Question 1

Following are some of the securities, issued by different companies related with each other: Kleshrahit Ltd. has issued listed non-convertible redeemable preference shares on private placement basis in terms of relevant SEBI Regulations, and has the power to appoint 2/3rd directors in Indriyadaman Ltd. Indriyadaman Ltd. has issued listed non-convertible debt securities on private placement basis in terms of relevant SEBI Regulations, and holds 60% voting power in Sajagta (P) Ltd. Sajagta (P) Ltd. has issued listed non-convertible debt securities on private placement basis in terms of relevant SEBI Regulations, and holds 52% equity shares in Pratibodh Ltd. as an investment on behalf of another company in the capacity of a trustee. Equity shares issued by Kleshrahit Ltd. and Indriyadaman Ltd…

Accepted Answer

**Part (a): Listed Company Status**

Section 2(52) of the Companies Act 2013 defines a **listed company** as 'a company which has any of its securities listed on any recognised stock exchange.' The term 'securities' is broader than equity shares and includes preference shares, debentures, bonds, and other debt instruments.

**Kleshrahit Ltd.:** Is a **listed company** because it has issued non-convertible redeemable preference shares that are listed on a recognised stock exchange. Although its equity shares are not listed, the listing of any security on a recognised stock exchange is sufficient to classify it as a listed company. The fact that preference shares are issued on a private placement basis does not negate their listed status.

**Indriyadaman Ltd.:** Is a **listed company** because it has issued non-convertible debt securities that are listed on a recognised stock exchange. Despite the private placement mechanism and the fact that equity shares are unlisted, the listing of debt securities qualifies it as a listed company.

**Sajagta (P) Ltd.:** Is a **listed company** because it has issued non-convertible debt securities that are listed on a recognised stock exchange. The listing of these debt securities makes it a listed company even though it is incorporated as a private company (P Ltd). A private company can be a listed company if it has any security listed on a recognised stock exchange.

**Pratibodh Ltd.:** **Cannot be classified** as a listed company based on …

Question 2

'Anjum' drew a cheque for Rs.20,000 payable to 'Babloo' and delivered it to him. 'Babloo' indorsed the cheque in favour of 'Rehansh' but kept it in his table drawer. Subsequently, 'Babloo' died, and the cheque was found by 'Rehansh' in 'Babloo's table drawer. 'Rehansh' filed the suit for the recovery of cheque. Whether 'Rehansh' can recover the cheque under the provisions of the Negotiable Instrument Act, 1881?

Accepted Answer

**Rehansh cannot recover the cheque** under the Negotiable Instruments Act, 1881.

**Analysis:**

Negotiation is defined under Section 14 as the transfer of a negotiable instrument in such manner as to constitute the transferee the holder thereof. Section 15 provides that a negotiable instrument may be negotiated by: (1) Any person in possession being a holder and acting in good faith, or (2) Any person not in possession being a holder, by indorsement and delivery.

**The Essential Requirement of Delivery:**

Section 16 of the Negotiable Instruments Act, 1881 explicitly states: "An indorsement, made without delivery, does not transfer the property in the instrument." This is the cardinal principle governing negotiation by indorsement. Indorsement alone is merely a formal step; delivery is the operative act that completes the transfer of property and all rights in the instrument.

**Application to the Given Facts:**

In the present case, although Babloo indorsed the cheque in favor of Rehansh, he did not deliver it to him. The cheque remained with Babloo in his table drawer. Since delivery was not made, the indorsement by itself was ineffective to transfer any property or right in the cheque to Rehansh. The fact that Rehansh subsequently found the cheque in Babloo's table drawer after his death does not validate the transfer—finding or possession without valid transfer does not create any legal right.

**Consequence of Non-Delivery:**

Without delivery, Rehansh never became a …

Question 3

Ayush and Vipul are good friends and pursuing CA course. While doing group studies for the paper of 'Corporate and Other Law', they are confused about the provisions of section 3 of the Companies Act 2013. Section 3 provides 'A company may be formed for any lawful purpose by…………….' Both Ayush and Vipul are in difficulty about the meaning of word 'may'. Whether it should be taken as mandatory or directory?

Accepted Answer

According to **Section 14 of the General Clauses Act, 1897**, the word 'may' in all Central Acts is explicitly defined as **permissive** in nature. Therefore, the word 'may' in Section 3 of the Companies Act, 2013 should be interpreted as **directory and permissive**, not mandatory.

**Meaning and Application:** Section 3 grants the **right and option** to form a company for any lawful purpose. It confers a power upon persons without imposing any legal obligation. The provision does not compel anyone to incorporate a company; rather, it permits them to do so if they choose.

**Distinction from 'shall':** The use of 'shall' instead of 'may' would have imposed a mandatory and imperative obligation. The legislative choice to use 'may' reflects the permissive character of the right to incorporation.

**Key Implications:**

1. **No Compulsion:** The word 'may' signifies that incorporation is voluntary, not mandatory. No person is required to form a company.

2. **Conferment of Power:** Section 3 establishes a power in the hands of the promoters to form a company, but leaves the exercise of this power entirely to their discretion.

3. **Mandatory Compliance Post-Formation:** While formation is voluntary, once a company is incorporated, compliance with all procedural requirements of the Companies Act, 2013 becomes mandatory and binding.

**Conclusion:** The word 'may' in Section 3 of the Companies Act, 2013 is clearly **directory and permissive**. It creates a permissive right rath…

Question 4

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

Accepted Answer

A **Preamble** is the introductory part of a statute that states its objects and reasons. It is an important aid to **statutory interpretation** but is subject to specific limitations.

**When Preamble can be used:**

**1. When operative provisions are ambiguous** — If the enacting part (operative clauses) contains ambiguous language susceptible to multiple interpretations, the preamble may be invoked to determine the legislative intent and resolve the ambiguity in favour of the interpretation that aligns with the stated objects.

**2. To identify the mischief or defect** — The preamble helps identify the existing law's mischief or defect that the statute was intended to remedy. This is the **mischief rule** of interpretation, where the preamble guides us to understand what problem the legislature sought to address.

**3. To ascertain legislative intent** — When the exact scope or purpose of a provision is unclear, the preamble serves as a reflection of the legislature's intention and the policy underlying the Act. It can clarify what the legislature intended to achieve.

**4. To narrow or expand interpretation** — Where a provision could reasonably bear a narrow or broad meaning, the preamble may guide the court to choose the interpretation that advances the objects stated in the preamble.

**Limitations on use of Preamble:**

**1. Cannot override clear language** — If the operative part is clear, unambiguous, and explicit, the preamble cannot be used to override, modify, or…

Question 5

Abhiyogic Ltd. having 1,000 members with paid-up capital of Rs.1 crore, decided to hold its Annual General Meeting (AGM) on 21st August, 2022, and it received a notice on 2nd July, 2022, from its 60 members holding paid-up capital of Rs.7 lakhs, in aggregate, for a resolution to be passed at the AGM for appointing Vedya & Co., as its auditor from F.Y. 2022-23 onwards, instead of its existing auditor, Chepal & Co. which was originally appointed for 5 years term and had completed its 4 years term. Such a notice for resolution was forthwith sent by the company to Chepal & Co. which gave its representation in writing to the company along with a request for its notification to the members of the company, but it was received too late (3 days before the meeting) by the company.

Accepted Answer

**Part (a): Adequacy of Notice by Members**

No, the notice was NOT given by an adequate number of members within the prescribed time limit, though for different reasons.

**Numerical Inadequacy:** Under Section 140(2) of the Companies Act, 2013, a special notice for proposing the appointment of an auditor other than the retiring auditor must be given by members holding **not less than 1/10th of the paid-up capital having voting rights OR not less than 100 members**, whichever is less restrictive.

Calculations:
- 1/10th of paid-up capital = Rs. 1 crore ÷ 10 = **Rs. 10 lakhs**
- Capital held by members giving notice = Rs. 7 lakhs (Shortfall: Rs. 3 lakhs)
- Number of members = 60 (Shortfall: 40 members)

The notice fails both conditions: members hold only Rs. 7 lakhs against the requirement of Rs. 10 lakhs, and only 60 members are present against the requirement of 100 members.

**Time Adequacy:** The time requirement of at least 14 days before AGM is satisfied. Notice given on 2nd July, 2022 and AGM on 21st August, 2022 = 50 days (exceeds 14-day requirement).

**Conclusion:** The notice does NOT satisfy the numerical adequacy requirement of Section 140(2), despite meeting the time requirement. Therefore, the special notice procedure was not properly invoked.

**Part (b): Sending Retiring Auditor's Representation to Members**

No, the company was NOT bound to send the representation by Chepal & Co. to members beforehand because it was received late.

**Reason for Non-transmiss…

Question 6

Vrinda Limited is a company manufacturing orange and strawberry candies for kids. Now, the company wants to expand its business and start the manufacturing of 10 more types of candies. The company has raised Rs.1 crore through the issue of non-convertible debentures not constituting a charge on the assets of the company and listed on a recognised stock exchange as per the applicable regulations made by the Securities and Exchange Board of India. Advise, whether the above amount of Rs.1 crore will be considered as deposit?

Accepted Answer

**Answer: No, the amount of Rs. 1 crore will NOT be considered as a deposit.**

Under **Section 73 of the Companies Act, 2013** read with the **Companies (Acceptance of Deposits) Rules, 2014**, "deposit" is defined with specific exclusions. Rule 2(c) of the Rules provides that the definition of deposit does NOT include:

**"Amounts raised through the issue of non-convertible debentures or non-convertible bonds or any other marketable instrument in compliance with the guidelines issued by the Securities and Exchange Board of India and listed on a recognised stock exchange."**

**Analysis of the given facts against the exclusion criteria:**

1. **Non-convertible nature**: The debentures issued by Vrinda Limited are explicitly stated as non-convertible, meeting the first requirement.

2. **Compliance with SEBI regulations**: The question explicitly states that the debentures are issued "as per the applicable regulations made by the Securities and Exchange Board of India," thereby satisfying the compliance requirement.

3. **Listed on recognised stock exchange**: The debentures are listed on a recognised stock exchange, which is a mandatory condition for the exemption.

4. **No charge on assets**: The debentures do not constitute a charge on the assets of the company. This is relevant to the nature of the instrument and its classification.

**Conclusion:**

Since all conditions specified in Rule 2(c) for the exemption are satisfied, the amount of Rs. 1 crore raised through the is…

Question 7

The Board of Directors of Plum Limited proposes to issue a prospectus inviting offers from the public for subscribing to the equity shares of the company. State the reports which shall be included in the prospectus for the purposes of providing financial information under the provisions of the Companies Act, 2013.

Accepted Answer

Under **Section 26 of the Companies Act, 2013**, a prospectus inviting subscription from the public must include the following reports that provide financial information:

**1. Balance Sheet (Audited)** — The Balance Sheet must be prepared for a period of at least three financial years immediately preceding the date of prospectus. It presents the financial position of the company as on a specific date, showing assets, liabilities, and shareholders' equity.

**2. Statement of Profit and Loss Account (Audited)** — The Statement of Profit and Loss (also called Income Statement) for at least three financial years immediately preceding the date of prospectus. This report shows the company's profitability by presenting revenues, expenses, and resulting profit or loss for each financial year.

**3. Cash Flow Statement (Audited)** — The Cash Flow Statement for at least two financial years immediately preceding the date of prospectus. This statement shows the movement of cash and cash equivalents, demonstrating the company's liquidity position and ability to generate cash from operations, investing activities, and financing activities.

**4. Auditor's Report** — The report of the auditor on the Balance Sheet, Statement of Profit and Loss Account, and Cash Flow Statement. The auditor's report certifies that the financial statements have been examined and are in accordance with the applicable accounting standards and present a true and fair view of the company's financial position and p…

Question 8

One of the matters contained in the articles of Dhimaan Foundation, incorporated as a limited company under section 8 of the Companies Act, 2013, was altered by passing a special resolution in its general meeting and thereafter, intimation for the same was given to Registrar of Companies. However, such alteration in the articles was opposed by Dhwaj & Co., a partnership firm which is its member, on the ground that such alteration was not valid. Advise, as per the provisions of the Companies Act, 2013, whether the contention of Dhwaj & Co. was valid and whether it can be a member in such company?

Accepted Answer

**Part 1: Validity of Alteration**

The contention of Dhwaj & Co. is **valid**. According to Section 8 of the Companies Act, 2013, any alteration to the articles of a Section 8 company requires **prior approval from the Central Government** before the alteration becomes effective. The statutory procedure under the Companies (Incorporation of Companies for Charitable or Religious Purposes) Rules, 2014 mandates that: (1) a special resolution must be passed in the general meeting, (2) prior approval from the Central Government must be obtained, and (3) only thereafter, the Registrar of Companies must be intimated of the alteration.

In the present case, Dhimaan Foundation followed only step (1) and (3), completely omitting the mandatory step (2)—obtaining Central Government approval. This is a material non-compliance with Section 8 requirements. The alteration is **not valid** as it lacks the essential prerequisite of prior Central Government approval. Therefore, the firm's objection to the invalidity of the alteration is justified and sustainable.

**Part 2: Can a Firm be a Member?**

No, a partnership firm **cannot be a member** of a Section 8 company. The articles of Section 8 companies, as prescribed by the statutory framework, expressly restrict membership to **natural persons only**. A partnership firm, though it possesses some legal status under the Indian Partnership Act, 1932, is not a natural person. It is merely a contractual relationship between natural persons and d…

Question 9

Mr. Abhi is a Chartered Accountant and MBA by profession, has been appointed as an Executive Director on the Board of XYZ Limited. His job profile includes advising the Board of Directors of the company on various compliance matters, strategies, business plans, and risk matters relating to the company. Keeping in view of above position whether Mr. Abhi can be classified as the Promoter of XYZ Limited? Please examine the same under the provisions of the Companies Act, 2013.

Accepted Answer

**Analysis of Mr. Abhi's Promoter Status under Section 2(69), Companies Act, 2013**

Section 2(69) of the Companies Act, 2013 defines **Promoter** as any person who, acting alone or in concert with one or more other persons, initiates the concept of, and establishes or is instrumental in establishing, a company, **but does not include any person who merely acts in a professional capacity**.

The definition contains two essential elements: (1) the person must initiate the concept or be instrumental in establishing the company, and (2) there exists an exception for those acting merely in a professional capacity.

**The Professional Capacity Exception**

The phrase "merely acting in a professional capacity" is key to Mr. Abhi's classification. This exception is designed to exclude professionals—such as Chartered Accountants, lawyers, consultants, and business advisors—who provide expert guidance in their field of specialization without assuming the role of an initiator or founder. The exception recognizes that professionals render services, advice, and expertise while remaining neutral to the business concept itself.

**Application to Mr. Abhi's Case**

Based on the given facts, Mr. Abhi should **NOT be classified as a Promoter** for the following reasons:

1. **Nature of Appointment**: He has been "appointed" as an Executive Director, indicating a subsequent joining after the company's establishment, rather than being instrumental in initiating or establishing the company from …

Question 10

Krish Limited created a charge on its assets on 2nd February, 2021. However, the company did not register the charge with the Registrar of companies till 15th March, 2021. Advise with reference to the relevant provisions of the Companies Act, 2013.

Accepted Answer

**REGISTRATION OF CHARGES UNDER SECTION 77, COMPANIES ACT, 2013**

**Part (a): Procedure for Registering the Charge**

Krish Limited must follow the prescribed procedure under Section 77(1) of the Companies Act, 2013:

1. **Filing of Forms**: The company must file **Form CHG-1** (containing particulars of the charge) with the Registrar of Companies. If the charge is a **first mortgage or first charge**, **Form CHG-2** must also be filed.

2. **Accompanying Documents**: A **certified copy of the charge document** (the instrument creating the charge) must be attached to the forms. The copy must be certified as a true copy by the company's authorized signatory.

3. **Timeline**: The forms must be filed **within 30 days from the date of creation of the charge**. In this case, the deadline was **4th March 2021** (30 days from 2nd February 2021). Since the company registered on 15th March 2021, it was 11 days late.

4. **Extension Option**: If the company cannot register within 30 days, it may apply for **extension of time under Section 77(3)** BEFORE the expiry of 30 days. The Registrar may grant extension for a period not exceeding **90 days from the date of creation of charge**.

**Part (b): Registration on 27th May 2021**

No, the company **cannot register the charge** if it only realizes the mistake on 27th May 2021. Here's why:

1. **Charge Becomes Void**: Under **Section 77(2)**, if a charge is not registered within 30 days from the date of its creation, it becomes **void**.…

Question 11

Vishal Limited has paid dividend consistently every year at the rate of 10% on its equity share capital in the last 5 years (2015-2016 to 2019-2020). The company has incurred loss in the current financial year (FY 2020-2021). It still wants to declare dividend for the FY 2020-2021. Whether the company can do so? Explain.

Accepted Answer

**Answer: No, Vishal Limited cannot declare dividend from free reserves for FY 2020-2021.**

**Legal Position:**

Section 123(3)(d) of the Companies Act 2013 explicitly prohibits a company from declaring or paying any dividend if the company has incurred a loss in that financial year and seeks to declare dividend out of free reserves. This is a mandatory statutory restriction.

**Sources of Dividend Under Section 123(1):**

A company can declare dividend only from: (a) Profits of the current financial year, (b) Accumulated profits of preceding financial years, or (c) Free reserves.

However, Section 123(3)(d) restricts the use of free reserves when the company has incurred a loss in the year of dividend declaration.

**Analysis:**

Although Vishal Limited has consistently paid 10% dividend for five consecutive years (2015-16 to 2019-20), this established practice does not override the statutory prohibition. Past dividend history is relevant only for determining the maximum rate of dividend under the proviso to Section 123(1), not for circumventing the loss restriction. The fact that the company incurred a loss in FY 2020-2021 makes it statutorily impossible to declare dividend from free reserves for that year.

**Alternative Available:**

The company may still declare dividend from **accumulated profits** of preceding financial years, subject to: (i) Accumulated profits remaining after adjusting losses of preceding financial years against them, (ii) Compliance with other cond…

Question 12

'Surendra' guarantees 'Virendra' for the transactions to be done between 'Virendra' & 'Jitendra' during the month of March, 2021. 'Virendra' supplied goods of Rs.30,000 on 01.03.2021 and of Rs.20,000 on 03.03.2021 to 'Jitendra'. On 05.03.2021, 'Surendra' died in a road accident. On 10.03.2021, being ignorant of the death of 'Surendra', 'Virendra' further supplied goods of Rs.40,000. On default in payment by 'Jitendra' on due date, 'Virendra' sued the legal heirs of 'Surendra' for recovery of Rs.90,000. Describe, whether legal heirs of 'Surendra' are liable to pay Rs.90,000 under the provisions of Indian Contract Act, 1872. What would be your answer, if the estate of 'Surendra' is worth of Rs.45,000 only?

Accepted Answer

**Liability of Legal Heirs Under Section 131 of the Indian Contract Act, 1872**

A **continuing guarantee** is a guarantee extending to a series of transactions. Section 131 provides that a continuing guarantee is **revoked by the death of the surety** as to transactions into which the surety has not entered at the time of his death, or of which he did not receive notice before his death.

**Analysis of the Three Transactions:**

**Transaction 1 (Rs. 30,000 on 01.03.2021):** This occurred during Surendra's lifetime and before his death on 05.03.2021. The continuing guarantee was in full force at the time of this transaction. Therefore, the legal heirs are **liable** for Rs. 30,000.

**Transaction 2 (Rs. 20,000 on 03.03.2021):** This also occurred before Surendra's death. The guarantee covered this transaction completely. The legal heirs are **liable** for Rs. 20,000.

**Transaction 3 (Rs. 40,000 on 10.03.2021):** This occurred AFTER Surendra's death on 05.03.2021. Although Virendra was unaware of the death, the continuing guarantee is **automatically revoked** upon death for transactions entered into after death. Under Section 131, ignorance of death by the creditor does not revive the guarantee. The legal heirs are **NOT liable** for Rs. 40,000.

**Conclusion:** The legal heirs of Surendra are liable to pay **Rs. 50,000** (Rs. 30,000 + Rs. 20,000) only, not the full Rs. 90,000.

**If the Estate is Worth Rs. 45,000 Only:**

The legal liability remains Rs. 50,000. However, the…

Question 13

Amber Limited is a manufacturer of glassware. Its paid up share capital is divided into 20,0000 shares of Rs.100 each. The company is maintaining its register of members as per the provisions of the Companies Act, 2013. The company wanted to close its register of members for declaring dividend. It may do so by giving minimum …….. days' notice.

Accepted Answer

**Answer: (A)**

Under **Section 88 of the Companies Act, 2013**, a company may close its register of members for any period not exceeding in the aggregate 30 days in each calendar year. When the closure is for the purpose of declaring a dividend, the company is required to give a **minimum notice of 7 days** to its members.

The rationale is that members must be informed in advance about the closure of the register so they can plan accordingly and ensure their names are recorded before the cutoff date for receiving dividends. The 7-day notice period provides reasonable time to members to complete any transfers or rectifications in their shareholding before the register is closed.

Question 14

………………. interpretation concerns itself with 'what the law says' and ………. interpretation, seeks to ascertain 'what the law means'.

Accepted Answer

**Answer: (A)**

**Grammatical interpretation** concerns itself with 'what the law says' because it focuses on the literal, plain language meaning of the statute. It applies strict rules of grammar and syntax to understand the express words used by the legislature, without looking beyond the text itself.

**Logical interpretation** seeks to ascertain 'what the law means' because it goes beyond the literal words to understand the purpose, intent, and spirit of the legislation. It attempts to discover the true meaning and effect the law is intended to achieve.

Question 15

Arvind lends money to Mamta against the security of jewellery deposited by Mamta with Arvind. Arvind gave this jewellery to his friend Vinayak who had a safe locker at his home. Who is the pawnor in the given case?

Accepted Answer

**Answer: (B)**

Mamta is the pawnor in the given case. Under Section 172 of the Indian Contract Act, 1872, when a person delivers possession of movable property to another to secure the payment of money lent to him or for any other purpose, the person delivering the property is called the **pawnor** and the person receiving it is called the **pawnee**.

In this case: Mamta borrowed money from Arvind and deposited jewellery with Arvind as security for the loan. Therefore, Mamta is the **pawnor** (the debtor pledging the goods) and Arvind is the **pawnee** (the creditor holding the security). The fact that Arvind subsequently gave the jewellery to Vinayak for safekeeping in a locker does not alter the pledge relationship between Mamta and Arvind, nor does it make Vinayak a pawnor. Vinayak is merely holding the goods as a bailee at Arvind's behest. Arvind remains the pawnee and Mamta remains the pawnor in the pledge contract.

Question 16

Raman, the original allottee of 2000 equity shares in ABC Limited has transferred the same to Ruchi. The instrument of transfer dated 21st August, 2020, duly stamped and signed by Raman was handed over to Ruchi. Advise Ruchi regarding the latest date by which the instrument of transfer along with share certificates must be delivered to the company, to register the transfer in its register of members.

Accepted Answer

**Answer: (B) 20th September, 2020**

According to Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014, every company must register the transfer of shares within **30 days from the date of execution of the instrument of transfer**. The instrument of transfer, along with the share certificates, must be delivered to the company within this 30-day period for registration.

In this case, the instrument of transfer is dated 21st August, 2020. Adding 30 days to this date gives 20th September, 2020. Therefore, Ruchi must deliver the instrument of transfer along with the share certificates to ABC Limited by 20th September, 2020 for timely registration in the register of members.

Question 17

When the shareholders demanded for increase in the rate of dividend, but since the shareholders cannot increase the rate of dividend what the Board of Directors have recommended, some of them walked out of the meeting hall. What shall be the consequences of it:

Accepted Answer

**Answer: (A)**

Under the Companies Act 2013, quorum for a public company's general meeting requires a minimum number of members to be present throughout the meeting. If shareholders walk out but the remaining members still constitute the required quorum, the meeting can validly proceed and pass resolutions. Since shareholders cannot increase the rate of dividend beyond what the Board has recommended (as per Section 123 of the Companies Act 2013), and the remaining members fulfilled the quorum requirement and approved the dividend unanimously, the rate recommended by the Board stands validly approved. The walkout does not invalidate the proceedings as long as quorum is maintained throughout.

Question 18

At which date, the unpaid dividend not claimed by the shareholders, shall be transferred to a separate bank account, in the above case:

Accepted Answer

**Answer: (D)**

Under **Section 124(1) of the Companies Act, 2013**, where a dividend has been declared by a company but has not been paid or claimed within **30 days** from the date of declaration, the company must transfer the total amount of unpaid or unclaimed dividend to a special account called the **Unpaid Dividend Account** within **7 days** from the expiry of the said 30-day period.

In this case, the final dividend was declared at the AGM held on **31st August, 2020**. The 30-day period expires on **30th September, 2020**. The company then has a further **7 days** from that date, i.e., the transfer must be made **latest by 7th October, 2020**.

Note: The actual transfer was made on 15th October, 2020, which is beyond the statutory deadline of 7th October, 2020, making it a default under Section 124.

Question 19

The company transferred the amount of unpaid dividend to a separate bank account on 15th October, 2020. What is the interest liability on the part of the company?

Accepted Answer

**Answer: (C) Interest @ 12% p.a. on so much of the amount as has not been transferred to the Unpaid Dividend Account.**

As per **Section 124(3) of the Companies Act, 2013**, where a dividend has been declared by a company but has not been paid or claimed within **30 days** of the declaration, the company is required to transfer the total amount of unpaid or unclaimed dividend to a special account called the **Unpaid Dividend Account** within 7 days from the expiry of the said 30-day period (i.e., within 37 days of declaration).

In the present case, the final dividend for FY 2019-20 was declared at the AGM held on **31st August, 2020**. The 30-day period expired on **30th September, 2020**, and accordingly the amount should have been transferred to the Unpaid Dividend Account by **7th October, 2020**. However, the company transferred the unpaid dividend only on **15th October, 2020**, which is beyond the prescribed deadline.

Section 124(3) further provides that if a company **fails to transfer** the unpaid dividend amount within the prescribed period, the company shall pay **interest @ 12% per annum** on so much of the amount as has not been transferred to the Unpaid Dividend Account, from the date such amount became due for transfer until the date it is actually transferred. The interest so accrued shall **inure to the benefit of the members** (shareholders) in proportion to the amount remaining unpaid to them.

Therefore, the company has an **interest liability @ 12% per…

Question 20

In the given case, when and how much amount, the company shall transfer the funds to the Investor Education and Protection Fund:

Accepted Answer

**Answer: (D) Seven years after 08.07.2013; Rs.07.25 lakh**

Under **Section 124(5) of the Companies Act, 2013**, any amount remaining unclaimed in the Unpaid Dividend Account for a period of **7 years** from the date of transfer to such account shall be transferred by the company to the **Investor Education and Protection Fund (IEPF)**.

In this case, the unpaid dividend for **FY 2012-13** was transferred to the Unpaid Dividend Account on **08.07.2013**. Accordingly, 7 years from that date, i.e., **08.07.2020**, the amount of **Rs.07.25 lakhs** must be transferred to the IEPF.

This is consistent with the facts of the case — when Sustram approached the company seeking unpaid dividends from FY 2012-13, the company correctly informed him that the amount had already been transferred to the IEPF and cannot be returned directly by the company. (Sustram's remedy is to approach the IEPF Authority for refund under the IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.)

The other options are incorrect because they apply a period shorter than 7 years (4, 5, or 6 years) which is not the statutory requirement under Section 124(5).

CA Inter Corp Laws

Drill 5 questions from this paper — instant grading

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Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap