Question 1

Prakash, Chief compliance officer of the company informed the Board on 20th April, 2022 that the company attracts the provisions of section 135 of the Companies Act, 2013. On what basis of the following he arrived at this conclusion -

Accepted Answer

**Answer: (C)**

Under **Section 135 of the Companies Act, 2013**, a company must constitute a CSR Committee if it meets **any one** of the three thresholds: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more.

Sai Ram Limited's turnover is ₹700 crore (below ₹1,000 crore threshold) and net profit u/s 198 is ₹4 crore (below ₹5 crore threshold). Therefore, neither turnover nor net profit triggers Section 135.

**Net Worth calculation:** Paid-up share capital ₹200 crore + Free reserves out of profits ₹200 crore + Securities Premium ₹80 crore + Credit balance of P&L ₹50 crore + Revaluation reserves ₹25 crore − Miscellaneous expenditure not written off ₹10 crore = **₹545 crore**, which **exceeds ₹500 crore**.

Hence, Prakash's conclusion is based solely on the **net worth of the company** crossing the ₹500 crore threshold.

Question 2

For the purpose of section 135 of the Companies Act, 2013, the net worth has to be calculated as defined under section 2(57) of the Act. In this context, which of the following statements is correct with reference to the above case –

Accepted Answer

**(a) Answer: (A)**

The net worth of Sai Ram Limited during the financial year 2021-22 was **₹520 crore**.

Under **Section 2(57) of the Companies Act, 2013**, net worth means the aggregate value of paid-up share capital and all reserves created out of profits and securities premium account, after deducting the aggregate value of accumulated losses, deferred expenditure, and miscellaneous expenditure not written off.

**Crucially**, reserves created out of **revaluation of assets** are explicitly **excluded** from net worth. The authorised share capital is also not considered — only paid-up capital is included.

Applying this: Paid-up share capital ₹200 crore + Free reserves (out of profits) ₹200 crore + Securities Premium ₹80 crore + Credit balance of P&L ₹50 crore − Miscellaneous expenditure not written off ₹10 crore = **₹520 crore**. Revaluation reserve of ₹25 crore is excluded entirely.

Question 3

Sai Ram Limited constituted a Corporate Social Responsibility Committee as per the provisions of the Act and Companies (Corporate Social Responsibility Policy) Rules, 2014, therein consisting of-

Accepted Answer

**Answer: (D) Sai Ram, Hari Om, Bindu and Roshan**

As per **Section 135(1) of the Companies Act, 2013**, the Board shall constitute a **CSR Committee of the Board** consisting of **three or more directors**, out of whom **at least one shall be an independent director**.

Analysing the options:

- **Option (A)** — Sai Ram, Hari Om, Bindu, Reddy: All four are non-independent directors. No independent director is included. **Fails** the mandatory requirement.
- **Option (B)** — Hari Om, Bindu, Reddy and Prakash: Prakash is the Chief Compliance Officer, **not a director**. He cannot be a member of the CSR Committee, which must be a committee *of the Board*. Also, no independent director. **Fails** on two counts.
- **Option (C)** — Sai Ram, Hari Om, Bindu and Prakash: Prakash is again a non-director officer. **Fails** the same way as (B).
- **Option (D)** — Sai Ram, Hari Om, Bindu and Roshan: Roshan is an **independent director**, satisfying the requirement of at least one independent director. All four are directors on the Board. **This is the valid composition.**

Therefore, the CSR Committee validly constituted under Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014 consists of **Sai Ram, Hari Om, Bindu and Roshan**.

Question 4

According to the provisions of the Indian Contract Act, 1872, do you think the tailor has a right of lien over the cloth?

Accepted Answer

**Answer: (B)**

Under the Indian Contract Act, 1872, a **particular lien** (Section 170) entitles a person to retain goods only if he has rendered a service involving the exercise of labour or skill *in respect of those goods* and the service has been **fully performed**. Here, the tailor failed to stitch the coat within the agreed one-week period, thereby breaching the contract. Since the work was **not completed within the stipulated time**, the tailor cannot claim a right of lien over the cloth. A lien arises only upon completion of the agreed service, not merely upon partial work such as cutting. Therefore, the tailor has no right to retain the cloth and must return it to Akash.

Question 5

Referring to the provision of the Indian Contract Act, 1872, what are the repercussions, when Nishant found goods belonging to another and takes them into his custody? Choose the correct statement.

Accepted Answer

**Answer: (A)**

Under **Section 71 of the Indian Contract Act, 1872**, a person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a **bailee**. This is a statutory bailment imposed by law, regardless of the absence of any contract or voluntary act by the true owner. Nishant, by finding and taking possession of the mobile phone and pen, became a finder of goods and was obligated to take reasonable care of them as a bailee. The loss of the pen through his wife's negligence makes him liable to the true owner.

Question 6

A Private Company cannot issue securities:

Accepted Answer

**Answer: (D)**

A private company cannot issue securities by way of issuing a **Prospectus in Public**. Section 4(1)(vi) of the Companies Act, 2013 defines a private company as one that restricts the right to transfer shares and prohibits any invitation to the public to subscribe for securities. A prospectus is a formal offer document used to invite members of the **general public** to subscribe for shares or debentures; this constitutes a public offer, which is strictly prohibited for private companies.

In contrast, private companies are permitted to: (A) issue securities by rights offer to existing members, (B) issue bonus shares to their existing shareholders, and (C) issue securities through private placement to a select group of investors. The fundamental restriction on private companies is that they cannot make **public offers** of any kind.

Question 7

The Annual General Meeting of Yellow Limited was held on 25th June 2022. According to the provisions of Companies Act, 2013, till what date the company should submit report on AGM to the registrar?

Accepted Answer

**Answer: (D)**

According to **Section 137 of the Companies Act, 2013**, a copy of every report of the proceedings of the Annual General Meeting shall be filed with the Registrar within **30 days from the date of the AGM**. The AGM of Yellow Limited was held on 25th June 2022. Adding 30 days to this date gives 25th July 2022 as the deadline for submission of the AGM report to the Registrar.

Question 8

As per the provisions of the General Clauses Act, 1897, where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under:

Accepted Answer

**Answer: (A)**

Under Section 26 of the General Clauses Act, 1897, where an act or omission constitutes an offence under two or more enactments, the offender may be prosecuted and punished under **either or any of those enactments**, but crucially, cannot be punished twice for the same offence. This provision protects against double jeopardy and ensures fairness. The prosecuting authority has the discretion to choose which enactment to proceed under, but must choose one—not multiple simultaneously. Once the offender is punished under any one enactment, further prosecution under another for the same act is barred.

Question 9

Where a company is granted licence under section 8, it is not required to use the word .............. even though it is a limited company:

Accepted Answer

**Answer: (C)**

Section 8 companies are non-profit organizations registered with charitable objects under the Companies Act, 2013. These companies are granted certain exemptions and concessions from the normal requirements applicable to other companies. One of the key exemptions is that they are **not required to use the word "Limited" or "Private Limited"** in their company name, even though they are incorporated as limited companies with limited liability.

While a standard limited company must include "Limited" at the end of its name (e.g., "ABC Limited") and a private limited company must use "Private Limited" (e.g., "XYZ Private Limited"), a Section 8 company can simply use its name without these mandatory suffixes. For example, a Section 8 company can be registered as "ABC Charitable Trust" without the word "Limited" appearing in its name. This exemption recognizes the public interest nature of these organizations and simplifies their naming conventions.

Question 10

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

Accepted Answer

**Answer: (A)**

When an Act of Parliament does not expressly specify a commencement date, it comes into operation on the day it receives the assent of the President. This is the foundational principle under **Section 5 of the General Clauses Act, 1897**, which provides that "unless a contrary intention appears, an enactment shall come into operation on the day on which it receives the assent of the President." The President's assent is the constitutional moment that gives an Act the force of law, regardless of subsequent gazette notification or other procedural steps. Options (B) refers to outdated colonial terminology; (C) conflates publication with commencement; and (D) is incorrect because assent is given by the President on behalf of Parliament, not separately by both houses.

Question 11

K Limited decides to raise deposits of ₹10.00 lakh from its members. However, it proposes to secure such deposits partially by offering a security worth ₹5.00 lakh. Which of the following options best describe such deposits:

Accepted Answer

**Answer: (C)**

The deposits are classified as **partially secured deposits** because the company is offering security worth ₹5.00 lakh to back deposits of ₹10.00 lakh. This means ₹5.00 lakh (50%) of the deposit amount is secured by security, while the remaining ₹5.00 lakh (50%) remains unsecured. Under the Companies Act, 2013, deposits that are backed by security only to a limited extent—where some portion is secured and some portion is unsecured—are classified as partially secured deposits. Option (A) is incorrect as it suggests only a small portion is unsecured, but here exactly half is unsecured. Option (B) is incorrect because there is backing security for a portion. Option (D) is incorrect as such deposits are validly classifiable under the Act.

Question 12

Every company shall pay a penal rate of interest of .......... per annum for the overdue period in case of deposits, whether secured or unsecured, matured and claimed but remaining unpaid:

Accepted Answer

**Answer: (C) 18%**

Under **Section 73 of the Companies Act, 2013**, which governs deposits accepted by companies, when a deposit matures and is claimed by the depositor but remains unpaid by the company, the company is liable to pay penal interest on the overdue amount. The penal rate of interest for overdue deposits is **18% per annum**. This rate applies for the period from the date the deposit matured (and was claimed) until the actual date of payment. This is a higher rate than standard deposit interest to serve as a deterrent against delays and to compensate the depositor for the loss of use of funds during the default period.

Question 13

When the dividend is declared at the Annual General Meeting of the company, it is known as ….

Accepted Answer

**Answer: (A)**

A **final dividend** is declared at the Annual General Meeting (AGM) of the company after the financial statements have been finalized and audited. It is approved by shareholders and the Board at the AGM held after the financial year ends. In contrast, an interim dividend is declared between two AGMs during the financial year when the financial position allows. Dividend on preference shares is classified by the type of shareholder, not timing. A scrip dividend is a form of dividend paid through securities rather than cash, also unrelated to the AGM timing.

Question 14

Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its:

Accepted Answer

**Answer: (C)**

Under Section 139 of the Companies Act 2013 (as amended by the Companies Amendment Act 2017), every company shall appoint an auditor at the first annual general meeting who shall hold office for a term of **five consecutive financial years**. This period extends from the conclusion of the first AGM through five complete financial years, which means the auditor continues in office until the conclusion of the **sixth annual general meeting**. After completion of this five-year tenure, the auditor cannot be re-appointed immediately and becomes eligible for re-appointment only after the expiry of a cooling-off period of five financial years.

Question 15

A Ltd. is holding 61% shares in B Ltd. and B Ltd. holds 51% in C Ltd. State which is the correct statement here:

Accepted Answer

**Answer: (D)**

Under Section 2(46) of the Companies Act 2013, a company is a **subsidiary** of another company if that other company exercises or controls more than half of the total voting power. Control can be direct or indirect through a chain of subsidiaries.

Analyzing the shareholding structure:
- A Ltd. holds 61% in B Ltd. → B Ltd. is a **direct subsidiary** of A Ltd. (61% > 50%)
- B Ltd. holds 51% in C Ltd. → C Ltd. is a **direct subsidiary** of B Ltd. (51% > 50%)
- By chain of control, C Ltd. is also an **indirect subsidiary** of A Ltd. (A controls B, which controls C)

Therefore, both B Ltd. and C Ltd. are subsidiaries to A Ltd.—B Ltd. directly and C Ltd. indirectly through B Ltd.

Question 16

The Best Dry Fruits Ltd was incorporated under the Companies Act, 1913. Whether the provisions of the Companies Act, 2013 shall apply on it:

Accepted Answer

**Answer: (B)**

Yes, the provisions of the Companies Act, 2013 shall apply to Best Dry Fruits Ltd, which was incorporated under the Companies Act, 1913. According to **Section 3 of the Companies Act, 2013**, the Act applies to all companies, whether incorporated under the 2013 Act or under any previous Companies Act. When new comprehensive corporate legislation is enacted in India, it supersedes all previous Acts and applies to all existing companies registered under those earlier Acts. This is a fundamental principle of statutory succession—the new statute governs all entities within its field unless specific exemptions or transitional provisions are explicitly provided. The Companies Act, 1913 ceased to be the governing law post-enactment of the 2013 Act. Options (C) and (D) are patently incorrect as they invoke British law, which has no application to Indian companies post-independence. Option (A) directly contradicts the explicit scope of the 2013 Act.

Question 17

The financial statement in relation to a dormant company may not include:

Accepted Answer

**Answer: (D)**

A dormant company is one that has not commenced business or has ceased to carry on any business activity. According to the Companies (Accounting Standards) Amendment Rules, 2016, a dormant company may file **simplified financial statements** consisting of only a Balance Sheet and Notes to Accounts. The Profit and Loss Account and Cash Flow Statement are NOT required for dormant companies. This exemption recognizes that dormant companies have no ongoing business operations to report. Option (D) is correct as the P&L Account may not be included in a dormant company's financial statements.

Question 18

Any instrument is at maturity on the ……. day after the day on which it is expressed to be payable.

Accepted Answer

**Answer: (C)**

Under Section 111 of the Negotiable Instruments Act, 1881, an instrument (bill of exchange or promissory note) payable at a fixed period after date, sight, or the happening of a specified event shall be at maturity on the **third day after the day on which it is expressed to be payable**. These three additional days are called "days of grace" and are automatically granted as a matter of law, unless the instrument is payable on demand or at a fixed date without reference to any event. The purpose of days of grace is to provide the drawer/maker with a reasonable period to arrange payment after the nominal due date.

Question 19

An instrument which is vague and cannot be clearly identified either as a bill of exchange, or as a promissory note, is called as:

Accepted Answer

**Answer: (B)** An ambiguous instrument is one that is vague and cannot be clearly identified as either a bill of exchange, promissory note, or cheque under the Negotiable Instruments Act, 1881. When the character of an instrument is uncertain or equivocal, preventing clear determination of its nature as a specific type of negotiable instrument, it is termed an ambiguous instrument. Section 16 of the Negotiable Instruments Act, 1881 specifically addresses ambiguous instruments and provides that such instruments are presumed to be promissory notes. Bearer and order instruments relate to the mode of payability (to bearer vs. to order), while inland instruments relate to geographic scope. Therefore, option (B) correctly identifies an ambiguous instrument.

Question 20

When there is a conflict between two or more statutes or two or more parts of a statute then which rule is applicable:

Accepted Answer

**Answer: (C)** The **Harmonious Construction Rule** is applicable when there is a conflict between two or more statutes or parts of a statute. This rule presumes that the legislature does not intend to create conflicts and therefore courts interpret conflicting provisions in a manner that gives effect to all of them without contradiction. The rule attempts to reconcile seemingly opposing provisions so that they can operate together harmoniously.

Question 21

A promissory note dated 31st August, 2022, is made payable three months after date. What will the maturity date for this instrument?

Accepted Answer

**Answer: (D)**

To find the maturity date of a promissory note, we apply the rules under the **Negotiable Instruments Act, 1881**.

**Step 1: Determine the nominally due date**
The note is dated 31st August 2022 and is payable three months after date. Adding three months to 31st August:
- August 31 + 3 months = November 31
- Since November has only 30 days, the nominally due date becomes **30th November 2022**

**Step 2: Add days of grace**
Under Section 22 of the Negotiable Instruments Act, 1881, **three days of grace** are granted to all bills of exchange and promissory notes (unless the bill is payable on demand or at a fixed period after sight).

Adding 3 days to 30th November 2022:
- 30th November + 1 day = 1st December
- 1st December + 1 day = 2nd December
- 2nd December + 1 day = **3rd December 2022**

Therefore, the **maturity date is 3rd December 2022**.

Question 22

______________ is the cardinal rule of construction that words, sentences and phrases of a statute should be read in their ordinary, natural and grammatical meaning so that they may have effect in their widest amplitude.

Accepted Answer

**Answer: (A)**

The **Rule of Literal Construction** is the cardinal rule requiring words, sentences and phrases in a statute to be read in their ordinary, natural and grammatical meaning so they have effect in their widest amplitude. This rule mandates that the court must interpret statutory language according to its plain, literal sense without adding meanings or correcting apparent grammatical defects. The judge's role is to apply the law as written, not to correct what legislators may have intended but failed to express clearly. This forms the foundation of statutory interpretation in Indian jurisprudence.

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