CA Inter Corp Laws — Question Paper — January 2026

Verification of Dividend Declaration Compliance — ABC Ltd. (FY 2024-25)

Applicable Law: Section 123 of the Companies Act, 2013 read with Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 governs the permissible sources and conditions for dividend declaration.

Permissible Sources of Dividend [Section 123(1)]:
A company may declare dividend out of: (i) profits for the current year after providing for depreciation as per Schedule II; (ii) undistributed profits of any previous year(s) after providing for depreciation; or (iii) both. Revaluation reserves and unrealised gains cannot be treated as profits for this purpose.

Step 1 — Verification of Depreciation Provision:
ABC Ltd. has provided ₹1,200 lakhs as depreciation in accordance with Schedule II of the Companies Act, 2013. This is a mandatory pre-condition before appropriating profits for dividend. The condition is satisfied.

Step 2 — Computation of Distributable Profit (Current Year):
Profit After Tax (PAT) for FY 2024-25 = ₹1,350 lakhs. This amount is arrived at after full provision for depreciation (₹1,200 lakhs) and tax (₹450 lakhs), and represents legally distributable current year profit.

Step 3 — Transfer to Reserves:
Under the Companies Act, 2013, there is no mandatory requirement to transfer any fixed percentage of profits to reserves before declaring dividend (the mandatory 10% transfer under the erstwhile Companies Act, 1956 was abolished). The Board may voluntarily transfer to reserves, but it is not a precondition. Accordingly, no deduction is required from PAT on this account.

Step 4 — Total Sources Available for Dividend:
Current year PAT: ₹1,350 lakhs; Accumulated retained earnings: ₹2,000 lakhs; Free reserves (excluding revaluation): ₹500 lakhs. Total available pool = ₹3,850 lakhs.

Step 5 — Proposed Dividend Amount:
Dividend declared = ₹3 per share on face value of ₹10 (i.e., 30% on face value). Total payout = 100 lakh shares × ₹3 = ₹300 lakhs.

Step 6 — Coverage Check:
Proposed dividend (₹300 lakhs) is well within the current year PAT alone (₹1,350 lakhs). There is no need to draw from free reserves or accumulated profits. The proposed dividend represents approximately 22.2% of current year PAT — a conservative payout.

Step 7 — Applicability of Proviso to Section 123(1):
The proviso requires that if the company had incurred a loss in any previous year(s), the amount of loss or depreciation for that year (whichever is less) must be set off against current year profits before declaring dividend. Since ABC Ltd. has substantial accumulated retained earnings of ₹2,000 lakhs, there is no prior year loss. This proviso is not triggered.

Step 8 — Other Mandatory Conditions under Section 123:
(i) Separate Bank Account [Section 123(4)]: The dividend amount of ₹300 lakhs must be deposited in a scheduled bank in a separate account within 5 days from the date of declaration. (ii) Payment Timeline [Section 123(5)]: Dividend must be paid to shareholders within 30 days of declaration. Failure attracts interest at 18% p.a. (iii) No dividend on shares carrying arrears of calls-in-arrears — shares on which any call money is unpaid cannot receive dividend unless articles provide otherwise.

Conclusion: The proposed dividend of ₹3 per share (₹300 lakhs total) is in full compliance with Section 123 of the Companies Act, 2013. Depreciation has been duly provided per Schedule II, current year profits are sufficient to cover the entire payout without resorting to reserves, no mandatory reserve transfer is required, and no prior year losses exist. Subject to procedural compliance (separate bank account within 5 days, payment within 30 days), the dividend declaration is legally valid.

Answer: (B) The rights issue is invalid because Section 62 requires a minimum of 15 days' notice to shareholders and no member consent can shorten this statutory minimum period.

Section 62(1)(c) of the Companies Act 2013 explicitly mandates that the rights offer "shall remain open for a period fixed by the Board but not less than fifteen days and not more than thirty days from the date of opening the issue." This is a statutory minimum threshold that operates as a mandatory procedural safeguard.

The fundamental principle in company law is that statutory minimum periods cannot be waived, modified, or shortened through shareholder consent—regardless of unanimity. Even though 90% shareholders consented to short notice via email, this does not override the statutory floor set in Section 62. The 2-day notice period fails to comply with the 15-day minimum.

While Novus Labs Pvt. Ltd. is a private company and does benefit from certain procedural relaxations under the Companies Act (such as written consent replacing meetings), these relaxations apply to meeting procedures and administrative formalities, not to substantive statutory minimums like notice periods for rights issues. Section 62 applies uniformly to all companies—public, private, listed, and unlisted—without distinction on this requirement.

The requirement exists to ensure shareholder opportunity to evaluate the offer and exercise informed decision-making. It is not discretionary.

Why other options fail: (A) incorrectly assumes member consent can shorten statutory minimums and adds irrelevant director liability language; (C) fundamentally misrepresents the law by claiming Section 62 applies only to listed companies; (D) introduces a fabricated 99% threshold and conflates capital authorization (a separate requirement) with rights issue validity.

Answer: (A) When an auditor becomes disqualified, the auditor must vacate the position and such vacation shall be deemed to be a casual vacancy and the company is required to appoint another eligible auditor.

Explanation: Under Section 141 of the Companies Act, 2013, various disqualifications for auditors are prescribed. When an auditor becomes subject to any disqualification, Section 139(1) requires that auditor to vacate office. Crucially, this vacation is treated as a casual vacancy in the office of the auditor, not a regular retirement or expiration of tenure. Upon such casual vacancy, the company must appoint a new eligible auditor within 30 days as per Section 140 of the Act, following the prescribed procedures (including notice to members and approval at a general meeting for the remaining period). Option (B) is incorrect because regulatory authorities do not have direct appointment powers; the Central Government may give directions under Section 142 only in extraordinary circumstances. Option (C) is incorrect as there is no mandatory yearly rotation—auditors can be reappointed after their tenure of two consecutive five-year terms (except for the mandatory 5-year gap after 10 years). Option (D) is incorrect because once an auditor is disqualified, the company cannot retain them through any resolution; the disqualification operates by law.

Answer: (C)

Under Section 141(3)(f) of the Companies Act, 2013, an auditor is disqualified if he "holds any security of or in, or is financially interested in, any manner whatsoever in the company or its subsidiary." This disqualification applies regardless of whether the shares are held in personal capacity or in another person's name—what matters is beneficial interest.

Crucially, Section 141(3)(g) extends this disqualification to relatives: "he is a partner, or an employee, or a relative, of a partner or an employee of such person as is mentioned in clause (f)." Therefore, if a relative of the auditor (including spouse, family members in the same household) holds shares in the company, the auditor becomes disqualified.

Options (A) and (D) wrongly assume the shares being in another's name or lacking voting rights cures the disqualification—they do not. Option (B) incorrectly suggests disclosure to the board makes it acceptable; disqualifications cannot be cured by disclosure and must be remedied before appointment. Option (C) correctly identifies that relatives' shareholding is a ground for disqualification under Section 141(3)(g), making the arrangement unacceptable under both company law and professional ethics (as per ICAI's Code of Ethics for Chartered Accountants).

Examining Disclosures and Consequences of Allotment — Amrit Prakash Ltd.

The case involves two critical disclosures in the prospectus that govern whether a valid allotment of shares can be made under the Companies Act, 2013.

Disclosure 1: Minimum Subscription (Section 39 of the Companies Act, 2013)

Section 39(1) provides that no allotment of securities offered to the public shall be made unless the amount stated in the prospectus as minimum subscription has been subscribed, and the sums payable on application for such amount have been received by the company.

In the present case:
- Minimum subscription disclosed in prospectus: ₹50,00,000
- Application money per share: ₹5 per share
- Total shares issued: 10,00,000 shares
- Application money actually received: 10,00,000 × ₹5 = ₹50,00,000

The amount received (₹50,00,000) equals the minimum subscription amount (₹50,00,000). Therefore, the minimum subscription condition under Section 39 is satisfied.

However, under Section 39(3), if the minimum amount has not been subscribed and received within 30 days from the date of issue of prospectus (or such other period as SEBI may prescribe), the money received shall be repaid within such time as prescribed. Non-compliance makes directors jointly and severally liable to repay with interest at the rate of 15% per annum. In this case, since minimum subscription is received, this concern does not arise.

Disclosure 2: Rejection of Stock Exchange Listing Application (Section 40 of the Companies Act, 2013)

This is the decisive factor that renders the proposed allotment invalid.

Section 40(1) mandates that every company making a public offer shall, before making such offer, apply to one or more recognised stock exchanges for permission for the shares to be dealt in at that exchange.

Section 40(2) provides that where a prospectus states that an application has been made for permission for shares to be listed and dealt in on a recognised stock exchange, any allotment made shall be VOID if the permission has not been granted by the stock exchange before expiry of the time specified.

In the present case, the prospectus itself discloses that the application for listing on recognised stock exchanges has been rejected. Since the required permission has not been granted (in fact, it has been expressly refused), Amrit Prakash Ltd. cannot lawfully proceed with allotment. Any allotment made in these circumstances shall be void ab initio under Section 40(2).

Consequences of Making Allotment Despite Rejection

(a) Allotment declared Void: Any allotment made by Amrit Prakash Ltd. shall be void under Section 40(2) of the Companies Act, 2013, as listing permission was denied.

(b) Obligation to Repay Application Money: Under Section 40(3), the company is required to forthwith repay all application money received (₹50,00,000). If repayment is not made within 15 days from the date of closure of the issue, the directors of the company shall be jointly and severally liable to repay that money with interest at 15% per annum from the expiry of the 15th day.

(c) Penal Consequences under Section 40(5): If any default is made in compliance with Section 40, the company shall be liable to a penalty of minimum ₹5 lakhs extendable to ₹50 lakhs. Every officer of the company who is in default shall be punishable with imprisonment up to 1 year or a fine of minimum ₹50,000 extendable to ₹3 lakhs, or both.

Conclusion: Of the two disclosures, the rejection of the stock exchange listing application is the critical deciding factor. Despite the minimum subscription condition being technically fulfilled, Amrit Prakash Ltd. cannot proceed with allotment as the listing application has been rejected. Any allotment made shall be void, application money must be refunded, and the company and its defaulting officers shall be exposed to the penalties specified above under the Companies Act, 2013.

Applicable Law: Section 73(2) of the Companies Act 2013 read with Rule 3(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014.

Base for computing limits:

| Particulars | ₹ (crore) |
|---|---|
| Paid-up Share Capital | 20 |
| Free Reserves | 8 |
| Securities Premium Account | 2 |
| Aggregate Base | 30 |

Proposal 1 — Deposits from Members (₹3 crore)

Under Rule 3(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, a private company may accept deposits from its members up to 100% of the aggregate of paid-up share capital, free reserves and securities premium account.

Maximum permissible (total) = 100% × ₹30 crore = ₹30 crore

Less: Existing deposits from members already outstanding = ₹2 crore

Maximum additional deposits permissible from members = ₹30 − ₹2 = ₹28 crore

Proposal of ₹3 crore < ₹28 crore → Proposal is VALID.

Proposal 2 — Deposits from Persons other than Members/Public (₹2 crore)

Section 73(2) of the Companies Act 2013 permits a company to accept deposits only from its members, subject to prescribed conditions. Acceptance of deposits from the general public (non-members) is governed by Section 76 of the Act, which is available only to eligible companies that are public companies (having net worth ≥ ₹100 crore or turnover ≥ ₹500 crore). PRT Ltd., being a private company, does not qualify as an eligible company under Section 76.

Therefore, a private company cannot accept deposits from persons other than its members. The maximum permissible deposits from the public (non-members) = ₹0 (Nil).

Proposal of ₹2 crore from non-members → Proposal is NOT VALID.

Conclusion:
- Acceptance of ₹3 crore from members: Permissible (total outstanding would be ₹5 crore, within the ₹30 crore ceiling).
- Acceptance of ₹2 crore from public (non-members): Not permissible — a private company has no authority under the Companies Act 2013 to accept deposits from persons other than its members. Maximum permissible from non-members = Nil.

Sub-part (1): Filing Deadline for Cost Auditor Appointment

ABC Ltd. manufactures life-saving drugs, which fall under a regulated sector. As its turnover exceeds the prescribed threshold, it is required to get its cost records audited under Rule 6 of the Companies (Cost Records and Audit) Rules, 2014 read with Section 148 of the Companies Act, 2013.

Upon appointment of the cost auditor at the Board meeting on 1 August 2024, ABC Ltd. is required to intimate the Central Government by filing Form CRA-2 within 30 days of the Board meeting.

Under Section 9 of the General Clauses Act, 1897, when a period of time is expressed as commencing 'from' a specified day, that day is excluded from the computation. Since the Board meeting was held on 1 August 2024, the counting of 30 days begins from 2 August 2024.

Accordingly:
- Day 1 of the 30-day period = 2 August 2024
- Day 30 of the 30-day period = 31 August 2024

ABC Ltd. must file Form CRA-2 on or before 31 August 2024.

Additionally, it may be noted that the appointment itself must be made within 180 days of the commencement of the financial year (i.e., within 180 days of 1 April 2024, which is on or before 28 September 2024). The Board appointment on 1 August 2024 is within this statutory limit.

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Sub-part (2): Meaning of 'Offence' under the General Clauses Act, 1897

Section 3(38) of the General Clauses Act, 1897 defines 'offence' as follows:

*"Offence shall mean any act or omission made punishable by any law for the time being in force."*

Applied to the present case, the failure of ABC Ltd. to appoint a cost auditor — where such appointment is statutorily mandated under Section 148 of the Companies Act, 2013 — constitutes an omission. Since this omission is made punishable by the Companies Act, 2013 (which is a law in force), it squarely falls within the definition of 'offence' under the General Clauses Act, 1897. The definition thus covers both active acts (commissions) and passive inactions (omissions) that attract penal consequences under any existing law.

Part (a): Eligibility of ARD Ltd. to Claim Depreciation

(1) Out of Current Year's Profits — YES, ELIGIBLE

A company is eligible to claim depreciation out of current year's profits. Under Schedule II of the Companies Act, 2013, depreciation is a mandatory accounting treatment, not discretionary. Depreciation must be provided as an expense in the Profit & Loss Account annually using the Straight-Line Method (SLM) at prescribed rates based on asset category and useful life. Depreciation is an essential deduction in calculating profit and directly reduces the current year's earnings. This treatment applies irrespective of profit position—even companies with lower profits must provide depreciation as per prescribed rates.

(2) Out of Accumulated Profits of Previous Years Only — NOT ELIGIBLE

A company cannot claim depreciation only out of accumulated profits of previous years. Depreciation for current year assets must be provided from current year profits as per Schedule II rates for each financial year. Depreciation is an ongoing annual accounting treatment tied to asset usage in the current period, not a distribution or allocation from past reserves. Accumulated profits are reserved primarily for dividend declarations (subject to Section 123 restrictions) and statutory transfers, not for meeting current year depreciation obligations. If prior year depreciation was inadequate, any catch-up adjustment would be an accounting correction, not a permissible alternative approach.

Part (b): Securities Premium Account — Examination of Proposed Uses

Under Section 52 of the Companies Act, 2013, the Securities Premium Account has strictly defined permitted uses. Any use outside Section 52(2) is prohibited.

(1) Write-off of Advertisement Expenses (₹50 lakhs) — NOT VALID

This use is invalid. Section 52(2)(c) permits writing off only "preliminary expenses" — expenses incurred before the company commences business (e.g., registration, legal fees, pre-launch setup). Advertisement expenses incurred during product launch are revenue/operating expenses of the current or prior operating period, not preliminary expenses. These must be charged to the P&L Account in the period incurred under normal accounting principles. Using Securities Premium to offset marketing costs violates statutory restrictions and misclassifies operating expenses.

(2) Issue of Fully Paid Bonus Shares (₹2 crore) — VALID

This use is valid. Section 52(2)(a) explicitly permits: "issuing fully paid bonus shares to members." Bonus shares must be fully paid from the Securities Premium Account (or reserves). Since the company has ₹10 crore in SPA and the bonus share issuance requires ₹2 crore, sufficient balance exists. This is a standard capital restructuring tool and fully compliant with statutory requirements.

(3) Premium on Redemption of Preference Shares (₹1.5 crore) — VALID

This use is valid. Section 52(2)(d) explicitly permits: "premium payable on redemption of preference shares or debentures." When preference shares are redeemed at a premium above par value, that premium can be funded from the Securities Premium Account rather than free reserves, preserving equity cushion. This is a specifically designed permitted use under the Companies Act and protects equity shareholders.

(4) Distribution as Interim Dividend (₹1 crore) — NOT VALID

This use is invalid. Section 52(1) clearly states the Securities Premium Account "shall not be utilized except for the purposes mentioned in sub-section (2)." Dividend distribution—interim or otherwise—is not listed as a permitted purpose. Additionally, Section 123 restricts dividend declarations exclusively to current year profits and accumulated profits, explicitly excluding the Securities Premium Account. Using SPA for dividend distribution constitutes a statutory violation and unauthorized capital distribution.

Answer: (B)

The eligibility certificate is a mandatory requirement under Section 139(1) of the Companies Act, 2013, read with Rule 4 of the Companies (Audit and Auditors) Rules, 2014. The proposed auditor must furnish this certificate to confirm that they satisfy all eligibility criteria prescribed in Section 141 and do not fall within any disqualification. The certificate serves as a critical compliance mechanism ensuring auditor independence, transparency, and protection of shareholder interests before appointment is finalized. In the case scenario, the absence of this certificate allowed multiple disqualifications—spouse shareholding, outstanding loan, and provision of other services—to remain undisclosed until an investor complaint triggered investigation.

(i) Validity of Name 'Dafrose Pvt. Ltd.' when INC-32 was filed on May 15, 2025

Under Rule 9 of the Companies (Incorporation) Rules, 2014, when a name is reserved through the RUN (Reserve Unique Name) facility, the approved name is valid for a period of 20 days from the date of approval by the Registrar of Companies.

In the present case, the name 'Dafrose Pvt. Ltd.' was approved on April 2, 2025. The 20-day validity period expired on April 22, 2025. The SPICe+ (INC-32) form was filed on May 15, 2025, which is 43 days after name approval — well beyond the 20-day window.

Conclusion: The name 'Dafrose Pvt. Ltd.' was no longer valid when INC-32 was filed on May 15, 2025. The name reservation had lapsed. The company was required to make a fresh application for name reservation through RUN before proceeding with incorporation. The rejection of INC-32 was therefore justified on this ground alone.

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(ii) Mandatory requirement of registered office at incorporation and time limit

Under Section 12(1) of the Companies Act, 2013, a company shall, on and from the fifteenth day of its incorporation, have a registered office capable of receiving and acknowledging communications and notices.

However, it is not mandatory to provide the final verified registered office address at the exact time of filing the incorporation form. Section 12(2) of the Companies Act, 2013 read with Rule 25 of the Companies (Incorporation) Rules, 2014 provides that the company shall furnish to the Registrar verification of its registered office within a period of 30 days from the date of its incorporation.

Verification is submitted via Form INC-22 and must be accompanied by documents such as proof of registered office (e.g., sale deed/lease deed/rent agreement) and a utility bill (not older than two months) in the name of the owner or occupant.

Conclusion: The company can file INC-32 with a proposed/tentative address, but must submit the verified registered office details in Form INC-22 within 30 days of incorporation. Failure to do so renders the company and every officer in default liable to a penalty under Section 12(8) — ₹1,000 per day of continuing default, subject to a maximum of ₹1,00,000.

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(iii) Consequences of failure to file commencement of business declaration and failure to carry on business

Section 10A of the Companies Act, 2013 (inserted by the Companies (Amendment) Act, 2019) mandates that a company incorporated after the commencement of this provision and having a share capital shall not commence any business or exercise any borrowing powers unless a director files a declaration in Form INC-20A with the Registrar within 180 days of the date of incorporation, confirming that every subscriber has paid the value of shares agreed to be taken.

Consequences of failure to file the declaration (Section 10A(2)):
- The company shall be liable to a penalty of ₹50,000.
- Every officer in default shall be liable to a penalty of ₹1,000 for each day during which the default continues, subject to a maximum of ₹1,00,000.

Consequence of not carrying on business or operations (Section 10A(3)):
Where no declaration has been filed within 180 days and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, the Registrar may — without prejudice to the penalties above — initiate action for removal (striking off) of the company's name from the Register of Companies under Chapter XVIII (Section 248) of the Companies Act, 2013.

Conclusion: Non-compliance with Section 10A exposes the company to financial penalties and, critically, to compulsory strike-off proceedings. This is a severe consequence that effectively nullifies the incorporation. Dafrose Pvt. Ltd. must ensure timely filing of Form INC-20A after incorporation to avoid these consequences.

Legality of the Register Entry:

The entry made by the accounts officer in the Register of Charges is legally invalid. Under Section 77 of the Companies Act, 2013 and the Companies (Registration of Charges) Rules 2014, entries in the statutory Register of Charges must be made by a duly authorized person and properly authenticated. The accounts officer acted without explicit Board authorization to make this entry. Critically, the company secretary's authorization—while indicating approval of the charge creation itself—does NOT constitute authorization for making the Register entry, as these are distinct functions. Authentication requires the entry to be signed/attested by an authorized person confirming its accuracy and authenticity. The absence of both proper authorization and authentication renders the Register entry defective and legally invalid.

Consequences of Non-Authentication and Unauthorized Entry:

Against the Company: Under Section 86 of the Companies Act, 2013, the company is liable to penalties for maintaining a defective Register of Charges. Directors and officers responsible for statutory record-keeping may face regulatory action and fines. The company's compliance record deteriorates.

Effect on the Charging Creditor: The charge itself remains valid and enforceable—it was properly created between the company and the financial institution. However, the unauthorized and unauthenticated Register entry has critical legal consequences:
- The defective entry provides NO constructive notice to other creditors (as it lacks legal validity)
- The creditor CANNOT use this Register entry to establish or claim priority over competing charges
- Priority of charges is determined by the date of actual creation of the charge, not the date of Register entry
- The creditor must establish its charge through alternative evidence (deed, Board resolutions, consideration paid, registration with Registrar under Section 77)

For the Challenging Creditor: The challenger's objection is valid and well-founded. An unauthorized and unauthenticated Register entry has no legal effect and cannot bind third parties or support any priority claim by the opposing creditor.

Priority Determination: The competing creditors' priority will be resolved based on:
1. Dates of actual charge creation (not Register entry dates)
2. Proper registration with the Registrar under Section 77 within 30 days
3. Whether charges are fixed or floating
4. Any creditor agreements regarding priority

Corrective Measures: The company must immediately:
1. Obtain Board authorization/ratification of the Register entry (even retrospectively if needed)
2. Have an authorized officer re-authenticate the entry with proper signatures
3. Ensure future compliance with Section 77, Section 78, and Rule 3 of the Companies (Registration of Charges) Rules 2014
4. Remedy the penalty liability under Section 86

The core principle: Statutory compliance requires both authorization AND authentication. Absence of either invalidates the Register entry, though it does not invalidate the underlying charge between the company and creditor.

The Rule of Beneficial Construction and Rule of Restrictive Construction are two important principles of construction in company law applied to interpret the Memorandum and Articles of Association. The following are four key differences:

1. Nature and Scope of Interpretation: Under the Rule of Beneficial Construction, the provisions of the Memorandum and Articles are interpreted in a broad and liberal manner to give them the widest possible meaning that the language permits. Conversely, under the Rule of Restrictive Construction, these provisions are interpreted in a narrow and strict manner, limiting the scope of powers to only what is expressly stated in the documents.

2. Approach to Ambiguities: The Rule of Beneficial Construction resolves any ambiguities or doubts in the language in favor of the company, enabling it to exercise its powers effectively for the conduct of its business. The Rule of Restrictive Construction, however, resolves ambiguities against the exercise of the questioned power, as a protective measure for the shareholders' interests.

3. Application and Purpose: The Rule of Beneficial Construction is applied primarily to the internal management and administration of the company, allowing the Board and Management to have sufficient flexibility in conducting business operations. The Rule of Restrictive Construction is applied particularly to powers that may adversely affect the rights, interests, or property of shareholders, ensuring such powers are not exercised beyond their express grant.

4. Effect on Exercise of Powers: Under the Rule of Beneficial Construction, the company is presumed to have the power to do all acts and things necessary or incidental to the exercise of its stated objectives, thus facilitating business operations. Under the Rule of Restrictive Construction, the company is confined strictly to the powers expressly conferred, and any act outside these express powers is deemed ultra vires and void.

Part (a): Authentication by XYZ Petrochemicals Limited

Applicable Provision: Section 134(1) of the Companies Act, 2013 governs the authentication of financial statements.

As per Section 134(1), financial statements shall be signed on behalf of the Board of Directors by:
1. The Chairperson, where he is authorised by the Board; OR
2. Two directors, out of which one shall be the Managing Director (where there is an MD); AND
3. The Chief Executive Officer, if he is a director;
4. The Chief Financial Officer, wherever appointed; AND
5. The Company Secretary, wherever appointed.

Analysis of the given case:

The Board has not authorised Mr. A (Chairperson) to sign the financial statements. Therefore, the financial statements must be signed by two directors, one of whom must be the Managing Director (Mr. R), along with the CFO and CS.

However, the financial statements were signed only by Mr. N, Mr. P, and Mr. A. The following defects exist:
- Mr. R (Managing Director) has not signed — mandatory requirement not met.
- Mr. D (Chief Financial Officer) has not signed — even though Mr. D is not a director, being the CFO he is required to sign.
- Mr. C (Company Secretary) has not signed — mandatory wherever appointed.
- Mr. A (Chairperson) has signed, but the Board has not authorised the Chairperson to sign — this signature is not valid.

Conclusion: The authentication of financial statements of XYZ Petrochemicals Limited is not in accordance with Section 134(1) of the Companies Act, 2013. The financial statements ought to have been signed by Mr. R (MD), one more director, Mr. D (CFO), and Mr. C (CS).

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Part (b): One Person Company (OPC) with a Single Director

Applicable Provision: The proviso to Section 134(1) of the Companies Act, 2013 provides a special rule for OPCs: *"in the case of a One Person Company, the financial statement shall be signed by only one director."*

Similarly, as per Section 134(3) read with Section 134(1), the Board's Report in case of an OPC is also to be signed by one director.

Analysis: Where the OPC has only one director and that director has authenticated both the Balance Sheet and the Statement of Profit & Loss, as well as the Board's Report, the authentication is fully compliant with the provisions of the Companies Act, 2013. No further signatures are required since the OPC provision carves out an exception from the general two-director and CFO/CS requirement.

Conclusion: Authentication by the sole director of the OPC for the financial statements and the Board's Report is valid and in accordance with Section 134(1) of the Companies Act, 2013.

Answer: (D)

Under Section 42 of the Companies Act 2013, a private placement can be offered to not more than 50 persons in the financial year. Critically, certain categories are excluded when computing this 50-person threshold. These exclusions include: (i) Qualified Institutional Buyers (QIBs), and (ii) Employees of the company or its holding company under Employee Stock Option Plans (ESOP).

Option (D) correctly applies this principle. If invitation letters were sent to 200 persons total, but QIBs and ESOP-eligible employees are excluded, the count of ordinary persons may reduce to 190. Even if 190 persons remain, the fact that recognized exclusions have been applied and the intent was within the private placement framework means the issue will not be deemed a public offer. The transaction remains a valid private placement subject to other procedural compliances (including filing of Form PAS-3 and Form PAS-4 with the ROC within the prescribed timelines).

Option (A) is incorrect because it conflates the thresholds and suggests that 200 persons per se violates Section 42; the 50-person limit applies after statutory exclusions. Option (B) is wrong because Form PAS-3 (Return of Allotment) is mandatory for private placements within 30 days of allotment. Option (C) is incorrect because there is no provision invalidating an offer where a single allotment involves more than 100 persons; the person-count test is applied after exclusions.

(1) Documents to be filed with the Registrar of Companies:

Under Section 381 of the Companies Act, 2013 read with Rule 4 of the Companies (Registration of Foreign Companies) Rules, 2014, every foreign company having a place of business in India is required to file the following documents with the ROC in Form FC-3:

(a) Financial Statements of Indian Business Operations:
- Balance Sheet — prepared in accordance with Schedule III to the Companies Act, 2013 (unless exempted)
- Profit and Loss Account
- Cash Flow Statement (where applicable)
- All documents required to be annexed or attached to the above statements

(b) Supporting Documents:
- A list of all places of business established by Zen Tech Ltd. in India
- A statement of inward and outward remittances — showing (i) money received from persons resident in India, and (ii) money remitted outside India by or on behalf of the company

These documents shall be duly certified by a practicing Chartered Accountant or Company Secretary in India.

It is important to note that Zen Tech Ltd. must prepare separate financial statements for its Indian business operations (i.e., its Bengaluru branch), not the consolidated global accounts of the Singapore parent company.

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(2) Time Limit for Filing:

As per Rule 4(2) of the Companies (Registration of Foreign Companies) Rules, 2014, the financial statements along with the aforesaid documents must be filed with the ROC within 6 months from the close of the financial year of the foreign company.

In the case of Zen Tech Ltd.:
- Financial Year ends: 31st March 2023
- Prescribed due date: 30th September 2023 (6 months from close of FY)

Extension of time: Where the ROC is satisfied that it is not possible for the foreign company to comply with the requirement within the prescribed 6 months, the ROC may extend the period by a further period not exceeding 3 months. Thus, the maximum extended deadline would be 31st December 2023.

Position of Zen Tech Ltd.: Since Zen Tech Ltd. could not finalize its financial statements even by September 2025 — which is approximately 2 years beyond the prescribed due date and well beyond even the maximum extended deadline of 31st December 2023 — the company is in default. Such default attracts penalty under Section 392 of the Companies Act, 2013, which provides for punishment of a foreign company and every officer in default with a fine which may extend to ₹3 lakh and in case of continuing default, a further fine of ₹50,000 per day.

XYZ LLP — Non-Compliance Analysis under the Limited Liability Partnership Act, 2008

(i) Priya's Address Change — Contravention Analysis

Under Rule 21(2) of the LLP Rules, 2009, every partner of an LLP is obligated to intimate the LLP about any change in their personal details, including residential address, within 15 days of such change occurring. In the present case, Priya failed to notify XYZ LLP within this prescribed period. This constitutes a contravention on Priya's part.

Consequently, upon receipt of such intimation from Priya, the LLP is required to file Form 4 with the Registrar of Companies (ROC) under Section 25 of the LLP Act, 2008, read with the LLP Rules, 2009, within 30 days of such change. Since Priya herself defaulted in informing the LLP, the LLP's obligation to file with the ROC was also delayed, making both Priya and the designated partners of the LLP liable.

Penalty: Priya, having failed to inform the LLP within 15 days, is liable to a penalty of ₹100 per day for each day the default continues, subject to a maximum of ₹5,000, as per the applicable penalty provisions of the LLP Act (as amended by the LLP Amendment Act, 2021 which decriminalized several minor defaults and replaced them with civil monetary penalties).

(ii) Ramesh's Admission as Partner — Default on Non-Compliance

Under Section 25 of the Limited Liability Partnership Act, 2008, when any person becomes a partner or ceases to be a partner in an LLP, the LLP is required to file a notice with the Registrar in Form 4 within 30 days of such change. The purpose of this provision is to maintain an updated public record of the LLP's constitution.

In this case, Ramesh joined XYZ LLP as a new partner, but the LLP filed the notice with the ROC only after 45 days from the date of his admission. This means there is a delay of 15 days beyond the prescribed period of 30 days, constituting a clear default under Section 25.

Consequences of Default: Due to this non-compliance:
- XYZ LLP and every designated partner are liable to a penalty for the period of default (i.e., for 15 days).
- The penalty for such filing default is ₹100 per day for each day the default continues (i.e., 15 days), subject to the maximum penalty cap prescribed under the LLP Act.
- In addition to the monetary penalty, the LLP must file Form 4 immediately to regularise Ramesh's admission in the ROC records.

Summary of Defaults:
- Priya failed to intimate the LLP within 15 days — contravention under Rule 21(2) of LLP Rules, 2009.
- XYZ LLP filed Form 4 for Ramesh's admission after 45 days instead of 30 days — contravention under Section 25 of the LLP Act, 2008.
- Both defaults attract civil monetary penalties, and the LLP should immediately rectify the ROC filings to avoid continuing default.

Answer: (C)

Royalty remittances under technical collaboration agreements are permitted current account transactions under the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Current Account Transactions) Rules, 2000. However, such payments fall under Schedule II of FEMA Rules, which permit transactions subject to RBI approval and specified conditions.

Key Analysis:

1. Nature of Transaction: Royalty for software licensing and technical know-how is a legitimate current account transaction and is not prohibited under Schedule I (eliminating option B).

2. Threshold Requirements: FEMA prescribes threshold limits for royalty remittances. While certain amounts may be freely permissible, payments exceeding ₹10 lakhs per financial year (or equivalent) require prior RBI approval or must comply with conditions specified by authorized dealers.

3. Amount Exceeds Threshold: USD 1,50,000 (approximately ₹1.25 crores at current exchange rates) substantially exceeds the permitted limit, making RBI approval mandatory. This eliminates option (A).

4. Schedule II Classification: Royalty payments under technical collaboration are classified as Schedule II transactions (permitted with conditions/approval), not freely permissible or prohibited transactions.

5. Account Restrictions: While EXFC and RFC accounts are mechanisms for foreign exchange transactions, royalty payments are not restricted exclusively to these accounts—they can be remitted through authorized dealer banks (eliminating option D).

Conclusion: Prior RBI approval under Schedule II is mandatory before remitting royalty exceeding USD 1,50,000. The remittance must be supported by a valid technical collaboration agreement and comply with RBI guidelines.

Answer: (B)

Under the Foreign Exchange Management (Current Account Transactions) Rules, 2000 and RBI master directions:

Remittance (1) - Marketing payment (₹15,000) in foreign print media: This is freely permissible. Remittances for advertising and publicity of goods/services in foreign media constitute normal business expenses under current account operations. Insurance companies can freely remit funds for marketing and promotion of their products abroad without requiring prior government approval, provided proper documentation and forex dealer authorization are obtained.

Remittance (2) - Cultural exchange tours sponsored (USD 80,000): This requires prior approval. While cultural exchanges are encouraged at government level, direct financial sponsorship of events or tours abroad by corporate entities does not fall within the category of freely permissible remittances. Such sponsorships may be classified as gifts or donations, which are restricted under the Liberalized Remittance Scheme (LRS) and require RBI/government authorization depending on the nature and quantum. Sponsorship of cultural activities abroad typically necessitates specific approval from appropriate authorities before remittance can be made.

Answer: (C)

Remittance for sponsoring a private tech conference abroad falls under outward foreign remittances for promotional and business support services. Under the Foreign Exchange Management (Current Account Transactions) Rules, 2000 and related FEMA notifications, such remittances for conference sponsorships are not automatically permitted current account transactions. They require prior approval from the Reserve Bank of India (RBI) on a case-by-case basis, as these payments must satisfy compliance with India's foreign exchange policies and the purpose must be demonstrably genuine business promotion. Schedule II of the FEMA framework typically encompasses transactions requiring specific RBI approval rather than those that are either freely permitted or prohibited outright. Option (A) is incorrect as trade promotion does not automatically permit all outflows. Option (B) is incorrect as conference sponsorships are not blanket prohibited. Option (D) is incorrect as even FECF and RFC accounts do not exempt conference sponsorship remittances from prior RBI approval requirements for such payments.

Answer: (B)

This question tests the application of Section 6 of the General Clauses Act, 1897, which establishes a default mechanism for fine recovery under special legislation.

Section 6 of the General Clauses Act, 1897 provides that where any Central Act specifies the amount of fine for contravention of its provisions, such fine shall be recovered in accordance with the Code of Criminal Procedure, 1973, unless the Act expressly provides otherwise.

In this case, the SEBI Act, 1992 specifies monetary penalties but does not expressly exclude the application of CrPC provisions. Therefore, by operation of Section 6 of the General Clauses Act, the Criminal Procedure provisions automatically apply. This includes procedures for levy and recovery of fines such as issuance of warrants for levy, attachment of property, and other enforcement mechanisms under CrPC.

Option (A) is incorrect because special laws are not exempt from CrPC applicability—in fact, Section 6 mandates their application unless expressly excluded. Option (C) is incorrect because recovery is not limited to civil suits; criminal procedures are the default unless excluded. Option (D) is incorrect because no separate notification is required; the application is automatic under Section 6.

The answer is (B): Criminal Procedure provisions including issuance of warrant for levy of fines shall apply.

Validity of the Compromise or Arrangement:

The provisions governing compromise and arrangement for LLPs are contained in Section 60 of the Limited Liability Partnership Act, 2008.

Under Section 60(1), where a compromise or arrangement is proposed between an LLP and its creditors, the Tribunal (NCLT) may, on the application of the LLP or any creditor, order a meeting of creditors to be called, held and conducted in such manner as the Tribunal directs. ABC LLP correctly filed an application before the NCLT — this procedural step is valid.

Under Section 60(2), the compromise or arrangement, if sanctioned by the Tribunal, becomes binding on all creditors and on the LLP provided a majority in number representing three-fourths (3/4th) in value of the creditors present and voting agree to it. In the given case, creditors representing 80% of the total value of debts agreed — this exceeds the statutory threshold of 75% in value. Hence, the voting requirement is duly satisfied.

Further, under Section 60(3), the Tribunal must satisfy itself before sanctioning that all material facts have been disclosed — such as the latest financial position and pendency of any investigation proceedings. In the present case, ABC LLP disclosed both its latest financial statements and the pending tax investigations to the Tribunal. Since the Tribunal sanctioned the arrangement after ensuring such disclosures, the procedural safeguards under Section 60(3) are fully complied with.

Conclusion on Validity: The compromise arrangement is valid and binding on all creditors of ABC LLP, since the requisite majority consented, material facts were disclosed, and the Tribunal duly sanctioned it.

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Effect of Failure to File the Tribunal's Order with the Registrar:

Under Section 60(4) of the LLP Act, 2008, a certified copy of the Tribunal's order sanctioning the compromise or arrangement must be filed with the Registrar of LLPs within 30 days of the making of the order (or within such other time as the Tribunal may direct).

The critical consequence is that until such filing is made, the order shall have no effect. This means:

1. The compromise arrangement, though sanctioned by the Tribunal, does not become operative or enforceable against creditors until the order is filed with the Registrar.
2. The benefit of extended repayment periods and waiver of interest — as agreed under the arrangement — cannot be availed of by ABC LLP.
3. The creditors retain their original rights and claims against ABC LLP during the period of non-filing.
4. Non-filing also constitutes a default under the LLP Act, and the LLP and its designated partners may be liable to penalty for such non-compliance.

In summary, the failure by ABC LLP to file the Tribunal's order with the Registrar within the prescribed 30-day period renders the compromise arrangement inoperative, even though it was validly passed and sanctioned. ABC LLP must immediately file the certified copy of the order to give legal effect to the arrangement.

Statutory interpretation is the process of determining the true meaning and scope of the provisions of a statute. It becomes essential in several distinct circumstances:

1. Ambiguity and Obscurity of Language – When statutory language is ambiguous, unclear, or susceptible to multiple interpretations, courts must interpret to determine the true meaning. This includes vague terms, grammatical ambiguities, or words that have no fixed or definite meaning. For example, terms like 'reasonable', 'adequate', or 'fit and proper' require interpretation in context.

2. Silence or Gaps in the Statute – When a statute is silent on a particular matter or fails to address certain situations, courts must interpret to fill the gaps. The statute may not expressly cover all possible scenarios the legislature contemplated. In such cases, interpretation principles are applied to infer legislative intent.

3. Conflicting or Inconsistent Provisions – When different sections of the same statute or different statutes appear to conflict or create inconsistency, interpretation becomes necessary. Courts must reconcile seemingly contradictory provisions to give effect to both, or determine which takes precedence.

4. Technical and Specialized Terms – Statutes often employ technical legal terminology or specialized language. Interpretation is required to determine whether such terms bear their ordinary meaning, legal meaning, or technical meaning in the relevant context.

5. Changed or Unforeseen Circumstances – When a statute drafted for one set of circumstances is applied to situations not anticipated by the legislature, interpretation is needed to determine applicability. For instance, statutes enacted before the digital age may require interpretation when applied to cyber-related issues.

6. Apparent Absurdity or Hardship – When literal interpretation would produce an absurd, unreasonable, or harsh result contrary to the apparent intention of the legislature, courts interpret to avoid such consequences. The mischief rule is often applied in such circumstances—interpretation focuses on the mischief the statute was intended to remedy.

7. Conflict Between Literal Meaning and Legislative Intent – When the literal meaning of words conflicts with what appears to be the legislative purpose or intent, interpretation is required. Courts look beyond the bare words to understand what the legislature intended to achieve.

8. Obsolescence of Language – When language used in a statute has changed meaning over time due to evolution of language, societal changes, or technological developments, interpretation helps determine current applicability.

9. Interaction with Other Laws – When a statute must be read in harmony with other existing laws, constitutional provisions, or international treaties, interpretation is necessary to maintain coherence in the legal system.

10. Ambiguity in Punctuation and Structure – Grammatical ambiguities, punctuation issues, or structural problems in the statute's drafting may require interpretation to discern intended meaning.

These circumstances collectively establish that statutory interpretation is not a discretionary exercise but a necessary judicial function to give effect to legislation in a manner consistent with legislative intent and the rule of law.

Answer: (B) — (i) No & (ii) Yes

Sub-part (i): Bheem's liability for pre-admission debts

Bheem is NOT liable to Mr. Sharma for LLP debts incurred before his admission. Under Section 9 of the Limited Liability Partnership Act, 2008, a person admitted as a partner is liable only for obligations of the LLP incurred from the date of his admission onwards. A newly admitted partner's liability is strictly limited to obligations arising after admission. The failure to file a notice of admission is a procedural or regulatory shortcoming but does not convert the legal position regarding liability for pre-existing debts. The fundamental principle of limited liability protects Bheem from exposure to pre-admission liabilities, as these arose when he had no capacity or control over the LLP's affairs.

Sub-part (ii): Arjun's personal liability for the false statement

Arjun IS personally liable for the LLP obligations arising from the false Statement of Account & Solvency. Under Section 32 of the Limited Liability Partnership Act, 2008, every designated partner is responsible for the filing and accuracy of prescribed documents, including annual accounts. When Arjun knowingly prepared a false statement:

(a) He has committed fraud, which exposes him to personal liability under both the LLP Act and the Indian Penal Code, 1860 (Sections 415–420 on cheating).

(b) He has breached his fiduciary duty as a partner to act in good faith and in the LLP's interest.

(c) The non-filing of the statement within the prescribed period is a further violation of statutory obligations under the LLP Act.

Under the doctrine of partner liability in fraud cases, a partner who knowingly makes false representations to third parties (like Mr. Sharma) is personally liable, as the principle of limited liability does not shield fraudulent conduct. This is well-established under partnership law principles incorporated into the LLP framework.

Answer: (B)

(i) Is Nakul personally liable for ₹3 lakhs withdrawal from LLP funds for personal use? NO

Under Section 8 of the Limited Liability Partnership Act, 2008, partners in an LLP have limited liability restricted to their contribution to the partnership. A withdrawal by a partner from LLP funds for personal use is an intra-LLP transaction. While Nakul may be liable to the LLP itself for recovery of unauthorized withdrawals, he is NOT personally liable to third-party creditors for this withdrawal. The limited liability shield protects partners from personal exposure beyond their contribution for partnership debts.

(ii) Is Arjun personally liable for vendor debts incurred while she was away? YES

Although Section 8 provides limited liability as a general principle, it contains critical exceptions for designated partners. The Act specifically provides that a designated partner shall be personally liable for: (a) any mis-statement or false statement in documents/returns/statements filed with the Registrar; (b) failure to file required statements within prescribed time; and (c) contraventions of the Act itself. In this case, Arjun knowingly prepared a false Statement of Account & Solvency showing profits when the LLP was insolvent. This constitutes personal wrongdoing by a designated partner. Additionally, the failure to file within the prescribed period creates statutory breach. Under Section 8, such conduct renders the designated partner personally liable. Being inactive and abroad does not exempt her from this statutory liability—it attaches to her actions/omissions in her capacity as designated partner. Creditors who extended credit in reliance on the false statement can pursue Arjun personally.

Answer: (A)

Under Section 77 of the Companies Act, 2013, all charges created on immovable property, plant and machinery, and similar assets must be registered with the Registrar of Companies. Section 80 specifically provides: "Where any charge which should have been registered under Section 77 or 78 is not registered within the period prescribed, the charge, in the event of the company being wound up, shall be void as against the liquidator and any creditor of the company."

In this case, Helix Ltd. created a mortgage on plant and machinery in favour of Horizon Bank but never filed the particulars with the Registrar. Critically, winding-up proceedings have been initiated. Therefore, per Section 80, the charge becomes void against both the liquidator and creditors—meaning Horizon Bank cannot enforce its security interest during liquidation despite holding the mortgage deed.

Additionally, Section 88 of the Companies Act, 2013 provides penalties: the company and every officer in default are liable to fine which may extend to ₹1 lakh for non-registration of charges. The failure was egregious—the charge was created in June 2024 but never registered at all, breaching the statutory timeline.

Option (A) correctly captures both consequences: the charge is void against liquidator and creditors, *and* the company and its officers face penalty liability. Options (B), (C), and (D) are incorrect because Section 80 is absolute in declaring unregistered charges void in winding-up; no exception exists for producing the deed in court or for validity between the company and lender.

Answer: (B)

The validity of resolutions passed at an adjourned general meeting where only one shareholder is present is determined by the quorum rule for adjourned meetings. While option (B) cites Section 103, the technically correct provision is Section 104 of the Companies Act, 2013, which states: "At any adjourned meeting, all members present shall be deemed to constitute the quorum, irrespective of their number."

Under Section 104, even a single member's presence at an adjourned meeting is sufficient to form quorum and conduct valid resolutions. This is an exception to the normal quorum requirements under Section 103 (which requires 2 members for private companies and 5 for public companies). The resolution passed at the adjourned meeting of Sunset Pvt. Ltd. by the sole shareholder present is therefore valid because the statutory exception in Section 104 applies. Option (B) is the closest and best answer among the given choices, as it correctly identifies that the validity stems from the quorum provision for adjourned meetings.

Answer: (C)

Section 76A of the Companies Act, 2013 provides that when a company defaults in repayment or revision of deposits, both the company and every officer in default are liable to punishment. The company is punishable with fine extending up to five times the deposit amount or one crore rupees (whichever is higher), and officers in default face imprisonment up to three years or fine up to fifty thousand rupees, or both. The section creates both criminal liability (imprisonment) and civil liability (recovery), making option (C) the only comprehensive and correct answer.