Question 1

Decide the most appropriate answer as to whether the company can declare dividend to the shareholders on 14th July, 2025:

Accepted Answer

**Answer: (D)**

Under **Section 123(6) of the Companies Act, 2013**, a company shall not declare any dividend on its equity shares in case of **non-compliance with the provisions of Sections 73 and 74** of the Act. Section 73(2)(c) mandates that every eligible company accepting deposits must deposit, on or before 30th April each year, **at least 20% of the amount of deposits maturing during the following financial year** in a separate **Deposit Repayment Reserve Account** maintained with a scheduled bank. In this case, Shradhha Metals Ltd. deliberately avoided this statutory obligation — this constitutes a direct non-compliance with Section 73, which independently bars the company from declaring dividends, regardless of its profitability or free reserves.

Option (A) is incorrect because the existence of profits and free reserves does not override the bar imposed under Section 123(6) for non-compliance with deposit provisions. Option (B) is incorrect — while it is true that Ritika's default was made good on 13th July, 2025 (one day before the dividend recommendation), the non-compliance regarding the Deposit Repayment Reserve Account still subsists and has not been rectified. Option (C) is incorrect because Rajesh's deposit is unclaimed but the company is explicitly stated to **not be in default** with respect to Rajesh — unclaimed deposits do not by themselves constitute a default. Option (D) correctly identifies that the bar arises from the failure to maintain the Deposit …

Question 2

Referring to the provisions of the Companies Act, 2013 discuss whether Dhruvika can be granted a licence to incorporate a company under Section 8 of the Companies Act, 2013.

Accepted Answer

**Section 8 of the Companies Act, 2013** provides for the incorporation of companies with charitable or non-profit objects. The Central Government may grant a licence to form such a company if it is satisfied that the company is to be formed for **promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment, or any such other object**, and that the company intends to apply its profits or other income in **promoting its objects only**, and prohibits the payment of any dividend to its members.

**Analysis of Dhruvika's Proposed Company:**

**Object of the company:** Dhruvika intends to promote tribal art and culture and provide a marketing platform to tribal artisans. This falls squarely within the objects of **'art'** and **'social welfare'** as specified under Section 8. To that extent, the proposed company is eligible for a licence.

**Issue regarding profit distribution:** However, Dhruvika plans to **distribute the net profits equally among the members** as a goodwill gesture. This is in direct contravention of Section 8, which mandates that the profits or income of the company shall be applied **solely** towards promoting its objects. Payment of any dividend or distribution of profits to members is expressly **prohibited** under Section 8.

**Conclusion:** A licence under Section 8 **can be granted** to Dhruvika's proposed company, provided the clause relating to distribution of net profits among members is **…

Question 3

In case the artisans are unwilling to be members, can Dhruvika incorporate an One Person Company (OPC) under Section 8 of the Companies Act, 2013?

Accepted Answer

**No**, Dhruvika cannot incorporate a **One Person Company (OPC)** under **Section 8 of the Companies Act, 2013**.

**Rule 3(5) of the Companies (Incorporation) Rules, 2014** explicitly prohibits an OPC from being incorporated as, or converted into, a company registered under Section 8 of the Companies Act, 2013.

Section 8 is intended for companies formed to promote **charitable or non-profit objects** (such as promotion of art, culture, social welfare, etc.) and such companies are prohibited from distributing profits to their members. An OPC, by its very structure, is a single-member entity and the rules categorically bar OPCs from taking the Section 8 route.

Therefore, even if the artisans are unwilling to become members, Dhruvika **cannot** incorporate an OPC under Section 8. If she wishes to incorporate a Section 8 company, she must have at least **two members** (as a private limited company under Section 8) or **seven members** (as a public limited company under Section 8), in accordance with **Section 3 of the Companies Act, 2013** read with **Section 8**.

Question 4

Tarun Synthetics Ltd. in its financial statement for the year ended on 31st March, 2024 failed to disclose a contingent liability pertaining to its suit filed against the company amounting to 2.50 crore for the breach of a contract. In April 2025, the competent Court decided the matter against the company, as a result the company was required to pay the said amount to the decree-holder. The company decided to prefer an appeal against such order. The company felt that non-disclosure of the contingent liability affected the true and fair view of its state of affairs. So the company voluntarily decided to revise the financial statement and the Board report for the year ended on 31st March, 2024 and held a Board Meeting on 15th May, 2025 to this effect.

In light of the above facts answer the …

Accepted Answer

**Relevant Provision: Section 131 of the Companies Act, 2013 — Voluntary Revision of Financial Statements or Board's Report**

**(i) Whether Tarun Synthetics Ltd. can voluntarily revise its financial statements and Board's report:**

Yes, the company can voluntarily revise its financial statements and Board's report. **Section 131(1) of the Companies Act, 2013** provides that if it appears to the directors of a company that the financial statements of the company, or the Board's report, do not comply with the provisions of **Section 129** (Financial Statements) or **Section 134** (Board's Report), they may prepare **revised financial statements or a revised Board's report** in respect of any of the **three preceding financial years** after obtaining approval of the Tribunal (NCLT).

In the present case, the financial statements for the year ended **31st March, 2024** failed to disclose a contingent liability of ₹2.50 crore arising from a suit filed against the company. Non-disclosure of a contingent liability affects the **true and fair view** of the company's state of affairs, thereby violating the requirements of Section 129. The Board held its meeting on **15th May, 2025** to approve the revision. Since the year 2023-24 falls within the **three preceding financial years** from the current year 2025, the revision is permissible.

However, it is important to note the following **conditions** for voluntary revision:

**First**, the revised financial statements shall not be pr…

Question 5

XYZ Ltd. is a reputed Indian construction company, which has its operations in multiple countries. The company has earned foreign exchange of USD 200 million, USD 300 million and USD 400 million during the previous three financial years respectively.

In the current year, the company intended to remit the following at the same time:
(i) USD 4 million as a contribution to a technical institution in USA conducting engineering studies in the construction field.
(ii) USD 3 million donation to creation of a chair in the memory of the company's founder in a reputed university in UK.

The directors are of the opinion that since not one of the above foreign remittance individually exceeded the limits specified by the Reserve Bank of India, no prior approval is necessary to make the above remittanc…

Accepted Answer

**Applicable Law:** Foreign Exchange Management (Current Account Transactions) Rules, 2000 framed under the **Foreign Exchange Management Act, 1999 (FEMA)**.

**Relevant Rule:** Under **Schedule III** of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, remittances by a company by way of donations/contributions to a foreign entity require **prior approval of the Reserve Bank of India** if the amount exceeds the specified limit.

**Specified Limit:** The permissible limit for such remittances without RBI approval is the **lower of**:
- **1% of the average net foreign exchange earnings** of the company during the preceding three financial years, OR
- **USD 5 million**

**Calculation of Average Foreign Exchange Earnings:**
XYZ Ltd.'s foreign exchange earnings for the previous three years are USD 200 million, USD 300 million, and USD 400 million.

Average = (200 + 300 + 400) / 3 = **USD 300 million**

1% of USD 300 million = **USD 3 million**

Since USD 3 million < USD 5 million, the **applicable limit is USD 3 million**.

**Analysis of the Two Remittances:**

**(i) Contribution to technical institution in USA — USD 4 million:** This amount **individually exceeds** the prescribed limit of USD 3 million. Therefore, prior RBI approval is required for this remittance alone, irrespective of the second remittance.

**(ii) Donation for creation of a chair in a UK university — USD 3 million:** This amount equals the limit of USD 3 million and standing alone wou…

Question 6

The penal rate of interest payable on the deposit of Rajesh until it is claimed by him is:

Accepted Answer

**Answer: (A) Rate of interest in accordance with the agreement between the company and depositors.**

Under **Rule 6 of the Companies (Acceptance of Deposits) Rules, 2014** read with the relevant provisions of **Chapter V of the Companies Act, 2013**, a distinction is drawn between two situations: (i) where the **company is in default** in repaying a matured deposit, and (ii) where the **depositor has not claimed** the matured deposit but the company is not at default.

In Rajesh's case, the deposit has matured but he has not come forward to claim it — importantly, the company is **not at default**. In such a situation, the company is not liable to pay any penal interest. The company continues to hold the deposit and pay interest only at the **rate originally agreed upon** between the company and the depositor as per the deposit agreement.

The higher penal rates (such as 18% p.a.) apply only in cases of **default by the company** in repaying the deposit on the due date (as was the case with Ritika, where the company delayed payment beyond the maturity date of 25th April, 2025).

Therefore, the penal rate of interest payable on Rajesh's unclaimed deposit is the **rate of interest in accordance with the agreement between the company and the depositor** — i.e., Option **(A)**.

Question 7

ABC Tech Solutions Ltd., a non-startup company, has a paid-up equity share capital of 20 crore. The company proposes to issue sweat equity shares worth 4 crore to its Chief Technology Officer (CTO) for providing expert and specialized technical know-how and developing proprietary software that is expected to generate significant future economic benefits for the company. It is also mentioned by the company that the consideration value of sweat equity shares is not included in the normal employment contract entered in the case of CTO and this is the only issue of sweat equity shares.

The Company passed a special resolution for the issue of sweat equity shares on 1st January 2025. The company has complied with the other conditions necessary for the issue of sweat equity shares. The shares ar…

Accepted Answer

**Issue of Sweat Equity Shares — Analysis under Section 54 of the Companies Act, 2013 read with Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014**

**(i) Validity of the Proposed Issue — Maximum Limit and Purpose**

**Conditions for issuing sweat equity shares:**

Under **Section 54 of the Companies Act, 2013**, a company may issue sweat equity shares to its employees or directors for providing **know-how**, making available **rights in the nature of intellectual property rights**, or for **value additions**, provided such consideration is not part of the normal employment contract.

**As to Purpose:** The CTO is being compensated for providing **expert and specialized technical know-how** and for developing **proprietary software** expected to generate significant future economic benefits. Both of these — know-how and intellectual property — are explicitly recognized as valid purposes under Section 54 and Rule 8. Further, the company has confirmed that the consideration is **not included in the normal employment contract**, which is a mandatory condition. Therefore, the **purpose is valid**.

**As to Maximum Limit:** Under **Rule 8(4) of the Companies (Share Capital and Debentures) Rules, 2014**, for a non-startup company, the sweat equity shares issued in any year shall not exceed:
- **15% of the existing paid-up equity share capital**, OR
- Shares of the value of **₹5 crore**,
— whichever is **higher**.

In addition, the total sweat equity shares issued a…

Question 8

(OR) Saira Projects Limited (SPL) is a listed public company engaged exclusively in setting up, execution and financing of long-gestation infrastructure projects such as highways, ports, and metro corridors. Its equity shares are listed on recognized stock exchanges in India. As per the latest audited financial statements, SPL has a net worth of 1,020 crore.

During FY 2025-26, SPL issued 7,20,000 instruments of 1,000 each, described in the offer document as, "Secured Redeemable Convertible Debentures with Deferred Optional Equity Conversion Feature".

The issue was made by way of private placement to four Category II Alternative Investment Funds, all of which qualify as Qualified Institutional Buyers (QIBs).

The principal terms were as follows:
- Tenure: 16 years
- Coupon rate: 8.75% per…

Accepted Answer

**Part (i): Permissibility of 16-year tenure**

Section 71 of the Companies Act, 2013 prescribes that debentures cannot be issued for a period exceeding **30 years** from the date of issue. SPL's 16-year tenure is well within this statutory ceiling and is therefore **permissible**. The section contains no special restrictions for infrastructure companies or listed entities that would prohibit a 16-year tenure. Therefore, the issue of 16-year secured redeemable convertible debentures is legally valid.

**Part (ii): Impact of security on foreign assets on validity of debenture issue**

While the Companies Act, 2013 does not explicitly prohibit the creation of charges on immovable property situated outside India, this structure gives rise to critical concerns affecting the practical efficacy of the debenture issue. First, **enforceability becomes problematic** as property located outside India falls under foreign jurisdiction and Indian debenture holders would need to pursue remedies in foreign courts. Second, the **Foreign Exchange Management Act (FEMA), 1999** requires approval for creation of charges on foreign assets; without proper FEMA compliance, the transaction may be questionable. Third, the structure places debenture holders at significant disadvantage in case of default, as their primary security is beyond Indian legal reach.

While the debenture issue itself may be technically valid under the Companies Act, the **validity and enforceability of the security are materi…

Question 9

Nandan Dairy Products Ltd. was engaged in the business of producing and selling of the milk products. It had more than 500 cows at its farm. The company had raised loans from a bank by hypothecating the cows and the charge to this effect was also registered with the Registrar.

The company later changed its business model from a producer of milk to marketing of milk and other consumer products and altered its object clause of the Memorandum and filed it with the Registrar. The company, in light of the changed objects, sold out all its livestocks to the villagers and Milk Co-operative Societies. However, the satisfaction of the charge was not filed within the 30 days of loan repayment.

The Registrar, somehow came to know that the company has fully liquidated the loan against the livestock …

Accepted Answer

**Part (i): Responsibility and Punishment for Non-filing of Satisfaction of Charge**

Under **Section 82(1) of the Companies Act, 2013**, it is the duty of **the company** — here, **Nandan Dairy Products Ltd.** — to give intimation to the Registrar of Companies (ROC) regarding the payment or satisfaction in full of any charge registered under Chapter VI, within a period of **30 days** from the date of such payment or satisfaction. This obligation lies primarily on the company and every **officer in default**.

In the present case, Nandan Dairy Products Ltd. repaid the bank loan (secured by hypothecation of cows) but failed to file the satisfaction of charge with the Registrar within 30 days. Therefore, the company and every officer in default are in contravention of Section 82(1).

**Punishment for Contravention:** As per **Section 82(2) of the Companies Act, 2013**, where a company fails to comply with the requirements of Section 82(1), the company shall be liable to a **penalty of ₹5,00,000** and every officer of the company who is in default shall be liable to a **penalty of ₹50,000**.

It may be noted that this contravention is a civil default (not a criminal offence) following the Companies (Amendment) Act, 2019, which decriminalised several procedural lapses.

---

**Part (ii): Power of Registrar to Make Entries in Absence of Intimation**

Yes, the Registrar **can** make entries of satisfaction and release even in the absence of intimation from the company. **Section 83…

Question 10

The Central Government, under the powers conferred by a Central Act, issued a notification on 1st April 2025 granting tax exemption to a specified class of manufacturers for a period of three years. Subsequently, due to misuse of the exemption, the Government issued another notification on 1st December 2025, withdrawing the exemption with immediate effect.

A manufacturer, who had already made substantial investments relying on the exemption, challenged the validity of the withdrawal on the ground that the original notification could not be rescinded before the expiry of three years.

Examine the validity of the Government's action withdrawing the exemption with reference to the provisions of the General Clauses Act, 1897.

Accepted Answer

**Validity of Government's Action — Analysis under the General Clauses Act, 1897**

**Relevant Provision — Section 21 of the General Clauses Act, 1897:**

Section 21 of the General Clauses Act, 1897 provides that where, by any **Central Act or Regulation**, a power to issue notifications, orders, rules or bye-laws is conferred, then that power includes a power, exercisable **in the like manner and subject to the like sanction and conditions (if any)**, to **add to, amend, vary or rescind** any notifications, orders, rules or bye-laws so issued.

The underlying principle is that the **power to issue a notification necessarily carries with it the power to rescind it**. The authority competent to make a notification is equally competent to withdraw it, unless the parent Act expressly restricts such power.

**Application to the Given Facts:**

In the present case, the Central Government issued a notification on 1st April 2025 granting tax exemption for three years, exercising power conferred by a Central Act. When misuse was detected, it issued another notification on 1st December 2025 withdrawing the exemption with immediate effect.

Since the original notification was issued under the powers of a Central Act, Section 21 of the General Clauses Act, 1897 applies. The **same authority** (Central Government), exercising the **same power** (under the same Central Act), was fully competent to rescind the notification. The fact that the original notification specified a period of thre…

Question 11

How much amount is the company required to deposit in a scheduled bank in a separate bank account to be called as 'Deposit Repayment Reserve Account'?

Accepted Answer

**Answer: (B) 10 crore**

As per **Rule 13(1) of the Companies (Acceptance of Deposits) Rules, 2014** read with **Section 73(2)(c) of the Companies Act, 2013**, every eligible company accepting deposits is required to deposit, on or before the **30th day of April** of each year, a sum of not less than **20% of the amount of deposits maturing during the following financial year** in a scheduled bank in a separate bank account styled as the **'Deposit Repayment Reserve Account'**.

In the present case, deposits amounting to **₹50 crore** are due for repayment during the financial year 2025-26. Accordingly, the company is required to deposit **20% of ₹50 crore = ₹10 crore** in the Deposit Repayment Reserve Account. This amount cannot be utilised for any purpose other than repayment of deposits.

Question 12

Certain members of Shakun Fabrics Ltd. intend to offer a part of their shareholding in the company to the public, in accordance with the provision of law. Discuss the provisions for the offer of sale by such members under Section 28 of the Companies Act, 2013 and procedural aspects under Rule 8 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Accepted Answer

**Offer of Sale by Certain Members — Section 28 of the Companies Act, 2013**

Section 28 of the Companies Act, 2013 enables existing members holding shares in a company to offer all or part of their shareholding to the public, without the company itself issuing fresh capital.

**Meaning and Deemed Prospectus:** Where certain members of a company intend to offer, whether wholly or in part, their shares or debentures to the public, they may do so provided the company agrees and undertakes to publish a prospectus on their behalf. The document by which such offer for sale to the public is made **shall, for all purposes, be deemed to be a prospectus issued by the company**. All enactments and rules of law as to the contents of a prospectus, and as to liability in respect of mis-statements in or omissions from a prospectus, shall apply to and in relation to the company and members making such offer, as if they related to an allotment by the company.

**Joint and Several Liability:** The company and the members proposing to offer their shares shall be **jointly and severally liable** for all statements, mis-statements, and omissions in the offer document (deemed prospectus). This ensures accountability towards investors who rely on the document.

**Procedural Aspects — Rule 8 of the Companies (Prospectus and Allotment of Securities) Rules, 2014**

Rule 8 prescribes the following procedural requirements for an offer for sale by members:

**1. Minimum Holding Period:** The members mak…

Question 13

There are 7000 members of Six Sigma Power Zone Ltd. The company's Annual General Meeting (AGM) was held on 20th August, 2025. In this AGM only 70 members were present. When a particular business agenda was being discussed, which was required to be passed as a special resolution, 10 members walked out of the meeting room. Out of the remaining members present, 15 members voted against the proposal and the rest voted for the resolution. The Chairman of the meeting declared that the resolution has been passed as a special resolution.

In light of the above facts answer the following referring to the provisions of the Companies Act, 2013:
(i) Whether the quorum of the AGM was proper? [2 marks]
(ii) What is the voting requirement of passing of a resolution as a special resolution? [1 mark]
(iii)…

Accepted Answer

**Answer under the Companies Act, 2013:**

**(i) Whether the quorum of the AGM was proper?**

As per **Section 103 of the Companies Act, 2013**, the quorum for a public company's general meeting depends on the total number of members:
- Up to 1,000 members → 5 members personally present
- More than 1,000 but up to 5,000 members → 15 members personally present
- More than 5,000 members → **30 members** personally present

Six Sigma Power Zone Ltd. has **7,000 members**, which exceeds 5,000. Therefore, the quorum required is **30 members** personally present.

Since **70 members were present** at the AGM, the quorum requirement of 30 is duly satisfied. **The quorum of the AGM was proper.**

**(ii) Voting requirement for a Special Resolution:**

As per **Section 114(2) of the Companies Act, 2013**, a resolution shall be a **special resolution** when:
1. The intention to propose the resolution as a special resolution has been duly specified in the notice calling the meeting, and
2. The votes cast **in favour** of the resolution are **not less than three times** the number of votes cast **against** the resolution.

**(iii) Whether the Chairman's declaration is valid?**

**Calculation of votes:**
- Members present at the time of voting = 70 − 10 (walked out) = **60 members**
- Votes cast against the resolution = **15**
- Votes cast in favour = 60 − 15 = **45**

**Test for Special Resolution:**
Three times the votes against = 3 × 15 = **45**
Votes in favour = **45**

Since votes in …

Question 14

Discuss the rule of Harmonious Construction and how it is applied in the Interpretation of Statutes.

Accepted Answer

**Rule of Harmonious Construction** is a well-established principle of statutory interpretation which states that when two or more provisions of the same statute appear to conflict with each other, the court should interpret them in such a way that both provisions can be given effect simultaneously, rather than rendering either of them redundant or inoperative.

**Basis of the Rule:** Every statute is enacted with a specific purpose, and the legislature is presumed not to contradict itself. When apparent conflicts arise between provisions, it is assumed to be a result of drafting imperfections and not deliberate legislative intent to nullify one provision through another.

**Principles Governing Harmonious Construction:**

**1. Both provisions must be given full effect:** Courts must make every effort to interpret two conflicting provisions so that both are operative and neither is treated as surplusage. The maxim applied here is *ut res magis valeat quam pereat* — it is better that a thing should have effect than that it should be made void.

**2. No provision should be rendered redundant:** A provision should not be reduced to a dead letter. If one provision can be given a restricted or limited meaning to avoid conflict, such interpretation is preferred.

**3. General provision yields to special provision:** Where a general provision and a specific provision conflict, the specific provision is treated as an exception to the general rule and both are read together harmonious…

Question 15

Choose the correct option from the following pertaining to the legality of the inheritance of foreign immovable property by Mr. Rohan Mehta:

Accepted Answer

**Answer: (B)**

Under **Section 6(4) of the Foreign Exchange Management Act, 1999 (FEMA)**, a person resident in India may hold, own, transfer or invest in foreign currency, foreign security, or any **immovable property situated outside India** if such property was acquired when the person was resident outside India, or **inherited from a person who was resident outside India**. Further, under the **Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015**, a person resident in India may acquire immovable property outside India by way of inheritance from a person who has acquired such property in accordance with FEMA provisions or the foreign exchange law in force at the time of acquisition.

In the given case, Mr. Rohan Mehta's **grandfather originally acquired** the foreign property while working outside India (i.e., as a person resident outside India) — a valid acquisition. Mr. Rohan Mehta's father validly **inherited** the property from the grandfather (who was resident outside India at the time of acquisition). Mr. Rohan Mehta in turn inherited the property from his father, who had validly inherited it. This constitutes a valid chain of inheritance under FEMA, and **no RBI approval is required** for such inheritance through a validly traced chain. Hence, the inheritance is valid.

Question 16

Kanchan Finance Ltd. is a listed company. Since the term of the present statutory auditor is to hold office up to the conclusion of the upcoming Annual General Meeting to be held on 25th August, 2026, the name of new statutory auditor, CA Trilok was placed before the Audit Committee. The audit committee recommended the name of CA Trilok for the consideration of the Board of Directors (BOD). However, the BOD was not convinced with the recommendations of the audit committee and it referred back the proposal to the audit committee for reconsideration. However, the members of the audit committee were not convinced with the reasons cited by the BOD and resent the proposal of CA Trilok to BOD again. The BOD was in disagreement with the opinion of the audit committee.

In light of the above facts…

Accepted Answer

**Part (i): Competent Authorities for Recommending the Auditor**

As per **Section 139 of the Companies Act, 2013** read with **Rule 3 of the Companies (Audit and Auditors) Rules, 2014**, for a company required to constitute an Audit Committee under **Section 177 of the Companies Act, 2013** (which includes listed companies), the **Audit Committee** is the primary competent authority to recommend the name of the auditor. The Audit Committee recommends the name to the **Board of Directors (BOD)**, and the Board in turn recommends the name for approval by the **members (shareholders)** at the Annual General Meeting (AGM).

**Points the competent authority (Audit Committee/Board) shall consider before recommending a Chartered Accountant as auditor:**

1. **Eligibility under Section 141**: The proposed auditor must be a Chartered Accountant holding a valid Certificate of Practice.
2. **Absence of disqualifications under Section 141(3)**: The auditor must not be an officer or employee of the company, must not hold any securities in the company, must not be indebted to the company, and must not have business relationships that impair independence.
3. **Audit ceiling limit**: As per **Section 141(3)(g)**, the auditor should not already be the auditor of more than 20 companies (with specific caps for certain company types).
4. **Rotation requirements under Section 139(2)**: For listed companies, the auditor should not have already completed the maximum permissible tenure (5 years for…

Question 17

V, S and N incorporated VSN Consulting LLP on 1st April, 2025. The LLP agreement was executed but never filed with the Registrar. The agreement contained the following clauses:
- Profit sharing: V – 40%, S – 35%, N – 25%
- Only V and S were authorized to enter into contracts on behalf of the LLP.
- Any act beyond consultancy services required unanimous consent of partners.

The following events took place subsequently:
(1) N, without informing V and S, entered into a loan agreement with Quick Bank in the name of the LLP for expansion into real estate advisory, which was not part of the LLP's usual business. Quick Bank was unaware of the internal restrictions.
(2) S retired from the LLP on 30th September, 2025. On 5th October 2025, as usual T Ltd, entered into a consultancy contract with th…

Accepted Answer

**Part (i): Whether VSN Consulting LLP is bound by the loan agreement entered into by N with Quick Bank**

Under **Section 9 of the Limited Liability Partnership Act, 2008**, every partner of an LLP is, for the purpose of the business of the LLP, the **agent of the LLP** (but not of other partners). This means any act done by a partner in the course of the LLP's business can bind the LLP.

However, under **Section 10 of the LLP Act, 2008**, the LLP is NOT bound by an act of a partner if: (a) the partner had no authority to act for the LLP in that particular act, AND (b) the third party knew that the partner had no authority, or did not know or believe that person to be a partner.

In this case, two restrictions existed: (1) only V and S were authorised to enter contracts, and (2) any act beyond consultancy services required unanimous consent.

Critically, the LLP agreement was **executed but never filed** with the Registrar under **Section 23 of the LLP Act, 2008**. Since the agreement containing the restrictions on N's authority was not filed, Quick Bank had no constructive or actual notice of these internal limitations. Quick Bank was also unaware of the restrictions in fact. Therefore, condition (b) of Section 10 is not satisfied — Quick Bank did not know about N's lack of authority.

Furthermore, as a registered partner, N held the apparent authority of a partner before the world. Since Quick Bank dealt with N in good faith and without notice of the restrictions, **VSN Co…

Question 18

With reference to the Interpretation of Statutes what do you mean by the term 'ejusdem generis' and state the exceptions to the Rule of Ejusdem Generis.

Accepted Answer

**Meaning of 'Ejusdem Generis':**

The term **'ejusdem generis'** is a Latin phrase meaning **'of the same kind or nature'**. It is a rule of statutory interpretation which provides that where **specific words belonging to a particular genus or class are followed by general words**, the general words must be construed as referring only to things of the **same kind or class** as those denoted by the specific words.

In other words, when a statute contains an enumeration of specific things followed by a general word or phrase, the general word or phrase will be interpreted to include only things of the **same type or category** as the specific things listed, and not things of an entirely different nature.

**Illustration:** If a statute mentions 'horses, cattle, sheep, pigs, goats, and other animals', the expression 'other animals' would, under this rule, be confined to domestic animals of the same genus as those specifically mentioned, and would not extend to wild animals.

**Exceptions to the Rule of Ejusdem Generis:**

The rule of ejusdem generis is not of universal application. The following are the recognized exceptions:

**1. No distinct genus or class formed:** The rule applies only when the specific words preceding the general words constitute a **recognizable and distinct genus or class**. If the specific words mentioned in the statute are so diverse that they do not belong to any common genus, the rule of ejusdem generis will not apply, and the general words will be g…

Question 19

If AIBL needs to remit USD 18,000 for the corporate advertisement in a foreign print magazine purely for brand building, not related to tourism promotion, foreign investment promotion, or international bidding, choose the correct option available to it under the applicable FEMA and the Current Account Transaction Rules:

Accepted Answer

**Answer: (B)**

Under **Schedule II of the Foreign Exchange Management (Current Account Transactions) Rules, 2000** read with **Section 5 of the Foreign Exchange Management Act, 1999**, remittances for advertisements in foreign print media — where the purpose is **other than** tourism promotion, foreign investment promotion, or international bidding — require **prior approval of the Ministry of Finance, Department of Economic Affairs** if the amount **exceeds USD 10,000**.

Since AIBL's remittance of **USD 18,000** (purely for brand building) exceeds the USD 10,000 threshold, it is not freely permissible (ruling out Option A). The relevant approving authority under Schedule II is specifically the **Ministry of Finance, Department of Economic Affairs**, not the RBI (ruling out Option C). The approval of the **Information & Broadcasting Ministry** (Parent Ministry) is not the prescribed approval for this purpose under the Rules and does not substitute for the MoF approval (ruling out Option D).

Therefore, AIBL must obtain prior approval from the **Ministry of Finance, Department of Economic Affairs** before making this remittance.

Question 20

Apex Infra Limited is a listed public company. The company had declared a final dividend @ 12% on its equity shares of face value 10 each at its Annual General Meeting held on 30th September, 2017. The company announced record date as 5th October. The dividend warrant was posted to shareholders on 25th October 2017. Mr. Arjun, a shareholder of the company, did not encash his dividend warrant. Consequently, the dividend amount remained unpaid. The company transferred the unpaid dividend amount relating to Mr. Arjun to the unpaid dividend bank account on 10th November, 2017.

No claim was made by Mr. Arjun in respect of the unpaid dividend for several years. Further, dividends declared by the company in the subsequent years from 2018-19 to 2023-24 also remained unclaimed by him. Consequently…

Accepted Answer

**Validity of Action Taken by the Company**

The action taken by Apex Infra Limited is **valid and in accordance with the provisions of the Companies Act, 2013**.

**Transfer of Unpaid Dividend to Unpaid Dividend Account:** Under **Section 124(1) of the Companies Act, 2013**, where a dividend has been declared but remains unpaid or unclaimed within 30 days of declaration, the company is required to transfer the unpaid amount to a special bank account called the **"Unpaid Dividend Account"** within 7 days of the expiry of that 30-day period. In this case, the company correctly transferred Mr. Arjun's unpaid dividend amount to the Unpaid Dividend Account on 10th November 2017, which is within the prescribed time.

**Transfer of Unpaid Dividend to IEPF:** Under **Section 124(5) of the Companies Act, 2013**, any amount remaining unpaid or unclaimed in the Unpaid Dividend Account for a period of **7 years** from the date of transfer to such account shall be transferred to the **Investor Education and Protection Fund (IEPF)** established under Section 125. Since Mr. Arjun did not claim his dividend for 7 years, the company was legally obligated to transfer the amount to IEPF. This action is fully valid.

**Transfer of Shares to IEPF:** Under **Section 124(6) of the Companies Act, 2013**, all shares in respect of which **dividend has not been paid or claimed for 7 consecutive years or more** shall be transferred by the company to the IEPF, along with a statement containing prescribe…

Question 21

ABC Aeromatics Ltd. is an unlisted public company incorporated under the Companies Act, 2013. It operates in the compliance-tech space, providing regulatory software solutions. The company has a paid-up capital of 60 lakhs, a turnover of 1.35 crore, 185 shareholders, and 5 directors. It has raised secured debt of 20 lakhs from two banks.

To simplify its governance structure and reduce compliance burdens, the Board has proposed the conversion of the company into a Limited Liability Partnership (LLP) under the name ABC Aeromatics LLP. All existing shareholders of the company will become partners in the LLP. The company expects that the business operations, client contracts, and employee structure will continue seamlessly after conversion.

However, one issue has emerged during the legal rev…

Accepted Answer

**Part (i): Legality of Conversion Given Pending Regulatory Proceeding**

The conversion of an unlisted public company into an LLP is governed by **Section 56** read with the **Third Schedule of the Limited Liability Partnership Act, 2008**, along with the **LLP Rules, 2009**.

For such conversion to be legally permissible, the company must satisfy certain mandatory conditions. Two critical issues arise in the present case:

**First — Secured Debt (Security Interest):** One of the non-negotiable conditions under the Third Schedule is that the company must have **no security interest subsisting or in force** on its assets at the time of filing the application. ABC Aeromatics Ltd. has a secured debt of ₹20 lakhs from two banks, which means a security interest exists on its assets. This is an **absolute bar** to conversion until such security interest is fully discharged or the lenders provide a no-objection/release of charge.

**Second — Pending Regulatory Proceeding:** The show cause notice issued under the **Companies Act, 2013** for alleged non-compliance with accounting standards in FY 2020-21 constitutes a pending proceeding. Under the **Third Schedule and Rule 39 of the LLP Rules, 2009**, the directors must file a declaration confirming, among other things, that no prosecution or regulatory action is pending against the company. Since this proceeding is **not yet concluded**, the declaration cannot truthfully be filed. Proceeding with conversion without disclosing or reso…

Question 22

Who shall be included in the definition of 'Person' under the General Clauses Act, 1897?

Accepted Answer

**Definition of 'Person' under the General Clauses Act, 1897**

As per **Section 3(42) of the General Clauses Act, 1897**, the term **'Person'** shall include:

1. Any **company or association** or **body of individuals**, whether **incorporated or not**.

This means the term 'Person' is not limited to a natural individual (human being) but has a wider inclusive meaning. It covers:

- **Natural persons** – individual human beings
- **Companies** – incorporated entities under the Companies Act
- **Associations** – any group of persons joined together for a common purpose
- **Body of individuals** – whether incorporated (e.g., registered companies, statutory bodies) or **not incorporated** (e.g., partnership firms, Hindu Undivided Families, clubs, societies)

The use of the word **'include'** in the definition makes it an **inclusive definition**, meaning it enlarges the ordinary meaning of the word 'Person' beyond its natural sense to encompass entities that may not strictly qualify as persons in common law. This definition is of general application and applies to all Central Acts and Regulations unless there is a contrary intention in the specific Act.

Question 23

State the provision of Section 3(22) 'Good Faith' under the General Clauses Act, 1897 and briefly discuss when an act is presumed to have been done in good faith.

Accepted Answer

**Section 3(22) of the General Clauses Act, 1897 — Definition of 'Good Faith'**

As per **Section 3(22) of the General Clauses Act, 1897**, a thing shall be deemed to be done in **'good faith'** where it is in fact done **honestly**, whether it is done **negligently or not**.

**When is an act presumed to have been done in Good Faith?**

The definition lays down **honesty** as the sole and essential test for good faith. The following points emerge from this provision:

**1. Honesty is the criterion:** An act is done in good faith if it is done honestly. The focus is on the **intention** of the person performing the act, not on the degree of care or skill exercised.

**2. Negligence does not negate good faith:** Even if an act is performed **negligently or carelessly**, it can still be regarded as done in good faith, provided it is done **honestly**. Negligence alone is not sufficient to rebut good faith.

**3. Dishonesty negates good faith:** If an act is done with **fraudulent intent, mala fide motive, or dishonest purpose**, it cannot be considered an act done in good faith, regardless of outward appearances.

In essence, the test under the General Clauses Act, 1897 is **subjective** — it looks at the **actual state of mind** of the person at the time the act was performed. An honest act, even if careless, qualifies as good faith; a dishonest act, however carefully performed, does not.

Question 24

In light of the Liberalised Remittance Scheme (LRS) of FEMA Act, 1999, which of the following is correct for the proposed remittance of Mr. Rohan Mehta?

Accepted Answer

**Answer: (B)**

Under the **Liberalised Remittance Scheme (LRS)** framed under **FEMA, 1999**, a resident individual is permitted to remit up to **USD 2,50,000 per financial year** for any permissible current or capital account transaction, without prior RBI approval. All remittances — whether for education, gifts, travel, investments, or any other permissible purpose — are **clubbed together** and counted toward this single annual ceiling.

Mr. Rohan Mehta's proposed remittances are: USD 2,10,000 for daughter's education (both the institution-required USD 1,50,000 and the balance USD 60,000 for associated purposes) and USD 70,000 as a gift to his sister in Australia, totalling **USD 2,80,000**. There is no carve-out under LRS that excludes institution-required tuition fees from the USD 2,50,000 ceiling; education and gift remittances are all aggregated. Since the total exceeds the LRS ceiling by USD 30,000, only **USD 2,50,000 can be remitted freely without approval**, and the **excess USD 30,000 requires prior RBI approval**. Options A and C are incorrect as they imply the full amount or the entire education component can be remitted freely beyond the ceiling. Option D incorrectly states that institution-required tuition is not counted toward the LRS limit, which has no basis under current LRS provisions.

Question 25

ABC Ltd. is an eligible company to accept deposits. It had accepted a fixed deposit of 5,00,000 from Mr. R on 1st April, 2022 for a period of 36 months at an interest rate of 9% per annum. On 30th November, 2024, after the expiry of six months from the date of deposit but before the date of maturity, Mr. R requested premature repayment of the deposit. ABC Ltd. agreed to repay the deposit on the same date. The deposit rate of interest offered by the company for 12 months is 7%, for 24 months 8% and 36 months is 9% respectively.

Referring to the applicable provisions of the Companies Act and Companies (Acceptance of Deposits) Rules, 2014 regarding premature payment of deposits, you are required to answer the following:
(i) Calculate the period of deposit and the rate of interest payable to …

Accepted Answer

**Part (i): Period of Deposit and Rate of Interest Payable to Mr. R**

As per **Rule 15 of the Companies (Acceptance of Deposits) Rules, 2014**, where a depositor requests premature repayment **after the expiry of 6 months** from the date of deposit but **before the date of maturity**, the rate of interest payable shall be **1% lower** than the rate at which the deposit was accepted or the rate for which the deposit has run (based on the company's deposit rate schedule), whichever is **lower**.

**Period of Deposit:**
The deposit was accepted on 1st April, 2022, and premature repayment was made on 30th November, 2024.

Period = **2 years 7 months 29 days** (approximately **31 months**)

Since the deposit was repaid after 6 months from the date of deposit (it ran for approximately 31 months), interest IS payable, but with a deduction of 1%.

**Rate of Interest Calculation:**
The deposit ran for approximately 31 months, which falls between 24 months and 36 months. The applicable rate for the period for which the deposit has run (i.e., up to 24 completed months bracket) = **8%**.

The rate at which the deposit was originally contracted (36 months) = **9%**.

Lower of (8% and 9%) = **8%**
Less: 1% reduction for premature repayment = **1%**

**Rate of Interest payable to Mr. R = 7% per annum**

---

**Part (ii): Situations where Reduction of Rate of Interest is NOT Applicable**

As per the proviso to **Rule 15 of the Companies (Acceptance of Deposits) Rules, 2014**, the reduction …

Question 26

Global Trade LLC is a company incorporated in the UK having a branch office in India. The company prepares its global financial statements as per UK law and follows a financial year ending on 31st December.

For the financial year 2024-25, Global Trade LLC prepared financial statements relating to its Indian business operations and got the same audited by a practicing Chartered Accountant in India. However, the company filed such financial statements with the Registrar of Companies after 10 months from the close of the financial year and failed to attach the other documents of the statements usually attached, under the pretext that there were no transactions of that nature. The company further claims that such delay and non-attachment of the documents shall not affect the validity of contr…

Accepted Answer

**Examination of Global Trade LLC's Claims under Section 381:**

**Part (i): Validity of Non-Attachment Claim**

Section 381 of the Companies Act, 2013 requires every company to file audited financial statements with the Registrar of Companies along with certain mandatory documents including the Auditor's Report and Director's Report. The section also requires attachment of documents as prescribed in the Companies (Accounts) Rules, 2014.

The company's claim is **partially valid**. While certain documents required to be attached are **conditional on the nature and existence of transactions** (for example, statements relating to loans are required only if the company has taken loans, or related party disclosure schedules only if such transactions exist), the **mandatory documents like the Auditor's Report and Director's Report** must always be attached, irrespective of the nature of transactions.

The claim that no documents need to be attached merely because there were no transactions of that nature is **not entirely valid under Section 381**. The company can exempt itself from attaching transaction-specific documents but cannot claim exemption from mandatory documents.

Additionally, the filing itself was done **after 10 months from close of financial year**, which exceeds the prescribed period of 30 days (extendable up to 120 days). This constitutes non-compliance with the filing timeline specified in Section 381.

**Part (ii): Effect on Validity of Contracts**

The company…

Question 27

Discuss the provision pertaining to holding of foreign exchange by resident in India.

Accepted Answer

**Holding of Foreign Exchange by Resident in India — Section 4 of the Foreign Exchange Management Act, 1999 (FEMA)**

As a general rule, **no person resident in India** shall acquire, hold, own, possess or transfer any **foreign exchange, foreign security, or any immovable property situated outside India**, except as otherwise provided under FEMA 1999 or with the **general or special permission of the Reserve Bank of India (RBI)**.

**Permitted Holdings:** A resident individual is permitted to hold foreign exchange or foreign currency in the following circumstances:

(i) **Foreign exchange acquired** from employment, business, trade, vocation, services, honorarium, gifts, inheritance, or any other **legitimate means** — up to such limit as the RBI may specify from time to time.

(ii) Foreign exchange **acquired before becoming resident in India** — a person who was earlier a non-resident and subsequently becomes resident may continue to hold such foreign exchange, foreign currency accounts, or foreign assets, subject to RBI regulations (dealt with under **Schedule III of the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations**).

(iii) Under the **Liberalised Remittance Scheme (LRS)**, a resident individual may remit and hold up to **USD 2,50,000 per financial year** for permissible current or capital account transactions.

Any foreign exchange held in **violation** of Section 4 shall be treated as a contravention attracting pena…

Question 28

State the general rule to be understood with respect to a Current Account Transaction and Capital Account Transaction.

Accepted Answer

**General Rule under FEMA 1999:**

**Current Account Transactions:** As per **Section 5 of the Foreign Exchange Management Act, 1999**, any person may sell or draw foreign exchange to or from an authorised person for a current account transaction. The general rule is that **current account transactions are freely permissible**, i.e., there is no restriction on them unless the Central Government, in public interest and in consultation with the Reserve Bank of India, imposes restrictions by making rules.

**Capital Account Transactions:** As per **Section 6 of the Foreign Exchange Management Act, 1999**, the general rule is that **capital account transactions are prohibited unless specifically permitted**. Any person may undertake a capital account transaction only to the extent and in the manner permitted by the Reserve Bank of India. The RBI may, by regulations, specify the permissible capital account transactions and the limits up to which foreign exchange shall be admissible for such transactions.

Question 29

As per the provisions of the LLP Act, 2008 every LLP shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. In the given case, both the designated partners remained out of India for some time. Whether the requirement of "Resident in India" of the designated partners has been fulfilled by them:

Accepted Answer

**Answer: (D)**

Under **Section 7 of the Limited Liability Partnership Act, 2008**, every LLP must have at least two designated partners who are individuals, and at least one of them shall be a **'resident in India'**. The Explanation to Section 7 defines 'resident in India' as a person who has stayed in India for a period of **not less than 182 days** during the immediately preceding one year.

In the given case, both Anvika and Ela left India on **1st July, 2025** and returned on **11th March, 2026**. Their total stay in India during the financial year 2025-26 (April 1, 2025 – March 31, 2026) is: April 1 to June 30, 2025 = 91 days, plus March 11 to March 31, 2026 = 21 days, totalling only **112 days** — which is less than the required 182 days. Therefore, **neither** designated partner qualifies as 'resident in India', and the requirement under the LLP Act, 2008 has **not been fulfilled**.

Question 30

In Anvika & Associates LLP, Falak, who was an employee in the firm accepted to join the firm as a Partner on 15th January, 2026. However, the LLP forgot to inform Registrar about this new admission of partner. According to the LLP Act, 2008 what is the time limit within which the LLP is required to file a notice with the Registrar:

Accepted Answer

**Answer: (D) Within 30 days from 15th January, 2026**

Under **Section 25(1) of the Limited Liability Partnership Act, 2008**, whenever a person becomes or ceases to be a partner of an LLP, the LLP is required to file a notice with the **Registrar within 30 days** of such change. The relevant date is the date on which the change actually takes effect — i.e., the date the person *becomes* a partner. Since Falak's admission as partner was effective from **15th January, 2026** (as accepted by Falak), the 30-day period is counted from that date, making option (D) correct. The date of offer (10th January) or date of acceptance (13th January) are not the trigger dates for this filing requirement.

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