Question 1

is the owner of the goods, or any person authorized by him in that behalf, who can pledge the goods. But in order to facilitate mercantile transactions, the law has recognized certain exceptions. Do you think bonafide pledge can be made by non-owners? If yes, explain the circumstances with reference to provisions of the Indian Contract Act, 1872.

Accepted Answer

Yes, bona fide pledge can be made by non-owners under specific exceptions recognized in the Indian Contract Act, 1872, to facilitate mercantile transactions.

**General Rule and Exception**: While Section 178 of the Indian Contract Act, 1872 stipulates that the pawnor (pledgor) must be the owner of pledged goods or authorized by the owner, the law recognizes important exceptions for non-owners to pledge in defined circumstances.

**Recognized Circumstances Where Non-Owners Can Pledge**:

**1. Mercantile Agent**: A mercantile agent in possession of goods with the owner's consent can pledge them. The owner's consent to possession is deemed to include consent to pledging within the ordinary course of business transactions. This allows agents to offer goods as security for advances or loans.

**2. Finder of Goods**: A finder of goods can pledge them as security for recovery of necessary expenses incurred in preserving or protecting the goods. This right is based on bailment principles (Sections 168-171) where the finder becomes a bailee with a lien and pledge right to recover costs.

**3. Seller Remaining in Possession**: A seller who continues in possession of goods after their sale can pledge them as security for the unpaid purchase price or other claims against the buyer. The seller's retention of possession gives them authority to pledge despite having transferred ownership.

**4. Buyer in Possession Before Payment**: A buyer who obtains possession of goods before making full…

Question 2

Mr. X draws a cheque in favour of Mr. R for payment of his outstanding cheque dated 25.08.2022 for ₹ 1,00,000 on 26/07/2022 with due date of 1/08/2022. At the time of issuing cheque, he was having sufficient balance in his account, but on 29/07/2022 he made payment for his taxes, now his account has insufficient balance. Mr. R approached the bank to make the payment of cheque as he did not present the cheque for payment, but he did not accept his request. So Mr. X instructed the bank to stop payment of cheque issued for dated 01/09/2022 in favour of Mr. R. Decide, under the provisions of the Negotiable Instruments Act, 1881 whether the said acts of Mr. X constitute an offence?

Accepted Answer

**Answer: YES, the acts of Mr. X constitute an offense under Section 138 of the Negotiable Instruments Act, 1881, subject to presentation and dishonor of the cheque.**

**The Critical Acts:**

Mr. X has committed potentially two distinct acts: (1) drawing a cheque dated 26/07/2022 knowing funds would become insufficient, and (2) instructing the bank to stop payment of a cheque dated 01/09/2022.

**Analysis of Drawing the Cheque (26/07/2022):**

The cheque was issued for discharging an outstanding legally enforceable debt to Mr. R. Although funds were available at the time of issuance, they became insufficient on 29/07/2022 when Mr. X made a tax payment. If this cheque is subsequently presented for payment on or after 29/07/2022, it will be dishonored due to insufficient funds. **Under Section 138 of the NI Act, 1881, any cheque issued for discharging a debt or liability that is returned unpaid due to insufficiency of funds constitutes a criminal offense.** The Supreme Court has consistently held that even where insufficiency arises from subsequent withdrawals by the drawer, if the cheque for a legally enforceable obligation is dishonored, Section 138 applies.

**Analysis of Stop Payment Instruction (01/09/2022 cheque):**

While Section 143 of the NI Act grants a drawer the right to countermand (stop) payment of a cheque, **this right cannot be exercised to evade liability under Section 138.** The fact that Mr. X issued one cheque for an outstanding debt, allowed insufficiency…

Question 3

"No person shall be prosecuted and punished for the same offence more than once." Explain in the light of provisions of Section 26 of the General Clauses Act, 1897.

Accepted Answer

The principle that 'no person shall be prosecuted and punished for the same offence more than once' is a fundamental protection against State oppression, rooted in the Latin maxim **nemo debet bis puniri pro uno delicto**. While Section 26 of the General Clauses Act, 1897 itself concerns repeal of enactments, the doctrine of double jeopardy in Indian criminal law is protected through Article 20(2) of the Constitution and Section 300 of the Criminal Procedure Code, 1973. This principle embodies three distinct aspects:

**Autrefois Acquit**: When a person has been acquitted of a charge by a competent court, they cannot be prosecuted and punished again for the same offence. The acquittal is final and acts as a bar to any subsequent prosecution.

**Autrefois Convict**: When a person has been convicted and punished for an offence, they cannot be prosecuted and punished again for that same offence, even if new evidence emerges.

**Critical Conditions for Application**: The protection applies only when three essential elements coincide: (1) the same person, (2) the same offence, and (3) substantially the same facts. The test for 'same offence' focuses on the essential ingredients required to prove the offence, not merely the factual circumstances. Two different statutory offences—even if arising from identical facts—are distinct offences. For example, the same act causing death may constitute both murder (Section 302 IPC) and culpable homicide (Section 304 IPC); prosecution for both…

Question 4

Innovative Ltd. a start-up by a few qualified professionals, which was incorporated in 2014. The company is booming and favouring the younger generation to work. The Capital Structure of the Company is as follows: Authorised Share Capital: 100,00,000 Equity Shares of ₹10 Each (₹10.00 Crores); Issued, Subscribed and Paid-up Share Capital: 50,00,000 Equity Shares of ₹10 Each (₹5.00 Crores); Share Premium (₹1.00 Crores); General Reserve (₹3.52 Crores); Profit & Loss Account (₹1.58 Crores). The company decided to issue 30% sweat equity shares to a class of directors and permanent employees to keep them motivated and partner in growth. Lock-in period for sweat equity will be five years. A resolution in General meeting of Company was passed stating: 'The Resolution benefits 15 lakh sweat equity …

Accepted Answer

**PART (A): SWEAT EQUITY SHARES UNDER COMPANIES ACT, 2013**

**(i) Appropriateness of Size of Issue:**

**Section 54 of the Companies Act, 2013** restricts sweat equity issuance to **15% of paid-up capital** as on the date of board meeting approving the issue, unless members approve a different limit by resolution in General Meeting.

Calculation:
- Existing paid-up capital: ₹5 Crores (50 lakh shares @ ₹10)
- Default 15% limit: ₹75 Lakhs
- Proposed issue: 15 lakh shares @ ₹5 consideration = ₹75 Lakhs = **30% of existing capital**

Since 30% exceeds the 15% statutory limit, it requires **specific member approval in General Meeting**. The company has obtained such approval through passed resolution. Therefore, **the 30% issuance is appropriate and compliant**. The post-issue capital remains within ₹10 Crores authorized capital.

**(ii) Justification of Lock-in Period:**

**Section 54(1)(f) of the Companies Act, 2013** mandates a **minimum lock-in period of 5 years** from date of allotment. Companies may prescribe longer periods but cannot reduce below 5 years.

The company has prescribed exactly 5 years, which **satisfies the statutory minimum requirement and is justifiable**. This period:
- Ensures compliance with law
- Prevents immediate profit-taking by recipients
- Ensures long-term commitment from employees and directors
- Serves the objective of motivating the workforce

**PART (B): DIVIDEND POLICY - ESPS HEAVY ENGINEERING LTD**

**Governing Provision: Section 123 of the …

Question 5

A General Meeting of ABC Private Ltd. was scheduled to be held on 15th April, 2022 at 3:00 P.M. As per the notice the members who will be unable to attend the meeting in person can appoint a proxy and the proxy forms duly filled should be sent to the company, so that the company can receive it within time. Mr. X, a member of the company appoints Mr. Y as his proxy and the proxy form dated 10-04-2022 was deposited by Mr. Y with the company at its registered office on 14-04-2022. Similarly, another member Mr. W also gives his separate proxies to two individuals named Mr. M and Mr. N. In the case of Mr. M, the proxy dated 12-04-2022 was deposited with the company on the same day and the proxy form in favour of Mr. N was deposited on 14-04-2022. All the proxies viz., Y, M and N's were present …

Accepted Answer

**Answer: For member X — no proxy is allowed to represent him. For member W — only Mr. M is allowed to represent him.**

**Validity of Proxies Under Section 105:**

Section 105 of the Companies Act, 2013 and Rule 19 of the Companies (Management and Administration) Rules, 2014 stipulate that a proxy form must be deposited at the registered office of the company **not less than 48 hours before the time of the meeting**. This is a mandatory requirement, and failure to comply renders the proxy appointment invalid.

**Time Calculation:**
The meeting is scheduled for 15th April, 2022 at 3:00 P.M. The 48-hour cutoff is therefore 13th April, 2022 at 3:00 P.M.

**Mr. X and Proxy Mr. Y:**
Mr. Y's proxy form was deposited on 14th April, 2022 — only 24 hours before the meeting. This is **less than the required 48 hours**, making the proxy form **invalid**. Consequently, Mr. Y **cannot represent** member X, despite being present at the meeting. The defect in timely deposit cannot be cured by the proxy's presence.

**Mr. W and Multiple Proxies:**
Mr. W appointed two proxies — Mr. M and Mr. N. However, Section 105 provides that a member may generally appoint **only one proxy** to attend and vote at a meeting, except in the case of members holding not less than 2% of the voting capital, who may appoint multiple proxies in proportion to their shareholding. The question does not indicate that Mr. W holds such large shareholding, so the general rule applies.

Even setting aside the restriction …

Question 6

A General Meeting of ABC Private Ltd was scheduled to be held on 15th April, 2022 at 1.00 P.M. As per the notice the members who will be unable to attend the meeting in person can appoint a proxy and the proxy form duly filled should be sent to the company, so that company can receive it within time. Mr. X, a member of the company appoints Mr. Y as his proxy and the proxy form dated 10-04-2022 was deposited by Mr. X with the company at its registered office on 11-04-2022. Similarly, another member Mr. W also gives two separate proxies to individuals named Mr. M and Mr. N. In the case of Mr. M, the proxy dated 12-04-2022 was deposited with the company on the same day and proxy form in favor of Mr. N was deposited on 14-04-2022. At the proxies viz., Y, M and N were present before the meeting…

Accepted Answer

**Relevant Provision:** Section 105 of the Companies Act, 2013 governs the appointment of proxies. As per Section 105(6), the instrument appointing a proxy must be deposited with the company **not less than 48 hours before the time of the meeting**.

**Determining the Deadline:** The General Meeting was scheduled on **15th April 2022 at 1:00 P.M.** Therefore, the last date and time by which a proxy form must be deposited = **13th April 2022 at 1:00 P.M.**

**(a) Case of Mr. X:**
Mr. X appointed Mr. Y as his proxy. The proxy form dated 10-04-2022 was deposited with the company on **11-04-2022**, which is well before the 48-hour deadline of 13-04-2022 at 1:00 P.M. Hence, **Mr. Y is a valid proxy** and is entitled to represent Mr. X at the meeting.

**(b) Case of Mr. W:**
Mr. W appointed two proxies — Mr. M and Mr. N:

- **Mr. M's proxy:** Dated 12-04-2022 and deposited on **12-04-2022** — this is before the 48-hour deadline. Hence, **Mr. M's proxy is valid**.
- **Mr. N's proxy:** Deposited on **14-04-2022**, which is *after* the 48-hour deadline (13-04-2022 at 1:00 P.M.). Hence, **Mr. N's proxy is invalid** as it was not deposited within the stipulated time.

Although when a member appoints multiple proxies the later proxy ordinarily revokes the earlier one, this rule applies only when both proxies are validly deposited. Since Mr. N's proxy is invalid by virtue of late deposit, it cannot revoke Mr. M's proxy. Therefore, **Mr. M is entitled to represent Mr. W** at the meeting.

…

Question 7

A fraud was reported to SFIO by Statutory Auditors of PQ Ltd. On the current financial year 2021-22. During the investigation found that there is a need to re-open the accounts of PQ Ltd. for the financial year 2015-16 and therefore, they filed an application before the National Company Law Tribunal (NCLT) to issue the order against PQ Ltd. for re-opening of its accounts and recasting the financial statements for the financial year 2015-16. Examine the validity of the application filed by the Competent Authority to NCLT.

Accepted Answer

**Validity of the Application: VALID (with conditions)**

The application filed by the Competent Authority (SFIO/Registrar of Companies) before NCLT to reopen accounts and recast financial statements for FY 2015-16 is **substantially valid**, though subject to procedural safeguards.

**Legal Basis for Validity:**

**1. Grounds for Reopening:** Under the Companies Act, 2013, while accounts normally cannot be amended after 5 years from the end of the financial year, **fraud constitutes an exception** to this limitation. Section 19 and related provisions recognize that accounts affected by fraudulent misstatement must be corrected irrespective of time elapsed when fraud is subsequently discovered.

**2. NCLT Jurisdiction:** The National Company Law Tribunal has been conferred jurisdiction under the Companies Act, 2013 to issue orders for reopening and recasting of financial statements when fraud is established. NCLT is the competent forum for such applications involving serious irregularities in corporate accounts.

**3. Authority to File:** Section 143(12) of the Companies Act, 2013 mandates that auditors report fraud to the Serious Fraud Investigation Office (SFIO). The SFIO, acting as Competent Authority, is authorized to file applications before NCLT for corrective action, including reopening of accounts.

**4. Auditor's Role:** The fact that Statutory Auditors have reported the fraud strengthens the application. This discharge of auditor's duty under **SA 240 (Standards on …

Question 8

A fraud was reported to SFIO by Statutory Auditors of PQ Ltd. in the current financial year 2021-22. A Competent Authority observed, during the investigation found that there is a need to re-open the accounts of PQ Ltd. for the financial year 2015-16 and therefore, they filed an application before the National Company Law Tribunal (NCLT) to issue the order against PQ Ltd. for re-opening of its accounts and recasting the financial statements for the financial year 2015-16. Examine the validity of the application filed by the Competent Authority to NCLT.

Accepted Answer

**(a) Validity of Application by Competent Authority before NCLT for Re-opening of Accounts**

The validity of the application must be examined under **Section 130 of the Companies Act, 2013**, which governs re-opening of accounts on the order of a Court or Tribunal.

**Relevant Provisions of Section 130:**

Under Section 130(1), a company shall not reopen its books of account or recast its financial statements, unless an application is made by the **Central Government, Income-tax authorities, SEBI, any other statutory regulatory body or authority, or any person concerned**, and the **National Company Law Tribunal (NCLT)** is of the opinion that it is just and proper to do so.

Re-opening is permissible only where the relevant accounts were **prepared in a fraudulent manner** or the affairs of the company were **mismanaged** during the relevant period, causing prejudice to the interest of members or others.

**Important Restriction — 8-Year Limit:**

As per the **proviso to Section 130(1)**, no order for re-opening the books of account shall be made by NCLT in respect of a period **earlier than eight years immediately preceding the current financial year**.

**Examination of Validity:**

**Point 1 — Authority to file:** The **Competent Authority** conducting investigation under **Section 212 of the Companies Act, 2013** acts under the authority of the Central Government through SFIO (Serious Fraud Investigation Office), which is a body established under the Central Government…

Question 9

SSR & Co. (Statutory Auditors) while conducting audit for financial year 2021-22, find out some manipulative entries in books of accounts of ASR Ltd. Auditors found that MD that internal control system of company is not reliable. The Board of Directors of ASR Ltd. requested them to accept the assignment of designing and implementation of suitable financial information system to strengthen the internal control mechanism of the Company. The Company offered them a fee of Rs.10 lakhs plus taxes for this assignment for betterment of company, but Statutory Auditor refused to take the assignment. What are the consequences if they accept the assignment?

Accepted Answer

Accepting the assignment would create serious consequences for the auditors, primarily stemming from a violation of **auditor independence**, which is a fundamental principle under **SA 200** and **SA 220**.

The assignment would create multiple **threats to independence**. First, it creates a **self-review threat** where the auditor would design and implement the financial information system, then audit the same system, directly reviewing their own work. Second, the financial interest in the assignment (Rs. 10 lakhs fee) creates a **self-interest threat**. Third, the auditor's **objectivity would be compromised** as they cannot objectively evaluate a system they themselves designed and implemented.

Accepting would directly **violate the Code of Ethics for Chartered Accountants**, which mandates independence and requires avoidance of conflicts of interest. The Code explicitly establishes independence as a fundamental principle that all chartered accountants must uphold.

Multiple **regulatory consequences** would follow. Under the **Chartered Accountants Act, 1949**, the ICAI has authority to initiate disciplinary proceedings against members who breach the Code of Ethics, potentially resulting in warnings, suspension from practice, or removal from the register. Under **Companies Act, 2013** Section 140, the company could remove the auditors from their statutory position. Additionally, the **National Financial Reporting Authority** could investigate and initiate proceedings a…

Question 10

Akasha Steels is a famous manufacturer of steel products. Proprietor of Akasha Steels, Mr. S.K Jain appointed Mr. Satish as his agent. Mr. Satish is entrusted with the work of recovering money from various traders to whom firm sells its products. Satish has earned commission of ₹ 1,15,000 for his work. He recovers money from clients on behalf of Akasha steels. During a particular month he collects ₹ 4,00,000 but deposits his in the firm's account only ₹ 2,85,000 excluding his commission?

Examine with reference to relevant provisions of the Indian Contract Act, 1872, whether Act of Mr. Satish is valid?

Accepted Answer

**Issue:** Whether Mr. Satish, as an agent of Akasha Steels, is legally justified in deducting his commission of ₹ 1,15,000 from the collected amount of ₹ 4,00,000 and remitting only ₹ 2,85,000 to the principal.

**Relevant Provisions of the Indian Contract Act, 1872:**

Under **Section 217 of the Indian Contract Act, 1872**, an agent has a **right of retainer**. It provides that an agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of:
(a) advances made or expenses properly incurred by him in conducting the business of agency, and
(b) **such remuneration as may be payable to him** for conducting such business.

Under **Section 218 of the Indian Contract Act, 1872**, subject to such deductions as permitted under Section 217, the agent is bound to pay to his principal all sums received on his account.

**Application to the Given Case:**

Mr. Satish was appointed as an agent by Mr. S.K. Jain (proprietor of Akasha Steels) for recovering money from traders. Satish collected ₹ 4,00,000 on behalf of the firm and earned a commission of ₹ 1,15,000 for his services. Instead of depositing the full ₹ 4,00,000, he deposited only ₹ 2,85,000 after retaining his commission.

Since Section 217 expressly grants an agent the **right to retain his remuneration** out of moneys received on account of the principal, Mr. Satish is legally entitled to deduct his earned commission of ₹ 1,15,000 before remitting th…

Question 11

What are the reasons if they accept this assignment?

Accepted Answer

**Reasons why SSR & Co. (Statutory Auditors) should NOT accept the assignment of designing and implementing a financial information system for ASR Ltd.:**

**1. Violation of Section 144 of the Companies Act, 2013:**
Section 144 of the Companies Act, 2013 expressly prohibits a statutory auditor from rendering certain services to the company being audited (or its holding/subsidiary company). One of the specifically prohibited services is **"design and implementation of any financial information system."** Since SSR & Co. is the statutory auditor of ASR Ltd. for FY 2021-22, accepting this assignment would constitute a direct violation of Section 144.

**2. Self-Review Threat to Independence:**
If SSR & Co. designs and implements the financial information system (internal controls), they would subsequently be required to **audit and evaluate the same system** during the statutory audit. This creates a serious **self-review threat**, where the auditor reviews the output of their own work. The auditor can no longer be objective in evaluating the adequacy or deficiencies of a system they themselves created — undermining the very foundation of an independent audit.

**3. Threat to Objectivity and Professional Independence:**
Accepting the fee of ₹10 lakhs for this assignment would create a **financial interest** and a **management threat**, as designing internal control systems is essentially a management function. Under the ICAI Code of Ethics, auditors must be independent both **in…

Question 12

Examine with reference to relevant provisions of the Indian Contract Act, 1872, whether Act of Mr. Satish is valid?

Accepted Answer

**Relevant Provisions — Indian Contract Act, 1872:**

Under **Section 217 of the Indian Contract Act, 1872**, an agent has the right of retainer. An agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business, and also such **remuneration as may be payable to him for acting as agent**.

Under **Section 218 of the Indian Contract Act, 1872**, subject to such deductions, the agent is **bound to pay to his principal all sums received on his account**.

**Analysis of the Case:**

In the given problem, Mr. Satish is appointed as agent of Akashia Steels with the specific duty of recovering money from traders. During the relevant month, the following transactions took place:

- Amount collected from clients = ₹4,00,000
- Amount deposited in firm's account = ₹2,85,000
- Amount deducted by Satish = ₹1,15,000
- Commission actually earned by Satish = ₹11,500

Under Section 217, Mr. Satish was **entitled to deduct only ₹11,500**, being the remuneration (commission) legitimately payable to him. Accordingly, he was obligated under Section 218 to deposit ₹3,88,500 (i.e., ₹4,00,000 − ₹11,500) into the firm's account.

However, Mr. Satish deducted ₹1,15,000 — which is **₹1,03,500 in excess** of his legitimate entitlement. This excess deduction has no legal basis under the provisions of the Act.

**Conclusion:**

The act of Mr. Satish …

Question 13

Decide, under the provisions of the Negotiable Instruments Act, 1881 whether the said acts of Mr. X constitute an offence?

Accepted Answer

**Issue:** Whether the acts of Mr. X — (i) depleting bank balance after issuing the cheque, and (ii) instructing the bank to stop payment — constitute an offence under the **Negotiable Instruments Act, 1881**.

**Relevant Provision:** **Section 138 of the Negotiable Instruments Act, 1881** provides that where a cheque drawn by a person on his account for discharge of any debt or liability is returned unpaid by the bank due to insufficiency of funds or that it exceeds the arrangement made, such person shall be deemed to have committed an offence.

**Essential conditions under Section 138:**
(1) A cheque must be drawn on an account maintained by the drawer;
(2) It must be issued for discharge of a legally enforceable debt or liability;
(3) The cheque must be presented within three months from the date on the cheque or within its period of validity;
(4) The cheque must be returned unpaid due to insufficiency of funds or exceeding the arrangement.

**Analysis of Act 1 — Deliberate depletion of funds:**
Mr. X drew a post-dated cheque on 26/07/2022 dated 01/08/2022 for ₹50,000 towards outstanding dues (a legally enforceable debt). Though he had sufficient balance at the time of drawing, he deliberately made a tax payment on 29/07/2022, thereby exhausting the account balance. When Mr. R presented the cheque on 02/08/2022 (within three months of 01/08/2022), it was dishonoured due to **insufficient funds**. All conditions of Section 138 are satisfied. The fact that sufficient funds e…

Question 14

The company seeks your advice with reference to the provision of issue of sweat equity shares company under the Companies Act, 2013.

Accepted Answer

**Relevant Law:** Section 54 of the Companies Act, 2013 read with Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014 governs the issue of sweat equity shares.

**Conditions for Issue of Sweat Equity Shares:** A company may issue sweat equity shares to its directors or employees for: (i) providing know-how to the company, (ii) making available rights in the nature of intellectual property rights, or (iii) providing value additions. Such shares must be of a class already issued by the company, authorized by a special resolution passed at a general meeting.

**(a) Size of Issue — Whether Appropriate:**

As per Rule 8(4) of the Companies (Share Capital and Debentures) Rules, 2014, the following **limits on size** apply:

— The sweat equity shares to be issued in any year shall not exceed **15% of the existing paid-up equity share capital** of the company, or shares of an **issue value of ₹5 crores**, whichever is **higher**.

— The **total cumulative sweat equity shares** issued to directors and employees shall not exceed **25% of the paid-up equity share capital** of the company at any point of time.

— However, for a **startup company** (as defined under DPIIT notification), the 25% limit is relaxed to **50% of the paid-up capital**, and this higher limit applies for a period of **5 years** from the date of its incorporation or registration.

To advise whether the size of issue was appropriate, the company must verify that: (i) the shares issued in the year do n…

Question 15

The aggregate authorized share capital of ABC Security Services was ₹ 100 crore divided into 20 crore shares of ₹ 10 each. The company had only 25 employees in its office at Mumbai. This company had been registered with an authorized share capital of ₹ 300 crore divided into 30 crore shares of ₹ 10 each. The extract of Balance Sheet showed: Authorized share capital ₹ 300 crore, Paid-up share capital ₹ 200 crore, Free reserves ₹ 200 crore, Securities Premium account ₹ 80 crore, Credit balance of Profit & Loss account ₹ 50 crore, Reserves created out of revaluation of assets ₹ 25 crore, Miscellaneous expenditure not written off ₹ 10 crore. Turnover during FY 2022-23 was ₹ 1,00 crore and net profit calculated as per section 198 of the Companies Act, 2013. Pravesh, Company Secretary advised th…

Accepted Answer

**Part (i): Whether Section 135 of the Companies Act, 2013 applies to ABC Security Services**

As per **Section 135(1) of the Companies Act, 2013**, CSR provisions are attracted if a company, in the immediately preceding financial year, has:
(a) **Net worth of ₹500 crore or more**, OR
(b) **Turnover of ₹1,000 crore or more**, OR
(c) **Net profit of ₹5 crore or more** (computed as per Section 198)

**Computation of Net Worth (as per Section 2(57)):**
Net worth = Paid-up capital + Free reserves + Securities Premium + P&L credit balance – Revaluation reserves – Miscellaneous expenditure not written off.

Net Worth = ₹200 + ₹200 + ₹80 + ₹50 – ₹25 – ₹10 = **₹495 crore**

Note: Reserves created out of revaluation of assets (₹25 crore) are **explicitly excluded** from net worth under Section 2(57). Authorized share capital is irrelevant to this computation.

**Turnover** for FY 2022-23 = ₹100 crore.

**Analysis:**
- Net worth ₹495 crore < ₹500 crore threshold — **criterion NOT met**.
- Turnover ₹100 crore < ₹1,000 crore threshold — **criterion NOT met**.
- Net profit as per Section 198 is not disclosed in the question. **If net profit ≥ ₹5 crore**, Section 135 would be attracted.

**Conclusion:** Pravesh's contention is **not fully correct** on the basis of net worth and turnover figures alone. The company **does not** meet the net worth or turnover thresholds. Section 135 would apply **only if** the net profit as per Section 198 for FY 2022-23 is ₹5 crore or more. A blanket asserti…

Question 16

When can the Preamble be used as an aid to interpretation of a statute?

Accepted Answer

The **preamble** is the introductory portion of a statute that enunciates the objects and reasons for enactment. It is an important **aid to interpretation** but not a source of substantive law.

**When the Preamble Can Be Used:**

The preamble can be used as an aid to interpretation in the following circumstances:

1. **When Operative Provisions Are Ambiguous**: When the main operative sections of the statute are ambiguous, unclear, or susceptible to multiple interpretations, the preamble can be referred to clarify the legislative intent and the mischief the Act seeks to remedy.

2. **To Understand Legislative Intent**: The preamble reveals the purpose and object of the legislation. When there is doubt about the scope, applicability, or meaning of a statutory provision, the preamble helps ascertain what the legislature intended to achieve.

3. **To Resolve Ambiguity in Scope**: When it is unclear whether a particular subject matter falls within the purview of the Act, the preamble can be consulted to determine the intended coverage and ambit of the legislation.

4. **To Identify the Mischief**: The preamble helps identify the mischief or defect in the existing law that the new statute seeks to remedy, which assists in purposive interpretation of ambiguous provisions.

**Limitations on the Use of Preamble:**

The preamble **cannot** be used:
- To override or contradict the **clear and unambiguous** language of the operative sections
- To create **substantive rights** or **imp…

Question 17

Examine whether the assets of the company during the financial year 2021-22 was ₹ 800 crore and the net profit calculated in accordance with section 108 of the Companies Act, 2013 with other information given as per CARO Rules was ₹ 4 crore only. The company attracts the provisions of section 135 of the Companies Act, 2013 and all the liabilities have to be complied with accordingly.

Accepted Answer

**Applicability of Section 135 of the Companies Act, 2013 — CSR Provisions**

**Step 1: Calculation of Net Worth as per Section 2(57) of the Companies Act, 2013**

As per Section 2(57), Net Worth means the aggregate value of paid-up share capital and all reserves created out of profits and securities premium account, after deducting accumulated losses, deferred expenditure and miscellaneous expenditure not written off.

**Key Note:** Reserves created out of **revaluation of assets (₹25 crores) are excluded** as they are not created out of profits. Similarly, **Miscellaneous Expenditure not written off is deducted**.

Net Worth of ABC Security Services:
- Paid-up Share Capital: ₹200 crores
- Free Reserves (out of profits): ₹200 crores
- Securities Premium Account: ₹80 crores
- Credit Balance of P&L A/c: ₹50 crores
- Less: Miscellaneous Expenditure not written off: (₹10 crores)
- **Net Worth = ₹520 crores**

**Step 2: Checking Applicability under Section 135(1) of the Companies Act, 2013**

Section 135(1) mandates CSR compliance if, during the immediately preceding financial year, a company has:
(a) **Net Worth ≥ ₹500 crores**, OR
(b) **Turnover ≥ ₹1,000 crores**, OR
(c) **Net Profit ≥ ₹5 crores** (as per Section 198)

Analysis:
- Net Worth = ₹520 crores ≥ ₹500 crores → **CRITERION (a) SATISFIED ✓**
- Total Assets = ₹800 crores (Note: The CSR test uses **Turnover**, not total assets. These are distinct concepts; turnover is not provided, but this criterion need not be tested si…

Question 18

L Ltd having 2,000 members with paid-up capital of ₹ 1 crore, decided at its board meeting to hold the Annual General Meeting (AGM) on 21st August, 2022. On 2nd July, 2022, 50 members holding paid-up capital of ₹ 6 lakhs in aggregate had given notice of their intention for a resolution to conduct a postal ballot in place of the physical meeting. The auditor SNS & Co was to be replaced from FY 2023-24 onwards, instead of its existing statutory auditor which was originally appointed for a 2-year term and had completed only 1.5 years. When each notice was received by the existing auditors, they sent a representation along with the notice with a request for notification to the members of the company.

Accepted Answer

**(i) Adequacy of Notice for Postal Ballot — Members' Requisition**

Under **Section 110** of the Companies Act, 2013 read with **Rule 22 of the Companies (Management and Administration) Rules, 2014**, a requisition by members to conduct business through postal ballot in place of a physical meeting must satisfy both a **membership threshold** and a **time limit**.

**Membership / Capital Threshold:** The requisition must be supported by members holding not less than **one-tenth (1/10th) of the total paid-up capital** carrying voting rights.

Required threshold: 1/10 × ₹1,00,00,000 = **₹10,00,000**
Paid-up capital held by requisitionists: **₹6,00,000**

Since ₹6,00,000 < ₹10,00,000, the **capital threshold is NOT met**.

Further, 50 members out of total 2,000 = 2.5%, which is also below the required **10% of total members** (i.e., 200 members). Thus the **membership threshold is also NOT met**.

**Time Limit:** The AGM was scheduled for 21st August 2022. Under Section 101 of the Companies Act 2013, the AGM notice must be sent at least 21 days before the meeting (i.e., by 31st July 2022 at the latest). The members gave notice on **2nd July 2022**, which is approximately **50 days before the AGM** and well before the company would dispatch the AGM notice. Hence, the **time limit is satisfied**.

**Conclusion on (i):** The notice was given **within the prescribed time** but by an **inadequate number of members** holding **insufficient paid-up capital**. Therefore, the requisition…

Question 19

Discuss with reasons, whether the following persons can be called as a 'holder' under the Negotiable Instruments Act, 1881:
(i) A receives a promissory note drawn by his father by way of gift.
(ii) A received a cheque for full and final settlement of his dues from his client but, he is prohibited by a court order from receiving the amount of the cheque.
(iii) B, the agent of C, is entrusted with an instrument without endorsement by C, who is the payee.
(iv) P works in a bank. He steals a blank cheque of A and forges A's signature.

Accepted Answer

Under Section 8 of the Negotiable Instruments Act, 1881, a **holder** is the payee or indorsee of a bill, promissory note, or cheque who is in possession of it, or the bearer thereof. Three essential requirements exist: the instrument must be drawn or endorsed to the person; they must be in lawful possession; and they must hold legal claim to it.

**(i) A receives a promissory note drawn by his father by way of gift:**
A **is a holder only if** the promissory note was made payable to A. Mere receipt by gift does not automatically confer holder status. The critical requirement under Section 8 is that the instrument must be drawn or endorsed TO the person claiming holder status. If the note was payable to the father or another person and given to A without proper endorsement, A would be merely a possessor, not a holder. Gift as a mode of transfer does not substitute for the legal requirement of proper drawing or endorsement.

**(ii) A received a cheque for full and final settlement but is prohibited by a court order from receiving the amount:**
A **can be called a holder**. He satisfies the definition in Section 8 because he is the payee and is in possession of the cheque. The court order creates a personal legal disability restricting his right to receive and enjoy the amount, but this does not negate his holder status. Legal disabilities affecting the right to use or realize on an instrument do not eliminate the legal position of being a holder. A is a holder subject to perso…

Question 20

When can the Preamble be used as an aid to interpretation of a statute?

Accepted Answer

The **Preamble** is the introductory portion of a statute that states the objects and reasons for its enactment. It serves as an important aid to statutory interpretation, but only under specific circumstances.

**When Preamble Can Be Used As An Aid To Interpretation:**

1. **When the operative part is ambiguous**: The Preamble may be used to clarify the legislative intent when the operative provisions of the statute are ambiguous, obscure, or capable of multiple interpretations. It acts as a guide to resolve uncertainties in meaning.

2. **To identify the mischief**: The Preamble is valuable in identifying the mischief (defect or wrong) that the statute intends to remedy. This is particularly relevant when applying the mischief rule of interpretation to give effect to the legislative purpose.

3. **To resolve conflicting provisions**: When different sections appear to conflict or when their scope is unclear, the Preamble may be consulted to determine which interpretation aligns with the stated objectives of the statute.

4. **When provisions are susceptible to multiple meanings**: The Preamble may be used to determine which of several possible interpretations the legislature intended when language is capable of bearing more than one meaning.

**When Preamble CANNOT Be Used:**

1. **When operative provisions are clear and unambiguous**: If the statutory provisions are clear, explicit, and unambiguous, the Preamble cannot be used to contradict, enlarge, diminish, or restrict t…

Question 21

ESPIN Heavy Engineering Ltd. is a listed entity engaged in the business of providing engineering solutions to clients across the country. The company followed consistent growth over the years. Rate of Declaration of dividend in immediately preceding three financial years were 15%, 20%, and 25%. The Board of Directors of the company approved the financial result for the FY 2021-22 in its meeting held on 5th August, 2022, and recommended a final dividend of 10% in its board meeting. The general meeting of the shareholders was convened on 31st August, 2022. The shareholders of the company demanded that some interim dividend @10% was declared by the company, so the final dividend should not be less than 20%.

Accepted Answer

**Sub-part (i): Whether Interim Dividend Can Be Declared During Current Year Losses & Correct Rate**

As per the **proviso to Section 123(3) of the Companies Act 2013**, the Board of Directors is empowered to declare **interim dividend** during any financial year out of the surplus in the profit and loss account or out of profits of the financial year for which it is declared, or out of profits generated in the financial year up to the quarter preceding the date of declaration.

**The company CAN declare interim dividend even if it has incurred losses** during the current financial year. However, the **proviso to Section 123(3)** imposes a restriction: where the company has incurred a loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend **shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years**.

In the given case, the dividend rates for the immediately preceding three financial years were **15%, 20%, and 25%**.

**Correct Maximum Rate of Interim Dividend** = (15% + 20% + 25%) ÷ 3 = **20%**

Therefore, the company may declare interim dividend, but the rate **must not exceed 20%**. The interim dividend declared at **10% is valid and within the permissible limit** under the said proviso.

---

**Sub-part (ii): Decision of Company Secretary & Correct Rate of Final Dividend**

The sharehol…

Question 22

H Ltd is the holding company of S Pvt. Ltd. As per the last profit and loss account for the year ending 31st March, 2022 of S Pvt. Ltd., its turnover was ₹1.80 crores, and paid up share capital was ₹80 lakhs. The Board of Directors wants to avail the status of a small company. The company secretary of the company advised the directors that the company cannot be categorized as a small company. In the light of the above facts and in accordance with the provisions of the Companies Act, 2013, you are required to examine whether the contention of practicing company secretary is correct, explaining the relevant provisions of the Act.

Accepted Answer

**Relevant Provisions — Section 2(85) of the Companies Act, 2013 (as amended by the Companies (Amendment) Act, 2020 read with the Companies (Specification of Definitions Details) Amendment Rules, 2021, effective 1st April 2021):**

A **'small company'** means a company, other than a public company, whose:
(i) **Paid-up share capital** does not exceed ₹4 crore (or such higher amount as may be prescribed, not exceeding ₹10 crore); **AND**
(ii) **Turnover** as per its last profit and loss account does not exceed ₹40 crore (or such higher amount as may be prescribed, not exceeding ₹100 crore).

However, the following companies **cannot** be classified as a small company, even if they satisfy both the above financial thresholds:
- A **holding company** or a **subsidiary company**;
- A company registered under **Section 8** (charitable/not-for-profit companies);
- A company or body corporate governed by any **special Act**.

**Analysis of the Given Case:**

S Pvt. Ltd. is a **private company**, which satisfies the basic requirement (not a public company). For the year ending 31st March, 2022:
- Paid-up share capital: ₹80 lakhs — **within** the ₹4 crore threshold. ✓
- Turnover: ₹1.80 crores — **within** the ₹40 crore threshold. ✓

Thus, on the basis of financial criteria alone, S Pvt. Ltd. would qualify as a small company. However, S Pvt. Ltd. is a **subsidiary company** of H Ltd. (its holding company). Under the **proviso to Section 2(85)**, a subsidiary company is **expressly excl…

Question 23

'S' guarantees 'V' for the transactions to be done between 'V' & 'B' during the month of March, 2022. 'V' supplied goods of ₹ 30,000 on 01.03.2022 and of ₹ 20,000 on 03.03.2022 to 'B'. On 05.03.2022, 'S' died in a road accident. On 10.03.2022, being aggrieved of the death of 'S', 'V' further supplied goods of ₹ 40,000. On default in payment by 'B' on due date, 'V' sued on legal heirs of 'S' for recovery of ₹ 90,000. Discuss, whether legal heirs of 'S' are liable to pay ₹ 90,000 under the provisions of Indian Contract Act 1872.

Accepted Answer

**Nature of Guarantee:** The guarantee given by 'S' to 'V' for all transactions to be done between 'V' and 'B' during March 2022 is a **continuing guarantee** as it covers a series of transactions over a period of time.

**Applicable Provision — Section 131 of the Indian Contract Act, 1872:** This section provides that the **death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.** The guarantee is automatically revoked upon the surety's death with respect to all transactions entered into after the date of death.

**Analysis of Transactions:**

**Transactions BEFORE death of 'S' (05.03.2022):**
- ₹30,000 supplied on 01.03.2022 — covered by guarantee (before death)
- ₹20,000 supplied on 03.03.2022 — covered by guarantee (before death)
- Total liability of heirs: **₹50,000**

For these transactions, the continuing guarantee was in force when they occurred. The legal heirs of 'S' are liable for the estate of the deceased surety to the extent of these transactions.

**Transaction AFTER death of 'S':**
- ₹40,000 supplied on 10.03.2022 — this is a **future transaction** occurring after 'S' died on 05.03.2022. By operation of Section 131, the death of 'S' revoked the continuing guarantee for all future transactions. The fact that 'V' was aggrieved by 'S's death is legally irrelevant and does not extend the guarantee.

**Conclusion:** The legal heirs of 'S' are **liable only for ₹5…

Question 24

'A' drew a cheque for ₹ 20,000 payable to 'B' and delivered it to him. 'B' endorsed the cheque in favor of 'R' but kept it in his table drawer. Subsequently, 'B' died, and cheque was found by 'R' in 'B's drawer. Can 'R' file the suit for the recovery of cheque. Whether 'R' can recover cheque under the provisions of the Negotiable Instrument Act, 1881?

Accepted Answer

**Issue:** Whether 'R' can file a suit for recovery of the cheque amount when the cheque was endorsed in his favour by 'B' but was never delivered to him, and 'R' merely found it in 'B's drawer after 'B's death.

**Applicable Law:** Section 46 of the Negotiable Instruments Act, 1881.

**Legal Position under Section 46, NI Act, 1881:** Section 46 expressly provides that the making, acceptance, or **endorsement** of a promissory note, bill of exchange, or cheque is **completed by delivery**, actual or constructive. Without delivery, the act of endorsement alone does not transfer property in the instrument or create any right in the transferee.

**Analysis of the Given Facts:**

'A' drew a cheque for ₹ 20,000 payable to 'B' and validly delivered it to 'B'. 'B' thus became the holder of the cheque. 'B' endorsed the cheque in favour of 'R', however, he **did not deliver** the cheque to 'R' — he kept it in his own table drawer. Subsequently, 'B' died and 'R' found the cheque in 'B's drawer.

The critical point here is that **endorsement without delivery is incomplete negotiation**. 'R' never received delivery — actual or constructive — from 'B'. 'R' merely found the cheque in 'B's possession (drawer). Such finding does not constitute delivery by 'B' to 'R'. Therefore, 'R' did not become a **holder** of the cheque within the meaning of the NI Act, 1881, as the transfer was never completed.

**Conclusion:** Since the endorsement by 'B' in favour of 'R' was not accompanied by delivery…

Question 25

Whether company can declare interim dividend, if company incurred losses during the current financial year? What should be correct rate of interim dividend?

Accepted Answer

**Declaration of Interim Dividend Despite Current Year Losses**

Yes, a company can declare interim dividend even if it has incurred losses during the current financial year, provided it has **accumulated profits from previous years**. This is permissible under **Section 123(3) of the Companies Act 2013**.

**Conditions for Interim Dividend Declaration:**

When declaring interim dividend, the following conditions must be satisfied:

(1) **Source Requirement**: The interim dividend must be paid from:
   - Profits of the current financial year up to the end of the quarter immediately preceding the interim dividend declaration, PLUS
   - Accumulated profits of preceding financial years

(2) **Maximum Dividend Limit**: The Board must ensure that the total interim dividends declared in a financial year do not exceed the **lower of**:
   - Fifty percent (50%) of the profit earned in the immediately preceding financial year, OR
   - For a new company: 50% of the average profits of the three immediately preceding financial years

(3) **Accumulated Profit Requirement**: Even if the current year shows losses, interim dividend can be paid if accumulated profits are sufficient, provided the maximum limit is not exceeded.

**Correct Rate of Interim Dividend:**

The correct rate of interim dividend should be determined keeping in view:

(1) **Equality**: The rate must be **uniform for all shareholders of the same class** of shares. However, different classes of shares may have different di…

Question 26

Do you think decision of company secretary is correct? What should be correct rate of final dividend? Justify your answer with reference to provisions of the Companies Act 2013.

Accepted Answer

The decision of the company secretary acting independently would be **incorrect**. Under the Companies Act 2013, the secretary is merely an administrative officer with no authority to unilaterally decide dividend rates.

**Proper Authority and Procedure**: Section 123 of the Companies Act 2013 mandates that **dividends can only be declared or paid on the recommendation of the Board of Directors and approval by members in a general meeting**. The secretary's role is limited to implementing decisions already authorized by the Board and members, not making independent decisions.

**Limitations of Secretarial Powers**: The company secretary is a principal officer responsible for compliance, record-keeping, and administrative functions. Powers relating to dividend declaration are **not delegated to the secretary** and remain vested exclusively with: (1) the Board of Directors, which formulates dividend policy and recommends dividend rates based on profitability, reserves, capital requirements, and statutory constraints; (2) the Members/Shareholders in general meeting, who have the final authority to approve, reduce, or refuse the dividend recommended by the Board.

**Statutory Constraints on Dividend Rate**: The correct dividend rate must satisfy: (a) **adequate profits** as per Section 123(1) - dividend shall be payable only out of current year profits or accumulated profits; (b) **reserve requirements** - a minimum reserve as prescribed must be maintained before distributing pro…

Question 27

H Ltd. is the holding company of S Pvt. Ltd. As per the last profit and loss account for the year ending 31st March, 2022 of S Pvt. Ltd., its turnover was ₹ 1.80 crores, and paid up share capital was ₹ 80 lakhs. The Board of Directors wants to avail the status of small company. The company secretary of the company advised the directors that the company cannot be categorized as a small company. In the light of the above facts and in accordance with the provisions of the Companies Act, 2013, you are required to examine whether the contention of practicing company secretary is correct, explaining the relevant provisions of the Act.

Accepted Answer

**Relevant Provision — Section 2(85) of the Companies Act, 2013**

A **'small company'** means a company, other than a public company, whose:
(i) **paid-up share capital** does not exceed ₹2 crores (as revised by the Companies (Specification of Definitions Details) Amendment Rules, 2021); **AND**
(ii) **turnover**, as per the last profit and loss account, does not exceed ₹20 crores (as revised by the same Amendment Rules, 2021).

**However**, the following categories of companies are **expressly excluded** from the definition of small company, even if they satisfy the above financial thresholds:
1. A **holding company**
2. A **subsidiary company**
3. A company registered under **Section 8** of the Companies Act, 2013
4. A company or body corporate governed by any **special Act**

**Analysis of the Facts**

In the given case:
- S Pvt. Ltd. is a **private company** — this condition is satisfied.
- **Paid-up share capital**: ₹80 lakhs — this is within the prescribed limit of ₹2 crores. ✓
- **Turnover**: ₹1.80 crores — this is within the prescribed limit of ₹20 crores. ✓

Despite satisfying both the financial criteria, S Pvt. Ltd. is a **subsidiary company** of H Ltd. Section 2(85) of the Companies Act, 2013 **expressly disqualifies** subsidiary companies from being treated as small companies, irrespective of their paid-up capital and turnover.

**Conclusion**

The contention of the **Company Secretary is correct**. S Pvt. Ltd. cannot be categorised as a small company under Secti…

Question 28

Mr. Raj is an employee of DSP Trading Pvt Ltd. As per his contract of employment, he cannot salary is ₹ 5,00,000 in the nature of non-interest bearing security deposit. Referring to the provisions of the Depositories Act, 2013, define deposit and decide whether this amount received from Mr. Raj will be considered as deposit as per rule 2(1)(c)?

Accepted Answer

**(a) Definition of 'Deposit' under Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014:**

Note: The question refers to 'Depositories Act, 2013' but the relevant provision governing acceptance of deposits by companies is **Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014** framed under **Section 73 of the Companies Act, 2013**.

As per **Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014**, **'deposit'** includes any receipt of money by way of deposit or loan or in any other form by a company, but does **not** include certain specified amounts enumerated in clauses (i) to (xix) thereof.

**(b) Whether ₹5,00,000 received from Mr. Raj constitutes a 'Deposit':**

**Relevant Exclusion — Rule 2(1)(c)(x):** The definition of deposit specifically **excludes** any amount received from an **employee** of the company, **not exceeding his annual salary**, under a **contract of employment** with the company, in the **nature of non-interest bearing security deposit**.

**Application of the Rule to Mr. Raj's case:**

**Condition 1 — Is Mr. Raj an employee?** Yes, Mr. Raj is an employee of DSP Trading Pvt. Ltd. under a contract of employment. ✓

**Condition 2 — Is it non-interest bearing?** Yes, the security deposit is expressly stated to be non-interest bearing. ✓

**Condition 3 — Is it in the nature of a security deposit?** Yes, it is described as a security deposit as per the contract terms. ✓

**Condition 4 — Does it not exceed annual sa…

Question 29

Mr. Raj is an employee of DSP Trading Pvt Ltd. As per his contract of employment, his annual salary is ₹ 5,00,000. Mr. Raj paid to the company ₹ 5,30,000 in the nature of non-interest bearing security deposit. Referring to the provisions of the Companies Act, 2013, define deposit and decide whether this amount received from Mr. Raj will be considered as deposit as per rule 2(1)(c) ?

Accepted Answer

**Definition of Deposit:** As per Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, **'deposit'** means any receipt of money by way of deposit or loan or in any other form, by a company. However, the Rules also provide a specific list of amounts that shall **not** be considered as 'deposit'.

**Relevant Exclusion — Employee Security Deposit:** Rule 2(1)(c)(x) of the Companies (Acceptance of Deposits) Rules, 2014 specifically excludes from the definition of deposit — *any amount received from an employee of the company, not exceeding his annual salary, under a contract of employment with the company in the nature of a non-interest bearing security deposit.*

This exclusion is subject to the condition that the amount must **not exceed the employee's annual salary**.

**Application to the Given Case:**

In the present case, Mr. Raj is an employee of DSP Trading Pvt Ltd with an annual salary of **₹5,00,000**. He has paid a non-interest bearing security deposit of **₹5,30,000** to the company.

The exclusion under Rule 2(1)(c)(x) applies only to the extent the amount does **not exceed his annual salary**, i.e., up to ₹5,00,000.

The amount of ₹5,00,000 (equal to annual salary) is **not a deposit** — it falls within the exclusion.

The **excess amount of ₹30,000** (i.e., ₹5,30,000 − ₹5,00,000), which is over and above the annual salary, **does not qualify for the exclusion** and hence will be treated as a **deposit** under the Companies (Acceptance of Deposits) Ru…

Question 30

"Whatever may be repealed, it must be considered as if it had never existed." Comment and explain the effect of repeal under the General Clause Act, 1897.

Accepted Answer

The statement represents an ideological principle of repeal theory, yet **Section 6 of the General Clauses Act, 1897** significantly qualifies this absolute position through important exceptions.

**The Principle Explained:**
The assertion suggests that a repealed enactment is deemed to have never existed retroactively. However, this creates chaos for transactions, rights, and obligations completed under the repealed law. The General Clauses Act addresses this by implementing a balanced approach.

**Effect of Repeal Under Section 6:**
Section 6 states that repeal of any enactment shall not affect: (a) any right, privilege, obligation or liability acquired, accrued or incurred under that enactment before the repeal takes effect; (b) any penalty, forfeiture or punishment incurred in respect to any offence committed against that enactment before repeal; (c) any investigation, legal proceeding or remedy in respect of such rights, privileges, obligations or liabilities.

**Key Implications:**

**Prospective Effect:** The repeal operates prospectively from the date specified. It does not nullify past transactions or retroactively unmake completed acts.

**Protection of Vested Rights:** Any right or privilege acquired before repeal remains valid and enforceable. For example, property transferred under a repealed Transfer of Property Act clause remains validly transferred.

**Continued Liability:** Obligations or liabilities incurred under the repealed law persist. Debts contracted u…

CA Inter Corp Laws

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap