Question 1

Examine, with reference to the applicable provisions of the Companies Act, 2013, whether Moon Ltd. has complied with the statutory requirement regarding filing of accounts with the Registrar.

Accepted Answer

**Filing of Accounts – Statutory Requirements under Companies Act, 2013**

**Applicable Provisions and Requirements**

Section 137 of the Companies Act, 2013 requires that the board of directors must approve the financial statements (balance sheet and profit and loss statement) before they are filed with the Registrar of Companies (ROC). Section 138 prescribes the statutory obligation to file these accounts along with the board's report, auditor's report, and other documents with the ROC within a specified timeline.

**Filing Timeline Based on Company Classification**

The filing deadline varies depending on the type of company:

**Public Companies and Listed Companies**: Accounts must be filed within 30 days from the date of approval by the board or within 45 days from the end of the financial year, whichever is earlier (as amended by the Companies (Amendment) Act, 2019).

**Private Companies**: For financial years ending on or after 01.04.2014, private companies have a deadline of 30 days from approval by the board.

**Small Companies** (as defined under Section 2(45)): Small companies have 45 days from the end of the financial year or 30 days from board approval, whichever is later.

**One Person Companies (OPC)**: The timeline applicable to small companies or the general timeline based on their classification applies.

**Documents Required for Filing**

Under Rule 11 of the Companies (Accounts) Rules, 2014, the following documents must be filed: (a) audited balance sheet;…

Question 2

Explain with reference to the provisions of the Companies Act, 2013:

Accepted Answer

**Part (i): Validity of Refusal by AB Ltd.**

The refusal by AB Ltd. to accept the documents served by courier is **not valid** under the Companies Act, 2013.

**Section 20(1) of the Companies Act, 2013** provides that a document may be served on a company or an officer thereof by sending it to the company at its registered office by **registered post or by speed post or by courier** or by leaving it at its registered office or by means of such electronic or other mode as may be prescribed.

The AOA of AB Ltd. restricts service to speed post only. However, **Section 6 of the Companies Act, 2013** expressly states that the provisions of the Act shall have effect **notwithstanding anything to the contrary** contained in the Memorandum or Articles of Association of a company. The AOA cannot override or restrict a mode of service that is statutorily permitted under Section 20(1).

Since courier is a legally recognized mode of service under Section 20(1), the company cannot validly refuse documents served by courier merely on the ground that its AOA restricts service to speed post alone. The AOA provision is void to that extent as it is repugnant to the statute. Therefore, **the refusal by AB Ltd. is invalid**.

**Part (ii): Suresh's Right to Claim Damages**

Yes, **Suresh is entitled to claim damages** for the loss suffered due to the company's wrongful refusal.

Since Suresh served the documents in a manner recognized and permitted by Section 20(1) of the Companies Act, 2013 (i.…

Question 3

Aarna Ltd. was dealing in export of cotton fabric to specified foreign countries. The company was willing to purchase cotton fields in Punjab State. The prospectus issued by the company contained some important extracts of the expert report. The report was found untrue. Mr. Nick purchased the shares of Aarna Ltd. on the basis of the expert's report published in the prospectus. However, he did not suffer any loss due to purchase of such shares. Would Mr. Nick have any remedy against the company? State the circumstances where an expert is not liable under the Companies Act, 2013.

Accepted Answer

**Remedy available to Mr. Nick:**

Under **Section 35(1) of the Companies Act, 2013**, where a person has subscribed for securities of a company acting on any statement included in the prospectus which is misleading, and has **sustained any loss or damage** as a consequence thereof, the company and every person who authorised the issue of the prospectus (including an expert) shall be liable to pay compensation to every person who has so subscribed.

The essential condition to claim civil remedy under Section 35(1) is that the subscriber must have actually **sustained loss or damage** as a result of the untrue statement. In the given case, although the expert's report published in the prospectus of Aarna Ltd. was found to be untrue and Mr. Nick purchased shares relying on it, **Mr. Nick did not suffer any loss** due to the purchase of such shares.

Therefore, **Mr. Nick has no remedy against the company** under Section 35(1) of the Companies Act, 2013, since the fundamental requirement of suffering loss or damage has not been fulfilled. The absence of loss is a complete bar to claiming compensation under this provision.

**Circumstances where an Expert is NOT liable under Section 35(3) of the Companies Act, 2013:**

An expert named in the prospectus shall **not be liable** for civil liability if he proves any of the following:

**(i) Withdrawal of consent before registration:** He withdrew his consent in writing before delivery of a copy of the prospectus for registration, OR …

Question 4

Nivedita Limited hypothecated its plant to a Nationalized Bank and availed a term loan. The Company registered the charge with the Registrar of Companies. The Company settled the term loan in full. The Company requested the Bank to issue a letter confirming the settlement of the term loan. The Bank did not respond to the request. State the relevant provisions of the Companies Act, 2013, to register the satisfaction of charge in the above circumstance. State the time frame within which the Registrar of Companies may allow the Company to intimate satisfaction of charges.

Accepted Answer

**Registration of Satisfaction of Charge — Relevant Provisions of the Companies Act, 2013**

**Applicable Provisions:**

The relevant provisions governing registration of satisfaction of charges are **Section 82** and **Section 83** of the Companies Act, 2013, read with **Rule 8 of the Companies (Registration of Charges) Rules, 2014**.

**Section 82 — Company's Obligation to Intimate Satisfaction:**

Under **Section 82(1)** of the Companies Act, 2013, a company is required to give intimation to the **Registrar of Companies (ROC)** of the payment or satisfaction in full of any charge registered under Chapter VI, **within 30 days** from the date of such payment or satisfaction, in **Form CHG-4** along with prescribed fees.

In the present case, Nivedita Limited has repaid the term loan in full and is therefore required to file Form CHG-4 with the ROC to record the satisfaction of the hypothecation charge over its plant.

**Problem — Non-Response by the Bank:**

Nivedita Limited requested the Nationalized Bank (charge-holder) to issue a letter confirming settlement of the loan, but the Bank did not respond. Since the Act does not make the filing of satisfaction contingent upon the charge-holder's confirmation, the company **can still file Form CHG-4 with supporting evidence** of repayment (such as bank statements, ledger entries, and any payment receipts).

**Section 83 — Power of Registrar in Absence of Intimation from Charge-holder:**

Under **Section 83(1)** of the Companies …

Question 5

Referring to the relevant provisions of the Negotiable Instruments Act, 1881, advise Mr. K, whether the contention of Mr. L is tenable. Would your answer differ in case Mr. L contended that even though he received the notice of dishonour addressed to his father, since it was not addressed to him, he is not liable for the amount of the bill?

Accepted Answer

**(a) First Contention of Mr. L — Notice not served to him, nor received by him:**

The relevant provision is **Section 96 of the Negotiable Instruments Act, 1881**, which deals with notice of dishonour when the party to be notified is **dead**. Section 96 provides that when the party to whom notice of dishonour is dispatched is dead, **but the party dispatching the notice is ignorant of his death**, the notice is sufficient.

In the given case, Mr. G died **one day before** Mr. K gave the written notice of dishonour. Crucially, Mr. K was **unaware** of Mr. G's death at the time of issuing the notice. Since Mr. K acted in good faith without knowledge of Mr. G's death, the notice addressed and dispatched to Mr. G is legally valid and sufficient under Section 96.

Therefore, **Mr. L's first contention is not tenable.** The fact that notice was not personally served on Mr. L or that Mr. L did not receive it is irrelevant, as the law protects the notifying party who acts in ignorance of the death. Mr. L, as the sole legal representative of Mr. G, is **bound by the notice** given to his deceased father, and Mr. K can claim the amount of ₹50,000 from Mr. L.

**(b) Second Contention of Mr. L — Received the notice addressed to his father but not addressed to him personally:**

In this situation, Mr. L **actually received** the notice of dishonour that was addressed to Mr. G. Mr. L contends that since the notice was not addressed to him personally, he is not liable.

Again, **Section …

Question 6

A bill of exchange was drawn by Mr. G on Mr. H for ₹ 50,000 towards the value of goods purchased by Mr. H from Mr. G. Mr. H accepted the bill and returned it back to Mr. G. After that Mr. G handed over the bill in any manner to settle the amount of the bill due. On the due date, Mr. K presented the bill before Mr. H for payment. Mr. H denied to make payment and the bill was dishonored. After five days of the date of dishonor of the bill, Mr. K gave a written notice of dishonour by post with acknowledgement to Mr. G without knowing the fact that Mr. G had passed away one day back. After one month, thereafter, Mr. K claimed the amount from Mr. I, who was the only legal representative of Mr. G. Mr. L contended that the notice of dishonour was neither served to him nor he had received the noti…

Accepted Answer

**(i) Contention of Mr. L (notice neither served nor received):**

The relevant provision is **Section 96 of the Negotiable Instruments Act, 1881**, which deals with notice of dishonour when the party to be notified is dead. Section 96 provides that *when the party to whom notice of dishonour is to be given is dead, and the party giving notice **knows** it*, notice must be given to a personal representative if such can with reasonable diligence be found.

The critical condition under Section 96 is that the giving party **must know** of the death. In the present case, **Mr. K did not know** that Mr. G had passed away when he sent the notice — Mr. G had died only one day before the notice was dispatched, and Mr. K was unaware of this fact. Therefore, Section 96 (requiring notice to the legal representative) is not triggered. The notice addressed and sent to Mr. G by registered post with acknowledgement, without knowledge of his death, constitutes **valid and sufficient notice of dishonour**.

Consequently, **Mr. L's contention is not tenable**. As the sole legal representative (heir) of Mr. G, Mr. L is bound by the notice lawfully given to his deceased father. Mr. K is entitled to claim the amount of ₹50,000 from Mr. L.

**(ii) Contention of Mr. L (notice received but not addressed to him):**

The answer will **not differ** in this scenario. If Mr. L actually received the notice of dishonour — even though it was addressed to his deceased father Mr. G — he has **actual knowledge…

Question 7

M/s A (landlord) staying in Delhi rented his flat of Bengaluru to Mr. B (tenant) for ₹ 20,000 per month to be paid annually. An agreement was made between them that during the tenancy period, if A requires his flat to be vacated, one-month prior notice is to be given to Mr. B. After eight months a notice was sent by Mr. A to Mr. B to vacate his flat by registered post which was refused to be accepted by Mr. C (wife of Mr. B) and Mr. B denied to vacate the flat on ground of non-receipt of notice. Examine, as per the General Clauses Act, 1897, whether the notice is tenable?

Accepted Answer

**Service of Notice under Section 27 of the General Clauses Act, 1897**

**Relevant Provision:** **Section 27 of the General Clauses Act, 1897** deals with the meaning of 'service by post'. It provides that where any legislation requires or authorises a document to be served by post, whether the expression 'serve', 'give', or 'send' is used, service shall be deemed to be effected by **properly addressing, pre-paying, and posting by registered post** a letter containing the document. Unless the contrary is proved, service shall be deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post.

**Key Legal Principle — Refusal of Registered Post:**
The settled legal position is that when a notice is sent by **registered post** and the addressee (or someone on his behalf) **refuses to accept** the letter, the service is still deemed to be validly effected. Refusal to accept a registered letter does not amount to non-receipt in the eyes of law. The fiction created by Section 27 operates from the moment the letter is properly posted; the physical acceptance by the addressee is not a condition precedent for valid service.

**Analysis of the Given Case:**

(i) Mr. A (landlord) sent a notice to Mr. B (tenant) by **registered post** — this satisfies the mode of service.

(ii) The notice was refused by **Mr. C (wife of Mr. B)** — refusal by a family member residing at the same address constitutes refusal on behalf of the addressee.

(iii)…

Question 8

Kartik took his AC in Pratik, an electrician, for repair. Even after numerous follow ups by Kartik, Pratik didn't return the AC in reasonable time even after repair. In the meantime, Pratik's electric shop caught fire because of short circuit and AC was destroyed. Decide, whether Pratik will be held liable under the provisions of the Indian Contract Act, 1872.

Accepted Answer

**Issue:** Whether Pratik, the bailee, is liable for the destruction of the AC under the Indian Contract Act, 1872.

**Legal Framework — Bailment:**

The transaction between Kartik (bailor) and Pratik (bailee) constitutes a contract of **bailment** as defined under **Section 148 of the Indian Contract Act, 1872** — delivery of goods by one person to another for a specific purpose (repair), upon a contract that the goods shall be returned when the purpose is accomplished.

**Duty to Return Goods:**

Under **Section 160 of the Indian Contract Act, 1872**, it is the duty of the bailee to return or deliver the goods to the bailor on the accomplishment of the purpose, without demand. In this case, since the AC had already been repaired, Pratik's duty to return the AC had arisen. Despite **numerous follow-ups** by Kartik, Pratik failed to return the goods — making him a **bailee in default**.

**Liability of a Defaulting Bailee:**

The critical provision is **Section 161 of the Indian Contract Act, 1872**, which states:

*"If by the default of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time, notwithstanding the exercise of reasonable care."*

This section imposes **absolute liability** on the bailee once he is in default of returning the goods at the proper time. The phrase **"notwithstanding the exercise of reasonable care"** is decisive — even i…

Question 9

Explain the "grammatical" and "logical" interpretation and state the situations where the courts adopt them while interpreting the Statutes in India.

Accepted Answer

**Grammatical interpretation**, also known as literal or plain language interpretation, involves reading statutory provisions in their ordinary grammatical sense according to the common, everyday meaning of the words used. Under this approach, **words are interpreted according to their dictionary meaning** and the statute is given effect exactly as written, without adding or subtracting anything from its express language. The principle treats the statute as self-contained and gives paramount importance to the precise words chosen by the legislature.

**Logical interpretation**, also known as purposive or contextual interpretation, seeks to ascertain the **true intention of the legislature by considering the object, purpose, spirit, and context of the statute**. This method looks beyond the bare words to understand the mischief the statute was meant to remedy and the circumstances in which it was enacted. It aims to give the statute a sensible construction that achieves its legislative purpose.

**Situations where grammatical interpretation is adopted:**

Courts adopt grammatical interpretation when the **statutory language is clear, plain, and unambiguous**. If the words used in the statute bear a well-established ordinary meaning and require no aid to understand them, the literal interpretation is applied. This is the **primary and preferred rule of interpretation** because it respects the express intention of the legislature as manifested in the actual language used. When t…

Question 10

Explain in reference to Interpretation of Statutes, the cases where Rule of Ejusdem Generis will not apply.

Accepted Answer

The **Rule of Ejusdem Generis** is a principle of statutory interpretation that restricts general words following specific words to things of the same kind or class. However, this rule does NOT apply in the following circumstances:

**1. Absence of Preceding Specific Words** When general words are not preceded by specific words enumerated in the statute, the rule cannot operate. The general words must then be interpreted in their ordinary, literal, and full sense. For example, if a statute uses only the phrase "other properties" without first listing specific types of properties, the rule of ejusdem generis cannot limit its scope.

**2. Exhaustive Enumeration** When the specific words enumerated in the statute are exhaustive and cover the entire field or scope contemplated by the statute, there remains nothing for the general words to apply to. In such cases, the general words may be treated as surplusage or may be interpreted independently. The rule does not restrict them to the same class since the class is already completely described.

**3. Contrary Legislative Intent** When the context, language, or scheme of the statute clearly demonstrates that the legislature intended the general words to have their full, unrestricted meaning without being limited by preceding specific words, the rule will not apply. Express language indicating independent application will override the rule.

**4. Reverse Order of Words** When general words precede specific words (instead of following…

Question 11

What is the meaning of 'Official Gazette' as per the provisions of the General Clauses Act, 1897?

Accepted Answer

As per **Section 3 of the General Clauses Act, 1897**, 'Official Gazette' means the official publication through which the Central Government or State Government makes official announcements and publishes statutory documents.

**For the Central Government**, the Official Gazette refers to the **Gazette of India**, which is the official publication of the Union of India. For **State Governments**, it refers to the official gazette of that respective State.

**Significance and Purpose**: Publication in the Official Gazette is the authenticated and legally binding method of making government notifications, rules, regulations, ordinances, and other statutory instruments public. Once a document is published in the Official Gazette, it is deemed to have been validly notified and becomes binding on all citizens and authorities.

**Content Published**: The Official Gazette typically contains notifications, statutory rules, amendments to laws, ordinances, proclamations, executive orders, and other official announcements that require legal validity and public notice.

**Legal Effect**: The publication in the Official Gazette is conclusive proof of the authenticity of the document and marks the date from which the notification or rule becomes effective, unless otherwise specified in the notification itself. This publication creates a rebuttable presumption of legality and proper authority.

Question 12

The Board of Directors of SRD Limited, an unlisted public company, engaged in the business of manufacturing of two wheelers; intend to issue debentures in order to finance its project of electric scooter manufacturing. The Company seeks your advice, regarding the maximum amount of debentures it can issue to raise the desired funds.

Accepted Answer

**(a) Maximum Amount of Debentures SRD Limited Can Issue**

**Legal Framework:**

The power to issue debentures is governed by **Section 71 of the Companies Act, 2013** read with **Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014**. However, the critical restriction on the **maximum amount** flows from **Section 180(1)(c) of the Companies Act, 2013**.

**Section 180(1)(c) — Restriction on Board's Borrowing Power:**

Under Section 180(1)(c), the Board of Directors of SRD Limited shall NOT, without the consent of the members by a **special resolution**, borrow money (including through issue of debentures) where the money to be borrowed together with money already borrowed by the company **exceeds the aggregate of:**
- **Paid-up Share Capital**, plus
- **Free Reserves**, plus
- **Securities Premium Account**

*Note:* Temporary loans obtained from the company's bankers in the ordinary course of business are **excluded** from the computation of money already borrowed.

**Practical Application for SRD Limited:**

- **Without Special Resolution:** SRD Limited can issue debentures only up to the extent that total outstanding borrowings (including the proposed debentures) do not exceed [Paid-up Share Capital + Free Reserves + Securities Premium]. The **available headroom** = (Paid-up Capital + Free Reserves + Securities Premium) – Existing Borrowings.

- **With Special Resolution:** Upon passing a special resolution in a general meeting, SRD Limited may issue debent…

Question 13

A company obtained a short-term cash credit loan from XYZ Bank Limited of ₹50,00,000. On incorporation of stock and receivables of the Company, repayable on demand. Referring to and analyzing the relevant provisions of the Companies Act, 2013, advise the Company presenting the necessary calculations:

Accepted Answer

**Relevant Provisions: Section 71, Section 179(3), and Section 180(1)(c) of the Companies Act, 2013**

**Preliminary Note on the Cash Credit Facility:**
The short-term cash credit loan of ₹50,00,000 from XYZ Bank Limited, secured on stock and receivables and repayable on demand, constitutes a **temporary loan obtained from the company's bankers in the ordinary course of business**. As per the proviso to Section 180(1)(c) of the Companies Act, 2013, such temporary loans are **excluded** from the computation of the borrowing limits of the Board. Therefore, the ₹50,00,000 cash credit does NOT consume any part of the Board's borrowing limit.

**(i) Amount that can be Raised by Issue of Non-Convertible Debentures and Resolution Required:**

Under **Section 180(1)(c) of the Companies Act, 2013**, the Board of Directors cannot, without the consent of the company by a **Special Resolution**, borrow money where the money to be borrowed, together with money already borrowed by the company (excluding temporary loans from bankers in ordinary course of business), exceeds the aggregate of:
- (a) **Paid-up Share Capital**, plus
- (b) **Free Reserves**, plus
- (c) **Securities Premium Account**

Accordingly:
- The company can **freely issue debentures** (without General Meeting approval) up to the extent that total borrowings (excluding the ₹50,00,000 cash credit) do not exceed the aggregate of paid-up share capital + free reserves + securities premium.
- A **Board Resolution under Section 1…

Question 14

Advise regarding debenture issuance under Companies Act, 2013

Accepted Answer

**Relevant Provisions — Section 180(1)(c) and Section 71 of the Companies Act, 2013**

**(i) Maximum Amount of Debentures and Resolution Required**

Under **Section 180(1)(c) of the Companies Act, 2013**, the Board of Directors cannot borrow money (other than temporary loans) such that the aggregate borrowings exceed the aggregate of the company's **paid-up share capital, free reserves, and securities premium account**, without the consent of shareholders by way of a **Special Resolution** at a General Meeting.

**Computation of the Statutory Borrowing Limit:**

| Particulars | Amount (₹) |
|---|---|
| Paid-up Share Capital (40,000 × ₹100) | 40,00,000 |
| Securities Premium Reserve | 50,00,000 |
| General Reserve | 30,00,000 |
| Balance in Profit & Loss Account | 20,00,000 |
| **Total Limit under Section 180(1)(c)** | **1,40,00,000** |

**Note on Capital Reserve:** Capital Reserve arising from profit on sale of Fixed Assets is NOT a **free reserve** under Section 2(43) of the Companies Act, 2013 (as it is not available for distribution as dividend), and is therefore excluded from the above computation.

**Existing Borrowings (Excluding Temporary Loans):**

The proviso to Section 180(1)(c) defines **'temporary loans'** as loans repayable on demand or within six months (e.g., short-term cash credit on hypothecation, bill discounting). The **Short-term Cash Credit Loan of ₹50,00,000** (repayable on demand) qualifies as a temporary loan and is **excluded** from this calculation.
…

Question 15

Examine the validity of appointment of auditors under Companies Act, 2013

Accepted Answer

**Validity of Appointment — Mrs. Q (wife of Mr. X) holding equity shares of face value ₹1 lakh in P Limited**

The relevant provision is **Section 141(3)(d)(i) of the Companies Act, 2013**, which disqualifies a person from being appointed as auditor if such person, or his **relative** or **partner**, is holding any security of or interest in the company of face value **exceeding ₹1,00,000 (one lakh rupees)**.

**'Relative'** is defined under **Section 2(77) of the Companies Act, 2013** and includes the **spouse** of an individual. Accordingly, Mrs. Q, being the wife of Mr. X (a partner in XYZ & Co.), qualifies as a 'relative' for the purpose of Section 141.

**Application to the given case:** Mrs. Q holds equity shares of P Limited having a face value of **₹1,00,000 (exactly one lakh rupees)**. The disqualification under Section 141(3)(d)(i) is triggered only when the face value of securities held **exceeds** ₹1 lakh. Since the holding is exactly equal to ₹1 lakh and does **not exceed** ₹1 lakh, the disqualification provision is not attracted.

**Conclusion:** The appointment of **XYZ & Co. as Auditor of P Limited is VALID**. Since Mrs. Q's shareholding is exactly ₹1 lakh face value (not exceeding ₹1 lakh), the disqualification under Section 141(3)(d)(i) of the Companies Act, 2013 does not apply. The firm is not disqualified on this ground.

Question 16

Manish, a minor, lost his parents in COVID-19 pandemic. Due to poor financial background Manish was facing difficulties in maintaining his livelihood. He approached Mr. Sobol (a grocery shopkeeper) to supply him grocery items and to wait for some period for receiving his dues. Mr. Sobol did not agree with the proposals but when Mr. Ganesh, a neighbor of Manish, agreed to provide guarantee that Manish would pay the dues in case Manish fail to pay the amount, Mr. Sobol supplied the required groceries to Manish. After few months when Manish failed to clear his dues, Mr. Sobol approached Mr. Ganesh and asked him to clear the dues of Manish. Mr. Ganesh refused to pay the amount on two grounds, firstly, there was no consideration in the contract of guarantee and secondly that Manish is a minor a…

Accepted Answer

**Legal Provisions Applicable:** Sections 124, 127, and 128 of the Indian Contract Act, 1872 govern contracts of guarantee.

**Part 1 — Analysis of Mr. Ganesh's Two Grounds of Refusal:**

**Ground 1: No Consideration in the Contract of Guarantee**

Mr. Ganesh's first contention is **not tenable**. Under **Section 127 of the Indian Contract Act, 1872**, anything done or any promise made for the benefit of the principal debtor may be a **sufficient consideration** to the surety for giving the guarantee. It is not necessary that the surety should receive any direct benefit or separate consideration.

In the present case, Mr. Sobol supplied groceries to Manish (the principal debtor) on the guarantee of Mr. Ganesh. The act of supplying groceries to Manish constitutes a valid and sufficient consideration for Mr. Ganesh's guarantee. Therefore, the contract of guarantee is supported by valid consideration and the first ground of refusal fails.

**Ground 2: Manish (Principal Debtor) is a Minor**

Mr. Ganesh's second contention is also **not tenable**. It is a well-established legal principle that a **contract of guarantee is valid even if the principal debtor is a minor**. The surety's liability under a guarantee is an independent contract with the creditor and does not depend on the principal debtor's capacity to contract.

The very purpose of a guarantee is to protect the creditor in situations where the principal debtor may not be legally compellable to pay. If the surety could esc…

Question 17

Mr. A made endorsement of a bill of exchange amounting ₹ 50,000 to Mr. B. But, before the same could be delivered to Mr. B, Mr. A passed away. Mr. S, son of Mr. A, who was the only legal representative of Mr. A approached Mr. B and informed him about his father's death. Now, Mr. S is willing to complete the instrument which was executed by his deceased father. Referring to the relevant provisions of the Negotiable Instruments Act, 1881, decide, whether Mr. S can complete the instrument in the above scenario?

Accepted Answer

**Relevant Provision — Section 46 of the Negotiable Instruments Act, 1881:**

Under **Section 46 of the Negotiable Instruments Act, 1881**, the making, acceptance, or endorsement of a promissory note, bill of exchange, or cheque is **completed only by delivery** — actual or constructive. Mere endorsement, without delivery, does not complete the negotiation of a negotiable instrument.

Further, **Section 48** of the Act provides that a bill of exchange payable to order is negotiated by **endorsement and delivery** thereof. Both acts are essential and the absence of either renders the negotiation incomplete.

**Application to the Given Case:**

In the present case, Mr. A had already **endorsed** the bill of exchange for ₹ 50,000 in favour of Mr. B. However, he passed away **before the endorsed bill could be delivered** to Mr. B. Therefore, as on the date of Mr. A's death, the negotiation was **incomplete** — only the endorsement had occurred; the essential act of delivery was yet to be done.

The critical question is whether Mr. S, as the **sole legal representative** of the deceased Mr. A, can step in and complete the delivery to Mr. B.

**Yes, Mr. S can complete the instrument.** Under the general principles of law applicable to negotiable instruments, a **legal representative steps into the shoes of the deceased** and is entitled to do all acts which the deceased could have lawfully done. Since Mr. A had already completed the endorsement — the substantive part of the negotia…

Question 18

P Limited appointed "XYZ & Co.", an audit firm, as Auditor of the company at the Annual General Meeting held on 30th September, 2021. Mr. X, Y and Z are partners in XYZ & Co. With reference to the Companies Act, 2013, examine the validity of appointment of the XYZ & Co. in each of the following cases separately:

Accepted Answer

The validity of appointment of XYZ & Co. is governed by **Section 141 of the Companies Act, 2013**, which lays down the eligibility and disqualifications of auditors. Section 141(3)(d) specifically provides that a person shall not be eligible for appointment as auditor if he, or his **relative** or **partner** is holding any security, is indebted, or has given a guarantee beyond the prescribed limits in respect of the company or its associate/subsidiary companies. "Relative" includes the spouse of a partner (i.e., Mrs. Q is a relative of Mr. X for this purpose).

**(i) Mrs. Q holds equity shares of P Limited having face value of ₹1,00,000:**

Under Section 141(3)(d)(i), a person is disqualified if his relative is holding any security of or interest in the company. However, the **proviso** to this clause creates an exception — a relative may hold securities or interest in the company of **face value not exceeding ₹1,00,000**. In this case, Mrs. Q holds shares of face value exactly ₹1,00,000, which does **not exceed** the prescribed limit. The condition "not exceeding ₹1 lakh" includes ₹1 lakh itself. Therefore, the appointment of **XYZ & Co. is VALID**.

**(ii) Mrs. Q has given a guarantee for a loan of ₹1,00,000 taken by Q from P Limited:**

Under Section 141(3)(d)(iii), a person is disqualified if his relative has given a guarantee in connection with the indebtedness of any third person to the company **in excess of ₹1,00,000**. Here, Mrs. Q has given a guarantee of exactly …

Question 19

TST Limited has Equity Share Capital of 10000 shares @ ₹ 10 each. The Company has received a requisition from Mr. A & Mr. B each holding 1500 equity shares to call an Extraordinary General Meeting to remove Managing Director of the company who has been found to be involved in some malpractices. The company failed to call the said meeting. The requisitionists desires to call the meeting by themselves to pass the resolution to remove the Managing Director. Explain the validity of such resolution passed in the said meeting referring the provisions of the Companies Act, 2013.

Accepted Answer

**Analysis under Section 100 of the Companies Act, 2013 — Requisition of EGM and Validity of Resolution**

**(a) Validity of Requisition:**

Under **Section 100(2) of the Companies Act, 2013**, the Board of Directors is bound to call an Extraordinary General Meeting (EGM) upon requisition by members holding **not less than one-tenth (1/10th) of the paid-up share capital** of the company.

In the present case:
- **Total paid-up share capital** = 10,000 shares × ₹10 = ₹1,00,000 (10,000 shares)
- **Minimum shares required for requisition** = 1/10th of 10,000 = **1,000 shares**
- **Shares held by Mr. A** = 1,500; **Shares held by Mr. B** = 1,500
- **Total shares of requisitionists** = 3,000 shares (i.e., 30% of paid-up capital)

Since 3,000 shares > 1,000 shares (minimum requirement), **the requisition made by Mr. A and Mr. B is valid**.

**(b) Right of Requisitionists to Call the Meeting:**

Under **Section 100(4) of the Companies Act, 2013**, if the Board of Directors does not proceed within **21 days from the date of deposit of the requisition** to call a meeting to be held within **45 days** from such date, the requisitionists (or such of them as represent a majority in value) may themselves call the meeting. Such a meeting must be held **within 3 months from the date of deposit of the requisition**.

Since TST Limited failed to call the EGM, Mr. A and Mr. B are entitled to call the meeting themselves, provided it is convened within the said 3-month period.

**(c) Manner of C…

Question 20

A company has accumulated Free Reserves of ₹ 75 lakhs during last five years. It has not declared any dividend during these years. Now, the company proposes to appropriate a part of this amount for making payment of dividend for current year in which it has earned a profit of ₹ 10 lakhs. The Board proposes a payment of dividend of ₹ 10 lakhs i.e. 30% on the paid up capital. Examine, as per the provisions of the Companies Act, 2013, whether, the proposal of the company is valid?

Accepted Answer

**Relevant Provisions**: Section 123 of the Companies Act, 2013 read with Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 governs the declaration of dividend out of accumulated free reserves.

**Background Facts**:
- Free Reserves accumulated over last 5 years = ₹75 lakhs
- No dividend declared during the last 5 years
- Current year profit = ₹10 lakhs
- Proposed dividend = ₹10 lakhs (30% on paid-up capital)
- Implied Paid-up Capital = ₹10 lakhs ÷ 30% = ₹33.33 lakhs

**Primary Position — Dividend from Current Year Profits**: Under Section 123(1)(a) of the Companies Act, 2013, a company may declare dividend out of the profits of the current financial year after providing for depreciation. Since the current year profit (₹10 lakhs) is equal to the proposed dividend (₹10 lakhs), the company can declare the full dividend from current year's profits alone, without needing to draw from free reserves.

**If Free Reserves are Drawn Upon — Rule 3 Analysis**: Should the company choose to appropriate from free reserves, the following four conditions under Rule 3 must be satisfied:

**(a) Rate of Dividend Restriction**: The rate declared shall not exceed the average rate of dividend declared in the three immediately preceding years. However, this condition **does not apply** to a company that has not declared any dividend in each of the three preceding financial years. Since the company has not declared dividend for the last 5 years, this condition is not applicab…

Question 21

Mr. X, owes Mr. Y ₹ 50,000. He (Mr. X) afterwards appoints Mr. Y as his agent to sell Flat at Bangalore and after paying himself (i.e., Mr. Y) what is due to him, hand over the balance to Mr. X. Examine, as per the provisions of the Indian Contract Act, 1872, can Mr. X revoke his authority delegated to Mr. Y?

Accepted Answer

**Agency Coupled with Interest — Irrevocability of Authority**

The situation described in the question creates what is known as an **Agency Coupled with Interest** under the **Indian Contract Act, 1872**.

**Relevant Provision — Section 202 of the Indian Contract Act, 1872:**

As per **Section 202**, where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency **cannot, in the absence of an express contract, be terminated** to the prejudice of such interest.

**Analysis of the Given Situation:**

Mr. X owes Mr. Y ₹ 50,000. Mr. X then appoints Mr. Y as his agent to sell the flat at Bangalore, with authority to first deduct the amount due to him (₹ 50,000) from the sale proceeds and hand over the balance to Mr. X.

In this case, Mr. Y (the agent) has a **personal financial interest** in the subject-matter of the agency — i.e., the sale proceeds of the flat — to the extent of ₹ 50,000 owed to him. This makes the agency an **agency coupled with interest**.

**Conclusion:**

**No, Mr. X cannot revoke the authority delegated to Mr. Y.** Since the agency is coupled with interest (Mr. Y's interest to recover ₹ 50,000 from the sale proceeds), Mr. X cannot revoke Mr. Y's authority to sell the flat, as doing so would prejudice Mr. Y's interest. The agency remains **irrevocable** until Mr. Y's interest (recovery of ₹ 50,000) is satisfied.

This principle protects the agent from being deprived of his rights by a unilateral revocation of…

Question 22

Venkat executed a promissory note in favor of Raman for ₹ 45 Lakhs. The amount was payable hundred days after sight. Raman presented the promissory note for sight on 4th May 2021. Ascertain the date of maturity of the promissory note with reference to the relevant provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Applicable Provisions:** Under **Section 22 of the Negotiable Instruments Act, 1881**, the maturity of a promissory note payable at a certain number of days after sight is calculated by **excluding the day of presentation** and **including the day of payment**. Further, under **Section 25 of the Negotiable Instruments Act, 1881**, every promissory note is entitled to **three days of grace**. Where the last day of grace falls on a **public holiday**, the instrument is deemed due on the **next preceding business day**.

**Date of Sight:** 4th May 2021 (excluded from counting as per Section 22)

**Calculation of 100 days after sight** (counting from 5th May 2021):

May 2021 contributes 27 days (5th to 31st), June 2021 contributes 30 days (running total: 57 days), July 2021 contributes 31 days (running total: 88 days), and August 2021 contributes the remaining 12 days (running total: 100 days). The **100th day falls on 12th August 2021**.

**Adding Three Days of Grace** (Section 25): 12th August 2021 + 3 days = **15th August 2021**.

**15th August 2021** is **Independence Day**, a declared public holiday. Therefore, as per the proviso to Section 25, the note is due on the **next preceding business day**, which is **14th August 2021 (Saturday)**.

**The date of maturity of the promissory note is 14th August 2021.**

Question 23

TST Limited has Equity Share Capital of 10000 shares @ ₹ 10 each. The Company has received a requisition from Mr. A & Mr. B each holding 1500 equity shares to call an Extraordinary General Meeting to remove Managing Director of the company who has been found to be involved in some malpractices. The company failed to call the said meeting. The requisitionists desires to call the meeting by themselves to pass the resolution to remove the Managing Director. Explain the validity of such resolution passed in the said meeting referring the provisions of the Companies Act, 2013.

Accepted Answer

**Provisions under Section 100 of the Companies Act, 2013 — Calling of Extraordinary General Meeting (EGM) on Requisition:**

Under Section 100(1), the Board of Directors is obligated to call an EGM upon receiving a requisition from members holding not less than **one-tenth (1/10th) of the paid-up share capital** of the company carrying the right to vote.

**Checking Validity of Requisition:**

In the given case, TST Limited has a total paid-up equity share capital of 10,000 shares × ₹10 = ₹1,00,000. One-tenth of the paid-up capital = 1,000 shares. Mr. A and Mr. B together hold 1,500 + 1,500 = **3,000 shares**, which is 30% of the total paid-up share capital — clearly exceeding the minimum threshold of 10%. Hence, the requisition is **valid**.

**Failure of Board to Call the Meeting — Section 100(4):**

If the Board does not proceed to call the meeting within **21 days** from the date of deposit of the requisition, the requisitionists may **themselves call the meeting**, provided it is held within **3 months** from the date of deposit of the requisition. The meeting so called shall be conducted in the same manner as nearly as possible as a meeting called by the Board.

**Removal of Managing Director — Section 169 of the Companies Act, 2013:**

A Managing Director is also a Director of the company. Under Section 169, a company may remove a director before the expiry of his period of office by passing an **ordinary resolution**, provided a **special notice** under Section 115 o…

Question 24

A company has accumulated Free Reserves of ₹ 75 lakhs during last five years. It has not declared any dividend during these years. Now, a company proposes to appropriate a part of this amount for making payment of dividend for current year in which it has earned a profit of ₹ 12 lakhs. The Board proposes a payment of dividend of ₹ 30 lakhs i.e. 30% on the paid-up capital. Examine, as per the provisions of the Companies Act, 2013, whether, the proposal of the company is valid ?

Accepted Answer

**Relevant Provisions — Section 123 of the Companies Act, 2013 read with Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014**

Under **Section 123(1)** of the Companies Act, 2013, a company may declare dividend out of (i) profits of the current financial year, (ii) undistributed profits of previous years transferred to free reserves, or (iii) both. However, where a company proposes to draw from its **accumulated free reserves**, Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 prescribes the following four conditions which must all be satisfied:

**Condition 1 — Rate of Dividend:** The rate of dividend declared shall not exceed the average rate at which dividends were declared by the company in the three years immediately preceding that year. *This condition does not apply where a company has not declared any dividend in each of the three preceding financial years.*

**Condition 2 — Ceiling on Withdrawal (10% Limit):** The total amount to be drawn from accumulated free reserves shall not exceed **1/10th (i.e., 10%)** of the sum of the company's paid-up share capital and free reserves as per the latest audited balance sheet.

**Condition 3 — Setting off Losses First:** The amount so drawn shall first be utilised to set off losses incurred in the financial year before any dividend is declared on equity shares.

**Condition 4 — Minimum Reserve Balance (15% Limit):** The balance of free reserves after such withdrawal shall not fall …

Question 25

Mr. X owes Mr. Y ₹ 50,000. He (Mr. X) afterwards appoints Mr. Y as his agent to sell his Flat at Bangalore and after paying himself (i.e., Mr. X) what is due to him, hand over the balance to Mr. X. Examine, as per the provisions of the Indian Contract Act, 1872, can Mr. X revoke his authority delegated to Mr. Y ?

Accepted Answer

The revocability of authority depends on the doctrine of **Authority Coupled with Interest** under the Indian Contract Act, 1872.

**General Rule on Revocation:** Under Section 207 of the Indian Contract Act, 1872, the principal generally has the right to revoke the authority of an agent at any time.

**Exception – Authority Coupled with Interest:** Section 210 of the Act provides that an authority is **irrevocable** in the following cases: (1) where it is coupled with an interest; (2) where it is given for valuable consideration; (3) where it is given to protect the agent or a third person; or (4) where it is given for the benefit of the principal.

**Application to the Given Case:** In the present case, Mr. Y is not merely an agent collecting funds on behalf of Mr. X. Instead, Mr. Y has a direct proprietary or pecuniary interest in the subject matter of the agency. Specifically: (a) Mr. Y is a creditor of Mr. X with a debt of ₹50,000; (b) the authority to sell the flat is granted specifically to enable Mr. Y to recover his debt from the sale proceeds; (c) this creates a direct interest in the property and its realization, beyond ordinary agency commission.

**Legal Position:** The authority granted to Mr. Y is **coupled with an interest** because Mr. Y stands to benefit directly by satisfying his debt claim from the proceeds. This interest is not incidental to the agency but integral to its purpose. Therefore, such authority becomes irrevocable and cannot be withdrawn by Mr…

Question 26

Venkat executed a promissory note in favour of Raman for ₹ 45 Lakhs. The amount was payable hundred days after sight. Raman presented the promissory note for sight on 4th May 2021. Ascertain the date of maturity of the promissory note with reference to the relevant provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Maturity Date of the Promissory Note**

The relevant provisions are **Section 22** (days of grace), **Section 24** (exclusion of day of sight while calculating maturity), and **Section 25** (maturity falling on a public holiday) of the **Negotiable Instruments Act, 1881**.

**Step 1 – Date of Presentment for Sight:** 4th May 2021.

**Step 2 – Counting 100 days:** As per Section 24 of the Negotiable Instruments Act, 1881, the day of presentment for sight is **excluded** while computing the period. Counting begins from 5th May 2021.

- 5th May to 31st May 2021 = **27 days**
- 1st June to 30th June 2021 = **30 days** (cumulative: 57)
- 1st July to 31st July 2021 = **31 days** (cumulative: 88)
- 1st August to 12th August 2021 = **12 days** (cumulative: 100)

The **100th day** falls on **12th August 2021**.

**Step 3 – Adding Days of Grace:** Under Section 22 of the Negotiable Instruments Act, 1881, **three days of grace** are added to every promissory note not expressed to be payable on demand.

12th August 2021 + 3 days = **15th August 2021**.

**Step 4 – Public Holiday Adjustment:** 15th August 2021 is **Independence Day**, a public holiday. As per Section 25 of the Negotiable Instruments Act, 1881, when the day of maturity falls on a public holiday, the instrument is deemed due on the **next preceding business day**.

The next preceding business day is **14th August 2021** (Saturday, which is a working day).

**The date of maturity of the promissory note is 14th August 2021.…

Question 27

Manish, a minor, lost his parents in COVID-19 pandemic. Due to poor economic conditions, Manish was facing difficulties in maintaining his livelihood. He approached Mr. Sohel (a grocery shopkeeper) to supply him grocery items and to wait for some period for receiving his bill. Mr. Ganeesh, a local person, who is a major, agreed to provide guarantee that he would pay the dues in case Manish fails to pay the merchant. Mr. Sohel supplied the required groceries to Manish. After few months when Manish failed to clear his dues, Mr. Sohel approached Mr. Ganeesh and asked him to clear the dues of Manish. Mr. Ganeesh refused to pay the amount on two grounds: firstly, that there was no consideration in the contract of guarantee and secondly that Manish is a minor and therefore on both the grounds th…

Accepted Answer

**Issue 1 — Contention of No Consideration:**

Mr. Ganeesh's first ground that there was no consideration for the contract of guarantee is **not tenable**.

Under **Section 127 of the Indian Contract Act, 1872**, anything done, or any promise made, **for the benefit of the principal debtor** may be a sufficient consideration to the surety for giving the guarantee. It is not necessary that the consideration must flow directly to the surety.

In the present case, Mr. Sohel supplied grocery items to Manish (the principal debtor) on the strength of Mr. Ganeesh's guarantee. This act of supplying groceries — done for the benefit of Manish — constitutes **valid and sufficient consideration** for the contract of guarantee. Therefore, Mr. Ganeesh cannot escape liability on the ground of absence of consideration.

**Issue 2 — Contention that Manish (Principal Debtor) is a Minor:**

Mr. Ganeesh's second ground is also **not tenable**.

It is true that a minor's agreement is **void ab initio** under Indian law (Section 11, Indian Contract Act, 1872 read with the Indian Majority Act, 1875). However, this does not automatically invalidate the contract of guarantee given by a **major** surety.

The law recognises that a surety can give a valid guarantee even where the principal debtor is a minor, because:
(a) The **consideration** for the guarantee — i.e., the actual supply of groceries to Manish — was duly rendered by Mr. Sohel at the time the guarantee was given.
(b) The surety's promise …

Question 28

Referring the relevant provisions of the Companies Act, 2013, state the following companies will be considered as listed company or unlisted company:

Accepted Answer

**Relevant Provision:** As per **Section 2(52) of the Companies Act, 2013**, a 'listed company' means a company which has any of its securities listed on any recognised stock exchange. However, the **Companies (Specification of Definitions Details) Rules, 2014** (as amended by the MCA Notification dated 13th June 2018) inserted **Rule 2A**, which carves out certain companies from the definition of 'listed company' even though their securities are listed on a recognised stock exchange.

**Rule 2A** provides that a company which has listed—
(a) its non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
(b) its non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or
(c) its equity shares on a permitted stock exchange outside India as per sub-section (1) of **Section 23 of the Companies Act, 2013**;

shall **NOT** be considered as a listed company.

Applying the above provisions to each case:

**(i) ABC Limited:** ABC Limited, a public company, has listed only its **non-convertible debt securities** issued on private placement basis under SEBI (Issue and Listing of Debt Securities) Regulations, 2008. As per Rule 2A(a), such a company shall not be considered a listed company. Therefore, **ABC Limited is an UNLISTED COMPANY**.

**(ii) CHO Limited:** CHO Limited, a pu…

Question 29

Examine, with reference to the applicable provisions of the Companies Act, 2013, whether, Moon Ltd. has complied with the statutory requirement regarding filing of accounts with the Register.

Accepted Answer

**Identification of Moon Ltd. as a Government Company:** Under **Section 2(45) of the Companies Act, 2013**, a 'Government Company' means any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by both. Since the Governments of Rajasthan and Haryana **jointly hold 58%** of the paid-up equity share capital of Moon Ltd., it qualifies as a **Government Company**.

**Applicable Provision — Section 137 of the Companies Act, 2013:** Section 137(1) requires every company to file a copy of the **duly adopted** financial statements with the Registrar of Companies within **30 days** of the date of the Annual General Meeting (AGM).

The **first proviso** to Section 137(1) provides that where the financial statements are **not adopted** at the AGM or adjourned AGM, such **unadopted financial statements** shall be filed with the Registrar within **30 days of the date of the AGM**. The Registrar shall take them on record as **provisional** till the adopted accounts are filed.

The **second proviso** to Section 137(1) provides that financial statements **adopted in the adjourned AGM** shall be filed with the Registrar within **30 days of the date of such adjourned meeting**.

**Analysis of the Facts:**

**Step 1 — AGM held on 31st August, 2022:** The meeting was adjourned without adoption of accounts (pending CAG comments under Section 143(6)/(7)). The 30-day deadline for filing **unadopted**…

Question 30

Explain the "grammatical" and "logical" interpretation and state the situations where the courts adopt them while interpreting the Statutes in India.

Accepted Answer

**Grammatical Interpretation** is the process of giving words their plain, ordinary, and literal meaning as understood in their natural context. The interpreter restricts himself to the grammatical structure and ordinary dictionary meaning of the words without going beyond the text. This is also called the **literal rule** or **plain meaning rule**. Under this method, courts do not speculate about the legislative intent or purpose; they simply apply the words as they appear.

**Logical Interpretation**, also called **purposive** or **teleological interpretation**, goes beyond the literal words to ascertain the true intent, object, and spirit of the legislation. The interpreter considers the context, historical background, mischief the statute aims to remedy, and the legislative purpose. Courts fill gaps in the statute's language to give effect to its underlying purpose.

**Situations where Courts Adopt Grammatical Interpretation:**

1. **Clear and Unambiguous Language**: When the statutory language is plain and expresses the legislative intent clearly, literal interpretation is adopted. No room is left for speculation.

2. **Consistency with Statutory Object**: When the grammatical meaning aligns with the overall purpose of the statute, literal interpretation is preferred.

3. **Well-Established Meanings**: When words have well-known technical or legal meanings established in jurisprudence, their grammatical sense is applied.

4. **Recent and Precise Legislation**: When statu…

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