Question 1

From the case scenario, it is evident that Tejas Infra Limited decided to issue 1,00,000 preference shares of ₹100 each to the existing shareholders. From the options given below choose the one which indicates the maximum period which is permitted to the company for redemption of preference shares.

Accepted Answer

**Answer: (C)**

Under **Section 55(2) of the Companies Act, 2013** read with **Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014**, the general rule is that a company cannot issue preference shares that are irredeemable or redeemable beyond **20 years** from the date of issue.

However, a special exception is carved out for companies engaged in **infrastructure projects** as specified in Schedule VI to the Companies Act, 2013. Such companies — including those engaged in road construction, transportation infrastructure, and similar projects — are permitted to issue preference shares with a **maximum redemption period of 30 years**.

The critical condition attached to this exception is that the company **must redeem a minimum of 10% of such preference shares per year commencing from the 21st year onwards**, or earlier, **on a proportionate basis at the option of the preference shareholders**.

Tejas Infra Limited is engaged in infrastructure activities (construction of roads, flyovers, canals, and underpasses), which squarely falls within the definition of infrastructure projects. Accordingly, it qualifies for the extended redemption period of **30 years**, subject to the mandatory annual redemption of at least **10% from the 21st year** onwards, on a proportionate basis at the option of the preference shareholders.

Options (A) and (B) incorrectly state the period as 35 years, which has no basis under the Act or Rules. Option (D) incorrectly specifies 20% red…

Question 2

Case Scenario:
ABC Limited, was incorporated on 1st January, 2023. It operates in the manufacturing sector and aims to expand its business model to include e-commerce operations. ABC Limited's first financial year ended on 31st March, 2024, and the board is preparing for its first Annual General Meeting (AGM) to present the financial statements and discuss the new business model. ABC Limited's current board consists of five directors, including two independent directors appointed in line with best corporate governance practices.

The company has a wholly owned subsidiary, XYZ Limited, which is primarily involved in research and development for new products. XYZ Limited's financial year also ended on 31st March, 2024. Additionally, ABC Limited has a 30% stake in an associate company, MNO Li…

Accepted Answer

**Answer: (B) 31st December, 2024.**

Under **Section 96(1) of the Companies Act, 2013**, every company must hold its Annual General Meeting every year. However, for the **first AGM**, the company is allowed a longer window: it must be held **within 9 months from the close of the first financial year**. Since ABC Limited's first financial year ended on **31st March, 2024**, the deadline is 9 months thereafter, i.e., **31st December, 2024**. Note that the general rule of holding AGM within 6 months from year-end (applicable to subsequent AGMs) does not apply to the first AGM. The Registrar may grant an extension of up to 3 months for AGMs other than the first, but the first AGM itself is governed by the 9-month rule with no further extension.

Question 3

The case scenario states that the turnover of Tejas Infra Limited rose to the tune of ₹3600 crore and net worth of the company stood at ₹550 crore in the immediately preceding financial year 2022-23 which required formation of CSR Committee. What is the third criterion which if crossed shall also require that a CSR Committee be formed. Choose the correct option from those stated below:

Accepted Answer

**Answer: (C)**

Under **Section 135(1) of the Companies Act, 2013**, every company having a **net worth of ₹500 crore or more**, or a **turnover of ₹1,000 crore or more**, or a **net profit of ₹5 crore or more** during the immediately preceding financial year shall constitute a **Corporate Social Responsibility (CSR) Committee** of the Board. The third criterion, besides net worth and turnover, is that the company has a net profit of **₹5 crore or more** in the immediately preceding financial year. In the given case, Tejas Infra Limited crossed the net worth threshold (₹550 crore > ₹500 crore) and the turnover threshold (₹3600 crore > ₹1000 crore), which triggered the requirement to form the CSR Committee.

Question 4

Case Scenario:
ABC Limited, was incorporated on 1st January, 2023. It operates in the manufacturing sector and aims to expand its business model to include e-commerce operations. ABC Limited's first financial year ended on 31st March, 2024, and the board is preparing for its first Annual General Meeting (AGM) to present the financial statements and discuss the new business model. ABC Limited's current board consists of five directors, including two independent directors appointed in line with best corporate governance practices.

The company has a wholly owned subsidiary, XYZ Limited, which is primarily involved in research and development for new products. XYZ Limited's financial year also ended on 31st March, 2024. Additionally, ABC Limited has a 30% stake in an associate company, MNO Li…

Accepted Answer

**Answer: (B)**

Under **Section 96 of the Companies Act, 2013**, every company must hold its AGM within **15 months** of the previous AGM, and in any case before the expiry of **6 months from the close of the financial year**. Since ABC Limited's subsequent financial year ends on **31st March, 2025**, six months from that date falls on **30th September, 2025**. Although 15 months from 15th December, 2024 would be 15th March, 2026, the stricter condition — that the AGM must be held before 30th September, 2025 (6 months from the close of FY 2024-25) — prevails. Therefore, the subsequent AGM must be held by **30th September, 2025**.

Question 5

According to the legal provisions, it is mandatory to redeem preference shares at the stipulated time. Keeping in view the above case scenario, which source is required to be used by Tejas Infra Limited for the redemption of outstanding preference shares:

Accepted Answer

**Answer: (C)**

As per **Section 55(2) of the Companies Act, 2013**, a company may redeem preference shares out of **profits of the company which would otherwise be available for dividend** or out of **the proceeds of a fresh issue of shares made for the purposes of such redemption**. Both sources are permissible under the law. When preference shares are redeemed out of profits, a sum equal to the nominal value of the shares redeemed must be transferred to the **Capital Redemption Reserve (CRR)** account. However, CRR itself is not a direct source of redemption — it is a consequence of redemption out of profits. Therefore, option (C) is correct as Tejas Infra Limited may use either or both of these sources for redeeming the 1,00,000 preference shares of ₹100 each issued to existing shareholders.

Question 6

Case Scenario:
ABC Limited, was incorporated on 1st January, 2023. It operates in the manufacturing sector and aims to expand its business model to include e-commerce operations. ABC Limited's first financial year ended on 31st March, 2024, and the board is preparing for its first Annual General Meeting (AGM) to present the financial statements and discuss the new business model. ABC Limited's current board consists of five directors, including two independent directors appointed in line with best corporate governance practices.

The company has a wholly owned subsidiary, XYZ Limited, which is primarily involved in research and development for new products. XYZ Limited's financial year also ended on 31st March, 2024. Additionally, ABC Limited has a 30% stake in an associate company, MNO Li…

Accepted Answer

**Answer: (A) Yes, because it has one wholly owned subsidiary and an associate company.**

Under **Section 129(3) of the Companies Act, 2013**, where a company has one or more subsidiaries or associate companies, it **shall** prepare a **Consolidated Financial Statement (CFS)** in addition to its standalone financial statements, and lay it before the Annual General Meeting.

ABC Limited is the **parent/holding company** — it is NOT a wholly owned subsidiary of any other company, so it cannot avail the exemption available to wholly owned subsidiaries under **Rule 6 of the Companies (Accounts) Rules, 2014**. That exemption applies only when the company *itself* is wholly owned by another entity, not when it *owns* a wholly owned subsidiary.

Since ABC Limited has XYZ Limited (wholly owned subsidiary) and MNO Limited (30% associate), it is mandatorily required to prepare CFS covering both entities. Option (B) misapplies the exemption; options (C) and (D) have no basis under the Act.

Question 7

While constituting a CSR Committee, how many minimum directors are required to be appointed by Tejas Infra Limited:

Accepted Answer

**Answer: (B)**

As per **Section 135(1) of the Companies Act, 2013**, every company meeting the threshold criteria (net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more during the immediately preceding financial year) is required to constitute a **Corporate Social Responsibility (CSR) Committee** of the Board.

Tejas Infra Limited qualifies since its turnover was ₹3,600 crore and net worth was ₹550 crore in FY 2022-23, both exceeding the prescribed thresholds.

The CSR Committee shall consist of **three or more directors**, out of which **at least one director shall be an independent director**. Since Tejas Infra Limited has three independent directors, the requirement of having at least one independent director on the CSR Committee is applicable and must be fulfilled. The committee has been headed by Paritosh, an independent director, which satisfies this condition.

Therefore, the CSR Committee of Tejas Infra Limited must have a **minimum of three directors, of which at least one shall be an independent director**.

Question 8

Case Scenario:
ABC Limited, was incorporated on 1st January, 2023. It operates in the manufacturing sector and aims to expand its business model to include e-commerce operations. ABC Limited's first financial year ended on 31st March, 2024, and the board is preparing for its first Annual General Meeting (AGM) to present the financial statements and discuss the new business model. ABC Limited's current board consists of five directors, including two independent directors appointed in line with best corporate governance practices.

The company has a wholly owned subsidiary, XYZ Limited, which is primarily involved in research and development for new products. XYZ Limited's financial year also ended on 31st March, 2024. Additionally, ABC Limited has a 30% stake in an associate company, MNO Li…

Accepted Answer

**Answer: (B)**

Under **Section 114(2) of the Companies Act, 2013**, a **special resolution** requires two conditions to be satisfied: (1) the intention to propose the resolution as a special resolution must be **specifically stated in the notice** calling the meeting, and (2) the votes cast in favour of the resolution must be **not less than three times the votes cast against** it. Option (A) describes an ordinary resolution threshold, Option (C) is incorrect as the resolution must be declared special in the notice, and Option (D) is incorrect as unanimous board support is not a statutory requirement for a special resolution passed by shareholders.

Question 9

What was the main purpose of the scheme proposed between Greenfield LLP and Bluewave LLP?

Accepted Answer

**Answer: (C)**

The scheme proposed under Section 60 of the Limited Liability Partnership Act, 2008 was specifically for the **reconstruction and amalgamation** of Greenfield LLP and Bluewave LLP into EcoFuture LLP. The Tribunal itself found and noted that the merger scheme was designed for this purpose. Dissolution (option A) was merely a consequence of the amalgamation, not its purpose, and liquidation (option D) implies winding up, which expressly did not occur here.

Question 10

Case Scenario:
ABC Limited, was incorporated on 1st January, 2023. It operates in the manufacturing sector and aims to expand its business model to include e-commerce operations. ABC Limited's first financial year ended on 31st March, 2024, and the board is preparing for its first Annual General Meeting (AGM) to present the financial statements and discuss the new business model. ABC Limited's current board consists of five directors, including two independent directors appointed in line with best corporate governance practices.

The company has a wholly owned subsidiary, XYZ Limited, which is primarily involved in research and development for new products. XYZ Limited's financial year also ended on 31st March, 2024. Additionally, ABC Limited has a 30% stake in an associate company, MNO Li…

Accepted Answer

**Answer: (A)**

Under **Rule 6 of the Companies (Accounts) Rules, 2014** read with **Section 129(3) of the Companies Act, 2013**, a company is exempt from preparing Consolidated Financial Statements if: (i) it is a **wholly-owned subsidiary** of another company, (ii) **all members have agreed in writing** to the exemption, and (iii) **proof of delivery** of such intimation is available with the company. Option (A) precisely mirrors these three statutory conditions. Options (B), (C), and (D) have no legal basis under the Companies Act, 2013 — neither subsidiary shareholders' consent, materiality judgement, nor a board majority vote constitutes a valid exemption ground.

Question 11

What authority does the Tribunal have when it sanctions a compromise or arrangement under Section 60?

Accepted Answer

**Answer: (C)**

Under **Section 60 of the Limited Liability Partnership Act, 2008**, when the Tribunal sanctions a compromise or arrangement, it is vested with comprehensive authority — it can **supervise the implementation** of the scheme, **modify the terms** if circumstances require, and **issue directions** to ensure smooth execution of the arrangement. This includes directing the transfer of assets and liabilities, continuation of legal proceedings, and dissolution of the original LLPs without winding up. Options (A) and (B) are incorrect as they unduly restrict the Tribunal's powers. Option (D) is incorrect because dissolution without conditions is not an absolute, unconditional power — the Tribunal's order under Section 62 sets forth specific provisions and conditions governing the dissolution.

Question 12

XYZ LLP is a consulting firm where four partners—A, B, C, and D—are responsible for various functions. Partner B, without consulting the other partners, enters into a contract with a third party, Mr. P, for a high-value procurement deal on behalf of XYZ LLP. It is later found that Partner B did not have authority to engage in such deals, and XYZ LLP has no history of involvement in procurement. Mr. P, who is an experienced business-person, was aware that Partner B was not authorized to enter into procurement deals for XYZ LLP.

In this scenario, which of the following is correct based on the Limited Liability Partnership Act, 2008?
(a) XYZ LLP is bound by the contract because partner B is a partner in the LLP.
(b) XYZ LLP is bound by the contract as Mr. P believed partner B was authorized …

Accepted Answer

**Answer: (D)**

Under **Section 9 of the Limited Liability Partnership Act, 2008**, every partner is an agent of the LLP, but the LLP is **not bound** by the acts of a partner who has no authority to act, **if the third party knows** that the partner lacks such authority. Since Mr. P, an experienced businessman, was **aware** that Partner B was not authorized to enter into procurement deals and XYZ LLP had no history of such activity, the LLP cannot be held bound by this contract. The protection of apparent or implied authority does not extend to a third party who has actual knowledge of the lack of authority.

Question 13

What penalty applies if an LLP fails to comply with the 30-day filing requirement?

Accepted Answer

**Answer: (B)**

Under the **LLP Act, 2008**, when an LLP fails to comply with the requirement of filing a certified copy of the Tribunal's order with the Registrar within **30 days**, the penalty prescribed is a **fine of ₹10,000**, along with **additional penalties for continuing contravention** (i.e., a daily fine for each day the default continues after the initial penalty). Immediate dissolution, suspension of business, or revocation of the Tribunal's order are not consequences prescribed for this procedural non-compliance.

Question 14

ABC LLP was incorporated with two partners, Mr. Raj and Ms. Rani. Due to certain differences, Ms. Rani resigned from the LLP on 1st January, 2024, leaving Mr. Raj as the sole partner. Mr. Raj continued running the business without admitting a new partner and was aware that he was the only remaining partner. On 1st August of the same year, ABC LLP incurred a debt of ₹ 5 lakh from a vendor. Given the provision in the Limited Liability Partnership Act, 2008, which of the following statements correctly describes Mr. Raj's liability in this situation?
(a) Mr. Raj will not be personally liable for the ₹ 5 lakh debt as the debt was incurred by the LLP.
(b) Mr. Raj will be personally liable for the ₹ 5 lakh debt since he was the sole partner of the LLP for more than six months.
(c) Mr. Raj and Ms.…

Accepted Answer

**Answer: (B)**

Under **Section 6(1) of the Limited Liability Partnership Act, 2008**, every LLP must have a minimum of two partners at all times. If the number of partners falls below two and the LLP continues to carry on business for more than **six months** with a sole partner who is aware of this fact, that sole partner becomes **personally liable** for the obligations of the LLP incurred after the expiry of those six months.

In this case, Ms. Rani resigned on **1st January, 2024**, making Mr. Raj the sole partner. The six-month threshold expired on **1st July, 2024**. The debt of ₹5 lakh was incurred on **1st August, 2024** — more than six months after the number of partners fell to one — and Mr. Raj was cognizant of being the sole partner. Therefore, Mr. Raj is **personally liable** for the ₹5 lakh debt. The LLP is not automatically dissolved, and Ms. Rani (having resigned) bears no liability for obligations incurred after her resignation.

Question 15

Mr. X had resided in India for less than 182 days during the financial year 2022-2023. He arrived in India on April 1, 2023, to conduct business and intends to leave the business on April 30, 2024, with plans to depart from India on June 30, 2024. What is Mr. X's residential status for the financial year 2023-2024 under the FEMA, 1999? How many days did Mr. X stay in India during the financial year 2023-2024?

Accepted Answer

**Answer: (B)**

Mr. X arrived in India on April 1, 2023. For the financial year 2023-2024 (April 1, 2023 to March 31, 2024), he remained in India until the end of the financial year. Although he plans to depart on June 30, 2024, that date falls outside FY 2023-2024. Therefore, for residential status purposes in FY 2023-2024, he is deemed to have stayed from April 1, 2023 to March 31, 2024, which constitutes 365 days.

Under Section 6 of the Income Tax Act, 1961 (applicable for FEMA, 1999 purposes), a person is classified as a **Resident** if they have been in India for 182 days or more during the financial year. Since Mr. X stayed for 365 days (exceeding the 182-day threshold), he qualifies as a **Resident** for FY 2023-2024.

Note: While Mr. X may technically qualify as Resident but Not Ordinarily Resident (RNOR) based on his Non-Resident status in FY 2022-2023 and the likely absence of 730 days in the preceding 7 financial years, the primary classification for days-in-India purposes is "Resident" with 365 days.

Question 16

Mr. Amit, a Chartered Accountant, is the appointed auditor of Grey Limited. Mrs. Anita, Mr. Amit's wife, recently acquired equity shares in Grey Limited with a face value of ₹ 1 lakh. Which of the following statements is correct regarding M/s Amit & Co. eligibility to continue as the auditor of Grey Limited?
(a) M/s Amit & Co. must vacate the position of auditor immediately due to the disqualification arising from his wife's holding of shares.
(b) M/s Amit & Co. can continue as the auditor only if Mrs. Anita divests her shares within 30 days.
(c) M/s Amit & Co. can continue as the auditor since the shares held by Mr. Amit's wife do not exceed the limit specified under the Companies (Audit and Auditors) Rules, 2014.
(d) M/s Amit & Co. cannot continue as the auditor, as any acquisition of sh…

Accepted Answer

**Answer: (C)**

Under the **proviso to Section 141(3)(d) of the Companies Act, 2013**, a person is disqualified from being appointed as auditor if they, their relative, or partner holds any security or interest in the company. However, the proviso carves out an exception: a **relative of the auditor may hold securities in the company provided the face value does not exceed ₹1,00,000**. This threshold is further affirmed by the **Companies (Audit and Auditors) Rules, 2014**.

In this case, Mrs. Anita (wife of Mr. Amit, and thus a 'relative' as defined under the Act) holds equity shares with a face value of **₹1,00,000**, which is exactly equal to — and therefore does **not exceed** — the prescribed limit. Accordingly, no disqualification is triggered, and **M/s Amit & Co. can continue as the auditor** of Grey Limited. Options (A) and (D) incorrectly assume that any relative shareholding causes automatic disqualification, ignoring the statutory proviso. Option (B) incorrectly applies a 60-day divestment window (which applies when the auditor himself acquires a disqualifying interest post-appointment), not the relative shareholding scenario.

Question 17

Apex Manufacturing is an industrial company based in India. Recently, the company found itself embroiled in legal issues concerning two separate offences under different enactments. The first offence involved a violation of environmental regulations, for which the company was prosecuted and fined. Subsequently, Apex Manufacturing was charged under a different law for a similar but not identical environmental violation. The first offence was under the Environment Protection Act, 1986, for failing to dispose of hazardous waste properly. The second offence, under the Water (Prevention and Control of Pollution) Act, 1974, involved discharging untreated wastewater into a river. Mr. Sharma, the company's legal advisor, consulted on said issue. He determined the prosecution outlined in Section 26…

Accepted Answer

**Answer: (B)**

The protection under Article 20(2) of the Constitution and Section 26 of the General Clauses Act, 1897 is **not valid** in this case. Double jeopardy protection applies only when a person is prosecuted for the **same offence** — meaning the same act, the same facts, and violation of the same legal provision.

In Apex Manufacturing's situation, the two prosecutions involve:

1. **First offence**: Violation of the Environment Protection Act, 1986 (improper disposal of hazardous waste)
2. **Second offence**: Violation of the Water (Prevention and Control of Pollution) Act, 1974 (discharge of untreated wastewater)

These are **distinct and separate offences** because:
- Different **specific actions** (waste disposal vs. wastewater discharge)
- Different **legal provisions violated** (two different enactments)
- Different **factual elements** (hazardous waste vs. untreated water)

While both violations relate to environmental protection, the doctrine of double jeopardy does not apply merely because offences are similar in nature or subject matter. The protection requires identity of the offence in its legal character and factual elements. Since the specific contraventions, the enactments, and the facts are different, there is no double jeopardy. Each prosecution stands on its own legal footing.

Option (A), (C), and (D) are incorrect because they conflate similarity of subject matter with identity of offence, which is not the legal test.

Question 18

XYZ Limited is a company with 51% of its equity shares held by the State Government of Maharashtra and 49% by private investors. The Board of XYZ Limited seeks to appoint an auditor for the upcoming financial year. As per the Companies Act, 2013, which of the following statements is correct regarding the appointment of the auditor?
(a) The Board of XYZ Limited has the authority to appoint the auditor through a board resolution.
(b) The Comptroller and Auditor General (CAG) of India will appoint the auditor for XYZ Limited.
(c) The shareholders of XYZ Limited will appoint the auditor in the annual general meeting.
(d) The State Government of Maharashtra, holding the majority stake, will appoint the auditor.

Accepted Answer

**Answer: (B)**

XYZ Limited is a **Government Company** as defined under **Section 2(45) of the Companies Act, 2013**, since more than 51% of its paid-up share capital is held by the State Government of Maharashtra. As per **Section 139(5) of the Companies Act, 2013**, the auditor of a Government Company shall be appointed or re-appointed by the **Comptroller and Auditor General (CAG) of India**, not by the Board, shareholders, or the State Government directly. The CAG appoints the auditor within 180 days from the commencement of the financial year.

Question 19

Regal Textiles, a well-established fabric manufacturing company, has been operating under the Textile Regulations Act of 1980 for several decades. Over the years, various provisions of this Act have been subject to interpretation by both the company and the industry at large. One such provision pertains to the definition of 'sustainable practices,' which has been a point of contention. 'Sustainable practices' to include the use of organic materials and recycling waste products. This interpretation has been widely accepted and acted upon without any legal challenges. Recently, a new regulatory body has argued that 'sustainable practices' should be strictly defined to include only carbon-neutral processes, excluding the use of non-organic recycled materials. This new interpretation has creat…

Accepted Answer

**Answer: (C)**

Regal Textiles should rely on the **principle of historical usage** to argue against the new interpretation. This principle of statutory interpretation holds that when a statutory provision has been understood and interpreted in a particular manner over a considerable period of time, and that interpretation has been widely accepted and acted upon by the industry without legal challenge, courts will respect and uphold that established interpretation.

In this case, the definition of 'sustainable practices' has been consistently interpreted for decades as including organic materials and waste recycling. This interpretation was widely accepted across the industry and the company (along with others) has structured its operations, compliance measures, and business practices based on this understanding, without any judicial or regulatory challenge to this meaning. The historical usage principle protects settled expectations and commercial stability.

The principle recognizes that parties cannot arbitrarily overturn long-accepted meanings of statutory terms that have formed the basis of lawful conduct and reliance. By contrast, the new regulatory body's narrower interpretation (carbon-neutral processes only) is a sudden shift unsupported by prior judicial interpretation or consistent industry practice.

The other options do not apply: judicial activism involves proactive judicial policymaking (not relevant here); strict construction applies to narrowly interpreting …

Question 20

X purchased a car from Y, believing that Y was the legitimate owner. Although X paid the full purchase price and took possession of the car, he did not check the Registration Certificate (RC) of the car to verify the authenticity of Y's ownership. Later, it was discovered that Y was not the rightful owner, and the car had been stolen. In the context of "good faith" as defined in the General Clauses Act, 1897, determine the validity of X's ownership claim over the car.
(a) X holds valid ownership of the car because he paid the full price and believed Y to be the legitimate owner.
(b) X does not hold valid ownership because his purchase was made without due care and attention, even though he acted honestly.
(c) X holds valid ownership because he had no knowledge of the car being stolen, show…

Accepted Answer

**Answer: (B)**

Under **Section 3(22) of the General Clauses Act, 1897**, 'good faith' means a thing done **honestly**, whether it is done negligently or not. However, in the context of establishing a valid ownership claim over property, merely paying the price and *believing* the seller to be the owner is insufficient if basic due diligence is absent.

X **failed to verify the Registration Certificate (RC)** of the car, which is the most elementary and obvious step any reasonable buyer would take before purchasing a motor vehicle. This omission shows a **lack of due care and attention** in the transaction. While X may have acted honestly (i.e., without fraudulent intent), honesty alone does not confer valid title, especially when the property was stolen.

Further, under the principle of **nemo dat quod non habet** (one cannot give what one does not have), Y — being a thief and not the rightful owner — had **no title to transfer** to X. No amount of good faith on X's part can override this fundamental rule: a purchaser cannot acquire better title than the seller possesses.

Therefore, **X does not hold valid ownership** of the car. His failure to check the RC demonstrates that the purchase was not made with due care and attention, and since Y had no valid title, ownership could not lawfully pass to X.

Question 21

Prashant incorporated a 'One Person Company' making his sister Priya as the nominee. Priya is an Indian citizen. She was born and brought up in Kanpur. However, now Priya and her husband are leaving India permanently to stay with their son who is settled abroad for the last 15 years. Due to this fact, she is withdrawing her consent of nomination in the said One Person Company. Taking into considerations the provisions of the Companies Act, 2013 answer the questions given below.

Accepted Answer

**Answer to (i): Is it mandatory for Priya to withdraw her nomination if she leaves India permanently?**

NO, it is not mandatory for Priya to withdraw her nomination merely because she is leaving India permanently. According to Section 90A of the Companies Act, 2013, the eligibility criteria for a nominee in a One Person Company require that the nominee must be: (a) an individual (natural person); (b) a citizen of India; and (c) capable of entering into a contract. Priya satisfies all three statutory requirements as she is an Indian citizen and is capable of entering into contracts. Crucially, the Companies Act, 2013 does not impose any requirement regarding residency or domicile within India as a condition for continuing as a nominee. Therefore, permanent relocation abroad does not automatically disqualify her from the position. Priya may continue as the nominee of the OPC even after leaving India, provided she retains her Indian citizenship. The withdrawal of nomination should be based on loss of eligibility criteria, not merely on change of residence.

**Answer to (ii): Can Prashant appoint his minor son Rushang as the nominee of the OPC?**

NO, Prashant cannot appoint his minor son Rushang as the nominee of the OPC. Section 90A of the Companies Act, 2013 mandates that a nominee must be capable of entering into a contract. Under the Indian Contract Act, 1872, a minor lacks contractual capacity and is not capable of entering into a binding contract (Section 11). A person w…

Question 22

XYZ Limited issued a prospectus to raise funds for a new manufacturing project. After successfully raising the funds, the company identified an investment opportunity in a different industry six months later, requiring a significant portion of the funds. The proposed investment involved trading in equity shares of other listed companies.

The board of directors suggested varying the original objectives for which the funds were raised to allow this new investment and recommended passing a special resolution in the company's general meeting. While the promoters and controlling shareholders supported this change, some shareholders expressed concerns, particularly regarding the deviation from the initially stated purpose of the funds.

Based on the provisions of the Companies Act, 2013, advise…

Accepted Answer

**Variation of Objects Stated in Prospectus — Section 27 of the Companies Act, 2013**

**Relevant Legal Provision:**

Section 27 of the Companies Act, 2013 governs the variation of the terms of a contract referred to in the prospectus or objects for which the prospectus was issued. The section lays down specific conditions that must be fulfilled before any such variation can take effect.

**Conditions for Valid Variation under Section 27:**

A company can vary the objects for which funds were raised through a prospectus only if **all** of the following conditions are satisfied:

**1. Special Resolution:** The variation must be approved by the shareholders through a **special resolution** passed in a general meeting. This condition appears to be satisfied in the present case, as the Board has recommended passing a special resolution.

**2. Dissenting Shareholders' Exit Opportunity:** Section 27(2) mandates that the notice for the general meeting must also provide dissenting shareholders with an **exit opportunity**. The promoters or controlling shareholders who voted in favour of the special resolution are obligated to purchase the shares of the dissenting shareholders at a price and in the manner as prescribed by the Securities and Exchange Board of India (SEBI). This is a critical safeguard for minority investors.

**3. Publication of Advertisement:** Before passing such a special resolution, the company is required to publish an advertisement in a prescribed manner in a lea…

Question 23

XYZ Tech Solutions Limited is a growing technology company that has seen significant contributions from its employees and directors in the development of a ground breaking software product. To reward these key contributors, the board proposed issuing sweat equity shares to certain employees and directors. XYZ Tech Solutions Limited already has issued ordinary equity shares but has never issued sweat equity shares before.

The company has a paid up equity share capital ₹ 20 crore. The company has proposed to issue sweat equity shares worth ₹ 4 crore of face value. The company's board has drafted a special resolution outlining the proposed issuance of sweat equity shares and including specific details, such as the number of shares, the current market price, consideration (if any), and the cl…

Accepted Answer

**Meaning of Sweat Equity Shares:** As per **Section 2(88) of the Companies Act, 2013**, sweat equity shares mean equity shares issued by a company to its directors or employees at a discount or for consideration other than cash, for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

**Statutory Framework — Section 54 of the Companies Act, 2013:**

XYZ Tech Solutions Limited must comply with **Section 54 of the Companies Act, 2013** read with **Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014** for the proposed issuance. The conditions are as follows:

**1. Special Resolution:** The issue of sweat equity shares must be authorised by a **special resolution** passed by the company in a general meeting. The resolution must specify: (a) the number of shares to be issued, (b) the current market price, (c) consideration, if any, and (d) the class or classes of directors or employees to whom such shares are to be issued. The board has already incorporated these details in the draft resolution — this is in compliance with the requirement.

**2. Minimum Period of Commencement of Business:** A company cannot issue sweat equity shares unless **at least one year has elapsed** since the date on which it commenced business. XYZ Tech Solutions must ensure this condition is satisfied.

**3. Limits on Issue (Annual Limit):** The sweat equity shares issued in any year shall not exceed **15%…

Question 24

XYZ Ltd., a prominent manufacturing company, is in the process of appointing a new auditor for the upcoming financial years. Mr. A is a renowned auditor being considered for the role. During the due diligence process, the following details come to light: (1) Mr. B and Mr. A are partners in ABC & Co. Mr. B has taken a personal loan of ₹4 Lacs from XYZ Ltd.'s subsidiary, EFG Ltd., six months ago. (2) Mr. A's relative, Ms. C, has an outstanding debt of ₹2 Lacs with DEF Ltd., an associate company of XYZ Ltd., which was taken three months ago. Discuss about the eligibility of Mr. A for being appointed as an auditor of XYZ Ltd. in view of the provisions of the Companies Act, 2013.

Accepted Answer

**Section 141(3)(d)(ii) of the Companies Act, 2013** provides that a person is disqualified from being appointed as an auditor if he, his partner, or his relative is indebted to the company or its subsidiary for an amount exceeding the statutory limit (₹25,000 under the Act, or as amended). This provision aims to ensure auditor independence by preventing those with financial interests in or liabilities to the company from conducting the audit.

**Analysis of Mr. A's Eligibility:**

**1. Indebtedness of Partner Mr. B:**
Mr. B is a partner of Mr. A in ABC & Co. He has taken a personal loan of ₹4 Lacs from EFG Ltd., which is a subsidiary of XYZ Ltd. This situation squarely falls within Section 141(3)(d)(ii) disqualification because: (a) Mr. B is a partner of the proposed auditor; (b) EFG Ltd. is a subsidiary of XYZ Ltd., the company for which auditor is being appointed; and (c) the indebtedness of ₹4 Lacs far exceeds the statutory threshold. The fact that the loan was taken six months ago does not cure the disqualification—indebtedness at any point disqualifies the auditor. This is a **clear disqualification**.

**2. Indebtedness of Relative Ms. C:**
Ms. C is a relative of Mr. A with outstanding debt of ₹2 Lacs from DEF Ltd. Here, a critical distinction must be noted: DEF Ltd. is an **associate company** of XYZ Ltd., not a subsidiary. Section 141(3)(d)(ii) specifically restricts the disqualification to indebtedness to "the company or its subsidiary." Associate companies are expr…

Question 25

PQR Limited, a manufacturing company, is in the process of expanding its operations. To support this expansion, PQR Limited has acquired a plot of land along with the buildings on it from ABC Limited, another company in the same industry. The property, however, is subject to an existing charge, created in favor of a bank as security for a loan taken by ABC Limited. This charge had been registered by ABC Limited at that time. The directors of PQR Limited are of the opinion that as the charge for the property was already created, there is no further obligation to be fulfilled from the side of PQR Limited.

After negotiations, the bank, as the charge holder, consents to the sale and transfer of the property to PQR Limited with the condition that PQR Limited must register a new charge over the…

Accepted Answer

**The contention of the directors of PQR Limited is incorrect.** They have two separate obligations under the Companies Act, 2013 — one relating to the existing charge on the acquired property, and another relating to the new charge they are creating.

**Obligation 1: Registration of existing charge on acquired property — Section 79**

Section 79 of the Companies Act, 2013 provides that the provisions of Section 77 (which deal with registration of charges) shall apply to a charge on any property acquired by a company, being a charge which, if created by the company, would have been required to be registered under Section 77.

In the present case, PQR Limited has acquired a plot of land and buildings from ABC Limited, which is subject to an existing charge in favour of the bank. Although ABC Limited had registered this charge at the time of its creation, that registration was made by ABC Limited in its own capacity. Once PQR Limited acquires the property, it steps into a new position as the owner of the charged property, and the law requires PQR Limited to separately register the particulars of this existing charge as if it had created the charge itself.

The time limit for such registration is **30 days from the date of acquisition** of the property. If registration is not done within 30 days, the Registrar may allow registration on application within a further 300 days, subject to payment of additional fees. If registration is still not done, the charge becomes void against …

Question 26

Om Ltd. served a notice of General Meeting upon its members. The notice stated that the following resolutions will be considered at such meeting: (i) Resolution to increase the authorised share capital of the company. (ii) Appointment and fixation of the remuneration of Mr. Pramod as the statutory auditor. A shareholder complained that the amount of the proposed increase and the remuneration was not specified in the notice. Is the notice valid under the provisions of the Companies Act, 2013?

Accepted Answer

The notice served by Om Ltd. is **NOT VALID** under the provisions of the Companies Act, 2013.

**Section 102 Requirements:**
Section 102 of the Companies Act, 2013 mandates that every notice convening a general meeting shall be accompanied by an explanatory statement. The explanatory statement must contain **all material facts** concerning the item of business to be transacted. Material facts are those particulars which are essential and relevant to enable members to form a reasoned judgment about the matters being placed before them.

**Analysis of Resolution (i) - Increase in Authorised Share Capital:**
Under Section 61, the alteration of the memorandum of association to increase the authorised share capital requires approval of members at a general meeting through a special resolution. The **amount of proposed increase** is undoubtedly a material fact. Members need to know the exact quantum of increase to decide whether to approve it. Different members may have different opinions based on the size of increase. By not specifying the amount in the notice, the company has deprived members of essential information necessary for forming a judgment. This omission renders the notice defective with respect to this resolution.

**Analysis of Resolution (ii) - Appointment and Remuneration of Statutory Auditor:**
Section 139 provides for appointment of auditors by the members in general meeting. Under Section 142, the remuneration of auditors is also determined or approved by the me…

Question 27

Vishal Limited is an unlisted public company, having five directors in its board which includes two independent directors.

Sam (P) Limited, is subsidiary company of Vishal Limited, actively carrying on its business, having paid up capital of ₹ 1.5 crore with 40 members and turnover of ₹ 18 crore, respectively and the said company is not a start-up company.

It is also provided that Sam (P) Limited is not a start up company.

In the context of aforesaid case-scenario, please answer to the following question(s):-

Whether Sam (P) Limited is mandatorily required to prepare cash flow statement for the financial year as a part of its financial statements? Provide your answer by analyzing Sam (P) Limited into the following category of companies:-

(i) Small company

Accepted Answer

**Analysis of Sam (P) Limited as a Small Company under Section 2(85) of the Companies Act, 2013**

**Definition of Small Company:** As per **Section 2(85) of the Companies Act, 2013**, a 'small company' means a company **other than a public company** whose paid-up share capital does not exceed **₹4 crore** (as amended by Companies (Specification of Definitions Details) Amendment Rules, 2022) AND whose turnover as per the last profit and loss account does not exceed **₹40 crore**.

However, the following categories of companies are **expressly excluded** from being classified as a small company, irrespective of their paid-up capital or turnover:
- A **holding company or a subsidiary company**
- A company registered under **Section 8** of the Companies Act, 2013
- A company or body corporate governed by any **special Act**

**Applying the criteria to Sam (P) Limited:**

Sam (P) Limited satisfies the numerical thresholds — its paid-up capital of ₹1.5 crore is within the ₹4 crore limit, and its turnover of ₹18 crore is within the ₹40 crore limit. It is also a private limited company (not a public company) and is not a start-up.

However, Sam (P) Limited is a **subsidiary company** of Vishal Limited. As per Section 2(85), a subsidiary company is **explicitly excluded** from the definition of a small company. This exclusion applies regardless of whether the company meets the paid-up capital and turnover thresholds.

**Conclusion — Small Company Status:** Sam (P) Limited **does NOT …

Question 28

Vishal Limited is an unlisted public company, having five directors in its board which includes two independent directors.

Sam (P) Limited, is subsidiary company of Vishal Limited, actively carrying on its business, having paid up capital of ₹ 1.5 crore with 40 members and turnover of ₹ 18 crore, respectively and the said company is not a start-up company.

It is also provided that Sam (P) Limited is not a start up company.

In the context of aforesaid case-scenario, please answer to the following question(s):-

Whether Sam (P) Limited is mandatorily required to prepare cash flow statement for the financial year as a part of its financial statements? Provide your answer by analyzing Sam (P) Limited into the following category of companies:-

(ii) Dormant company

Accepted Answer

**Analysis of Sam (P) Limited as a Dormant Company and Cash Flow Statement Requirement**

**Relevant Legal Framework:**

Under **Schedule III to the Companies Act, 2013**, a cash flow statement is an integral part of financial statements. However, certain categories of companies are **exempt** from preparing a cash flow statement as part of their financial statements, namely: (i) One Person Companies (OPC), (ii) Small Companies, and (iii) **Dormant Companies**.

**What is a Dormant Company?**

As per **Section 455 of the Companies Act, 2013**, a company may be classified as a **dormant company** when it:
- Has been incorporated for a future project, OR
- Is holding an asset or intellectual property but **has not been carrying on any business or operation**, OR
- Has not made any **significant accounting transaction** during the last two financial years, OR
- Has not filed financial statements and annual returns during the last two financial years.

A company fulfilling these conditions may apply to the Registrar of Companies (ROC) for obtaining the status of a dormant company.

**Analysis of Sam (P) Limited:**

Sam (P) Limited is described as **actively carrying on its business**, with a turnover of **₹18 crore** for the financial year. The very existence of significant business operations and turnover makes it categorically evident that Sam (P) Limited:

1. Is carrying on active business operations — not merely holding an asset or waiting for a future project.
2. Has made si…

Question 29

Pran Limited is an unlisted company, having its registered office at Agartala. The company scheduled its Annual General Meeting (AGM) on 31st July, 2024 in Goa. The meeting commenced at 3:00 PM and concluded at 6:00 PM.

It is also provided that by 1st July, 2024, the company had obtained written consent from all members via email, agreeing to hold the AGM at this out-of-state location. As per the Companies Act, 2013, evaluate whether the AGM was validly conducted.

Accepted Answer

**Relevant Law: Section 96 of the Companies Act, 2013**

Section 96(2) lays down the conditions for a valid AGM: (i) it must be held during **business hours** (9:00 AM to 6:00 PM), (ii) on a day that is **not a National Holiday**, and (iii) at the **registered office** or at some other place **within the same city, town, or village** as the registered office.

However, the **proviso to Section 96(2)** creates a specific exception for unlisted companies: *an AGM of an unlisted company may be held at any place in India*, provided that **prior consent** in writing or by electronic mode is obtained from **all members** in advance.

**Issue 1 — Place of Meeting (Goa vs. Agartala)**

The registered office of Pran Limited is at **Agartala, Tripura**. Ordinarily, the AGM must be held at Agartala or within the same city. Holding it in **Goa** would violate Section 96(2) unless the proviso applies. Since Pran Limited is an **unlisted company**, and **all members gave written consent via email** by 1st July, 2024 — i.e., prior to the AGM date of 31st July, 2024 — the proviso is satisfied. Email communication constitutes **electronic mode** under the Companies Act, 2013. The consent was obtained **in advance** as required. Therefore, holding the AGM in Goa is **valid**.

**Issue 2 — Time of Meeting (3:00 PM to 6:00 PM)**

The AGM **commenced at 3:00 PM**, which falls within business hours (9:00 AM to 6:00 PM) as prescribed under Section 96(2). The requirement is that the AGM must be **ca…

Question 30

ABC Pvt. Ltd., a company that has been operational for two years, was incorporated with the submission of false information and suppression of material facts. The company's founders, Mr. X and Ms. Y, provided incorrect financial statements and concealed significant liabilities during the incorporation process. This misrepresentation was recently uncovered during an internal audit initiated by the company's new CFO, Mr. Z. Upon discovering these fraudulent actions, Mr. Z has filed an application with the National Company Law Tribunal (NCLT). Explain the provisions of the Companies Act, 2013 in respect where a company has been incorporated by furnishing false or incorrect information.

Accepted Answer

**False Information During Incorporation - Companies Act, 2013**

The incorporation of a company with false or incorrect information constitutes a serious breach of the Companies Act, 2013. The Act provides comprehensive provisions to address such violations through the National Company Law Tribunal (NCLT).

**1. Incorporation Requirements and Compliance (Section 7)**

Section 7 of the Companies Act, 2013 prescribes mandatory requirements for incorporation. Every company must furnish accurate memorandum and articles of association, supporting documents, and affidavits of compliance. The submission of false financial statements and concealment of material liabilities by Mr. X and Ms. Y directly violates these incorporation prerequisites and constitutes misrepresentation.

**2. NCLT Powers Under Section 7(7)**

Section 7(7) of the Companies Act, 2013 empowers the National Company Law Tribunal to grant relief when it is discovered that a company has been incorporated with defects or failure to comply with statutory requirements. Upon an application by any **person interested in or affected by the incorporation** (such as Mr. Z, the CFO), the NCLT may, after providing the company an opportunity to be heard:

(a) **Strike off the Company**: Direct the Registrar to strike off the name of the company from the Register of Companies, thereby effectively dissolving the company.

(b) **Cure the Defect**: Direct the company to take specified remedial steps to cure the defect within a pre…

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