

**Section 33(1) of the Companies Act, 2013** mandates that no form of application for the purchase of any securities of a company shall be issued unless such form is accompanied by an abridged prospectus. This requirement ensures that every prospective investor receives the essential highlights of the offering before subscribing.

**Circumstances Where Abridged Prospectus Need NOT Accompany the Application Form**

The proviso to **Section 33(1)** carves out two specific exceptions. A copy of the abridged prospectus shall **not** be required to accompany the application form in the following circumstances:

**(i) Bona Fide Underwriting Invitation:** Where the form of application is issued in connection with a *bona fide* invitation to a person to enter into an **underwriting agreement** with respect to such securities. The rationale is that underwriters are sophisticated parties who already possess detailed kn…

Question 9

The Tribunal has ordered the re-opening of the accounts of MIT Ltd. The directors of the company has approached you to explain to them the provisions of the Companies Act, 2013 in respect of the re-opening of accounts on court's or Tribunal's order.

Accepted Answer

**Re-opening of Accounts on Court's or Tribunal's Order — Section 130, Companies Act, 2013**

**Governing Provision:** The re-opening of books of account and recasting of financial statements is governed by **Section 130 of the Companies Act, 2013**.

**General Rule — Prohibition on Voluntary Re-opening:** A company shall **not** re-open its books of account and shall **not** recast its financial statements on its own accord. Re-opening is permissible only when specifically ordered by a competent Court or the **National Company Law Tribunal (Tribunal)**.

**Who Can Make an Application?** An application for re-opening may be filed by any of the following:
- The **Central Government**
- **Income-Tax Authorities**
- The **Securities and Exchange Board of India (SEBI)**
- **Any other statutory regulatory body or authority**
- **Any person concerned** (e.g., a shareholder or creditor)

**Grounds on Which the Court / Tribunal May Order Re-opening:** The Court or Tribunal may pass an order for re-opening only if it is satisfied that the earlier accounts were:
(a) Prepared in a **fraudulent manner**, OR
(b) The affairs of the company were **mismanaged** during the relevant period, thereby causing or having caused **injury or damage to public interest**.

Both grounds are independent; satisfaction of either one is sufficient for the Court/Tribunal to direct re-opening.

**Time Limit for Re-opening:** The Court or Tribunal shall **not** make an order for re-opening in respect of books …

Question 10

What is the effect on the implementation of the Rules that are issued between passing and commencement of enactment? Explain as per the provisions of the General Clauses Act, 1897.

Accepted Answer

**The General Clauses Act, 1897** contains specific provisions governing the effect of rules issued between the passing and commencement of an enactment.

**Governing Provision:** According to the General Clauses Act, 1897, rules and subsidiary legislation may be made and issued in anticipation of the commencement of an enactment. Such rules, when made before the commencement of the Act, have specific legal effects.

**Effect on Implementation:**

**1. No Force Before Commencement:** Rules issued between the date of passing and the date of commencement of an enactment do **not** have legal force or binding effect during this interim period. They remain a mere anticipatory measure by the executive.

**2. Automatic Effect from Commencement:** Upon the date of commencement of the Act, these pre-framed rules automatically come into force and become fully operative. The rules are deemed to take effect from the very commencement date of the principal Act as if made under its authority.

**3. Deemed Authority:** The rules are deemed to have been validly made under the provisions of the principal enactment, despite being framed before the Act came into force. This provides them with complete legal sanction and validity.

**4. Continuity and Seamless Implementation:** This arrangement ensures administrative continuity and prevents any legislative hiatus. When an Act comes into force, all necessary subsidiary legislation is simultaneously available for implementation, avoiding confusio…

Question 11

When can the 'dictionary definitions' be used as an external aid for interpretation of any of the word or expression of an enactment?

Accepted Answer

**External aids to interpretation** are materials outside the statute itself that courts may consult to understand legislative intent and meaning. **Dictionary definitions are permissible external aids** under the following specific conditions:

**1. Absence of Statutory Definition:** Dictionary definitions can be used only when the word or expression is **not defined** within the statute itself. If the enactment provides its own definition, that statutory definition must be used exclusively, and dictionary meaning cannot override it.

**2. Ordinary Words in Natural/Common Sense:** When a word is used in its **popular or ordinary sense** in common parlance, dictionary definitions help establish the conventional meaning. This applies to non-technical words that are not terms of art with specialized legal meanings.

**3. Ambiguity in the Expression:** When an expression is **ambiguous or admits multiple interpretations**, reference to dictionary definitions helps clarify the most reasonable or common understanding of that term. This is critical where the statute's language is not crystal clear.

**4. No Contextual Indication of Special Meaning:** Dictionary definitions may be consulted only when the **statute provides no indication** that the word is intended to bear a special, technical, or restricted meaning different from its ordinary sense.

**5. Non-Technical Context:** Dictionary meanings are most useful for words that are **not technical terms** specific to a particular …

Question 12

Examine the following with reference of the provisions of the Companies Act, 2013.

Accepted Answer

**Part (i): Validity of Omnibus Resolution — Miraj Limited**

The action of the Chairman moving resolutions for all nine businesses **together as a single omnibus resolution** is not valid in the manner described, primarily due to the specific bar created by **Section 162 of the Companies Act, 2013**.

**Section 162** lays down that at a general meeting, a **motion for the appointment of two or more persons as directors by a single resolution shall not be moved** unless a proposal to move such a motion has first been agreed to by the meeting **without any vote being cast against it**. If such a resolution is moved in contravention of this sub-section, it shall be **void**, whether or not any objection was taken at the time it was moved.

In the present case, the notice already contained two separate agenda items — appointment of Mr. S and appointment of Mr. P as directors. The Chairman, however, moved all nine businesses (including both director appointments) together in one omnibus resolution. Since the appointment of two directors has been clubbed in a single resolution **without the meeting first agreeing to do so unanimously (without any dissenting vote)**, this is a clear violation of Section 162.

**Consequence:** The resolution regarding the appointment of Mr. S and Mr. P as directors is **void** by operation of Section 162(2), regardless of whether any objection was raised at the time. The invalidity is not cured by the fact that no member objected during the meeting.…

Question 13

What are the rights of the auditor of a company in respect of attending the General Meeting?

Accepted Answer

**Right to Attend General Meeting**: Section 130 of the Companies Act, 2013 provides that every auditor of a company has a right to attend any General Meeting of the company. This is an absolute right that cannot be restricted or denied by the company.

**Right to Receive Notices and Documents**: The auditor is entitled to receive copies of notices of all General Meetings and communications relating to the General Meeting, including agenda and notes on agenda, on the same basis as members. This ensures the auditor is adequately informed about matters to be discussed.

**Right to be Heard at the Meeting**: The auditor has the right to be heard at the General Meeting on any part of the business that concerns them in their capacity as auditors. This includes matters relating to the audit, the auditor's report, and the financial statements of the company.

**Right to Address the Meeting**: An auditor can address the General Meeting and present their observations and views on matters concerning the audit and financial reporting. The auditor's remarks and statements become part of the proceedings of the meeting.

**Right to Access Information and Seek Clarifications**: The auditor can request information, access relevant documents, and seek clarifications on accounting policies, transactions, and other matters related to their audit during or in connection with the General Meeting.

These rights are intended to ensure transparency in financial reporting and accountability to shareh…

Question 14

How far are 'marginal notes' in an enactment helpful in interpreting any of the parts of an enactment?

Accepted Answer

**Marginal Notes as an Aid to Statutory Interpretation**

**Meaning of Marginal Notes:** Marginal notes (also called 'side notes' or 'section headings') are brief descriptive notes placed at the side or margin of sections in a statute. They are inserted by the draftsman of the legislation for convenience and reference, and are not debated or voted upon in the legislature.

**General Rule — Limited Evidentiary Value:** The general rule of statutory interpretation is that marginal notes **do not form part of the statute** and therefore cannot be used to control or override the plain and unambiguous language of a provision. Since Parliament does not enact the marginal notes as part of the text of the law, they carry no direct legislative authority.

**Position in India:** Indian courts have taken a nuanced position on marginal notes:

**(i) Not a Conclusive Guide:** Marginal notes cannot be treated as a conclusive guide to the meaning of a section. Where the language of the section is clear and unambiguous, the marginal note cannot restrict or expand the scope of the provision. The plain language of the enactment must prevail.

**(ii) Reference Permitted in Cases of Ambiguity:** However, when the language of a provision is **ambiguous or doubtful**, courts may refer to marginal notes as an **intrinsic aid** to ascertain the legislative intent. They can throw light on the object and purpose behind a particular provision and assist in resolving the ambiguity.

**(iii) Not to be En…

Question 15

SEBI (Issue of Capital and Disclosure Requirements) (Fifth Amendment) Regulations, 2015 was issued by SEBI vide Notification dated 14th August, 2015 with effect from 1 January, 2016. Referring to the provisions of the General Clauses Act, 1897, examine the date of enforcement of these Regulations.

Accepted Answer

Under the **General Clauses Act, 1897**, Section 27 governs the commencement of regulations made under any Act. This section provides that when a regulation is made, the authority issuing it may specify the date from which the regulation shall come into force.

In the given case, SEBI issued the notification on **14th August, 2015**, but expressly stated "with effect from 1 January, 2016." This specification of a future date of commencement is permitted under the General Clauses Act.

**Key distinction**: The date of notification (when the regulation is published) is different from the date of commencement (when it becomes operative). The date of notification is 14th August, 2015, but the **date of enforcement/commencement is 1 January, 2016**.

As per Section 27 of the General Clauses Act, 1897, when a specific date is mentioned in the notification with words such as "with effect from," that date becomes the date of enforcement. The regulation is not operative between the date of notification and the date specified for commencement; it applies only from 1 January, 2016 onwards.

Therefore, the **date of enforcement of the SEBI Regulations is 1 January, 2016**, not 14th August, 2015.

Question 16

Give answer in the following cases as per the Companies Act, 2013. X Ltd., holds 20 lacs shares in ABZ Ltd. In 2017, ABZ Ltd. controls the composition of the Board of directors of X Ltd. and transfers certain shares to it.

Accepted Answer

**Relevant Provision: Section 19 of the Companies Act, 2013**

**Section 19(1)** provides that no company shall, either by itself or through its nominees, hold any shares in its holding company, and no holding company shall allot or transfer its shares to any of its subsidiaries. Any such allotment or transfer of shares of the holding company to its subsidiary shall be **void**.

**Section 19(2)** carves out the following exceptions where a subsidiary may hold shares in the holding company:
(a) Where the subsidiary holds shares as a **legal representative of a deceased member** of the holding company;
(b) Where the subsidiary holds shares as a **trustee**;
(c) Where the subsidiary was **already a shareholder before it became a subsidiary** — however, in such a case, the subsidiary shall have **no right to vote** at meetings of the holding company.

---

**(i) Validity of Transfer of Shares by ABZ Ltd. to X Ltd.**

In 2017, ABZ Ltd. controls the composition of the Board of Directors of X Ltd. By virtue of **Section 2(87)(i) of the Companies Act, 2013**, X Ltd. becomes a **subsidiary** of ABZ Ltd. (holding company).

X Ltd. already holds 20 lakh shares in ABZ Ltd. **prior to** becoming its subsidiary. This pre-existing shareholding is protected under **Section 19(2)(c)** — X Ltd. may continue to hold those shares, but it shall have **no voting rights** at the meetings of ABZ Ltd.

However, the **new transfer of shares** by ABZ Ltd. to X Ltd. (after X Ltd. becomes a subsidiary) …

Question 17

A General Meeting was scheduled to be held on 15th April, 2017 at 3.00 P.M. As per the notice the members who are unable to attend a meeting in person can appoint a proxy and the proxy forms duly filled should be sent to the company so as to reach at least 48 hours before the meeting. Mr. X, a member of the company appoints Mr. Y as his proxy and the proxy form dated 10-04-2017 was deposited by Mr. Y with the company at its registered Office on 11-04-2017. Similarly, another member Mr. W also gives two separate proxies to two individuals named Mr. M and Mr. N. In the case of Mr. M, the proxy dated 12-04-2017 was deposited with the company on the same day and the proxy form in favour of Mr. N was deposited on 14-04-2017. All the proxies viz., Y, M and N were present before the meeting. Acco…

Accepted Answer

**Relevant Provision:** Section 105 of the Companies Act, 2013 governs the appointment of proxies. A proxy instrument must be deposited with the company not less than **48 hours before the time fixed for the meeting**. Further, where a member appoints more than one proxy, the **later proxy revokes the earlier proxy**, provided the later proxy is itself valid (i.e., deposited within the prescribed time).

**Determination of the 48-Hour Deadline:**
The meeting is scheduled for 15th April, 2017 at 3:00 P.M. Therefore, the proxy forms must be deposited by **13th April, 2017 at 3:00 P.M.** at the latest.

**Case of Mr. X (proxy appointed in favour of Mr. Y):**
The proxy form dated 10-04-2017 was deposited on **11-04-2017**, which is well before the 13th April 3:00 P.M. deadline. This proxy is **valid**. Since only one proxy was appointed, **Mr. Y is entitled to represent Mr. X** at the meeting.

**Case of Mr. W (proxies appointed in favour of Mr. M and Mr. N):**

Proxy in favour of **Mr. M:** Dated 12-04-2017 and deposited on **12-04-2017** — this is before the 13th April 3:00 P.M. deadline. This proxy is **valid**.

Proxy in favour of **Mr. N:** Deposited on **14-04-2017** — this is after the 13th April 3:00 P.M. deadline, i.e., within 48 hours of the meeting. This proxy is **invalid** under Section 105 of the Companies Act, 2013 as it was not deposited within the stipulated time.

Since Mr. N's proxy is itself invalid, it **cannot operate to revoke** Mr. M's earlier valid proxy.…

Question 18

Comment on the following: 'Principal is not always bound by the acts of a sub-agent'.

Accepted Answer

The statement is **correct**. The principal is not always bound by the acts of a sub-agent; such binding is conditional and arises only under specific circumstances.

**General Rule:** The principal is generally **not liable** for acts of a sub-agent. This is because: (1) the sub-agent is appointed by the agent, not by the principal; (2) there is no privity of contract between the principal and sub-agent; and (3) the principal has not granted direct authority to the sub-agent. Per **Section 191 of the Indian Contract Act, 1872**, an agent is appointed to act on the principal's behalf, but the agent cannot unilaterally delegate this authority to a third party without authorization.

**When Principal Becomes Bound:** The principal's liability extends to sub-agent acts in the following exceptional cases:

(1) **Express Authorization:** When the principal has expressly authorized the agent to appoint a sub-agent (**Section 194(a), ICA**). Here, the principal knowingly permits delegation, so acts of the sub-agent within the scope of delegated authority bind the principal fully.

(2) **Customary Practice:** When appointment of a sub-agent is customary in the trade, business, or profession (**Section 194(b), ICA**). Custom imports implied consent; hence, acts of sub-agent appointed following trade custom bind the principal.

(3) **Implied Authority/Necessity:** When the nature of the agency work makes it **necessary** or **impossible** for the agent to act without appointing a sub-a…

Question 19

Amit lends a horse to Bimal for his own riding only. However, Bimal allows Chinku, a member of his family to ride the horse. Chinku rides the horse with care, but the horse falls and is injured. As per the provisions of the Indian Contract Act, 1872, analyse the liability of Bimal in the given situation.

Accepted Answer

This situation involves a bailment with specific conditions and an unauthorized deviation. According to the Indian Contract Act, 1872, Bimal's liability must be analyzed through the lens of bailee responsibility for unauthorized use.

**Definition and Nature of Bailment**: Section 148 of the ICA defines bailment as the delivery of goods by one person (bailor—Amit) to another (bailee—Bimal) on condition that they be returned or disposed of according to the bailor's direction. The condition here is explicit: the horse is for Bimal's own riding only.

**Key Legal Provision—Unauthorized Use**: Section 152 of the ICA, 1872 is pivotal. It provides that if a bailee makes any use of bailed goods not authorized by the bailor, or permits any person not authorized by the bailor to use them, the bailee is **answerable for any loss, destruction, or deterioration of the goods resulting from such unauthorized use, regardless of whether the loss is caused by fault or not.** The unauthorized use itself becomes the basis of strict liability.

**Application to the Given Case**: Bimal has clearly deviated from the terms of bailment by allowing Chinku (an unauthorized person) to ride the horse. This constitutes unauthorized use under Section 152. The fact that Chinku rode with care and was not negligent is immaterial. Section 152 explicitly holds that the bailee is answerable for resulting loss even if the unauthorized user was careful. The injury to the horse is a direct result of this unauthori…

Question 20

State in what way does the Companies Act, 2013 regulate and restrict the following in respect of a company going for public issue of shares: (i) Minimum Subscription, and (ii) Application Money payable on shares being issued.

Accepted Answer

**Regulation of Minimum Subscription and Application Money under the Companies Act, 2013**

**(i) Minimum Subscription**

As per **Section 39(1) of the Companies Act, 2013**, no allotment of any securities offered to the public for subscription shall be made unless the amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on application for the amount so stated have been paid to and received by the company.

The **minimum subscription** is the minimum amount which, in the opinion of the Board of Directors, must be raised by the issue of share capital to meet the requirements of the company such as purchase of property, preliminary expenses, repayment of borrowings, and working capital.

Key provisions:
- The minimum subscription must be stated in the **prospectus**.
- If the minimum subscription is **not received within 30 days** from the date of issue of the prospectus (or such other period as may be prescribed by SEBI), the company must **refund the entire application money** received.
- If the amount is not refunded within the prescribed period, the directors become **jointly and severally liable** to repay that money with interest at the rate of 15% per annum.
- As per **Rule 11 of the Companies (Prospectus and Allotment of Securities) Rules, 2014**, the minimum subscription shall not be less than **90% of the issue size** in case of subscription through a public offer.

**(ii) Application Money Payable on Shares**

As per **Sectio…

Question 21

M Limited held its Annual General Meeting on September 15, 2017. The meeting was presided over by Mr. Venkat, the Chairman of the Company's Board of Directors. On September 17, 2017, Mr. Venkat, the Chairman, without signing the minutes of the meeting, left India to look after his father who fell sick in London. Referring to the provisions of the Companies Act, 2013, examine the manner in which the minutes of the above meeting are to be signed in the absence of Mr. Venkat and by whom.

Accepted Answer

**Relevant Provision: Section 118(3) of the Companies Act, 2013**

Section 118 of the Companies Act, 2013 governs the maintenance and signing of minutes of meetings of a company. Every company is required to cause minutes of the proceedings of every general meeting to be prepared and kept in accordance with the provisions of this section.

**Signing of Minutes of a General Meeting [Section 118(3)(b)]:**

In the case of minutes of proceedings of a **General Meeting**, the minutes shall be signed by the **Chairman of the same meeting** within **thirty days** from the date of the meeting.

However, in the **event of death or inability** of that Chairman, the minutes shall be signed by a **director duly authorised by the Board of Directors** for the purpose.

**Application to the given case:**

M Limited held its Annual General Meeting on **September 15, 2017**, presided over by Mr. Venkat (Chairman). The minutes are required to be signed within thirty days, i.e., by **October 15, 2017**.

Mr. Venkat left India on September 17, 2017 without signing the minutes, owing to a family emergency. His absence from India and consequent unavailability constitutes **'inability'** on the part of the Chairman within the meaning of Section 118(3)(b) of the Companies Act, 2013.

Accordingly, in the absence of Mr. Venkat, the **Board of Directors of M Limited must pass a resolution authorising any one of the directors** to sign the minutes of the Annual General Meeting held on September 15, 2017…

Question 22

A hires a carriage of B and agrees to pay Rs. 500 as hire charges. The carriage is unsafe, though B is unaware of it. A is injured and claims compensation for injuries suffered by him. B refuses to pay. Decide the liability of B in reference to the provisions of the Indian Contract Act, 1872.

Accepted Answer

B is **liable** to compensate A for the injuries suffered.

Under Section 149 of the Indian Contract Act, 1872, bailment is the delivery of goods by one person (bailor) to another (bailee) for some purpose. Here, B is the bailor and A is the bailee.

Since B receives Rs. 500 as hire charges, this is a **hire-bailment** (bailment in return for payment). This is crucial to determining liability.

Section 150 of the ICA, 1872 provides that the bailor is responsible to the bailee for any loss or damage caused by the bailor's failure to disclose any defect in the bailed goods, of which the bailor is aware or **ought to be aware**. However, the liability of a bailor in hire-bailment extends beyond this provision.

In **hire-bailment**, there exists an **implied warranty** that the goods bailed are fit, safe, and suitable for the purpose for which they are hired. This is a fundamental principle of bailment law. This warranty is **absolute** and does not depend on the bailor's knowledge or awareness of defects.

**Application to the facts:** The carriage being unsafe constitutes a breach of this implied warranty of fitness for purpose. Although B was unaware of the unsafe condition, B's lack of knowledge is irrelevant in hire-bailment. The bailor receives consideration (Rs. 500) and therefore assumes responsibility for the fitness and safety of goods, regardless of whether defects were discoverable.

A, as the bailee, relied on B to provide safe goods. A suffered injuries directly du…

Question 23

Explain the power of court for trial of cases summarily, as per the provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Power of Court to Try Cases Summarily under the Negotiable Instruments Act, 1881**

**Section 143** of the Negotiable Instruments Act, 1881 confers special powers on courts to try offences under **Chapter XVII** (i.e., offences relating to dishonour of cheques under Sections 138 to 142) in a summary manner. The key provisions are as follows:

**1. Courts Empowered for Summary Trial:**
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (CrPC), all offences under Chapter XVII of the Act shall be tried by a **Judicial Magistrate of the First Class** or by a **Metropolitan Magistrate**. The provisions of **Sections 262 to 265 of the CrPC** (relating to summary trials) shall, as far as practicable, apply to such trials.

**2. Sentence in Summary Trial:**
When trying an offence summarily under this Act, a Magistrate may, notwithstanding anything in Section 262 of the CrPC, pass a sentence of **imprisonment for a term not exceeding one year** and a **fine exceeding ₹5,000**. This is an exception to the general rule under CrPC which restricts the fine in summary trials.

**3. Conversion to Regular Trial:**
When, in the course of a summary trial, it appears that:
- the nature of the case is such that a sentence of **imprisonment exceeding one year** may have to be passed, or
- it is **undesirable to try the case summarily** for any other reason,

the Magistrate shall, **after hearing the parties**, record an order converting the trial into a **regular (non-su…

CA Inter Corp Laws

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap