Question 1

Geeta Private Limited is a start-up company. Mr. Prabodh has been appointed as Accounts Manager of Geeta Private Limited. The Board meeting for approval of accounts is to be held on 01.08.2022 and he has to prepare the financial statements for approval by the Board. Referring to section 2(40) of the Companies Act, 2013, advise Mr. Prabodh about the statements that are required to be prepared.

Accepted Answer

**Section 2(40) of the Companies Act, 2013** defines 'financial statements' and prescribes the statements a company must prepare for approval by the Board. For Geeta Private Limited, a start-up private company, Mr. Prabodh must advise the following:

**Mandatory Statements Under Section 2(40):**

1. **Balance Sheet** - As on the last day of the financial year (31st March 2022), presenting the financial position of the company showing assets, liabilities, and equity.

2. **Statement of Profit and Loss** - For the financial year ended 31st March 2022, showing the revenue, expenses, and resultant profit or loss.

3. **Notes to the Accounts** - Providing explanatory information, schedules, accounting policies, and disclosures to the financial statements as per Schedule III of the Companies Act, 2013.

**Conditional Statements (Based on Company Size):**

The following statements are required if Geeta Private Limited meets any of these criteria:

4. **Cash Flow Statement** - Required if:
   - Turnover exceeds ₹100 crore in the immediately preceding financial year; OR
   - Balance sheet total exceeds ₹50 crore on the date of balance sheet; OR
   - The Board of Directors directs

5. **Statement of Changes in Equity** - Required if:
   - Turnover exceeds ₹100 crore; OR
   - Balance sheet total exceeds ₹50 crore; OR
   - The company applies Ind AS (Indian Accounting Standards)

**Applicability to Start-up Private Company:**

Since Geeta Private Limited is a start-up company (typically …

Question 2

Mr. Aditya had incorporated a one person company on 07.07.2021. Mr. Yash was named as a nominee in the memorandum of the said one person company. Now, Mr. Aditya, considering the perpetual nature of company form of business, desires to appoint ABC Private Limited as a nominee instead of Mr. Yash. Examine with reference to the Companies Act, 2013, whether the proposal of Mr. Aditya to appoint ABC Private Limited as a nominee is valid?

Accepted Answer

**Answer: No, the proposal is NOT valid.**

Mr. Aditya cannot appoint ABC Private Limited as a nominee for his OPC. The appointment would be invalid under the Companies Act, 2013.

**Applicable Provisions:**

Section 4A of the Companies Act, 2013 (introduced by the Companies Amendment Act, 2015) governs the incorporation and operation of One Person Companies. Rule 3 of the Companies (Incorporation) Rules, 2014 (as amended) prescribes mandatory eligibility criteria for the nominee of an OPC.

**Key Requirement: Natural Person Only**

Both Section 4A and Rule 3 explicitly mandate that the nominee of an OPC must be a **natural person**. A natural person is a living human being with legal capacity to act. The definition of natural person specifically excludes juristic persons (artificial persons created by law such as companies, partnerships, trusts, associations, etc.).

ABC Private Limited is a **juristic person**—an artificial legal entity incorporated under the Companies Act, 2013. It is not a natural person and therefore does not qualify as a nominee under the statutory requirements.

**Eligibility Criteria for OPC Nominee:**

The nominee must satisfy the following conditions:
1. Must be a **natural person** (not a company or other legal entity)
2. Must be a major (18 years or above)
3. Must be a citizen of India
4. Must be an Indian resident

ABC Private Limited fails the fundamental criterion of being a natural person.

**Rationale for the Restriction:**

The law restricts…

Question 3

A clause that begins with the words 'Notwithstanding anything contained' is called:

Accepted Answer

**Answer: (B)**

A clause beginning with 'Notwithstanding anything contained' is known as a **non-obstante clause**. The term 'non-obstante' derives from Latin meaning 'notwithstanding' or 'in spite of.' Such clauses serve a critical function in statutory interpretation by explicitly overriding or superseding other provisions in the same statute or regulation. When a non-obstante clause is present, it ensures that the provisions it introduces take precedence over any conflicting provisions that might otherwise apply. This type of clause is frequently used in tax statutes, company law, and other legislative frameworks where legislative intent requires certain provisions to operate independently of general rules. Recognition of non-obstante clauses is essential for accurate statutory interpretation.

Question 4

'A' and his wife 'B' has joint Demat Account in Vrinda Limited. The company's Annual General Meeting is to be held on 28.08.2022. In such a case, who will cast the vote in the Annual General Meeting? Give your answer as per the provisions of the Companies Act, 2013.

Accepted Answer

**Only ONE of the joint shareholders can exercise voting rights in the Annual General Meeting.**

As per **Section 109 of the Companies Act, 2013** read with **Rule 19(1) of the Companies (Management and Administration) Rules, 2014**, the voting right in respect of shares held jointly shall be exercised by such one of the joint holders as they may decide among themselves.

**Order of Seniority (Method of Determination):**

1. **Mutual Agreement (Primary Method):** 'A' and 'B' may decide between themselves as to who shall exercise the voting right. Either 'A' or 'B' may vote, provided both have agreed.

2. **Default Method (In Absence of Agreement):** If 'A' and 'B' fail to decide mutually, the voting right shall be exercised by the person **whose name appears first in the Register of Members**. The register of members is the ultimate authority to determine seniority among joint holders.

**Application to the Given Case:**

Since the question states that 'A' and 'B' (husband and wife) hold a joint Demat Account but does not specify their mutual agreement or whose name appears first in the Register of Members:

- If 'A' and 'B' have mutually agreed that one of them shall vote, that person (either 'A' or 'B') will cast the vote.
- If no such agreement exists, the person whose name appears **first in the Register of Members** (whether 'A' or 'B') shall have the seniority to cast the vote.

**Important Note:** Only one vote shall be cast by the joint shareholders collectively. If …

Question 5

Where a share capital of the company is divided into different classes of shares, the rights attached to the shares of any class may be varied with the consent in writing of the holders of not less than __________ of the issued shares of that class or by means of a special resolution passed at a separate meeting of the holders of the issued shares of that class:

Accepted Answer

**Answer: (C) Three-fourths (which equals 75%)**

Under Section 48 of the Companies Act, 2013, where a company's share capital is divided into different classes of shares, the rights attached to any class may be varied in two ways: (1) with the written consent of holders of **not less than three-fourths** of the issued shares of that class, or (2) by special resolution passed at a separate meeting of holders of that class. The three-fourths (75%) threshold is the required majority for written consent to variation, making it a high protection mechanism for minority shareholders in that class.

Question 6

Prabhas Limited is a company having its shares listed on a recognised stock exchange. The company has 5,000 members. The Annual General Meeting of the company is to be held on 07-09-2022. As per the provisions of the Companies Act, 2013, advise the company, the remote e-voting period and the time of closing of remote e-voting.

Accepted Answer

**Prabhas Limited** is a listed company with 5,000 members holding its AGM on 07-09-2022. The remote e-voting provisions are governed by **Rule 20 of the Companies (Management and Administration) Rules, 2014**.

**Remote E-Voting Period:**

As per Rule 20, for a listed company, the remote e-voting period shall not be less than **3 days before the date of the general meeting**. The company must fix a start date for remote e-voting that is at least 3 days prior to 07-09-2022.

For an AGM scheduled on **07-09-2022**, the remote e-voting period should commence from **04-09-2022** (or any date up to 3 days before the meeting).

**Closing Time of Remote E-Voting:**

The crucial requirement is that remote e-voting shall **close at 5:00 p.m. (1700 hours) on the date immediately prior to the date of the general meeting**. Therefore, for this AGM, remote e-voting must close at **5:00 p.m. on 06-09-2022**.

**Summary of Advice to the Company:**

1. **Remote E-Voting Period**: From **04-09-2022** to **06-09-2022**
2. **Closing Time**: **5:00 p.m. on 06-09-2022**
3. The company should ensure that the remote e-voting facility is accessible to all eligible members during this entire period and should cut off access precisely at 5:00 p.m. on 06-09-2022.
4. After closure of remote e-voting, members present at the AGM on 07-09-2022 will have the option to vote through ballot or poll as per the company's procedures.

This ensures compliance with the statutory requirements and provides sufficien…

Question 7

A Public company may be formed by:

Accepted Answer

**Answer: (D)**

Under Section 3 of the Companies Act, 2013, a **public company** must be formed by a **minimum of 7 or more members** (shareholders). This is a fundamental requirement distinguishing public from private companies. A private company, by contrast, requires only 2 or more members but is capped at 200 members. The requirement of 7 members for a public company is mandatory to ensure adequate capital participation and public character.

Question 8

Dhiman Limited, is a company incorporated in India. Dhiman Limited is a leading manufacturer of sports shoes. It has many subsidiaries, one of them being Best Shoes Limited which is based in Morocco. Dhiman Limited is in the process of finalization of the consolidated financial statements of the company for the year ended 31 March 2022. The accounts section of Dhiman Limited has requested the management of Best Shoes Limited to provide its standalone financial statements to Dhiman Limited. The subsidiary company prepares its financial statements in the local language of the country and the same is provided to the Indian parent company. Further, audit of financial statement is not required by the Best Shoes Limited under the Moroccan laws. Advise, how would Dhiman Limited deal with the cons…

Accepted Answer

**Translation of Financial Statements** Best Shoes Limited's financial statements prepared in the Moroccan language must be translated to English or the language of consolidation. Translation should be performed at the closing date exchange rate for statement of financial position items, and at average rates for revenue and expenses. Translation differences are recognized in other comprehensive income as per Ind AS 110.

**Accounting Standards Alignment** Best Shoes Limited likely follows Moroccan accounting standards or IFRS, which may differ from Indian Accounting Standards (Ind AS). Per **Ind AS 110 - Consolidated Financial Statements**, a group must use uniform accounting policies. Dhiman Limited must: (a) identify significant differences between Best Shoes Limited's accounting policies and group policies, (b) prepare detailed reconciliation schedules, and (c) record consolidation adjusting entries to align the subsidiary's financial information with Ind AS before consolidation.

**Unaudited Nature - Key Consideration** The critical issue is that Best Shoes Limited's accounts are unaudited under Moroccan law. However, this does not prevent consolidation; rather, it imposes additional responsibilities on Dhiman Limited and its auditors.

**Auditor's Responsibilities (SA 600)** Under **SA 600 - Special Considerations - Audits of Group Financial Statements**, the group auditor must ensure sufficient and appropriate audit procedures are performed on the unaudited subsidiary. …

Question 9

What are provisions of the Companies Act, 2013, relating to the appointment of 'Debenture Trustee' by a company? Whether the following can be appointed as 'Debenture Trustee'?

Accepted Answer

A **Debenture Trustee** is a person or body corporate appointed by a company to act as a representative and protector of the interests of debenture holders. The provisions for appointment and disqualifications are governed by **Section 71 of the Companies Act, 2013**.

**Appointment Provisions under Section 71:** The Central Government prescribes, by rules, the qualifications and manner of appointment of a debenture trustee. A company is required to appoint a trustee when the value of debentures exceeds the prescribed threshold. The trustee acts as a custodian of debentures and safeguards the rights of debenture holders, including recovery of principal and interest.

**Disqualifications under Section 71(4):** A person cannot be appointed as a debenture trustee if: (a) he is an undischarged insolvent; (b) he has been convicted of an offence involving moral turpitude and imprisoned for not less than 6 months within the preceding 5 years; (c) he is a minor; (d) he is not a resident of India; (e) he is an officer or employee of the company; (f) **he is indebted to the company by way of a loan, guarantee, or otherwise;** (g) **he has business relations with the company (directly or indirectly), except as a debenture holder, member, or in such other capacity as may be approved by the Central Government.**

**(i) A shareholder with shares of Rs. 10,000: CAN be appointed.** The person qualifies as a debenture trustee. Under Section 71(4)(g), the disqualification regarding business re…

Question 10

State the persons responsible for complying with the provisions regarding maintenance of Books of Accounts of a company. Support with the help of relevant provisions of the Companies Act, 2013.

Accepted Answer

The responsibility for maintaining proper books of accounts under the Companies Act, 2013 is distributed among multiple persons at different organizational levels.

**Section 128(6) – Primary Responsibility:** Section 128(6) explicitly prescribes that it shall be the duty of the **Chief Financial Officer (CFO)** to ensure that the books of accounts are kept in accordance with the provisions of the Act. In the **absence of a CFO, the Managing Director** shall bear this responsibility. If both the CFO and Managing Director are absent, the **Company Secretary** shall be responsible for ensuring that books of accounts are maintained as per statutory requirements.

**Section 128(1) – General Responsibility:** Every company is mandatorily required by Section 128(1) to cause to be kept proper books of accounts containing particulars of all money received and expended, all sales and purchases, and all other transactions. The company itself, as a legal entity, is responsible for compliance.

**Board of Directors:** Under Section 134(3) of the Companies Act, the **Board of Directors** bears responsibility for ensuring the proper maintenance of books of accounts. The Board must establish adequate internal control systems and ensure that financial records are accurately maintained and transparently presented.

**Audit Committee:** The **Audit Committee**, as prescribed under Section 177, has oversight responsibilities regarding the financial reporting process and must ensure that proper …

Question 11

Mr. Govind Ram is a partner and in-charge (and certifies financial statements) of P & Associates. The firm is appointed as an auditor firm of Kanha Limited (listed company). Mr. Govind Ram retires from P & Associates and after some time joins Gupta & Gupta firm as a partner, on 20/05/22. In the general meeting of Kanha Limited held on 15/06/22, the company appointed Gupta & Gupta firm as next auditor of the company. Advise Kanha Limited, whether the company has adhered to the provision of the Company Act, 2013, by appointing Gupta & Gupta as auditor for the company?

Accepted Answer

**Answer: No, Kanha Limited has NOT adhered to Section 139(2) of the Companies Act, 2013. The appointment of Gupta & Gupta is improper.**

**Section 139(2) — Ineligibility of Auditors:**

Section 139(2) of the Companies Act, 2013 explicitly prohibits the appointment of a firm as auditor if any of its partners was in-charge of the statutory audit of that company during the two consecutive years immediately preceding the year of appointment. The provision is designed to enforce auditor rotation and maintain independence.

**Application to the Given Facts:**

Mr. Govind Ram was a partner of P & Associates and was in-charge of Kanha Limited's statutory audit (and certified financial statements). He retired from P & Associates and joined Gupta & Gupta as a partner on 20/05/2022. Within less than a month—on 15/06/2022—Kanha Limited appointed Gupta & Gupta as its next auditor.

Assuming Mr. Govind Ram was in-charge of the audit for the two consecutive years immediately preceding 15/06/2022 (i.e., from 15/06/2020 to 14/06/2022), his presence as a partner in Gupta & Gupta directly violates Section 139(2). The mere fact that he has changed firms does not cure the disqualification; the partner's previous in-charge status travels with him to the new firm.

**Rationale:**

The purpose of this provision is to prevent the circumvention of auditor rotation requirements. If the previous in-charge auditor could immediately join another firm and that firm could be appointed as the next auditor,…

Question 12

Vishal bailed 50 kg of high quality sugar to Naresh, who owned a kirana shop, promising to give Rs. 200 at the time of taking back the bailed goods. When Naresh was not at shop, his employee, unaware of bailed sugar of Vishal, mixed the 50 kg of sugar belonging to Vishal with the sugar in the shop and packaged it for sale. This came to light only when Vishal came asking for the sugar he had bailed with Naresh, as the price of the specific quality of sugar had trebled. What is the remedy available to Vishal as per the provisions of the Indian Contract Act, 1872?

Accepted Answer

The remedy available to Vishal under **Section 157 of the Indian Contract Act, 1872** is to claim **full compensation** from Naresh for the mixing of bailed goods without his consent.

**Legal Framework**: Section 157 provides that when a bailee mixes the bailor's goods with his own goods or other goods, the bailee is bound to bear the loss and is liable to pay the bailor such compensation as would restore the bailor to the position in which he would have been, but for the mixing.

**Application to the Facts**:

1. **Liability of Bailee**: Although Naresh's employee was unaware of the bailed goods when mixing occurred, Naresh (the bailee) remains fully liable. The knowledge or intent of the bailee is immaterial under Section 157—strict liability applies. An employer is responsible for the acts of employees done in the course of employment.

2. **Nature of Remedy**: Since the bailed goods cannot be separated or identified after mixing and packaging, they are effectively lost. Vishal cannot claim return of the specific goods. Therefore, the remedy is **monetary compensation**.

3. **Measure of Compensation**: The compensation must restore Vishal to his original position, which means Vishal is entitled to the **current market value of 50 kg of high-quality sugar**. Since the price of this specific quality has trebled, the compensation payable = Current market value of the sugar (3x the value at bailment).

4. **Burden on Bailee**: Under Section 157, the entire loss resulting fro…

Question 13

Mr. Zahid accepted a bill of exchange and gave it to Mr. Kamil for the purpose of getting it discounted and handing over the proceeds to Mr. Zahid. Mr. Kamil couldn't get the bill discounted and returned the bill to Mr. Zahid. Mr. Zahid cut the bill in two pieces for the purpose to cancel it and he threw the pieces on the street. Mr. Kamil picked up the pieces and joined those pieces in such manner that the bill seemed to have been folded for safe custody, rather than cancelled. Mr. Kamil put it into circulation and it finally reached to Mr. Salim, who took it in good faith and for value. Explain in the light of the provisions of the Negotiable Instruments Act, 1881, whether Mr. Zahid is liable to pay the bill to Mr. Salim?

Accepted Answer

**Liability of Mr. Zahid to Mr. Salim: Analysis**

Mr. Zahid, being the acceptor of the bill of exchange, is **liable to pay the bill to Mr. Salim**.

**Status of Mr. Salim as Holder in Due Course:**
Under Section 9 of the Negotiable Instruments Act, 1881, Mr. Salim qualifies as a holder in due course because he has taken the bill (i) in good faith, (ii) for value, and (iii) without knowledge of any defect in its title or prior dishonor. Section 45 of the Act provides that a holder in due course holds the instrument free from any defect in the title of prior parties and from any equities affecting the instrument.

**Principle of Cancellation and Discharge:**
Section 137 of the NI Act states that an instrument is discharged by the cancellation of the names of all parties thereto with intent to discharge it. However, a critical requirement is that **the cancellation must be apparent on the face of the instrument** to effect such discharge. Mere cancellation without apparent evidence will not discharge the acceptor, particularly when the instrument subsequently reaches a holder in due course.

**Application to the Given Facts:**
Although Mr. Zahid clearly cancelled the bill by cutting it into two pieces with the express intention to discharge himself from liability, the cancellation was **not apparent** on the face of the instrument when it reached Mr. Salim. Mr. Kamil deliberately reconstructed the pieces so that the bill appeared to be folded for safe custody rather than cance…

Question 14

In the light of the given facts, the General Meeting of the shareholders was decided to be scheduled. Determine by which date the notices to the shareholder should have been given to the members:

Accepted Answer

**Answer: (C) 3rd August, 2022**

Under **Section 101 of the Companies Act, 2013**, a general meeting of a company (including an AGM) must be called by giving **not less than 21 clear days' notice** in writing to every member.

The term **'clear days'** means that both the **day on which the notice is served** and the **day of the meeting itself** are to be excluded while counting the 21 days.

The AGM was scheduled for **Thursday, 25th August, 2022**.

Excluding 25th August (day of meeting) and counting back 21 clear days:
- The 21 clear days must fall between the day after dispatch and the day before the meeting (i.e., from the day after notice is served up to 24th August 2022).
- 24th August backward by 21 days = 4th August as Day 1 of clear days, meaning notice must be dispatched on **3rd August 2022**.

Thus, the notice should have been given to the members **on or before 3rd August, 2022** to satisfy the 21 clear days' requirement under Section 101.

Question 15

Section 2(18)(aa) of the Income Tax Act, 1961, provides that a company is said to be a company in which the public are substantially interested, if it is a company which is registered under section 25 of the Companies Act, 1956. After the advent of Companies Act, 2013, the corresponding change has not been made in section 2(18) of the Income Tax Act, 1961. Explain, with reference to the provisions of the General Clauses Act 1897, how will the provisions of section 2(18)(aa) of the Income Tax Act, 1961, will be considered after the enactment of the Companies Act 2013?

Accepted Answer

**Section 8 of the General Clauses Act, 1897** provides that when any enactment is repealed and re-enacted, any reference in any other enactment to the repealed enactment shall, unless a different intention appears, be construed as a reference to the **corresponding provision of the new enactment**. This is known as the doctrine of **deemed reference to re-enacted provision**.

**Application to Section 2(18)(aa) of ITA, 1961:**

Section 25 of the Companies Act, 1956 (which dealt with registration of companies, including those with public interest) has been repealed and replaced by the Companies Act, 2013. The corresponding provisions relating to company registration are now contained in Sections 2(20), 3, 4, and 5 of the Companies Act, 2013 (which define a 'company' and prescribe its incorporation and registration framework).

**Effect of Section 8 of the General Clauses Act:**

Even though Section 2(18)(aa) of the Income Tax Act, 1961 continues to make a textual reference to "section 25 of the Companies Act, 1956," this reference will be **automatically deemed to mean the corresponding provision in the Companies Act, 2013**. This happens by operation of law without requiring any formal amendment to the Income Tax Act itself.

Thus, a company registered under the **new registration provisions of the Companies Act, 2013** (the equivalent to the old Section 25) will be treated as satisfying the definition of "company in which the public are substantially interested" under Secti…

Question 16

Whether adjournment of the general meeting of shareholders of Shree Tyres Ltd. for want of quorum, was justified as per the requirement of the Companies Act, 2013:

Accepted Answer

**Answer: (A)**

As per **Section 103(2) of the Companies Act, 2013**, if the quorum is not present within **30 minutes** from the time appointed for holding the meeting, the meeting shall stand adjourned. In this case, only 10 members were present against the required quorum of 50 (as per the Articles), and even after waiting for 30 minutes, the quorum was not met. Therefore, the adjournment was fully justified under the Act.

Question 17

How will you interpret the definitions in a statute, if the following words are used in a statute? Give one illustration for each of the above from statutes you are familiar with.

Accepted Answer

**Interpretation of Statutory Definitions: 'Means' vs. 'Includes'**

The interpretation of definitions in a statute depends critically on the words used to introduce them. The draftsman's deliberate choice of words carries legal significance and determines the scope and application of the defined term.

**(i) 'Means' — Restrictive and Exclusive Definition**

When a statute uses 'means' to define a term, it provides a **restrictive, exclusive, and exhaustive definition**. The definition becomes complete, final, and closed. The term is limited strictly to what is expressly stated in the definition, and anything falling outside this specific scope is necessarily excluded. Courts interpret 'means' as conferring a finite and limited meaning, with no room for expansion or interpretation beyond the defined boundaries.

*Illustration:* In the **Companies Act, 2013**, various key terms are defined restrictively using 'means.' For example, when defining foundational concepts such as 'Director,' 'Board,' or other corporate entities, the Act employs 'means' to establish precise and closed categories. This ensures that only those meeting the exact definition qualify, and others are expressly excluded from the statutory scope.

**(ii) 'Includes' — Inclusive and Illustrative Definition**

When a statute uses 'includes' to define a term, it provides an **inclusive, illustrative, and non-exhaustive definition**. Such a definition is not meant to be complete or final but rather to indicate the…

Question 18

What shall be the quorum for the General Meeting of the Shareholders, where the number of members is 3500:

Accepted Answer

**Answer: (B) Fifteen**

As per **Section 103 of the Companies Act, 2013**, the quorum for a general meeting of a public company depends on the number of members:

- If the number of members is **up to 1,000**: quorum is **5 members** personally present.
- If the number of members is **between 1,001 and 5,000**: quorum is **15 members** personally present.
- If the number of members exceeds **5,000**: quorum is **30 members** personally present.

Since Shree Tyres Ltd. has **3,500 members**, which falls in the range of 1,001 to 5,000, the statutory quorum under Section 103 is **15 members**.

However, the Articles of the company stipulate a quorum of 50 members, which is higher than the statutory minimum. As per the proviso to Section 103, if the Articles provide for a **larger quorum**, that higher number shall prevail. Therefore, the Articles-prescribed quorum of 50 members governs the meetings of Shree Tyres Ltd. But the **question specifically asks what the quorum shall be under the Act** for a company with 3,500 members — the correct statutory answer is **15**.

Question 19

As some members left the meeting, the quorum was not present all the time during the Annual General Meeting. The agendas for special business transactions remained un-approved. What is your opinion:

Accepted Answer

**Answer: (B)**

As per **Section 103 of the Companies Act, 2013** read with **Secretarial Standard-2 (SS-2) on General Meetings** issued by the ICSI, **quorum is not merely a threshold to commence the meeting — it must be maintained throughout the entire duration of the meeting**.

SS-2, Clause 6.1 explicitly provides that the quorum shall be present not only at the time of commencement but **throughout the Meeting**. If at any time during the meeting the number of members present falls below the required quorum, the Chairman is obligated to **adjourn the meeting**.

In this case, out of 75 members present at the adjourned meeting on 1st September 2022, 40 members left midway, reducing attendance to 35, which is **below the quorum of 50** as stipulated in the Articles. At that point, the quorum ceased to exist. The two special business agendas that were pending could not have been validly transacted. Such items, which could not be approved for want of quorum, **shall be treated as if no decision was taken (NIL)**, and the meeting would need to be reconvened with proper quorum.

Options (A), (C), and (D) are incorrect:
- Option (A) is incorrect because quorum at the start alone is insufficient under SS-2.
- Option (C) is legally untenable — resolutions cannot be deemed approved merely by assumption.
- Option (D) is incorrect because retrospective written consent cannot substitute a valid quorate meeting for passing resolutions.

**Conclusion:** The quorum must be present thro…

Question 20

In the light of the given facts, state which statement is correct as regards the right of the Bank on retaining of the goods lying in the godown:

Accepted Answer

**Answer: (B)**

Under **Section 173 of the Indian Contract Act, 1872**, a pledgee has the right to retain the goods pledged not only for the payment of the debt but also for the **interest of the debt** and **all necessary expenses** incurred by the pledgee in respect of the possession or for the **preservation of the goods** pledged.

In the given case, the Bank (pledgee) had taken possession of the white goods as security for the working capital finance of ₹100 lakhs. Even though Yukti repaid the principal outstanding amount, the Bank is entitled to retain the goods until the following are also paid:

1. **Interest** on the working capital loan — as expressly provided under Section 173.
2. **Insurance charges** paid by the Bank — these constitute "necessary expenses" incurred for the preservation of the pledged goods, and the Bank is entitled to recover these.
3. Any other necessary charges relating to possession and preservation.

Therefore, Option **(B)** is correct — the Bank can retain the goods till all charges including interest, insurance, and other charges (relating to the pledge) are paid by Yukti.

**Regarding the personal loan of ₹20 lakhs:** Under **Section 174 of the Indian Contract Act, 1872**, a pledgee shall **not** retain the goods for any debt or promise other than that for which the goods were pledged, unless there is a specific contract to the contrary. Since the personal loan of ₹20 lakhs was taken without any security and no such contract to the contr…

Question 21

If in the given case, Yukti pays all the expenses (including the disputed insurance premium) but the Bank insist to clear the personal loan account also, then only it will release the goods. Determine whether the Bank is entitled to do so:

Accepted Answer

**Answer: (D)**

Under **Section 174 of the Indian Contract Act, 1872**, a pledgee **shall not**, in the absence of a contract to that effect, retain the goods pledged for any debt or promise **other than the debt or promise for which the goods were pledged**.

In the present case, Yukti pledged the white goods (electronic items lying in the godown) exclusively as security for the **working capital finance of ₹100 lakhs**. The personal loan of ₹20 lakhs was a **separate, unsecured loan** — no security was insisted upon by the Bank at the time of granting it, and the pledged goods were never offered or accepted as security for that personal loan.

Since Yukti has already repaid the full outstanding working capital loan (the debt for which the pledge was created) and has also settled all the disputed expenses including insurance premium, the **Bank's right of retention over the pledged goods stands extinguished**. The Bank cannot stretch its right of retention to cover an entirely different debt (the personal loan) for which the goods were never pledged.

This is further reinforced by **Section 173 of the Indian Contract Act, 1872**, which defines the legitimate scope of retention — only for (i) payment of the specific debt secured, (ii) interest on that debt, and (iii) necessary expenses incurred in respect of possession or preservation of the pledged goods. A personal loan falls outside all three categories.

Therefore, the Bank has **no right to retain the goods** on account…

Question 22

Yukti disputed the amount demanded by the Bank towards the insurance premium paid by the Bank. Yukti emphasised that there was no need to take the insurance policy on the goods pledged, because it is an extra burden on the part of the borrower. Identify the correct statement:

Accepted Answer

**Answer: (B)**

Under **Section 175 of the Indian Contract Act, 1872**, the pledgee is entitled to receive from the pledgor any **extraordinary expenses incurred for the preservation of the goods pledged**. Taking a comprehensive insurance policy on the pledged goods (covering theft, fire, flood, earthquake, etc.) is squarely within the concept of expenses incurred for the preservation and protection of the pledged goods. Since the Bank had taken possession of the white goods and was responsible for their safety, obtaining insurance coverage was a legitimate and prudent step. The Bank's demand to recover the insurance premium paid is therefore **legally justified under Section 175**. Options (A), (C), and (D) incorrectly suggest that insurance is optional or avoidable — the law entitles the pledgee to recover such preservation expenses regardless of proximity to a police station or the perceived probability of specific risks.

Question 23

When Yukti is availing the working capital finance from the Bank on the security of the white goods, by submitting these goods in the custody of the Bank, said course of transaction can be termed as:

Accepted Answer

**Answer: (B) Pledge of goods**

When Yukti delivers the white goods to OKEY Bank Ltd. as security for the working capital finance of ₹100 lakhs, this transaction constitutes a **pledge** and not a simple bailment. Under **Section 172 of the Indian Contract Act, 1872**, a pledge is defined as the bailment of goods as security for payment of a debt or performance of a promise. The bailor in such a case is called the **pawnor** (Yukti) and the bailee is called the **pawnee** (the Bank).

The key distinguishing factor here is the **purpose** of delivery of goods — the white goods are delivered specifically as **security for repayment of a loan (working capital finance)**. This is the essential characteristic of a pledge. In a simple bailment under **Section 148 of the Indian Contract Act, 1872**, goods are delivered for some purpose other than security (e.g., safe custody, repair, carriage) and are to be returned when the purpose is accomplished. In the present case, the Bank holds the goods as collateral, maintains a Drawing Power (DP) limit of 60% of pledged goods value, and allows withdrawal only upon payment — all hallmarks of a pledge arrangement.

Options (C) and (D) are clearly inapplicable as there is no mere safe-keeping arrangement or lease relationship involved. The transaction is squarely covered under the law of pledge.

CA Inter Corp Laws

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