CA Inter Corp Laws — Question Paper — May 2022

Sub-part (i): Whether MNP Limited can be converted into a private company

As per Section 2(68) of the Companies Act, 2013, a private company must limit its members to a maximum of 200. However, while counting members for this purpose, the following are excluded:

1. Persons who are in the employment of the company (current employees).
2. Persons who, having been formerly in employment, were members while in employment and have continued to be members after cessation of employment.

Additionally, joint holders of shares are treated as a single member, irrespective of the number of persons holding jointly.

Applying these provisions to MNP Limited:

| Category | Persons | Counted as Members |
|---|---|---|
| Directors and their Relatives | 18 | 18 (counted) |
| Employees (current) | 26 | Nil (excluded) |
| Employees (shares allotted during employment) | 15 | Nil (excluded) |
| Joint holders (7 sets × 2) | 14 | 7 (each set = 1 member) |
| Other Members | 12 | 12 (counted) |
| Effective Member Count | | 37 |

Since the effective member count is 37, which is well within the statutory ceiling of 200 members for a private company, MNP Limited CAN be converted into a private limited company.

Note: The conversion requires passing a special resolution and obtaining approval of the National Company Law Tribunal (NCLT) under Section 14(1) of the Companies Act, 2013.

Sub-part (ii): Number of existing members to be reduced

For conversion into a private company, the member count (as computed above) must not exceed 200. Since the effective member count of MNP Limited is 37, which is already within the permissible limit of 200, no reduction in membership is required.

The company does not need to reduce any members before or after conversion, as it is fully compliant with the 200-member ceiling prescribed under Section 2(68) of the Companies Act, 2013.

Applicability of CSR provisions for FY 2021-22:

As per Section 135(1) of the Companies Act, 2013, every company is required to constitute a CSR Committee and mandatorily spend on CSR activities if, during the immediately preceding financial year, it satisfies ANY ONE of the following criteria:

- Net worth of ₹500 crore or more, OR
- Turnover of ₹1,000 crore or more, OR
- Net profit of ₹5 crore or more

For FY 2021-22, the 'immediately preceding financial year' is FY 2020-21.

Net Profit (before tax) for FY 2020-21 = ₹7.00 crore, which exceeds ₹5 crore.

Therefore, CSR provisions are mandatory for SKIP Limited for FY 2021-22.

Computation of Minimum CSR Amount:

As per Section 135(5) of the Companies Act, 2013, the minimum CSR obligation is 2% of the average net profits computed in accordance with Section 198, made during the three immediately preceding financial years.

However, the proviso to Section 135(5) provides that where a company has not completed three financial years since incorporation, the average shall be computed based on the financial years for which financial statements are available (i.e., the years it has been in existence).

Since SKIP Limited was incorporated on 01.04.2019, only two preceding financial years are available as of FY 2021-22 — FY 2019-20 and FY 2020-21. Accordingly, average net profit is computed over two years only.

Net profit for CSR purposes is computed as per Section 198 (which is broadly the net profit before tax). Using the figures provided:

- FY 2019-20: ₹5.00 crore
- FY 2020-21: ₹7.00 crore

Average Net Profit = ₹12.00 crore ÷ 2 = ₹6.00 crore

Minimum CSR amount = 2% × ₹6.00 crore = ₹0.12 crore (₹12,00,000)

Conclusion: SKIP Limited is required to allocate and spend a minimum of ₹12,00,000 towards CSR activities during FY 2021-22.

Will NCLT approve the petition?

No, the NCLT petition will likely be rejected. Section 55(1) of the Companies Act, 2013 mandates that preference shares must be redeemed within a period not exceeding ten years from the date of their issue. Since these preference shares were issued in May 2010, they were due for redemption by May 2020. This is a statutory obligation that cannot be waived or extended by NCLT.

The company seeks to circumvent the redemption obligation by issuing fresh preference shares as a replacement—this is not permissible. Simply replacing unredeemed shares with new shares of equal value does not satisfy the mandatory redemption requirement. While Section 55(5) of the Companies Act, 2013 allows the Central Government to grant relief through Official Gazette notification on grounds of public interest, NCLT lacks such authority to override the redemption requirement.

Although COVID-19 constitutes genuine financial hardship, this alone is insufficient grounds for NCLT to override a statutory mandatory requirement. The company's proper alternatives are: (1) redeem preference shares from accumulated profits or proceeds of a fresh issue of ordinary shares; (2) apply to the Central Government under Section 55(5) citing public interest; or (3) approach NCLT under Section 230 (scheme of arrangement) if it seeks permanent modification of terms with formal shareholder approval—but even then, redemption cannot be indefinitely postponed.

Can unpaid dividend be included in the new issue?

No. Unpaid dividend on preference shares constitutes an accumulated liability of the company, entirely separate and distinct from share capital. Including unpaid dividend in a fresh share issuance would impermissibly capitalize a liability, which violates fundamental accounting principles and company law.

Unpaid dividends:
1. Represent earnings already declared but not distributed
2. Cannot be consolidated with or included in share capital
3. Must be paid separately in cash from profits or as part of redemption settlement
4. Belong to preference shareholders as a debt claim, not as capital contribution

To include unpaid dividend in the fresh preference share issue would artificially inflate the face value of new shares and inappropriately convert an earnings liability into capital—both impermissible. The unpaid dividend must be settled independently through cash payment from available profits or adjusted against original redemption proceeds only if explicit consent is obtained from affected shareholders.

Ramu is NOT bound by ratification.

Ratification is the act by which a principal accepts and adopts an unauthorized act performed by an agent on his behalf, thereby making it binding as if it were originally authorized. However, ratification cannot validate all unauthorized acts; certain conditions must be satisfied.

Conditions for Valid Ratification (Section 228, Indian Contract Act, 1872):
Ratification must relate to a transaction that the principal could have validly authorized. The act ratified must be lawful, and the principal must act with full knowledge of all material facts.

Why Ratification Fails Here:

1. Excess of Authority – Price Differential: Prem was specifically authorized to purchase goods at market rate only. By purchasing at a higher rate, Prem exceeded his authority. While excess of authority can ordinarily be ratified by the principal, ratification here is problematic due to the concurrent issue of self-dealing.

2. Self-Dealing by Agent – Conflict of Interest: The critical flaw is that the goods purchased belonged to Prem himself. An agent has a fiduciary duty to act in the principal's interest without conflict. When an agent sells his own goods to the principal, this constitutes a breach of fiduciary duty and is inherently fraudulent unless:
- The agent fully discloses the conflict of interest before the transaction, AND
- The principal, with full knowledge, expressly consents

No such disclosure or informed consent is mentioned; Ramu discovered this fact afterwards.

3. Ratification Cannot Cure Fiduciary Breach: While ratification can validate unauthorized acts (Section 228), it cannot validate acts involving breach of fiduciary duty or self-dealing. Ratification by a principal does not operate to cure the agent's misrepresentation or concealment of a material conflict of interest. Once Ramu discovers the true nature of the transaction, his earlier acceptance becomes voidable.

Conclusion: Ramu is not bound by the ratification because the transaction involves both unauthorized pricing and the agent's self-dealing without disclosure—a breach of fiduciary duty that ratification cannot validate. Ramu can repudiate the transaction and recover the goods or claim damages.

Nature of Deepak's Position: Deepak is a sub-agent appointed by Bharat (the agent) to perform legal proceedings on behalf of Hani (the principal). A sub-agent is defined under Section 192 of the Indian Contract Act, 1872, as a person employed by an agent to act on behalf of the principal in the matter entrusted to the agent and who acts under the control of that agent.

Validity of Sub-agency: Bharat could appoint Deepak as a sub-agent because: (1) it is necessary and usual in the ordinary course of business to employ a solicitor for legal proceedings, satisfying the test under Section 192; (2) nothing in the question suggests Hani prohibited sub-agency; and (3) legal proceedings are specialized work requiring professional expertise, making sub-agency legally permissible under Section 193.

Deepak's Responsibility to the Agent: Under Section 194 of the ICA, 1872, Deepak is responsible to Bharat (his immediate principal/agent) for the due performance of his duties and for any misconduct. Bharat can hold Deepak liable for breach of instructions, negligence, or failure to recover the dues.

Deepak's Responsibility to the Principal: Under Section 193, Deepak is also directly liable to Hani (the original principal) if there is express or implied assent of the principal to the sub-agency. Since Bharat appointed Deepak in the ordinary course of recovering dues and legal action is customary in such situations, Deepak would be deemed to have acted with Hani's implied assent. However, Deepak is not directly liable for Bharat's acts—only for his own conduct as a sub-agent.

Rights of Deepak: Under Section 195, Deepak has the right to recover from Bankey & Co. all monies he lawfully expends in pursuing the recovery proceedings. He may also claim for work done and services rendered in accordance with his instructions.

Authority of Deepak: Under Section 197, Deepak's authority is limited to what is delegated by Bharat and is further bounded by the original authority granted to Bharat by Hani. Deepak cannot act beyond the scope of his principal's (Bharat's) authority.

Conclusion: Deepak is a validly appointed sub-agent who is primarily answerable to Bharat but also directly liable to Hani for his own acts of misconduct or breach, provided the principal had notice of or assented to the sub-agency arrangement.

Examination of Validity Under the Negotiable Instruments Act, 1881:

(i) When payment on an instrument is made in due course, both the instrument and the parties to it are discharged. — TRUE

This statement is valid and correct. Section 89 of the Negotiable Instruments Act, 1881 expressly provides that when payment in due course is made on a negotiable instrument, the instrument is discharged and all parties to it are freed from liability. Payment "in due course" means payment made by the right person (the principal debtor or authorized agent), to the right person (the lawful holder), at the right time (when due), and in the correct manner. Once such payment is received, neither the debtor nor any prior party can be held liable on the instrument thereafter. The discharge is automatic and operates as a bar to any further action on the instrument.

(ii) Alteration of rate of interest specified in the Promissory Note is not a material alteration. — FALSE

This statement is invalid. Alteration of the rate of interest is unequivocally a material alteration under Section 87 of the Act. A material alteration is one that changes the liability or obligation of any party to the instrument. Since the rate of interest directly affects the debtor's obligation to pay interest and thus alters their total liability, changing it constitutes a material alteration. According to Section 88, when a material alteration is made without the consent of the affected parties, the instrument becomes void except as against the person making the alteration. Therefore, the statement is incorrect.

(iii) Conversion of the blank endorsement into an endorsement in full is not a material alteration and it does not require authentication. — FALSE

This statement is invalid on both counts. First, converting a blank endorsement into a full endorsement is a material alteration. A blank endorsement (where the endorser merely signs) allows any holder to further negotiate the instrument as a bearer instrument, whereas a full endorsement (specifying the endorsee) restricts further negotiation to that specific person only. This conversion fundamentally changes the negotiability and rights of subsequent parties to the instrument, thereby constituting a material alteration under Section 87. Second, such conversion does require authentication to establish legitimate authority for the change and to protect against fraudulent alteration. Proper authentication ensures the validity of the endorsement and protects all parties. Therefore, both parts of the statement are incorrect, making the overall statement false.

Nature and Registration Requirement: The charge created in the form of hypothecation of stock and accounts receivable falls within the scope of charges requiring registration under Section 77 of the Companies Act, 2013. Such charges must be registered with the Registrar of Companies (ROC) within 30 days of their creation.

Company's Primary Responsibility: Under Section 78(1) of the Companies Act, 2013, the company is primarily responsible for applying for registration of charges within 30 days from the date of creation of the charge.

Bank's Right to Register: However, Section 78(2) of the Companies Act, 2013 provides a crucial provision that empowers the charge holder to apply for registration. This section states that if the company fails to apply for registration, "any person interested in the charge" may apply for registration with the ROC. The Nationalized Bank, being the charge holder and creditor, is a person interested in the charge and therefore has the statutory power to apply for registration of the charge directly, notwithstanding the company's unwillingness.

Procedure: The Bank may file an application with the ROC along with the instrument creating the charge, affidavit of the charge holder, and other prescribed documents, and the Registrar shall register the charge if satisfied that the requirements are complied with.

Consequences of Non-Registration: Under Section 85 of the Companies Act, 2013, if the charge is not registered within the prescribed period, it becomes void against the liquidator and creditors of the company. However, it remains valid between the company and the charge holder. By registering the charge themselves, the Bank can avoid this risk and protect its interests.

Conclusion: Yes, the Nationalized Bank has the statutory power under Section 78(2) of the Companies Act, 2013 to get the charges registered with the ROC, thereby ensuring the charge is properly registered and its rights are protected.

Under the Companies Act, 2013, the Registrar can refuse to register a charge in the following circumstances as per Section 82:

1. Non-delivery within Prescribed Time Period: The Registrar shall refuse to register a charge if the particulars of the charge or certified copy of the instrument creating the charge are not delivered within 30 days from the date of creation of the charge (as required by Section 78). In the present scenario, since the Company is unwilling to register, if the documents are not filed within 30 days, the Registrar can refuse registration.

2. Incomplete or Deficient Particulars: If the particulars furnished to the Registrar do not contain all the information required under Section 78 (such as the date of creation, amount, description of assets charged, etc.), the Registrar can refuse registration.

3. Defective Certification of Instrument: If the certified copy of the instrument creating the charge is not properly authenticated or certified as per the prescribed requirements, registration can be refused.

4. Non-payment of Prescribed Fees: If the prescribed registration fees are not paid, the Registrar can refuse to register the charge.

5. Illegality of Charge: If the charge is created in contravention of the provisions of the Companies Act or other applicable laws, or if the Company lacks authority to create a charge on the specified assets (stock and accounts receivable in this case).

Important Note: Even if the Registrar accepts and registers the charge after 30 days, per Section 80, the charge becomes void against the creditor for amounts due after the prescribed 30-day period. This protects the creditor's interest while allowing belated registration.

Answer: Yes, the dividend amount payable to Mr. Suresh can be adjusted against unpaid calls as per the provisions of the Companies Act, 2013.

Reasons for Adjustment:

1. No prohibition in Section 123: Section 123 of the Companies Act, 2013, which governs declaration and payment of dividends, does not prohibit adjustment of dividend against unpaid calls. The section lays down conditions for dividend declaration (from free reserves or profits) but does not restrict the company's right to adjust/set-off moneys.

2. Company's statutory right of set-off: The Companies Act, 2013 (Schedule I – Model Articles) contains provisions allowing companies to maintain a lien on shares for unpaid calls and to adjust any amount due from a shareholder against moneys payable to them. This is a recognized right under the Act.

3. Articles of Association authorization: Most companies' Articles of Association (based on Model Articles in Schedule I) explicitly provide that the company may adjust/set-off unpaid calls against any dividend or other moneys due to the member. Unless the specific Articles prohibit it, such adjustment is permissible.

4. Commercial protection: This provision serves legitimate commercial purposes—protecting the company's interest in ensuring timely recovery of unpaid calls on shares.

Calculation in the Given Case:
Dividend payable to Mr. Suresh = 5,000 shares × ₹2/share = ₹10,000
Unpaid calls = ₹10,000
Amount adjustable = ₹10,000
Dividend payable after adjustment = ₹10,000 – ₹10,000 = ₹Nil

Conclusion: Mr. Suresh would receive nil dividend, as the entire amount is adjusted against his unpaid calls. The company may pursue further recovery if the adjusted amount is insufficient or if adjustment rights are exhausted.

Important caveat: This adjustment is permissible if ABC Ltd.'s Articles of Association contain such authorization (which is standard practice). If the Articles expressly prohibit adjustment, the company cannot unilaterally adjust dividend without shareholder consent, though it can pursue separate recovery proceedings.

The Board's objection that periodical financial results need not be prepared as XYZ Ltd is an unlisted company is not entirely correct. The requirement for periodical financial results is not limited to listed companies alone.

Relevant Provisions:

Under the Companies Act, 2013, the primary provisions governing periodical financial results are Section 33 (which prescribes timelines for preparation of accounts) and Rule 5 of the Companies (Accounts) Rules, 2014, which specifically mandates preparation of periodical financial results.

Applicability to Unlisted Companies:

Rule 5 of the Companies (Accounts) Rules, 2014 applies not only to listed companies but also to unlisted public companies meeting prescribed thresholds. The rule requires periodical financial results to be prepared by companies whose securities are listed OR by unlisted public companies having:
- Net worth of ₹500 crore and above, OR
- Turnover of ₹500 crore and above

Additionally, as per amendments to Rule 5, unlisted public companies with paid-up capital of ₹10 crore and above or turnover of ₹100 crore and above must also prepare periodical financial results within specified timelines (typically 45 days for quarterly results and 60 days for half-yearly results).

Classification of XYZ Ltd:

The Board's assumption is based on the mistaken belief that being unlisted automatically exempts a company from preparing periodical financial results. This is incorrect. The actual exemption depends on:
1. Whether the company is a public or private company
2. Its size in terms of net worth, turnover, or paid-up capital

If XYZ Ltd is an unlisted private company not meeting the prescribed size criteria, it may be exempted. However, if it is a public company or an unlisted company exceeding the size thresholds, it must prepare periodical financial results.

Limited Review Requirement:

Where periodical financial results are required to be prepared, they must be subjected to a limited review as per SA 410 (Standards on Auditing - Review of Interim Financial Information) or equivalent auditing standards applicable in India. This is a mandatory requirement under the Companies Act, 2013.

Conclusion:

The Central Government's communication directing XYZ Ltd to prepare periodical financial results and submit them for limited review suggests that the company falls within the category of companies required to do so. The Board's objection based solely on the company being unlisted is not a valid ground for exemption. The company must comply with the Government's directive if it satisfies the applicability criteria under Rule 5 of the Companies (Accounts) Rules, 2014.

Relevant Provisions — Section 61 and Section 66 of the Companies Act, 2013

The question requires examining whether the cancellation of 2 Lakh issued but unsubscribed equity shares by Manorama Travels Private Limited constitutes a reduction of share capital under Section 66 (requiring NCLT confirmation) or a diminution of share capital under Section 61(1)(d) (not requiring NCLT confirmation).

Nature of the Transaction

Under Section 61(1)(d) of the Companies Act, 2013, a company limited by shares may, if so authorised by its articles, alter its share capital by cancelling shares which have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. Critically, Section 61(2) expressly provides that such cancellation shall NOT be deemed to be a reduction of share capital within the meaning of the Act.

In the present case, the 2 Lakh equity shares cancelled were issued but unsubscribed — i.e., no person had taken or agreed to take them. This squarely falls within the scope of Section 61(1)(d). The operation is therefore a diminution of share capital, not a reduction of share capital under Section 66 of the Companies Act, 2013.

Validity of the Company's Decision

The company's action is valid and legally permissible under Section 61(1)(d). This type of capital alteration does not require confirmation from the National Company Law Tribunal. The company was only required to pass the requisite resolution (an Ordinary Resolution is sufficient under Section 61, unless the articles require a higher threshold) at a duly constituted general meeting, which the company has done. Accordingly, the action of cancelling the 2 Lakh unsubscribed shares is in accordance with the law.

Contention of the Practicing Company Secretary

The contention of the Practicing Company Secretary (PCS) that the action is invalid for want of NCLT confirmation is not correct. The PCS appears to have conflated reduction of share capital (Section 66) with diminution/cancellation of unissued shares (Section 61). Since Section 61(2) explicitly deems such cancellation as NOT being a reduction, the procedural requirements of Section 66 (including filing a petition before the Tribunal and obtaining its confirmation) are simply inapplicable here. The PCS's refusal to certify the e-form on this ground is therefore unjustified, and the company is entitled to file the relevant form without NCLT confirmation.

Document Required for Amending the Capital Clause of the Memorandum of Association

Since cancellation of unsubscribed shares under Section 61(1)(d) reduces the authorised share capital, the Capital Clause of the Memorandum of Association must be amended to reflect the revised authorised capital of ₹80 Lakh. Under Section 13(8) of the Companies Act, 2013, where an alteration of the memorandum relates to the share capital of the company, such alteration shall be made only by the same procedure applicable to such alteration under Section 61. Since Section 61 requires an Ordinary Resolution, the document required for amending the capital clause of the MOA is an Ordinary Resolution passed at a duly convened general meeting of the company. There is no requirement for a Special Resolution in this case.

Conclusion: The company's decision is valid under Section 61(1)(d) of the Companies Act, 2013. The PCS's contention is incorrect as NCLT confirmation is not required for cancellation of unsubscribed shares. The capital clause of the MOA must be amended by passing an Ordinary Resolution.

Suggestion: Issue of Red Herring Prospectus under Section 32 of the Companies Act, 2013

Since the price per share and the number of shares to be issued are not yet finalized, the Board of Directors of ABC Limited should consider issuing a Red Herring Prospectus (RHP) as provided under Section 32 of the Companies Act, 2013.

Meaning of Red Herring Prospectus:
A Red Herring Prospectus is a prospectus which does not include complete particulars regarding the quantum of securities to be offered or the price at which such securities are offered. It is issued prior to the final prospectus to invite offers from the public, particularly used in the book-building process.

Key Provisions under Section 32:

Filing with Registrar: The company proposing to make an offer of securities may issue a Red Herring Prospectus prior to the issue of a final prospectus. The company shall file the Red Herring Prospectus with the Registrar of Companies (ROC) at least 3 days before the opening of the subscription list and the offer.

Contents of RHP: A Red Herring Prospectus shall carry the same obligations as are applicable to a prospectus. However, it may mention a price band (e.g., floor price and cap price) instead of a specific price. The number of securities may also be stated as a range.

After Closure of Offer: Upon the closing of the offer, the company shall file with the Registrar of Companies and SEBI a final prospectus stating:
- The total capital raised (debt or share capital)
- The closing/final price of the securities
- Any other details not included in the Red Herring Prospectus

Variations between RHP and Final Prospectus: Any variations between the Red Herring Prospectus and the final prospectus shall be highlighted in the final prospectus. Such variations shall be individually ratified by the investors who have already applied, giving them an option to withdraw.

Practical Advice to the Board of ABC Limited:
The Board should proceed with the following steps:
1. Prepare the Red Herring Prospectus mentioning all mandatory disclosures except the final price and exact number of shares.
2. Mention a price band within which investors may bid (applicable in book-building).
3. File the RHP with the ROC at least 3 days before opening the subscription.
4. After the book-building process and determination of the final issue price and number of shares allotted, file the final prospectus with the ROC and SEBI.
5. Ensure compliance with SEBI (Issue of Capital and Disclosure Requirements) Regulations as applicable.

Conclusion: Issuing a Red Herring Prospectus under Section 32 of the Companies Act, 2013 is the most appropriate route for ABC Limited, as it allows the company to proceed with fund-raising even before the final price and quantity are determined, thereby providing flexibility in volatile market conditions.

Applicable Provision: Section 84 of the Negotiable Instruments Act, 1881

Section 84 of the Negotiable Instruments Act, 1881 deals with the effect of the drawer's rights when a cheque is not presented within a reasonable time and the bank subsequently fails.

Relevant Rule under Section 84: Where a cheque is not presented for payment within a reasonable time of its issue, and the drawer (or person on whose account it is drawn) had the right — at the time when presentation was delayed beyond such reasonable time — to require the drawee bank to pay, and such drawer suffers actual damage through the delay, he is discharged to the extent of such damage. The damage is measured as the extent to which the drawer is a creditor of the failed bank for a larger amount than he would have been had the cheque been duly paid.

Application to the given case:

Facts: 'A' draws a cheque for ₹5,000 in favour of 'B'. At the time the cheque ought to have been presented, 'A' had sufficient funds (i.e., at least ₹5,000) in his bank account. However, 'B' does not present the cheque within a reasonable time. Before presentation, the bank fails.

Analysis: Since 'A' had sufficient funds (₹5,000) in the bank at the time presentation was due, and the bank subsequently failed before 'B' presented the cheque, 'A' has suffered actual damage equal to ₹5,000 — i.e., the amount he had deposited with the failed bank which is now lost due to the bank's failure. This damage occurred directly because of 'B's delay in presenting the cheque.

Conclusion: By virtue of Section 84 of the Negotiable Instruments Act, 1881, 'A' is discharged from liability to 'B' to the extent of ₹5,000, i.e., the full amount of the cheque. 'A' is not liable to pay ₹5,000 to 'B'.

'B', however, is not left without remedy — 'B' steps into the shoes of 'A' as a creditor of the failed bank to the extent of ₹5,000 and may claim accordingly in the bank's winding-up/liquidation proceedings.

Key principle: The holder who delays presentation beyond reasonable time cannot prejudice the drawer; if the bank fails in the interim and the drawer had sufficient funds, the drawer is discharged to the extent of loss suffered.

Section 6 of the General Clauses Act, 1897 governs the effect of repeal of any Act. The key principle is that repeal does not erase the past legal effects of the repealed Act. When an Act is repealed, the repeal shall not affect the previous operation of the Act or anything duly done or suffered under it. This means that all transactions, events, and acts that occurred during the operation of the repealed Act remain valid and enforceable.

Under this provision, any office, appointment, instrument, rule, order, or notification made under the repealed Act shall be deemed to have been made under the corresponding provision of the new Act, if such a corresponding provision exists. This ensures continuity of legal instruments without the need for re-enactment.

Further, any legal proceeding that could have been instituted or commenced under the repealed Act may be instituted or continued under the new Act. This protects the rights of parties to pursue remedies despite the repeal.

Regarding offences and penalties, any offence committed under the repealed Act may be prosecuted and punished under the new Act. However, the punishment cannot be enhanced or made more severe by virtue of the repeal. Additionally, any penalty, forfeiture, or liability incurred under the repealed Act is not affected by the repeal and shall remain enforceable.

The overarching purpose of Section 6 is to provide legal continuity and protection to all acts and transactions performed under the repealed Act, ensuring that the repeal does not create a legal vacuum or invalidate past actions. This provision applies to all Central Acts unless specifically exempted.

Examination of Statements under the Indian Contract Act, 1872:

(i) Creditor should proceed legal action first against the Principal Debtor and later against the surety - FALSE

This statement is incorrect. Section 141 of the Indian Contract Act, 1872 provides that the creditor is not bound to recover the debt from the principal debtor before proceeding against the surety. The creditor has the right to proceed against the surety immediately and simultaneously with the principal debtor. The creditor can sue the surety directly without first exhausting remedies against the principal debtor. This is a fundamental right of the creditor in suretyship contracts.

(ii) A guarantee which extends to a single debt / specific transaction is called continuing Guarantee - FALSE

This statement is incorrect. Section 129 of the Indian Contract Act defines a continuing guarantee as "a guarantee which extends to a series of transactions." Conversely, a guarantee extending to a single debt or specific transaction is called a simple guarantee or specific guarantee. These are two distinct types of guarantees with different characteristics. A continuing guarantee contemplates multiple or repeated transactions over time, whereas a simple guarantee covers only one particular transaction or debt.

(iii) Variation which is not material and beneficial to the surety will not discharge him of his liability - TRUE

This statement is correct. Section 133 states that if the creditor makes any material alteration in the terms of the contract without the surety's consent, the surety is discharged. However, Section 134 clarifies that the surety is not discharged by a variation made in the mode of dealing with or realization of money if such variation is not material, or is made with the surety's consent, or where the surety has authorized such variations. Therefore, variations that are not material do not discharge the surety from liability, whether or not they are beneficial to the surety.

(iv) If the bailee does not use the goods according to the terms and conditions of bailment, the contract of bailment becomes void - FALSE

This statement is incorrect. Section 148 of the Indian Contract Act provides that if the bailee makes any use of the goods which is not authorized by the contract of bailment, the bailee becomes liable for any loss, destruction, or deterioration of the goods occasioned by such unauthorized use. However, the contract of bailment does not become void. The contract remains valid, but the bailee incurs liability for breach. The bailee's unauthorized use creates a cause of action but does not void the entire contract.

Issue: Whether a cheque on which the date has been altered (revalidated) constitutes a valid negotiable instrument binding the drawer (Bidder) under the Negotiable Instruments Act, 1881.

Relevant Provision — Section 87 of the Negotiable Instruments Act, 1881:

Section 87 deals with the effect of material alteration. It provides that any material alteration of a negotiable instrument renders it void as against any party who was a party thereto at the time of the alteration and who does not consent to such alteration. However, the instrument remains valid as against any party who has consented to the alteration.

The key question is therefore two-fold: (i) Is a change of date a material alteration? and (ii) Was such alteration made with the consent of the Bidder (drawer)?

Whether change of date is a material alteration:

Yes. A change in the date of a cheque is a material alteration because the date directly affects the validity period (presentment window) of the cheque and alters the legal rights and obligations of the parties. This is well-settled under Section 87.

Whether the Bidder consented to the alteration:

In the present case, the Tenderer returned the cheque to the Bidder for revalidation. The Bidder itself changed the date from the original date to 01.07.2021 and voluntarily resubmitted the cheque to the Tenderer. The alteration was thus made either by the Bidder directly, or at the very minimum, with the express consent and knowledge of the Bidder, evidenced by the act of resubmission.

Conclusion:

Since the material alteration (change of date) was made with the consent of the drawer (Bidder), Section 87 does not render the cheque void. The revalidated cheque dated 01.07.2021 is a valid and enforceable negotiable instrument and is binding on the Bidder for payment of ₹5,00,000. The dishonour of this cheque by the bank, without sufficient grounds on the Bidder's part, would expose the Bidder to liability under Section 138 of the Negotiable Instruments Act, 1881.