CA Inter Corp Laws — Question Paper — November 2022

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; (b) audited profit and loss account; (c) directors' report; (d) auditor's report; (e) cash flow statement (except small companies and certain private companies); (f) declaration by the auditor regarding independence; and (g) other annexures as prescribed.

Form of Filing

Accounts must be filed in e-form INC-22A (for companies submitting audited financial statements) or INC-22 (for small companies and OPCs meeting the exemption criteria). Digital signatures of authorized directors are mandatory.

Exemptions and Extensions

Section 138 provides that the Central Government may grant extensions beyond the prescribed timeline on an application by the company. Such extension cannot ordinarily exceed 90 days. However, the company must apply before the deadline. Small companies may claim exemption from filing certain statements under Rule 6 of the Companies (Accounts) Rules, 2014.

Consequences of Non-Compliance

Failure to file accounts within the prescribed timeline triggers penal provisions under Section 447 (for the company) and Section 448 (for officers-in-default), with penalties up to ₹10 lakhs (depending on the default duration). Additionally, continuous non-filing for three consecutive financial years results in automatic removal of the company from the ROC Register under Section 248.

Examination of Compliance

To determine whether Moon Ltd. has complied, the following factors must be verified: (a) the classification of the company (public, private, small, OPC) to apply the correct timeline; (b) the date of financial year-end; (c) the date on which accounts were approved by the board; (d) the actual date of filing with ROC; and (e) whether any extension was granted by the Central Government.

Conclusion

Compliance requires timely filing of approved accounts with ROC in the prescribed format (INC-22A or INC-22) within the statutory deadline. Without specific facts regarding Moon Ltd.'s classification, approval date, and filing date, the actual compliance status cannot be determined, but the above framework provides the applicable legal position.

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.e., by courier), the service must be treated as valid and complete. The company's refusal to accept a validly served document constitutes a wrongful act on its part.

Further, where a company refuses to accept a document served upon it in accordance with the provisions of the Companies Act, 2013, and the person serving the document suffers any loss or damage as a consequence of such refusal, such person may apply to the Tribunal (National Company Law Tribunal) which may, after examining the facts and circumstances, order the company to pay compensation to the aggrieved person.

Thus, Suresh can validly seek compensation/damages from AB Ltd. for the loss caused by its unjustified refusal to accept documents that were served through a mode expressly permitted by the statute.

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 he withdrew consent in writing after delivery but before allotment, and the prospectus was published without his consent or after withdrawal.

(ii) Unawareness of issue: He was not aware of the issue of the prospectus, and on becoming aware of it, he forthwith gave reasonable public notice that the prospectus was issued without his knowledge or consent.

(iii) Withdrawal on discovering untruth: After the issue of the prospectus and before allotment thereunder, on becoming aware of any untrue statement, he withdrew his consent to the prospectus and gave reasonable public notice of such withdrawal along with the reasons therefor.

(iv) Reasonable ground to believe in truth: As regards every untrue statement made by him, he had reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the statement was true.

Thus, the expert's liability is not absolute — it can be excluded if he demonstrates due diligence, lack of knowledge, or timely withdrawal of consent.

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 Act, 2013, the Registrar may, on evidence being given to his satisfaction, enter in the register of charges a memorandum of satisfaction — whether in whole or in part — notwithstanding the absence of any information from the charge-holder (Bank). This provision specifically addresses situations where the charge-holder fails or refuses to cooperate.

Before making such an entry, the Registrar is required to send a notice to the charge-holder (Bank) informing it of the application. If the Bank raises any objection within the stipulated time, the Registrar shall consider such objection before recording satisfaction. If no objection is raised, the Registrar shall record the memorandum of satisfaction accordingly.

Procedure for Nivedita Limited:

Nivedita Limited should: (1) file Form CHG-4 with the ROC along with evidence of repayment, (2) expressly state that the charge-holder has not issued a confirmation letter despite a request, and (3) rely upon Section 83 to enable the Registrar to enter satisfaction in the register without the Bank's formal letter.

Time Frame within which the ROC May Allow Intimation of Satisfaction:

Nivedita Limited must file the intimation within 30 days from the date of payment/satisfaction of the charge (normal filing period). If the company fails to file within 30 days, Rule 8 of the Companies (Registration of Charges) Rules, 2014 provides that the Registrar may, on an application with reasons and payment of additional fees, allow the company to intimate satisfaction of the charge within 300 days from the date of such payment or satisfaction.

Thus, the total outer time limit within which the Registrar of Companies may allow Nivedita Limited to intimate satisfaction of the charge is 300 days from the date of full repayment of the term loan.

(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 96 of the Negotiable Instruments Act, 1881 applies. The provision clearly states that a notice dispatched to a deceased party, when the dispatching party is ignorant of the death, is sufficient notice. The law does not require that notice be addressed to the legal representative when the person giving notice had no knowledge of the death.

Furthermore, since Mr. L actually received the notice (even though addressed to his father), the very purpose of notice of dishonour — i.e., communicating the fact of dishonour so that the party can take appropriate action — has been fulfilled. Non-addressal to Mr. L personally does not invalidate a notice that was validly issued under the ignorance of death rule and was actually received by the legal representative.

Therefore, Mr. L's second contention is also not tenable. Mr. K's claim against Mr. L as legal heir of Mr. G is legally maintainable, and Mr. L is liable to pay the amount of ₹50,000 on the dishonoured bill of exchange.

(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 of the dishonour of the bill. Under the Negotiable Instruments Act, 1881, the purpose of a notice of dishonour is to bring the fact of dishonour to the knowledge of the party sought to be made liable so that he may protect his interests.

When the legal representative actually receives the notice, the object of the notice is fully achieved, regardless of the name it was addressed to. Mr. L cannot take shelter behind a mere technicality of the notice not bearing his name when he had actual knowledge of the dishonour. His contention that the notice was not addressed to him is, therefore, not tenable.

Mr. K is advised that in both situations, Mr. L (as the only legal representative of Mr. G) is liable to pay ₹50,000, and Mr. L's contentions do not provide a valid defence under the Negotiable Instruments Act, 1881.

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) Mr. B's defence of non-receipt is not tenable in law because once a notice is sent by registered post to the correct address, the deeming provision of Section 27 operates, and non-acceptance or refusal does not negate valid service.

(iv) The one-month prior notice condition in the agreement was complied with by Mr. A by sending the notice through registered post.

Conclusion: The notice sent by Mr. A to Mr. B is legally tenable and valid. Mr. B cannot claim non-receipt of notice as a defence. The refusal to accept the registered post by his wife does not invalidate the service. Mr. B is legally bound to vacate the flat as per the terms of the tenancy agreement.

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 if Pratik took reasonable precautions, he cannot escape liability once he was in default.

Application to the Facts:

The fire caused by a short circuit might, in ordinary circumstances, be treated as an accident beyond Pratik's control. However, since the repair was complete and Pratik had failed to return the AC despite repeated demands by Kartik, Pratik was clearly in default under Section 161. The destruction of the AC occurred during the period of his default. Therefore, Pratik cannot take shelter in the defence of accidental fire or force majeure.

Conclusion:

Pratik will be held liable for the loss of Kartik's AC. He is bound to compensate Kartik for the full value of the AC destroyed, as per Section 161 of the Indian Contract Act, 1872. The accidental nature of the fire (short circuit) provides no defence once the bailee is found to be in default of returning the bailed goods.

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 the statutory text is drafted with precision and clarity, leaving no room for doubt or alternative meanings, courts proceed with grammatical interpretation without reference to external aids.

Situations where logical interpretation is adopted:

When literal interpretation would lead to absurdity, incongruity, or a result manifestly contrary to the legislative intention, courts resort to logical interpretation. Courts adopt purposive interpretation when the statutory language is ambiguous, obscure, or capable of multiple interpretations. Logical interpretation is used to prevent the statute from defeating its own purpose—if the grammatical meaning would render the statute nugatory or ineffective in achieving its legislative object, purposive construction is preferred. Additionally, when there are internal inconsistencies or conflicts between different provisions of the same statute, courts employ logical interpretation to harmonize them and arrive at a coherent and sensible construction. Courts also adopt purposive interpretation when a strict literal reading would produce a result that is harsh, unjust, or contrary to equity.

The fundamental principle is that grammatical interpretation is the rule, and logical interpretation is the exception, adopted only when necessary to prevent absurdity or to give true effect to the legislative intention.

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 them), the rule of ejusdem generis does not operate in the traditional manner. The principle is primarily designed for situations where general words follow specific enumeration, not the reverse.

5. Use of Disjunctive Conjunctions When specific words are linked to general words by the conjunction "or" (disjunctive) rather than commas (conjunctive), it indicates that the general words are meant to operate independently and not be confined to the same class as the specific words. The structure "A, B, C or other things" suggests broader scope than "A, B, C and other things."

6. General Words as Illustrations When the specific words are introduced merely as illustrations or examples (often indicated by the word "such as"), they do not establish a closed class. The general words therefore retain their full meaning and are not restricted to the same category as the illustrative examples.

7. Absurdity or Repugnant Results When applying the rule of ejusdem generis would lead to an absurd, unreasonable, or repugnant interpretation that clearly contradicts the apparent legislative intention or purpose of the statute, the rule will not be applied. Courts prioritize common sense and purposive interpretation over mechanical application of the rule.

8. Inadequate Specific Words Some authorities hold that the rule requires a sufficient number of specific words to establish a clear category or class before the general words can be meaningfully restricted. Where only one or very few specific words precede the general words, the rule may not apply effectively.

9. Different Contexts or Domains When the specific words and general words appear to relate to entirely different subject matters, contexts, or domains, the rule will not apply as there is no common class to limit the generality.

Conclusion The rule of ejusdem generis is a useful tool for statutory interpretation but is not absolute. Courts recognize that rigid mechanical application can frustrate legislative intent. Therefore, the rule operates only when its conditions are met, and yields to clear legislative language, obvious intention, or the need to avoid unreasonable results.

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.

(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 debentures beyond the above limit — the Act does not prescribe any absolute upper cap in such case, though the resolution itself typically specifies the maximum borrowing amount.

Conditions under Rule 18 for Secured Debentures:

Since the debentures are likely to be secured, SRD Limited must comply with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014:
1. A Debenture Trustee must be appointed prior to issue.
2. A charge on assets/properties must be created in favour of the Debenture Trustee within 60 days of allotment.
3. The total debentures issued shall not exceed the value of assets on which charge is created.
4. Debenture Redemption Reserve (DRR): For an unlisted company (non-NBFC, non-banking), DRR of 10% of the outstanding debentures must be created before redemption commences.

Mode of Issue:

SRD Limited, being an unlisted public company, can issue debentures through:
- Private Placement under Section 42 — to a maximum of 200 persons per financial year (excluding Qualified Institutional Buyers and employees under ESOP); or
- Public Issue through a prospectus under Section 23 read with relevant provisions.

Conclusion: SRD Limited can issue debentures up to the limit of its aggregate Paid-up Share Capital + Free Reserves + Securities Premium (net of existing borrowings) without any special resolution. To raise funds beyond this threshold, it must obtain members' approval by special resolution under Section 180(1)(c). Additionally, for secured debentures, all conditions under Rule 18 — including appointment of Debenture Trustee, creation of charge, and DRR requirements — must be satisfied.

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 179(3)(c) is sufficient for issuing debentures within this limit, as the Board is empowered to issue securities including debentures at a Board meeting.
- If the proposed debenture issue causes total borrowings (excluding temporary loans) to exceed the aggregate of paid-up capital + free reserves + securities premium, then a Special Resolution must be passed at a General Meeting of the Company before such debentures are issued.

In the present case, since no existing long-term borrowings are mentioned beyond the cash credit (which is excluded), the company can issue debentures up to the full amount of (Paid-up Capital + Free Reserves + Securities Premium) by a Board Resolution alone. Any amount beyond this threshold requires a Special Resolution.

(ii) Issue of Debentures with Option to Convert into Shares:

Under Section 71(1) of the Companies Act, 2013, a company may issue debentures with an option to convert such debentures into shares, either wholly or partly, at the time of redemption. However, this provision contains a mandatory requirement:

> The issue of debentures with an option to convert into shares (wholly or partly) shall be approved by a Special Resolution passed at a General Meeting of the company.

Therefore, if the company desires to issue convertible debentures (i.e., with an option to convert into equity shares), a Special Resolution at the General Meeting is compulsory, irrespective of the amount to be raised. The Section 180(1)(c) analysis regarding the borrowing limit remains the same as in part (i), but the Section 71(1) requirement of a Special Resolution is an additional mandatory condition applicable exclusively to convertible debentures.

Summary Table:

| Type of Debenture | Within Section 180(1)(c) Limit | Exceeding Limit |
|---|---|---|
| Non-Convertible Debentures | Board Resolution u/s 179(3) | Special Resolution u/s 180(1)(c) |
| Convertible Debentures | Special Resolution u/s 71(1) [mandatory] | Special Resolution u/s 71(1) + u/s 180(1)(c) |

Note: The cash credit of ₹50,00,000 being a temporary bank loan is excluded from borrowing limit computation in all cases.

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.

| Particulars | Amount (₹) |
|---|---|
| 8% Non-Convertible Debentures | 30,00,000 |
| 9.5% Term Loan from XYZ Bank | 20,00,000 |
| Total existing long-term borrowings | 50,00,000 |

Maximum Additional Debentures (without Special Resolution):
₹1,40,00,000 − ₹50,00,000 = ₹90,00,000

Conclusion: SRD Limited can issue debentures up to ₹90,00,000 purely on the basis of a Board Resolution, without requiring any General Meeting resolution. If the company desires to borrow beyond ₹90,00,000 (i.e., total borrowings exceeding ₹1,40,00,000), it must first obtain the approval of shareholders by passing a Special Resolution at a General Meeting, specifying the higher limit.

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(ii) Issue of Debentures with Option to Convert into Shares

Under Section 71(1) of the Companies Act, 2013, a company may issue debentures with an option to convert such debentures into shares (wholly or partly) at the time of redemption. However, the issuance of such optionally or fully convertible debentures must be approved by a Special Resolution passed at a General Meeting of the company, irrespective of the amount proposed to be raised.

Accordingly, if SRD Limited wishes to issue debentures with an option to convert them into shares, it must, in addition to complying with the borrowing limits under Section 180(1)(c), mandatorily pass a Special Resolution at the General Meeting. This is an absolute statutory requirement under Section 71(1) — there is no threshold below which this requirement is waived.

Summary Table:

| Scenario | Resolution Required |
|---|---|
| Non-convertible debentures up to ₹90,00,000 | Board Resolution only |
| Non-convertible debentures exceeding ₹90,00,000 | Special Resolution under Sec. 180(1)(c) |
| Convertible debentures (any amount) | Special Resolution under Sec. 71(1) — mandatory |

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.

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 escape liability merely because the principal debtor is incapable of being sued, the institution of guarantee would be rendered meaningless. Mr. Ganesh, by providing the guarantee, undertook an independent obligation to pay Mr. Sobol in case Manish failed to do so.

Conclusion — Part 1: Both grounds raised by Mr. Ganesh are legally untenable. Mr. Sobol is entitled to recover the dues from Mr. Ganesh (the surety). Mr. Ganesh is liable to pay the dues of Manish.

Part 2 — If Both Manish and Mr. Ganesh are Minors:

The answer will differ in this situation. A minor is not competent to contract under Section 11 of the Indian Contract Act, 1872, and any contract entered into by a minor is void ab initio. A minor cannot be a surety, as the very contract of guarantee entered into by him would be void and unenforceable.

If Mr. Ganesh (the surety) is also a minor, the contract of guarantee itself is void since a minor lacks the legal capacity to enter into a contract. Mr. Sobol would have no legal remedy against Mr. Ganesh to recover Manish's dues. The guarantee stands invalidated not because the principal debtor is a minor, but because the surety himself is a minor and therefore incompetent to contract.

Final Answer: (1) Mr. Ganesh's contentions are not valid — the contract of guarantee is enforceable against him and he must pay the dues. (2) If both Manish and Mr. Ganesh are minors, the contract of guarantee is void and Mr. Sobol cannot recover from Mr. Ganesh.

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 negotiation — only the ministerial act of delivery remained. Mr. S, being the sole legal heir and representative, is competent to deliver the endorsed bill to Mr. B, thereby completing the negotiation that his father had intended.

Conclusion: Mr. S can lawfully complete the instrument by delivering the endorsed bill of exchange to Mr. B. Upon such delivery, the negotiation will stand completed in accordance with Section 46 and Section 48 of the Negotiable Instruments Act, 1881, and Mr. B will acquire a valid title to the instrument.

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 ₹1,00,000, which is not in excess of ₹1,00,000. Since the amount does not exceed the prescribed limit, no disqualification is triggered. Therefore, the appointment of XYZ & Co. is VALID.

(iii) Mrs. Q is indebted to Z Limited for ₹10,00,000, and P Limited holds one-fourth of the paid-up equity share capital of Z Ltd.:

First, since P Limited holds 25% (one-fourth) of the paid-up equity share capital of Z Ltd., Z Ltd. qualifies as an associate company of P Limited under Section 2(6) of the Companies Act, 2013 — which defines an associate company as one in which another company has "significant influence," meaning control of at least 20% of total voting power. 25% exceeds this threshold.

Under Section 141(3)(d)(ii), a person is disqualified if his relative is indebted to the company or its associate company in excess of ₹5,00,000. Mrs. Q is indebted to Z Ltd. (an associate company of P Limited) for ₹10,00,000, which exceeds ₹5,00,000. This creates a disqualification for Mr. X and, consequently, for the firm XYZ & Co. Therefore, the appointment of XYZ & Co. is INVALID.

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 Calling the Meeting:

Under Section 100(5), a meeting called by requisitionists shall be called in the same manner as nearly as possible as meetings called by the Board. This means proper notice, quorum, and other procedural requirements must be followed.

(d) Validity of Resolution to Remove the Managing Director:

For removal of a director (including a Managing Director), Section 169 of the Companies Act, 2013 requires:
1. Special Notice under Section 115 — at least 14 days' notice before the meeting must be given to the company and the director concerned.
2. The director must be given a reasonable opportunity of being heard at the meeting.
3. The resolution for removal is passed by way of an Ordinary Resolution.

Since the meeting is called by the requisitionists under Section 100(4), it is a validly constituted EGM. Any resolution passed at such a meeting carries the same legal validity as a resolution passed at a meeting called by the Board.

Conclusion: The resolution to remove the Managing Director passed at the EGM called by Mr. A and Mr. B is valid, provided: (i) the meeting is held within 3 months from the date of requisition, (ii) proper special notice under Section 169 read with Section 115 has been given, and (iii) the Managing Director has been afforded an opportunity to be heard. The reasonable expenses incurred by the requisitionists in calling such meeting shall be repaid by the company and shall be deducted from the remuneration of the defaulting directors, as per Section 100(6).

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 applicable. The proposed rate of 30% is therefore permissible.

(b) Quantum of Withdrawal: The total amount drawn from free reserves shall not exceed 1/10th (10%) of the sum of paid-up capital and free reserves as per the latest audited balance sheet.
- 10% of (₹33.33 + ₹75) lakhs = 10% of ₹108.33 lakhs = ₹10.83 lakhs
- Amount proposed to be drawn = ₹10 lakhs ≤ ₹10.83 lakhs ✓ Condition Satisfied

(c) Set Off of Losses: The amount drawn from free reserves shall first be utilized to set off the losses incurred in the current financial year, before declaring any dividend. Since the company has earned a profit of ₹10 lakhs in the current year (no loss), this condition is satisfied. ✓

(d) Minimum Balance of Reserves: After withdrawal, the balance of free reserves shall not fall below 15% of paid-up share capital.
- Balance of reserves after withdrawal = ₹75 − ₹10 = ₹65 lakhs
- 15% of paid-up capital = 15% × ₹33.33 lakhs = ₹5 lakhs
- ₹65 lakhs > ₹5 lakhs ✓ Condition Satisfied

Conclusion: The proposal of the company to declare a dividend of ₹10 lakhs (30% on paid-up capital) is valid and in compliance with the provisions of the Companies Act, 2013. The dividend can be paid either entirely from current year profits (₹10 lakhs being sufficient), or from free reserves, as all four conditions prescribed under Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 are satisfied.

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 authority by the principal.

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.

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 of the Act is given at least 14 clear days before the meeting. The director proposed to be removed must be given an opportunity to be heard.

Validity of Resolution Passed at the Requisitionists' Meeting:

The resolution passed at the meeting called by the requisitionists themselves is valid, subject to the following conditions being satisfied:

(a) The requisitionists hold not less than 1/10th of the paid-up share capital — satisfied (they hold 30%).

(b) The Board failed to call the meeting within 21 days — condition stated as satisfied in the problem.

(c) The meeting is called and held within 3 months from the date of deposit of requisition.

(d) A valid special notice under Section 115 was given to the company at least 14 days before the meeting for the resolution to remove the Managing Director under Section 169.

(e) The Managing Director was given a reasonable opportunity to make a representation.

Conclusion: The resolution to remove the Managing Director, if passed at the EGM validly convened by the requisitionists in compliance with Section 100(4) and Section 169 of the Companies Act, 2013, is legally valid and binding on the company.

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 below 15% of the paid-up share capital as per the latest audited balance sheet.

Application to the Given Case:

From the facts: Paid-up Capital = ₹100 lakhs (since proposed dividend = ₹30 lakhs @ 30%), Free Reserves = ₹75 lakhs, Current year profit = ₹12 lakhs, Proposed dividend = ₹30 lakhs.

Condition 1: Since no dividend was declared in any of the preceding years, this condition is not applicable.

Condition 2 (Critical — VIOLATED): Amount required to be drawn from free reserves = ₹30 lakhs − ₹12 lakhs (current profit) = ₹18 lakhs. Maximum permissible withdrawal = 10% of (₹100 + ₹75) = 10% of ₹175 lakhs = ₹17.5 lakhs. Since ₹18 lakhs > ₹17.5 lakhs, this condition is violated.

Condition 3: Current year has a profit of ₹12 lakhs (no loss), so no adjustment is required. Satisfied.

Condition 4: If maximum permissible ₹17.5 lakhs is withdrawn — Remaining reserves = ₹75 − ₹17.5 = ₹57.5 lakhs. Minimum required = 15% of ₹100 = ₹15 lakhs. ₹57.5 lakhs > ₹15 lakhs. Satisfied.

Conclusion: The proposal of the Board to pay a dividend of ₹30 lakhs is NOT VALID, as it violates Condition 2 of Rule 3 — the withdrawal from free reserves (₹18 lakhs) exceeds the maximum permissible limit of ₹17.5 lakhs. The company can declare a maximum dividend of ₹29.5 lakhs (i.e., ₹12 lakhs from current profits + ₹17.5 lakhs from free reserves), provided all other conditions are met.

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. X at his discretion.

Conclusion: As per Section 210 of the Indian Contract Act, 1872, Mr. X cannot revoke the authority given to Mr. Y, as it is coupled with an interest. The authority shall continue until the debt of ₹50,000 is satisfied and the balance is handed over to Mr. X.

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.

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 under Section 127 is an independent obligation supported by that consideration.
(c) Mr. Ganeesh, being a major and competent to contract, voluntarily agreed to be liable in case Manish failed to pay.

Therefore, Mr. Sohel is entitled to recover the dues from Mr. Ganeesh (the surety), and Mr. Ganeesh's refusal on this ground is not sustainable in law.

Conclusion: Both contentions of Mr. Ganeesh are untenable. He is liable to pay the dues of Manish to Mr. Sohel.

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Altered Situation — Both Manish and Mr. Ganeesh are Minors:

Yes, the answer will differ in this situation.

If Mr. Ganeesh (the surety) is also a minor, he lacks the legal capacity to enter into a contract under Section 11 of the Indian Contract Act, 1872. A minor's agreement is void ab initio and cannot be enforced against him. Mr. Ganeesh cannot be held liable as a surety since he was not competent to contract at the time of giving the guarantee.

In such a case, Mr. Sohel cannot recover the amount from Mr. Ganeesh, and the contention of Mr. Ganeesh would be tenable on the ground that he is a minor surety, even though the consideration aspect under Section 127 remains the same.

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 public company, has listed only its non-convertible redeemable preference shares issued on private placement basis under SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013. As per Rule 2A(b), such a company shall not be considered a listed company. Therefore, CHO Limited is an UNLISTED COMPANY.

(iii) DES Limited: DES Limited, a public company, has listed its equity shares on a stock exchange in a foreign jurisdiction in terms of sub-section (1) of Section 23 of the Companies Act, 2013, and has NOT listed on any Indian recognised stock exchange. As per Rule 2A(c), a company whose equity shares are listed on a permitted stock exchange outside India as per Section 23(1) shall not be considered a listed company. Therefore, DES Limited is an UNLISTED COMPANY.

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 accounts = 31st August 2022 + 30 days = 30th September, 2022. Moon Ltd. did not file the unadopted financial statements by 30th September, 2022. This is a non-compliance with the first proviso to Section 137(1).

Step 2 — Adjourned Meeting held on 5th October, 2022: Accounts were adopted at this meeting. The 30-day deadline for filing adopted accounts = 5th October 2022 + 30 days = 4th November, 2022. Moon Ltd. filed the adopted financial statements on 25th October, 2022, which is within the 30-day window. This part is compliant.

Conclusion: Moon Ltd. has not fully complied with the statutory requirements under Section 137 of the Companies Act, 2013. While the filing of adopted accounts on 25th October, 2022 (within 30 days of the adjourned meeting on 5th October, 2022) is in order, the company failed to file the unadopted financial statements provisionally with the Registrar within 30 days of the original AGM held on 31st August, 2022 (i.e., by 30th September, 2022). This constitutes a violation of the first proviso to Section 137(1) of the Companies Act, 2013.

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 statutes are recently enacted with carefully chosen words, the literal meaning is usually sufficient.

5. No Ambiguity or Absurdity: When literal interpretation does not lead to any inconsistency, contradiction, or manifest absurdity, grammatical meaning is favored.

Situations where Courts Adopt Logical Interpretation:

1. Ambiguous or Obscure Language: When the statute's language is susceptible to multiple interpretations or meanings are unclear, courts resort to logical interpretation to understand the true intent.

2. Literal Meaning Leads to Absurdity: When grammatical interpretation produces results that are manifestly absurd, unjust, or contrary to common sense, logical interpretation is adopted to avoid such consequences.

3. Conflict with Statutory Object: When literal meaning conflicts with the object, purpose, or preamble of the statute, courts adopt interpretation that furthers the legislative purpose.

4. Remedy for Mischief: When the statute aims to remedy a particular mischief or evil, courts interpret provisions in a manner that effectively removes that mischief, even if it requires reading beyond literal words.

5. Hardship or Injustice: When literal interpretation would create hardship, injustice, or make the statute ineffective, logical interpretation is preferred.

6. Silences and Gaps: When the statute contains gaps or omissions, courts use logical interpretation to fill those gaps consistent with the statute's purpose.

7. Historical Context and Prior Law: When historical background shows different legislative intent than the literal words suggest, logical interpretation may be adopted to align with the intended reform.

(a) Whether Mr. S can complete the instrument:

Yes, Mr. S can complete the instrument. The relevant provisions of the Negotiable Instruments Act, 1881 are discussed below.

Under Section 15 of the Negotiable Instruments Act, 1881, an endorsement means the signing of a negotiable instrument by the holder for the purpose of negotiation. However, an endorsement alone is not sufficient to transfer the instrument — delivery is equally essential.

As per Section 46 of the Negotiable Instruments Act, 1881, the making, acceptance, and endorsement of a negotiable instrument is incomplete until delivery, actual or constructive, of the instrument to the payee or endorsee. In the present case, Mr. A had signed the bill of exchange as endorser in favour of Mr. B, but delivery had not yet taken place when Mr. A passed away. Therefore, the endorsement made by Mr. A was incomplete at the time of his death.

Position of Mr. S as Legal Representative:

Where the maker or endorser of an instrument dies before completing an act necessary for the perfection of the instrument (such as delivery), the legal representative of the deceased steps into the shoes of the deceased and can perform all acts which the deceased could have lawfully performed. Mr. S, being the only legal heir and representative of Mr. A, is entitled to complete the incomplete act — i.e., effect the delivery of the endorsed bill of exchange to Mr. B.

Conclusion: Mr. S is entitled to complete the instrument by delivering the bill of exchange (endorsed by his deceased father Mr. A) to Mr. B. Upon such delivery, the endorsement will become complete and operative under Section 46 of the Negotiable Instruments Act, 1881, and Mr. B will acquire a valid title to the instrument for ₹50,000. The rights and obligations of Mr. A in respect of the instrument devolve upon Mr. S as his sole legal representative, and Mr. S can accordingly complete the negotiation.

Relevant Provision — Section 2(52) of the Companies Act, 2013

Section 2(52) defines a "listed company" as a company which has any of its securities listed on any recognised stock exchange. However, the proviso to Section 2(52) empowers the Central Government to prescribe, in consultation with SEBI, certain classes of companies which shall not be considered listed companies even if they have listed certain specified securities.

Pursuant to this, Rule 2A of the Companies (Specification of Definitions Details) Rules, 2014 (inserted by the Amendment Rules, 2018) specifies the following classes of companies that shall not be considered as listed companies:

(a) Public companies which have not listed their equity shares on a recognised stock exchange but have listed only their:
- Non-convertible debt securities issued on private placement basis under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
- Non-convertible redeemable preference shares issued on private placement basis under the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013.

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(i) ABC Limited — Non-Convertible Debt Securities (Private Placement) under SEBI (ILDS) Regulations, 2008

ABC Limited has listed only its non-convertible debt securities on a private placement basis in accordance with the SEBI (Issue and Listing of Debt Securities) Regulations, 2008. This falls squarely within the exclusion prescribed under Rule 2A of the Companies (Specification of Definitions Details) Rules, 2014.

Conclusion: ABC Limited shall be treated as an UNLISTED COMPANY under the Companies Act, 2013.

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(ii) CHGL Limited — Non-Convertible Redeemable Preference Shares (Private Placement) under SEBI (NCRPS) Regulations, 2013

CHGL Limited has listed only its non-convertible redeemable preference shares on a private placement basis in accordance with the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013. This also falls within the class of companies specifically excluded under Rule 2A of the Companies (Specification of Definitions Details) Rules, 2014.

Conclusion: CHGL Limited shall be treated as an UNLISTED COMPANY under the Companies Act, 2013.

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(iii) PRS Limited — Equity Shares Listed on a Foreign Stock Exchange in a Specified Jurisdiction

Section 2(52) read with the Companies (Specification of Definitions Details) Rules, 2014 also provides that a company whose equity shares are listed on a stock exchange of a jurisdiction as specified by the Central Government under the relevant sub-section of Section 2 of the Companies Act, 2013, shall be considered a listed company. PRS Limited has its equity shares listed on a recognised stock exchange in a jurisdiction as specified under the said provision. Since equity shares (being the core securities) are listed — even though on a foreign exchange in a specified jurisdiction — PRS Limited qualifies as a listed company.

Conclusion: PRS Limited shall be treated as a LISTED COMPANY under the Companies Act, 2013.

Identification of Moon Ltd. as a Government Company:

As per 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 the Central Government and partly by one or more State Governments. 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.

Validity of holding AGM on 31st August, 2022:

Under Section 96(1) of the Companies Act, 2013, every company must hold its Annual General Meeting within six months from the close of the financial year. For FY 2021-22 (ending 31st March, 2022), the last date for holding the AGM was 30th September, 2022. The AGM was held on 31st August, 2022, which is within the prescribed time limit. Hence, the AGM was validly held.

Validity of adjourning the AGM without adoption of accounts:

Moon Ltd. is subject to audit by the Comptroller and Auditor General of India (CAG) under Section 143(5) of the Companies Act, 2013. Further, under Section 143(6), the CAG has a right to conduct a supplementary audit and issue comments on the financial statements. Since the CAG's comments were pending, the adjournment of the AGM without adoption of accounts was a valid and justified action. The adjourned AGM was held on 25th October, 2022, wherein accounts were duly adopted after receipt of CAG's comments.

Filing of financial statements with the Registrar:

Under Section 137(1) of the Companies Act, 2013, a company is required to file a copy of the financial statements, duly adopted at the AGM, with the Registrar of Companies. For ordinary companies, this must be done within 30 days of the AGM.

However, the second proviso to Section 137(1) provides that a Government Company shall file its financial statements with the Registrar within sixty days from the date of the Annual General Meeting.

For Moon Ltd.:
- Date of AGM: 31st August, 2022
- 60 days from AGM: 30th October, 2022
- Actual date of filing: 25th October, 2022

Conclusion: The filing on 25th October, 2022 is well within the 60-day limit applicable to Government Companies. Moon Ltd.'s actions — holding the AGM within the prescribed time, adjourning pending CAG comments, adopting accounts at the adjourned meeting, and filing with the Registrar within 60 days of the original AGM date — are fully compliant with the Companies Act, 2013. No default has been committed.

Part 1: Whether the request of shareholders is considerable

The request of the shareholders of Anika Limited is valid and considerable under the Companies Act, 2013. What the shareholders are proposing is a Sub-division of Shares under Section 61(1)(b) of the Companies Act, 2013 — not a reduction of capital. The face value is being reduced from ₹100 to ₹10, and simultaneously the number of shares is being increased from 10,00,000 to 1,00,00,000, thereby keeping the total Authorized Capital intact at ₹10,00,00,000. Since no capital is being extinguished, this is purely an alteration of share capital.

The rationale for the shareholders' request is also economically sound. High face-value shares are often difficult to trade on stock exchanges due to their high market price, low liquidity, and limited retail participation. By sub-dividing shares, the market price per share becomes more affordable, improving tradability and market liquidity.

Legal Provision — Section 61(1)(b):
A limited company having a share capital may, if so authorised by its Articles of Association, alter its Memorandum of Association in a general meeting to sub-divide its shares, or any of them, into shares of a smaller nominal value than that fixed by the Memorandum.

Important Note under Section 61(2): When shares are sub-divided, the proportion between the amount paid and the amount unpaid on each resultant share shall remain the same as it was on the original share before sub-division.

Procedure for Sub-division:
(i) Verify that the Articles of Association authorise such alteration; if not, amend the Articles first.
(ii) Issue Notice of General Meeting with an explanatory statement.
(iii) Pass an Ordinary Resolution at the General Meeting approving the sub-division.
(iv) File Form SH-7 (Notice of Alteration of Share Capital) with the Registrar of Companies within 30 days of passing the resolution.
(v) Inform the Stock Exchange(s) where shares are listed, as per SEBI (LODR) Regulations, 2015.
(vi) Issue new share certificates or update demat accounts accordingly.

Part 2: How the Company can also Issue Share Capital

After or independent of the sub-division, Anika Limited may raise further share capital. Section 62 of the Companies Act, 2013 governs the Further Issue of Share Capital. When a company proposes to increase its subscribed capital by issuing further shares, such shares shall be offered in the following manner:

(a) Rights Issue — Section 62(1)(a): Shares must first be offered to existing equity shareholders in proportion to their paid-up shareholding, with a notice specifying the offer period (minimum 15 days, maximum 30 days). Shareholders may renounce their rights in favour of others unless restricted by the Articles.

(b) Employee Stock Option Plan (ESOP) — Section 62(1)(b): Shares may be issued to employees under a scheme of ESOP, subject to a Special Resolution and compliance with prescribed conditions.

(c) Preferential Allotment / Private Placement — Section 62(1)(c): Shares may be issued to any persons (other than existing shareholders and employees under ESOP), provided a Special Resolution is passed and either the price is determined by a registered valuer or it is a rights issue renounced in favour of such persons. This also includes private placement under Section 42.

(d) Bonus Issue — Section 63: The company may issue fully paid-up bonus shares to existing shareholders out of free reserves, securities premium account, or capital redemption reserve, subject to the conditions that: (i) no default in payment of interest/principal on fixed deposits or debt securities; (ii) no pending statutory dues; (iii) Bonus shares cannot be issued in lieu of dividend; and (iv) an Ordinary Resolution (or Special Resolution if Articles require) is passed.

(e) Public Issue: A listed company may also issue shares through a public offer (IPO or FPO) as per Section 23 of the Companies Act, 2013 read with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Conclusion: The shareholders' request for sub-division is legally permissible and commercially justified. The total Authorized Capital of ₹10,00,00,000 remains unchanged. Post sub-division, the company can further raise capital through rights issue, bonus issue, private placement, or public offer as per the applicable provisions of the Companies Act, 2013.

Validity of Charges Created for Secured Deposits — Perfect Limited

As per Rule 6 of the Companies (Acceptance of Deposits) Rules, 2014, a company accepting secured deposits must create a charge on its assets in favour of the trustee for depositors. The critical condition is that the charge must be created only on tangible assets, and the value of assets charged must not be less than the amount of deposits accepted and outstanding.

Intangible assets such as Goodwill and Trade Marks cannot be accepted as valid security for secured deposits under the said Rules. Only tangible, identifiable assets are permissible.

Asset-wise Validity Analysis:

(a) Land & Building — ₹60 crores: Tangible asset. Charge is valid.

(b) Plant & Machinery — ₹20 crores: Tangible asset. Charge is valid.

(c) Factory Shed — ₹20 crores: Tangible asset. Charge is valid.

(d) Trade Mark — ₹20 crores: Intangible asset. Charge is NOT valid and cannot be counted towards security cover.

(e) Goodwill — ₹25 crores: Intangible asset. Charge is NOT valid and cannot be counted towards security cover.

Conclusion on Adequacy of Security:

Total deposit accepted = ₹100 crores. Total value of valid tangible assets charged = ₹60 + ₹20 + ₹20 = ₹100 crores, which equals the deposit amount. Since the value of tangible assets charged (₹100 crores) is not less than the amount of deposits (₹100 crores), the security requirement under Rule 6 is satisfied through tangible assets alone.

The charges created on Trade Mark (₹20 crores) and Goodwill (₹25 crores) are invalid and ineffective as security for depositors under the Rules. However, since valid tangible asset cover of ₹100 crores equals the deposit liability, the secured deposit arrangement of Perfect Limited is otherwise valid and compliant with the Companies (Acceptance of Deposits) Rules, 2014.

Issue: Whether the notice sent by Mr. A (landlord) to Mr. B (tenant) by registered post, which was refused by Mrs. C (wife of Mr. B), constitutes valid service of notice under the General Clauses Act, 1897.

Applicable Provision — Section 27 of the General Clauses Act, 1897:

Section 27 of the General Clauses Act, 1897 deals with the 'Meaning of service by post'. It provides that where any Central Act or Regulation requires or authorises any document to be served by post, service shall be deemed to be effected by:
(i) properly addressing the letter,
(ii) pre-paying postage, and
(iii) posting by registered post.

Unless the contrary is proved, such service is deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post.

Key Principle — Refusal Amounts to Deemed Service:

Where a notice is sent by registered post and the addressee or any person on his behalf refuses to accept delivery, the service is still treated as valid and effective under Section 27. The refusal to accept a registered letter does not invalidate or nullify the service of notice. The act of refusal itself demonstrates knowledge or notice of the communication.

Application to the Given Case:

Mr. A sent the notice to vacate by registered post, which is a valid and recognised mode of service. Mrs. C, the wife of Mr. B (i.e., a person residing at the same premises), refused to accept the notice on behalf of Mr. B. Under Section 27, once the notice has been properly addressed, pre-paid and dispatched by registered post, the service is deemed complete. The subsequent refusal by Mrs. C does not defeat the service.

Mr. B's contention that he did not receive the notice and hence is not bound to vacate is therefore not tenable in law.

Conclusion: The notice sent by Mr. A is valid and tenable under Section 27 of the General Clauses Act, 1897. Mr. B is legally bound to vacate the flat as required by the notice, and his defence of non-receipt is not sustainable since service by registered post is deemed effected irrespective of refusal to accept.

The Rule of Ejusdem Generis is a principle of statutory interpretation wherein general words following specific enumerated items are limited to things of the same kind as those specifically mentioned. However, this rule will NOT apply in the following situations:

1. Absence of Preceding Specific Words: If no specific words precede the general words, the rule cannot be invoked. The general words must take their full, unrestricted meaning without artificial limitation.

2. Broader Legislative Intent: When the legislative intention clearly indicates that general words are meant to enlarge scope beyond specific items, or when the statute's scheme shows expansive application, the rule is excluded. The object and purpose of the Act may override the linguistic operation of this rule.

3. Independent Listing of Items: When specific items are presented as separate and independent categories, typically separated by disjunctive language ("or" rather than "and"), they constitute distinct classes and the rule does not restrict general words.

4. Non-Homogeneous Words: The rule operates only when specific and general words belong to the same genus or category. If they plainly belong to different classes or are of heterogeneous character, the rule cannot apply.

5. Reverse Order of Words: The rule functions when general words follow specific ones. When general words precede specific words, the principle operates differently or not at all.

6. Single Specific Word Only: The rule requires at least two or three specific words to establish a recognizable and definite class. One isolated specific word is insufficient to invoke this principle.

7. Inclusive Language: When the statute employs words like "including," "such as," or "for example," it indicates expansive rather than restrictive interpretation, and the rule is inapplicable.

8. Contextual Indicators of Expansive Scope: When the overall context, scheme, preamble, and object of the legislation clearly demonstrate that general words should not be restricted, the rule is excluded.

Examination of Shareholders' Request:

The request of the shareholders is considerable and valid under the Companies Act, 2013. The shareholders are proposing to reduce the face value of each share from ₹100 to ₹10 and proportionately increase the number of shares from 10,00,000 to 1,00,00,000 (i.e., 10 shares of ₹10 each in place of every 1 share of ₹100). This is a sub-division of shares and the total authorised share capital remains unchanged at ₹10,00,00,000.

Authorised Capital (Before): 10,00,000 shares × ₹100 = ₹10,00,00,000
Authorised Capital (After): 1,00,00,000 shares × ₹10 = ₹10,00,00,000

Since the total capital remains the same, this does not amount to reduction of share capital under Section 66 of the Companies Act, 2013 (which requires National Company Law Tribunal approval). Therefore, the elaborate procedure for capital reduction is not attracted.

Legal Provision — Section 61 of the Companies Act, 2013:

As per Section 61(1) of the Companies Act, 2013, a company limited by shares may, if so authorised by its Articles of Association, alter its memorandum in a general meeting to alter its share capital in the following ways (among others):

Under Section 61(1)(d), a company may sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, subject to the condition that the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share before sub-division.

Procedure to be followed by Anika Limited:

(a) Check Articles of Association: Anika Limited must first ensure that its Articles of Association authorise such alteration. If not, the Articles must be amended by a Special Resolution before proceeding.

(b) Pass an Ordinary Resolution: As per Section 61(1), the company must pass an Ordinary Resolution at a General Meeting approving the sub-division of 10,00,000 equity shares of ₹100 each into 1,00,00,000 equity shares of ₹10 each.

(c) Alter the Memorandum of Association: The capital clause of the Memorandum of Association must be altered to reflect the new share capital structure.

(d) File Notice with Registrar of Companies: As per Section 64(1) of the Companies Act, 2013, the company must file a Notice with the Registrar of Companies (ROC) within 30 days of passing the resolution in Form SH-7 along with the prescribed fees, informing the ROC of the alteration in share capital.

Conclusion: The request of the shareholders is valid and the company can proceed to sub-divide its shares under Section 61(1)(d) by passing an Ordinary Resolution at a General Meeting, amending the Memorandum, and filing Form SH-7 with the ROC within 30 days. This will make trading in shares easier for shareholders as lower face value shares are generally more liquid in the stock market.

Provisions Relating to Secured Deposits under Companies Act 2013

As per Section 73(2)(c) of the Companies Act, 2013 read with Rule 6 of the Companies (Acceptance of Deposits) Rules, 2014, a company accepting secured deposits from the public must fulfil the following requirements:

(a) Execution of Deposit Trust Deed:
The company is required to execute a Deposit Trust Deed in Form DPT-2 not later than 7 days before the date of issue of circular or advertisement inviting deposits. The trustee must be appointed for the benefit of depositors.

(b) Creation of Charge / Security:
A charge must be created on the assets of the company in favour of the trustee for depositors. The charge must be created within 30 days of acceptance of the deposit. In the given case, Perfect Limited created the charge within the prescribed time — this condition is satisfied.

(c) Adequacy of Security — Critical Requirement:
The value of the assets on which charge is created must not be less than the amount of deposit outstanding plus interest payable thereon. This is the most important aspect to verify:

- Principal amount of deposits: ₹100 crores
- Interest for 3 years @ 12% p.a.: ₹36 crores
- Minimum value of security required: ₹136 crores

If the value of assets charged is less than ₹136 crores, the security would be inadequate and the deposit would effectively be treated as unsecured to that extent.

(d) Assets to be Free from Prior Encumbrances:
The assets charged must be free from any prior charge or encumbrance, or if encumbered, the margin over the prior charge must be at least equal to the deposit amount plus interest. The company must ensure that the net value (after deducting prior encumbrances, if any) covers ₹136 crores.

(e) Maintenance of Liquid Assets:
As per Rule 13 of the Companies (Acceptance of Deposits) Rules, 2014, on or before 30th April of each year, the company must deposit or invest at least 15% of the deposits maturing during the current and next financial year in a scheduled bank or specified securities. This is a separate liquid asset requirement independent of the charge creation.

Conclusion: Perfect Limited has complied with the requirement of timely creation of charge in favour of the trustee. However, the validity and adequacy of the security must be verified to ensure the assets charged have a minimum value of ₹136 crores (₹100 crores principal + ₹36 crores interest for 3 years) and are free from prior encumbrances to that extent.

(a) Remedy available to Mr. Nick:

Under Section 35(1) of the Companies Act, 2013, civil liability for misstatements in a prospectus arises where a person has subscribed for securities acting on any misleading statement or omission in the prospectus and has sustained any loss or damage as a consequence thereof. The company and every person who authorised the issue of the prospectus (including directors, promoters, and experts) shall be liable to pay compensation to every person who has sustained such loss or damage.

In the given case, although Mr. Nick purchased shares of Aarna Ltd. on the basis of an untrue expert's report published in the prospectus, he did not suffer any loss or damage as a result. Since the condition of sustaining loss or damage is not fulfilled, Mr. Nick would have no remedy against the company under Section 35(1) of the Companies Act, 2013. The right to claim compensation is contingent upon actual loss suffered.

(b) Circumstances where an Expert is NOT liable under the Companies Act, 2013:

Where a prospectus contains a statement made by an expert (as permitted under Section 26(5) of the Companies Act, 2013), such expert shall not be liable under Section 35 if he proves any of the following circumstances:

1. Prospectus issued without knowledge or consent: The prospectus was issued without his knowledge or consent, and upon becoming aware of its issue, he forthwith gave reasonable public notice that it was issued without his knowledge or consent.

2. Withdrawal of consent after issue but before allotment: After the issue of the prospectus and before allotment, upon becoming aware of any untrue statement therein, he withdrew his consent to the prospectus and gave reasonable public notice of the withdrawal and the reason therefor.

3. Reasonable grounds to believe the statement was true: He had reasonable grounds to believe, and did in fact believe, up to the time of allotment of the securities, that the statement made by him was true. This is the most commonly applied defence for experts.

4. Fair and accurate representation: The statement in the prospectus was a fair and correct copy or extract of the report or valuation actually made by the expert, and he had no reasonable ground to believe it was untrue.

In the present case, Aarna Ltd.'s prospectus contained untrue extracts from an expert's export report. The expert may escape liability if he can establish any of the above defences, particularly that he had reasonable grounds to believe the report was true at the time it was made.

Service of Documents under the Companies Act, 2013 — Analysis

(i) Whether refusal of document by the company is valid?

Section 20(1) of the Companies Act, 2013 prescribes the modes by which a document may be served on a company. As per this section, a document may be served on a company by sending it to the registered office by registered post, speed post, or by courier, or by delivering it at the registered office, or by such electronic or other mode as may be prescribed.

In the present case, Suresh dispatched the documents by courier under certificate of posting, which is a recognised and valid mode of service under Section 20(1).

Now, 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, articles, or any agreement or resolution. This means any provision in the AOA that is inconsistent with the Act is void and ineffective to that extent.

Since courier is a statutorily recognised mode of service under Section 20(1), the AOA restriction limiting service only to Speed Post is inconsistent with the Act and therefore has no legal force. The company's refusal to accept documents served by courier is not valid. The service by Suresh is deemed to have been validly effected as per the Act.

(ii) Whether Suresh can claim damages?

As established above, the service of documents by courier was valid under Section 20(1) and the company was legally bound to accept it. The refusal by AB Ltd. was wrongful and without lawful justification, as the AOA provision relied upon by the company is void by virtue of Section 6.

Since the company wrongfully refused to accept a document that was validly served, and as a consequence Suresh suffered a loss, Suresh is entitled to claim damages from AB Ltd. for the loss occasioned by such wrongful refusal. The company cannot take shelter behind a provision of its AOA that is repugnant to the Companies Act, 2013.

Conclusion: (i) The refusal by AB Ltd. is not valid — service by courier is statutorily recognised under Section 20(1) and the restrictive AOA provision is overridden by Section 6. (ii) Suresh can claim damages from the company for the loss suffered due to the company's wrongful refusal to accept validly served documents.

Relevant Provisions under the Companies Act, 2013 for Registration of Satisfaction of Charge

Background of the case: Nividia Limited created a charge by hypothecating its plant to a Nationalized Bank, registered the charge with the Registrar of Companies (ROC), and subsequently repaid the term loan in full. However, the Bank failed to provide a confirmation letter acknowledging satisfaction of the loan. The company now seeks to register satisfaction of the charge.

Applicable Provision — Section 82 (Company to report satisfaction of charge):

Under Section 82(1) of the Companies Act, 2013, when a charge registered under Chapter VI (i.e., Section 77) is satisfied in full, the company is required to give intimation thereof to the Registrar in the prescribed form (Form CHG-4) along with the prescribed fee within a period of 30 days from the date of such satisfaction. Upon receipt of this intimation, the Registrar shall cause a memorandum of satisfaction of the charge to be entered in the Register of Charges and shall issue a certificate of registration of such satisfaction in the prescribed form.

In the present case, since the Nationalized Bank did not respond to the company's request for a settlement confirmation letter, Nividia Limited can still file Form CHG-4 with documentary evidence of repayment (e.g., bank statements, repayment receipts, account closure documents).

Applicable Provision — Section 83 (Power of Registrar in absence of intimation from charge-holder):

Since the charge-holder (Bank) has not issued any confirmation, Section 83 of the Companies Act, 2013 is directly applicable. This section empowers the Registrar, on evidence being given to his satisfaction with respect to any registered charge, that:
- (a) the debt for which the charge was given has been paid or satisfied in whole or in part; or
- (b) part of the property charged has been released from the charge or has ceased to form part of the company's property;

to make entries in the Register of Charges noting such satisfaction or release, even in the absence of intimation from the charge-holder. The Registrar shall cause notice to be sent to the charge-holder (Bank), and if no objection is received within 14 days, he shall make the entry of satisfaction.

This provision protects companies from being prejudiced merely because the charge-holder (Bank) is non-responsive, which is precisely the situation faced by Nividia Limited.

Time Frame for the Registrar to Allow Intimation of Satisfaction:

As per Section 82(1) read with the Companies (Registration of Charges) Rules, 2014, the company must file Form CHG-4 within 30 days from the date of satisfaction. If the company fails to file within the said 30-day period, it may file the intimation with additional fees beyond the 30-day period. The Registrar of Companies may allow the company to register the satisfaction of charge within a total period of 300 days from the date of satisfaction (i.e., 30 days under the normal period plus an additional 270 days subject to payment of prescribed additional fees). Beyond 300 days, the matter would need to be taken to the Central Government for condonation of delay.

Conclusion: Nividia Limited should file Form CHG-4 under Section 82, supported by documentary evidence of repayment, and simultaneously invoke Section 83 to request the ROC to record satisfaction of charge despite the Bank's non-response. The company can do so within 300 days from the date of satisfaction of the charge.

Issue: Whether Pratik, the bailee, is liable for the destruction of the AC that was lost in a fire while in his possession after unreasonable delay in returning it.

Applicable Law — Contract of Bailment under the Indian Contract Act, 1872

Under Section 148 of the Indian Contract Act, 1872, a bailment is the delivery of goods by one person (bailor) to another (bailee) for some purpose, upon a contract that the goods shall be returned when the purpose is accomplished. Here, Kartik (bailor) delivered the AC to Pratik (bailee) for repair. This constitutes a valid contract of bailment.

Section 160 imposes a duty on the bailee to return the goods without demand as soon as the purpose for which the goods were bailed has been accomplished. Since the AC was repaired, Pratik was under an obligation to return it promptly.

Section 161 is the critical provision here. It 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."*

The phrase "notwithstanding the exercise of reasonable care" is decisive. Once the bailee is in default of returning the goods, he cannot escape liability even if the loss occurs due to circumstances beyond his control (such as an accidental fire).

Application to the Case:

Pratik completed the repair but did not return the AC to Kartik despite numerous follow-ups. This constitutes a default under Section 161. The fire caused by a short circuit is an event that occurred *after* Pratik was already in default. Therefore, the protection that would otherwise be available to a bailee exercising ordinary care (under Section 152) is unavailable to Pratik.

Conclusion: Pratik will be held liable for the destruction of the AC. His failure to return the goods within a reasonable time after repair constitutes a default under Section 161 of the Indian Contract Act, 1872. The accidental nature of the fire does not absolve him, because the law holds a defaulting bailee strictly responsible for any loss or destruction occurring from the time of default, regardless of the cause.

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