Question 1

XYZ a One-Person Company (OPC) was incorporated during the year 2014-15 with an authorized capital of ₹ 45,00 lakhs (4.5 lakh shares of ₹ 10 each). The capital was fully subscribed and paid-up. Turnover of the company during 2014-15 and 2015-16 was ₹ 2,00 crores and ₹ 2.5 crores respectively. Promoter of the company seeks your advice in the following circumstances, whether XYZ (OPC) can convert into any other kind of company during 2016-17. Please advise with reference to relevant provisions of the Companies Act, 2013 in the following circumstances:

Accepted Answer

**Relevant Provisions:** Section 18 of the Companies Act, 2013 read with Rule 6 of the Companies (Incorporation) Rules, 2014 governs conversion of an OPC into a private or public company. Under the original Rule 6(1), an OPC is mandatorily required to convert into a private or public company if: (a) its paid-up share capital exceeds **₹50 lakhs**, OR (b) its **average annual turnover** during the relevant period (immediately preceding three consecutive financial years) exceeds **₹2 crores**. Upon crossing either threshold, the OPC must file Form INC-5 within **60 days** of breaching the limit and complete conversion within **6 months**.

**(i) Effect of increasing paid-up capital by ₹10 lakhs during 2016-17:**

XYZ's existing paid-up capital is ₹45 lakhs. After the proposed increase of ₹10 lakhs, the new paid-up capital becomes **₹55 lakhs**. Since ₹55 lakhs **exceeds the threshold of ₹50 lakhs**, XYZ OPC is **mandatorily required** to convert into a private or public limited company. The promoter must inform the Registrar of Companies within 60 days of the increase exceeding the limit (via Form INC-5) and complete conversion within 6 months of such breach.

**(ii) Effect of turnover of ₹3 crores during 2016-17:**

The relevant turnovers are: 2014-15 — ₹2 crores; 2015-16 — ₹2.5 crores; 2016-17 — ₹3 crores. The average annual turnover over these three consecutive financial years is ₹2.5 crores, which **exceeds the threshold of ₹2 crores**. Moreover, even the individual year tu…

Question 2

Discuss the provisions relating to private placement of shares under the Companies Act, 2013.

Accepted Answer

Private placement refers to the offer and allotment of shares to a select group of persons without making a public offer. Under the **Companies Act, 2013**, the following provisions govern private placement:

**Meaning and Exemption**: Private placement is an exempted offering under **Section 23** read with **Section 42** of the Companies Act, 2013. The company can directly allot shares to identified persons without issuing a prospectus, thereby avoiding the stringent requirements of public offerings.

**Number of Allottees**: As per **Rule 5 of the Companies (Prospectus and Allotment of Securities) Rules, 2014**, shares can be offered privately to a maximum of **200 persons** in a financial year, excluding employees holding shares under an ESOP and persons who already held shares. This limit ensures the character of the offer remains private and restricted.

**Approval Requirements**: (1) For a **Private Company**, shareholder approval by ordinary resolution is sufficient. (2) For a **Public Company**, both **Board resolution** and **shareholder approval** by ordinary resolution are mandatory before making the offer.

**Offer and Allotment Process**: The company must obtain **written consent** from identified allottees before or at the time of making the offer. Shares must be offered through an **offer letter** in prescribed form. Allottees must be **identified before or at the time** of making the offer. Allotment is made through a **letter of allotment** in prescribed form…

Question 3

Komal Ltd declares a dividend for its shareholders in AGM held on 27th September, 2018. Referring to provisions of the General Clauses Act, 1897 and Companies Act, 2013 advise:

Accepted Answer

**Answer:**

**Dividend Payment Timeline:** According to **Section 127 of the Companies Act, 2013**, dividend declared in the AGM must be paid to shareholders within 30 days from the date of declaration. The AGM was held on **27th September 2018**.

Applying **Section 13 of the General Clauses Act, 1897** (which governs computation of time periods), the day from which the period is to begin is excluded. Therefore, the 30-day period commences from 28th September 2018. Counting 30 days from 28th September 2018, the dividend payment must be completed by **27th October 2018**. If the company fails to pay within this period, it becomes liable to pay interest on the unpaid dividend at the prescribed rate.

**Transfer to Unpaid Dividend Account:** As per **Section 125 of the Companies Act, 2013**, any portion of the dividend declared in the AGM that remains unpaid or unclaimed after 30 days must be credited/transferred to the **unpaid dividend account** of the company. Since the 30-day period expires on 27th October 2018, any dividend remaining unpaid thereafter should be transferred to the unpaid dividend account from **28th October 2018** onwards.

Further, if the dividend remains unclaimed in the unpaid dividend account for **7 years** from the date of transfer, it must be transferred to the **Investor Education and Protection Fund (IEPF)** as per Section 125(5) of the Companies Act, 2013. In this case, such transfer to IEPF would occur on **28th October 2025**.

Question 4

Mr. Chand was appointed as the Manager of ABC Connection Company on a two years contract at a monthly salary of ₹ 50,000. After six months the company was not in position to pay ₹ 50,000 to Mr. Chand and therefore Chand agreed to a loss of ₹ 30,000 from the company. This was not communicated to Mr. Chand. The months later it was discovered that Chand had been doing fraud since the time of his appointment. What is the position of Mr. Chand during the whole period of Chand's Appointment.

Accepted Answer

Mr. Chand's legal position during his appointment undergoes significant changes based on the circumstances:

**Phase 1: Initial Appointment (First 6 months)**
Mr. Chand was validly appointed as Manager on a binding two-year employment contract with a monthly salary of ₹50,000. During this period, his position was that of a legally recognized employee with full contractual rights. The appointment had all essential elements—offer, acceptance, consideration, and certainty of terms—making it a valid and enforceable contract under the Indian Contract Act, 1872.

**Phase 2: Salary Modification (After 6 months)**
When the company could not pay the agreed salary and Chand agreed to accept a reduction of ₹30,000 per month, this constituted a valid modification of the employment contract. Under Section 62 of the Indian Contract Act, both parties' consensual agreement to vary contractual terms is binding. The reduced salary became the new contractual obligation, and Chand remained a validly employed manager with modified remuneration.

**Phase 3: Upon Discovery of Fraud**
The discovery that Chand committed fraud since his appointment fundamentally alters his legal position. **Section 17 of the Indian Contract Act defines fraud as inducing another to enter into a contract through misrepresentation.** When fraud is discovered, the contract becomes **voidable at the company's option**, meaning the company can rescind it and restore itself to the original position.

**Chand's Legal Conseque…

Question 5

ABC Ltd. has following balances in their Balance Sheet as on 31-March-2018: Equity shares capital (100 lakhs equity shares of ₹ 10 each) ₹ 100.00 lacs; Free reserves ₹ 3.00 lacs; Securities Premium Account ₹ 3.00 lacs; Capital redemption reserve account ₹ 4.00 lacs; Revaluation Reserve ₹ 3.00 lacs. Directors of the company seeks your advice in following cases:

Accepted Answer

**(i) Bonus shares in ratio 1:3 — Feasibility**

Under **Section 63 of the Companies Act, 2013**, bonus shares can be issued only from **free reserves, Securities Premium Account, or Capital Redemption Reserve (CRR)**. Revaluation Reserve is **explicitly excluded** as a source for bonus issue.

Available sources: Free Reserves ₹3 lacs + Securities Premium ₹3 lacs + CRR ₹4 lacs = **₹10 lacs**.

For a 1:3 ratio (1 bonus share for every 3 held), new capital required = 1/3 × ₹100 lacs = **₹33.33 lacs**.

Since ₹10 lacs < ₹33.33 lacs, **ABC Ltd. cannot issue bonus shares in the ratio of 1:3.** The available permissible reserves are insufficient.

**(ii) Bonus shares in ratio 1:2 — Should the company consider it?**

If the company considers a 1:2 bonus ratio instead, new capital required = 1/2 × ₹100 lacs = **₹50 lacs**.

Available permissible reserves remain ₹10 lacs.

Since ₹10 lacs < ₹50 lacs, **ABC Ltd. cannot issue bonus shares in the ratio of 1:2 either.** There is no benefit in considering 1:2 as an alternative — it requires even more funds. The company should **not proceed** with either ratio unless it builds up adequate free reserves.

**(iii) Dividend by YZ Ltd. — Legality**

Under **Section 123(1) of the Companies Act, 2013**, a company may declare dividend out of profits of the current financial year after providing for depreciation. The **Companies (Declaration and Payment of Dividend) Rules, 2014** do not mandate any compulsory transfer to reserves before declaring di…

Question 6

Due to heavy rains and floods Chemist Hariboom Limited was unable to hold the annual general meeting up to 30th September, 2017. The company has not filed the annual financial statements, or the annual return as the direction of the company are of the view that the 30th annual general meeting did not take place, the period of 60 days for filling of annual return is not applicable and thus, there is no contravention of Section 92 of the Companies Act, 2013. Discuss whether the contention of directors is correct.

Accepted Answer

**The contention of the directors of Chemist Hariboom Limited is not correct.**

**Relevant Provision — Section 92 of the Companies Act, 2013:**

Section 92(4) of the Companies Act, 2013 requires every company to file a copy of the annual return with the Registrar of Companies within **60 days from the date on which the Annual General Meeting (AGM) is held**. However, the proviso to Section 92(4) specifically addresses situations where the AGM is **not held** — it states that the annual return shall be filed within **60 days from the date on which the AGM should have been held**.

**Application to the Given Case:**

Chemist Hariboom Limited, being a company other than a One Person Company, is required under **Section 96 of the Companies Act, 2013** to hold its AGM within 6 months from the close of the financial year, i.e., on or before **30th September, 2017** (for FY ending 31st March 2017).

The fact that the AGM could not be held due to heavy rains and floods does **not** suspend the statutory obligation to file the annual return. The proviso to Section 92(4) makes it clear that even if no AGM is held, the 60-day clock runs from the **date on which the AGM ought to have been held** — i.e., from **30th September, 2017**.

Accordingly, the annual return ought to have been filed by **29th November, 2017** (60 days from 30th September, 2017). Since the company has not filed the annual return, **there is a clear contravention of Section 92 of the Companies Act, 2013**.

The dir…

Question 7

CA-M is a partner in SM & Company (Chartered Accountants) and ML & Company (Chartered Accountants). SM & Company are statutory auditors of Mrs. Global Ltd. (listed) for past seven years as on 1.04.2018. Advise under relevant provisions of the Companies Act, 2013:

Accepted Answer

**Advice on Statutory Auditor Tenure and Appointment Restrictions:**

**(i) Tenure of SM & Company:**

Under **Section 139(4) of the Companies Act, 2013** (as amended by the Companies (Audit and Auditors) Amendment Rules, 2018), for **listed companies**, the tenure of an auditor is restricted to a **maximum of 5 consecutive years**. SM & Company has already served 7 years as on 1.04.2018, which exceeds the prescribed limit. Therefore, **SM & Company can continue for 0 (zero) more years**. They should have stepped down after completing 5 years from the commencement of their tenure and must immediately cease being statutory auditors of Mrs. Global Ltd. The excess period of 2 years (from year 5 to year 7) is a violation of the tenure restriction.

**(ii) Appointment of ML & Company during Cooling-off Period:**

**No**, ML & Company **cannot be appointed** as statutory auditor of Mrs. Global Ltd. during the cooling-off period of SM & Company. The reasons are:

1. **Cooling-off Period Provision:** After the completion of 5 consecutive years of tenure, the auditor firm (SM & Company) must undergo a mandatory **cooling-off period of 5 years** before being eligible for reappointment, as per Section 139(5) of the Companies Act, 2013.

2. **Restriction on Common Partners:** Section 139(4) and the related provisions restrict the appointment of an audit firm where the **incoming firm has common partners/proprietors with the retiring auditor firm**. Since CA-M is a partner in both SM & Co…

Question 8

Mr. Ram brother of CA. Shyam, a practicing chartered accountant, acquired securities of Mrs. Coal Ltd. having market value of ₹ 1,20,000 (face value ₹ 10,000). State whether CA-Shyam is qualified to be appointed as a statutory auditor of Mrs. Coal Ltd.

Accepted Answer

**Answer: CA. Shyam is NOT qualified to be appointed as a statutory auditor of Mrs. Coal Ltd.**

Although the securities are held by Mr. Ram (CA. Shyam's brother) and not directly by CA. Shyam, the shareholding constitutes an **indirect financial interest** for CA. Shyam under Section 141(3)(d) of the Companies Act 2013. A close family member's financial interest in the company is considered as creating an indirect financial interest for the auditor because:

(1) Family members typically share common interests and financial stakes, and there may be implicit moral or emotional pressure on the auditor to be biased.
(2) The auditor's independence in fact and in appearance would be compromised if a sibling holds a substantial financial stake in the entity being audited.
(3) SA 220 (Standard on Auditing) and the ICAI's Code of Ethics specifically provide that independence is impaired when a close family member holds a financial interest in the company, as this creates a self-interest threat that cannot be eliminated or reduced to an acceptable level.

Under Section 141(3)(d), an auditor is disqualified if he has a direct or indirect financial interest in the company. The shareholding of Mr. Ram (brother) in Mrs. Coal Ltd. falls within the definition of indirect financial interest. Therefore, CA. Shyam cannot accept the appointment, and any such appointment would be void.

Question 9

State the procedure to be followed by companies to accept deposits from its members according to the Companies Act, 2013. What are the exemptions available to the Private Limited Companies ?

Accepted Answer

**Procedure for Accepting Deposits from Members Under Section 76, Companies Act, 2013:**

Section 76 provides an exception to the general prohibition in Section 73, allowing companies to accept deposits from their members under specific conditions:

**1. Eligibility Requirement:**
Only non-public companies (i.e., Private Limited Companies) can accept deposits from members under this provision. The company must ensure the deposit is not accepted as a 'public deposit'.

**2. Board of Directors' Approval:**
The Board must pass a resolution approving acceptance of deposits from members. The resolution should specify the amount, rate of interest, maturity period, and terms of the deposit.

**3. Member Approval (for Public Companies):**
For Public Limited Companies (if they accept from members), approval must be obtained from members in General Meeting by a **majority of not less than three-fourths (3/4th) of the members present**. The notice must contain particulars of deposits proposed to be accepted.

**4. Documentation and Issuance:**
A Fixed Deposit Receipt or Pass-book must be issued to each member depositor. Separate records must be maintained with details of amount, rate of interest, maturity date, and deposit terms.

**5. Disclosure Requirements:**
Deposits must be disclosed in the company's:
- Balance Sheet
- Notes to Accounts
- Directors' Report

**6. Repayment Mechanism:**
The company must ensure timely repayment of deposits on maturity along with interest at rates not …

Question 10

Murudharan drew a cheque payable to Mr. Vyss in order. Mr. Vyss lost the cheque and was not aware of the loss of the cheque. The person who found the cheque forgot the signature of Mr. Vyss and endorsed it to Mr. Paryakassai as the consideration for goods bought from him. Mr. Parshwasah endorsed on the very same day from the drawer bank. Mr. Vyss intimated the drawer bank about the theft of the cheque after three days. Who is liable for the drawee bank?

Accepted Answer

**Answer: The Drawee Bank is liable for the loss; the Drawer (Murudharan) is NOT liable.**

**Primary Liability - The Forger:**
The person who found the cheque and forged Mr. Vyss's signature is primarily liable. The cheque was payable to Vyss in order, meaning only Vyss could endorse it for further transfer. A forged endorsement breaks the chain of title and makes the cheque non-transferable. Under Section 129 of the Negotiable Instruments Act, 1881, an endorser warrants that the instrument is genuine and that they have the right to endorse. The forged endorsement violates this warranty.

**Secondary Liability - The Drawee Bank:**
The drawee bank is liable and bears the loss because: (1) The bank should have verified the genuineness of Mr. Vyss's signature before paying. (2) Under Section 85 of the NIA, 1881, the bank's duty is to pay cheques only when properly presented with genuine endorsements. (3) Since the endorsement was forged, the cheque was not properly negotiable, and the bank should have rejected it. (4) If the bank paid on this cheque, the bank cannot debit Murudharan's account for the amount. (5) Mr. Paryakassai, who received the cheque on a forged endorsement, is not a holder in due course and has no right to demand payment.

**No Liability - The Drawer (Murudharan):**
Murudharan is NOT liable because: (1) The drawer issued the cheque properly and legally to Vyss. (2) The forged endorsement occurred after the cheque left Murudharan's hands. (3) Murudharan had n…

Question 11

Mr. S Venkatesh drew a cheque in favor of M who was sixteen years old. M routed his intent due endorsing the cheque in favour of Mrs. A who is the owner of the house in which he stayed. The cheque was endorsed when Mrs. A presented it for payment on grounds of incapacity of funds. Advice Mrs. A how she can proceed to collect her dues.

Accepted Answer

Mrs. A's situation arises from a fundamental legal incapacity. Under **Section 26 of the Negotiable Instruments Act, 1881**, a minor is incompetent to endorse a promissory note, bill of exchange, or cheque. Since M was only 16 years old, his endorsement of the cheque to Mrs. A is **void ab initio** (void from the beginning).

**Legal Consequences**: The void endorsement means Mrs. A did not acquire valid title to the cheque. She is not a "holder" as defined in Section 8 of the NI Act, and therefore cannot be a "holder in due course" under Section 45. Consequently, Mrs. A cannot enforce the cheque against Mr. S Venkatesh (the drawer), despite the cheque being dishonored due to insufficient funds.

**Remedies Available to Mrs. A**:

1. **Direct Claim Against M**: Mrs. A should sue M (or his guardian/parents) in a civil court for recovery of her dues. Since the cheque is invalid as a negotiable instrument, Mrs. A must establish her claim based on the original obligation—likely for house rent or lodging fees owed for the period M resided at her property. This converts her claim from a negotiable instrument claim to a general debt claim.

2. **Approach M's Guardian**: As M is a minor, Mrs. A should contact his parents or guardian and explain the situation, seeking settlement of the dues even if they are not legally liable.

3. **Negotiate with Venkatesh**: Mrs. A could approach Mr. S Venkatesh directly explaining the cheque dishonor and the void endorsement, requesting issuance of…

Question 12

What are the rights available to the holder of lost goods under Section 168 and Section 169 of the Indian Contract Act, 1872?

Accepted Answer

**Rights of Holder of Lost Goods**

The holder (finder) of lost goods is vested with significant rights under Sections 168 and 169 of the Indian Contract Act, 1872, which protect the finder's interests and incentivize the return of lost property.

**Under Section 168 – Rights of Finder:**

The finder has the right to **retain possession** of the goods until rightfully recovering all sums expended in preserving them and any reward offered for finding and returning the goods. The finder is entitled to recover **necessary and reasonable expenses** incurred in preserving, maintaining, and protecting the lost goods from the true owner. This includes costs of storage, feeding (if animals), repairs, or other preservation costs.

The finder also has the right to claim any **reward publicly offered** for the finding and return of the goods. This reward becomes enforceable against the true owner when the goods are returned. Additionally, if the true owner cannot be found after reasonable inquiry and public notice, the finder may **sell the goods** and retain the proceeds after deducting expenses and claiming compensation for trouble and inconvenience.

**Under Section 169 – Right to Receive Reward:**

This section specifically reinforces that the finder is entitled to **receive compensation from the true owner** for all necessary expenses incurred in discovering and preserving the goods. The true owner is bound to reimburse the finder for such expenditures.

The finder has the right to…

Question 13

Explain various provisions applicable to rules or bye-laws being made after previous publications as enumerated in Section-23 of the General Companies Act.

Accepted Answer

**Section 23 of the Companies Act 2013** deals with bye-laws and their applicability, particularly addressing rules or bye-laws made after previous publications. The key provisions are as follows:

**Continuation of Previous Bye-Laws**: Bye-laws that were in force immediately before the commencement of the Act shall continue in operation as if made under the Companies Act 2013. This ensures business continuity and prevents any regulatory vacuum during the transition between legislative regimes.

**Inconsistency with the Act**: Any bye-laws in force before the Act's commencement that are inconsistent with the provisions of the Companies Act 2013 or any other law for the time being in force shall, to the extent of such inconsistency, become void and cease to have effect. This ensures supremacy of the statutory framework.

**Compliance of New Bye-Laws**: Bye-laws made or amended after the publication of the Act must not be inconsistent with the Act or any other law. Every company making new bye-laws must ensure conformity with the statutory framework and prescribed procedures.

**Approval Process**: New bye-laws must be approved by the Board of Directors and subsequently by the members of the company through Special Resolution. This dual-layer approval mechanism ensures both managerial oversight and member consent.

**Filing and Registration Requirements**: All bye-laws, whether made before or after the Act's commencement, must be filed with the Registrar of Companies within the…

Question 14

Write short note on: Explanation, with reference to interpretation of Statutes, Deeds and Documents.

Accepted Answer

**Explanation** refers to the process of making the meaning of statutes, deeds, and documents clear when their language is ambiguous or requires interpretation. It is a fundamental principle in legal practice, especially in commerce and contract law.

**Interpretation of Statutes**: Statutes are laws enacted by legislative bodies. Their interpretation follows established principles under the General Clauses Act, 1897 and Indian legal tradition. The **Literal Rule** requires courts to adopt the plain, ordinary meaning of words unless doing so leads to absurdity. The **Golden Rule** permits departure from literal meaning when it would produce an absurd result. The **Mischief Rule** looks to the mischief the statute was designed to remedy and interprets it to suppress that mischief. Statutes must be read as a whole, considering the context, legislative intent, and preamble. Ambiguities are resolved in favor of the subject (against the Crown/state).

**Interpretation of Deeds**: A deed is a formal written instrument evidencing a legal transaction. Interpretation of deeds is governed by Sections 61-65 of the Indian Contract Act, 1872. The words in a deed must be understood in their **ordinary grammatical sense** unless a special meaning is established by usage or established by the parties. The **Contra Proferentem Rule** applies: if a deed prepared by one party contains ambiguity, it is interpreted against the drafter. The entire deed must be read together to ascertain the intent…

Question 15

A Housing Finance Ltd. is a housing finance company having a paid up Share Capital of ₹ 11 crores and a turnover of ₹ 145 crores during the Financial Year 2017-18. Explain with reference to relevant provisions and rules, whether it is necessary for A Housing Finance Ltd. to file its financial statements in XBRL mode.

Accepted Answer

**Answer: Yes, A Housing Finance Ltd. is required to file its financial statements in XBRL mode.**

**Applicable Rule:** Rule 6 of the Companies (Filing of Documents and Furnishing of Information) Rules, 2015, as amended by the Companies (Filing of Documents and Furnishing of Information) Amendment Rules, 2016, prescribes mandatory XBRL filing for certain categories of companies.

**Criteria for Mandatory XBRL Filing (effective from April 1, 2016 for FY 2016-17 onwards):**

Under Rule 6, companies are required to file their financial statements in XBRL mode if they satisfy **either** of the following conditions:

1. **Paid-up share capital of ₹5 crores or more but less than ₹10 crores; OR turnover of ₹100 crores or more but less than ₹250 crores.**

2. **Paid-up share capital of ₹10 crores or more; OR turnover of ₹250 crores or more.**

**Application to A Housing Finance Ltd. (FY 2017-18):**

A Housing Finance Ltd. has:
- **Paid-up Share Capital: ₹11 crores** (which exceeds ₹10 crores)
- **Turnover: ₹145 crores** (which is between ₹100 crores and ₹250 crores)

The company satisfies **both conditions** under the mandatory XBRL filing requirement:
1. Its paid-up capital of ₹11 crores exceeds the threshold of ₹10 crores.
2. Its turnover of ₹145 crores exceeds ₹100 crores.

**Conclusion:**

A Housing Finance Ltd. falls within the category of companies mandated to file their financial statements in XBRL (eXtensible Business Reporting Language) mode. XBRL is a standardized, machine…

Question 16

Members of ZA Ltd holding less than 1% of total voting power were advised to give a special notice to serve a resolution for appointment of an auditor other than retiring auditor. Explain relevant sections of the Companies Act, 2013 in making their request.

Accepted Answer

The relevant sections of the Companies Act, 2013 for giving special notice to serve a resolution for appointment of an auditor other than the retiring auditor are as follows:

**Section 114 - Definition and Mode of Special Notice**: Special notice means notice in writing of intention to propose a resolution at a meeting, given to the company by a member entitled to vote at such meeting. The notice must be given to the company not less than 14 days before the meeting. Once received, the company must give notice of the resolution to all members along with the auditor's reply (if any).

**Section 115 - Appointment of Auditor**: This section governs the appointment of auditor. Crucially, when a resolution is proposed at a general meeting for the appointment of an auditor other than the retiring auditor, special notice is mandatory. This requirement protects the interests of the retiring auditor and ensures proper disclosure to all members.

**Section 115(5) - Rights of Retiring Auditor**: Upon receipt of special notice, the company must inform the retiring auditor. The retiring auditor has the statutory right to make a written representation against the proposed appointment of the new auditor. The company must send a copy of the retiring auditor's representation to all members before the meeting.

**Section 115(6) - Company's Obligation**: The company is obligated to communicate the notice of the proposed resolution along with any representation from the retiring auditor to all m…

Question 17

What is a Shelf-Prospectus ? State the important provisions relating to the issuance of Shelf-Prospectus under the provisions of Companies Act, 2013

Accepted Answer

A **Shelf-Prospectus** is a prospectus filed with the Registrar of Companies that permits a company to issue securities on multiple occasions within a prescribed period without the necessity of filing a fresh prospectus each time. It is a single prospectus that covers several public offerings of securities made on a rolling basis.

**Important Provisions under Companies Act, 2013 and Related Rules:**

**Eligibility Criteria:** A shelf-prospectus can be issued only by public companies that have been in existence for at least 3 years and have been in profitable operation for the 3 years immediately preceding the year of issuance.

**Validity Period:** A shelf-prospectus remains valid for 12 months from the date of its filing with the Registrar of Companies. Multiple offerings can be made within this validity period.

**Aggregate Amount Limit:** The aggregate amount of securities that can be issued under a single shelf-prospectus shall not exceed the **higher of (i) 5 times the net working capital or (ii) ₹1,000 crore**, whichever is lower.

**Issue Price Condition:** Securities issued under a shelf-prospectus cannot be offered below the issue price or the average market price (whichever is higher) as per prescribed norms.

**Prior Approval:** The Board of Directors must grant prior approval before each offer under a shelf-prospectus is made. A fresh prospectus must be filed for each subsequent offering after the initial shelf-prospectus.

**Restrictions:** A shelf-prospectus ca…

Question 18

Amar bailed 50 kg of high quality sugar to Srijali, who owned a kirana shop, promising to give ₹ 200 at the time of taking back the bailed goods. Srijali's employee, unaware of this, mixed the 50 kg of sugar belonging to Amar with the sugar in the shop and packaged it for sale when Srijali was away. This came to light only when Amar came asking for the sugar he had bailed with Srijali, as the price of the specific quality of sugar had halted. What is the remedy available to Amar?

Accepted Answer

**Applicable Provisions — Sections 155, 156, and 157 of the Indian Contract Act, 1872**

**Facts of the Case:**
Amar (bailor) bailed 50 kg of high-quality sugar to Srijali (bailee) under a contract of bailment. Srijali's employee, without Amar's knowledge or consent, mixed Amar's 50 kg of sugar with the sugar already in Srijali's shop and packaged it for sale. This mixing was done without the bailor's (Amar's) consent.

**Classification of the Situation:**
The Indian Contract Act, 1872 recognises three situations regarding mixing of bailed goods:

(a) **Section 155** — Mixture with the bailor's consent: Both parties get proportionate interest in the mixture. *(Not applicable here — no consent was given.)*

(b) **Section 156** — Mixture without consent, goods separable: Bailee bears separation costs and any resulting damage. *(Not applicable here — sugar, being a fungible commodity, once mixed and packaged for sale, cannot be meaningfully separated to identify the specific high-quality variety.)*

(c) **Section 157** — Mixture without consent, goods NOT separable: The bailee is liable to **compensate the bailor** for the entire loss of the goods.

**Application to the Given Case:**
Srijali's employee mixed Amar's 50 kg of high-quality sugar with the shop's sugar without Amar's consent, and it was packaged for sale. Separation of the specific high-quality sugar from the bulk is **impossible**. The act of the employee is attributable to Srijali as bailee, since a bailee is respo…

Question 19

KMN Ltd. scheduled its annual general meeting to be held on 1st March, 2018 at 11:00 A.M. The company has 900 members. On 11th March, 2018 following persons were present by 11:30 A.M.: (i) P1, P2 & P3 shareholders; (ii) P4 representing ABC Ltd.; (iii) P5 representing DEF Ltd.; (iv) P6 (LKM Ltd.) shareholders. Examine with reference to relevant provisions of the Companies Act, 2013, whether quorum was formed in the meeting.

Accepted Answer

**Relevant Provision:** Section 103 of the Companies Act, 2013 governs quorum for general meetings.

**Quorum Requirement:** KMN Ltd. is a public company with **900 members**. As per Section 103(1)(a), where the number of members of a public company as on the date of the meeting does not exceed 1,000, the quorum is **5 members personally present**.

**Meaning of 'Personally Present':** For quorum purposes, only members who are personally present are counted. As per **Section 113**, a body corporate which is a member of a company may authorize a representative by a resolution of its Board of Directors, and such representative shall be deemed to be a member personally present. **Proxies** do not count towards quorum (Section 105).

**Analysis of persons present by 11:30 A.M. on 1st March, 2018:**

**(i) P1, P2 & P3 – Individual shareholders of KMN Ltd.:** All three are members personally present. **Count: 3**

**(ii) P4 representing ABC Ltd.:** ABC Ltd. is a corporate member of KMN Ltd. P4, being its authorized representative under Section 113, is deemed to be personally present. **Count: 1 (total: 4)**

**(iii) P5 representing DEF Ltd.:** Similarly, DEF Ltd. is a corporate member and P5, as its authorized representative, is deemed personally present. **Count: 1 (total: 5)**

**(iv) P6 (LKM Ltd.) – shareholder:** P6 is a shareholder of LKM Ltd., not of KMN Ltd. P6 is therefore **not a member of KMN Ltd.** and cannot be counted for quorum. **Count: 0**

**Conclusion on Quorum:**…

Question 20

'X' a member of LKM Ltd. is holding 250 shares, which are partly paid. The company held its general meeting where voting rights were denied to 'X' claiming he has not paid the calls on the shares held by him. Examine the validity of company's denial to 'X' with reference to the relevant provisions of the Companies Act, 2013, assuming that 'Articles of association of the Company does not restrict the voting right of such members.

Accepted Answer

**Relevant Provisions — Voting Rights on Partly Paid Shares**

The matter is governed by **Section 47** and **Section 106 of the Companies Act, 2013**.

**Section 47(1)** provides that every member of a company limited by shares holding equity share capital shall have a right to vote on every resolution placed before the company. His voting right **on a poll** shall be in proportion to his share in the **paid-up equity share capital** of the company.

**Section 106** of the Companies Act, 2013 is the critical provision here. It states that the **Articles of Association** of a company *may* provide that no member shall exercise any voting right in respect of shares registered in his name on which **any calls or other sums presently payable** by him have not been paid, or in regard to which the company has exercised any right of lien.

The key word in Section 106 is **"may"** — the restriction of voting rights on account of unpaid calls is **not automatic**. It is a discretionary power conferred upon the company to incorporate such a restriction through its Articles. The restriction operates **only if the Articles of Association specifically provide for it**.

**Conclusion on Validity of Company's Action:**

In the given case, 'X' holds 250 partly paid shares in LKM Ltd. The company denied him voting rights on the ground that calls on his shares remain unpaid. However, the **Articles of Association of LKM Ltd. do not contain any restriction** on the voting rights of members wit…

Question 21

Explain 'Machines Rate' for interpretation of statute. Also, give four instances it considers in construing an Act.

Accepted Answer

**Answer: Unable to provide confident solution**

The term 'Machines Rate' is not a recognized concept in statutory interpretation under Indian law or the CA Intermediate syllabus. The question title references the **Mischief Rule**, which is a well-established rule of statutory interpretation, but the question asks specifically about 'Machines Rate,' which cannot be reliably explained.

**Possible clarification needed:** The question may intend to refer to the **Mischief Rule**, which considers four key aspects when interpreting statutes: (1) the state of common law before the Act, (2) the mischief or defect that existed in common law, (3) the remedy Parliament intended to provide, and (4) the reason for enacting the remedy. However, without confirmation that this is what is meant, a definitive answer cannot be provided.

Please verify the exact terminology used in your course materials or examination papers.

Question 22

Explain how 'Dictionary Definitions' can be of great help in interpreting / construing an Act when the same is ambiguous.

Accepted Answer

**Dictionary definitions** serve as a vital aid in statutory interpretation when an Act contains ambiguous or undefined terms. When legislation does not expressly define a word or phrase, courts refer to standard dictionary definitions to ascertain the **ordinary or plain meaning** that a reasonable person would attach to that word. This approach is rooted in the **plain meaning rule** (also called the literal rule), which presumes that the legislature uses words in their common acceptation unless context indicates otherwise. Dictionary definitions provide an **objective and standardized interpretation**, preventing subjective judicial construction and ensuring consistency across similar cases. They help courts determine legislative intent by establishing what the legislature likely meant when employing ordinary words. When an Act is ambiguous and no statutory definition is provided, reference to reputable dictionaries becomes permissible and desirable to resolve the ambiguity. However, statutory definitions within the Act itself take precedence over dictionary meanings. Dictionary definitions are particularly valuable for common words rather than technical or specialized terms. This principle ensures that ambiguous statutory provisions are construed in a manner comprehensible to the general public, maintaining the rule of law and preventing arbitrary interpretation. The use of dictionary meanings thus acts as a restraint on judicial discretion while facilitating fair and pre…

Question 23

'Repeal' of provision is different from 'deletion' of provision. Explain.

Accepted Answer

**Repeal** refers to the complete and formal abrogation or withdrawal of an entire statutory provision, section, or Act by a subsequent legislative enactment. When a provision is repealed, it ceases to have any legal effect whatsoever. The repealed text remains in the statute books as a historical record but has no binding force. Repeal eliminates the entire provision without exception.

**Deletion** refers to the removal or striking out of specific words, phrases, or clauses from within a provision. It is a partial modification where certain text is removed while the remainder of the provision continues to operate and retain legal effect. The deleted words are literally removed from the statutory text.

**Key Differences:**

(1) **Scope of Effect**: Repeal withdraws an entire provision completely; deletion removes only specific words or portions while the provision survives in modified form.

(2) **Application Level**: Repeal typically applies to whole sections, chapters, or entire Acts; deletion applies to specific words, phrases, or clauses within a provision.

(3) **Legal Status**: A repealed provision has no legal effect at all and cannot be enforced; a deleted portion cannot be applied, but the remaining text of the provision continues to be operational.

(4) **Statutory Record**: Upon repeal, the provision is marked as repealed but remains in the statute; upon deletion, the text itself is removed or struck through.

(5) **Interpretation**: Courts cannot give effect to …

Question 24

What will be your answer if P4 representing ABC Ltd., raises objection to the passing of the resolution in the meeting after 11:30 A.M.?

Accepted Answer

**Answer:** If P4 representing ABC Ltd. raises an objection to the passing of the resolution after 11:30 A.M., the objection **cannot be entertained** if this timing falls after the time appointed for the meeting or after the resolution has already been passed and voted upon.

**Legal Position:** Under the **Companies Act, 2013** and the **Companies (Management and Administration) Rules, 2014**, objections to resolutions must be raised at the appropriate time during the meeting, specifically:

**Timing of Objections:** Per Section 106 of the Companies Act, 2013, objections or dissent against a resolution must be recorded at the time the resolution is being considered and voted upon. Once a resolution has been passed, no retrospective objections can be entertained.

**Quorum and Meeting Duration:** The meeting is governed by the time appointed in the notice. If the objection is raised after the conclusion of the meeting or significantly after quorum time has passed, it would be outside the permitted procedure. Quorum must exist at the time the meeting is held, and business transacted after that period follows the normal conduct of meeting rules.

**Chairman's Powers:** Per Rule 21 of Companies (Management and Administration) Rules, 2014, the Chairman has the authority to regulate the conduct of the meeting. Objections raised at inappropriate times (after passage of the resolution or after meeting closure) would be ruled out of order by the Chair.

**Consequence:** The resoluti…

Question 25

In case lack of Quorum, discuss the provisions as applicable for an adjourned meeting in terms of date, time & place.

Accepted Answer

**Adjourned Meeting Provisions for Lack of Quorum**

**Applicability**: The provisions for adjourned meetings due to lack of quorum are applicable to both shareholder meetings and Board meetings under the Companies Act, 2013.

**For Shareholder Meetings (Section 101)**:

When a shareholder meeting cannot be held due to lack of quorum, the meeting stands automatically adjourned. The **date** of the adjourned meeting shall be the same day in the next week (i.e., seven days later). The **time** shall remain the same as originally fixed for the meeting, unless the Board determines otherwise. The **place** of the adjourned meeting shall also be the same venue as originally appointed, unless the Board in its discretion determines and notifies members of an alternative day, time, and place.

The statutory waiting period of 15 minutes applies at the adjourned meeting as well. If a quorum is still not present within 15 minutes from the appointed time at the adjourned meeting, the meeting shall be dissolved, and no further adjournment is permissible on the same occasion.

**For Board Meetings (Section 173)**:

Similar provisions apply to Board meetings. When a Board meeting stands adjourned due to lack of quorum, it shall be adjourned to the same day in the next week at the same time and place, or to such other day, time, and place as the Board may determine. The Board must ensure that notice of such adjourned meeting is given to members in accordance with the rules.

**Key Features**:…

Question 26

What happens if there is no Quorum in the meeting?

Accepted Answer

**Quorum in General Meetings**: Quorum refers to the minimum number of members required to be personally present or represented by proxy at a general meeting to conduct valid business. Under **Section 103 of the Companies Act, 2013**, the quorum for a general meeting is **five members personally present** or a lesser number as prescribed by the company's articles of association.

**Consequences When Quorum is Absent**:

**1. Meeting Cannot Proceed**: If the quorum is not present at the time fixed for commencement of the meeting, the meeting cannot be held. No business can be transacted and no resolutions can be passed. The entire purpose of convening the meeting is rendered void.

**2. Meeting Stands Adjourned**: As per **Section 107 of the Companies Act, 2013**, if a quorum is not present within 30 minutes from the time appointed for the meeting, the meeting stands adjourned to the same day in the next week at the same time and place, or to such other day and time as the Board may decide. The adjournment is automatic and does not require any formal action.

**3. Fresh Notice Requirements**: For the adjourned meeting, the company must issue a fresh notice to all members as per **Section 101 of the Companies Act, 2013**. The notice period for reconvening must be at least 7 days before the adjourned meeting. This ensures all members are informed about the new date.

**4. Second Failure of Quorum**: If at the adjourned meeting, again no quorum is present within 30 minutes of the…

Question 27

The persons (not being members) dealing with the company are always protected by the doctrine of Indoor management. Explain. Also, explain when doctrine of Constructive Notice will apply.

Accepted Answer

**Doctrine of Indoor Management: Protection for Outsiders**

The doctrine of indoor management (also known as Turquand's Rule) is a principle of company law that protects third parties and outsiders dealing with a company from the consequences of irregularities in the company's internal management. This doctrine is codified under **Section 6 of the Companies Act, 2013**.

**How the Doctrine Protects Outsiders (Part a):**

The fundamental principle is that **outsiders dealing with the company are not required to look into the internal affairs of the company or verify compliance with its constitutional provisions**. They are entitled to assume that all internal procedures and formalities have been duly complied with. Specifically:

1. **Presumption of Regularity**: An outsider can presume that the company's board and officers have acted within their powers as defined in the Memorandum and Articles of Association, even if this is not factually true.

2. **No Duty of Inquiry**: Third parties are not bound to investigate whether the company's internal regulations have been followed or whether proper internal authorization exists for a particular transaction.

3. **Protection from Internal Irregularities**: The doctrine protects outsiders from being adversely affected by breaches of internal procedures, such as failure to convene board meetings, procedural defects in passing resolutions, or unauthorized acts by officers, provided the transaction appears to be validly executed.

4. …

Question 28

Triton Ltd. is a company registered in New York (U.S.A.). The company has no place of business established in India, but it is doing online business through data interchange in India. Explain with reference to relevant provisions of the Companies Act, 2013 whether Triton Ltd. will be treated as Foreign Company.

Accepted Answer

**Relevant Provision — Section 2(42) of the Companies Act, 2013:**

As per **Section 2(42) of the Companies Act, 2013**, a **"Foreign Company"** means any company or body corporate incorporated outside India which —

**(a)** has a place of business in India whether by itself or through an agent, **physically or through electronic mode**; and

**(b)** conducts any business activity in India in any other manner.

Both conditions must be read together. The definition expressly includes **electronic mode** as a valid form of having a place of business in India, even without any physical presence.

**Meaning of 'Electronic Mode' — Rule 2(c) of the Companies (Registration of Foreign Companies) Rules, 2014:**

The term **"electronic mode"** is defined under **Rule 2(c) of the Companies (Registration of Foreign Companies) Rules, 2014** to include carrying out electronically based transactions, whether the main server is installed in India or not. This specifically covers:
- Business-to-business and business-to-consumer transactions;
- **Data interchange**;
- Digital supply transactions;
- Web-based marketing, advisory and transactional services;
- Database services and products; and
- All related data communication services.

**Application to Triton Ltd.:**

Triton Ltd. is incorporated in New York, U.S.A. (i.e., outside India). Although it has **no physical place of business in India**, it is engaged in **online business through data interchange in India**. As per Rule 2(c) above, 'd…

Question 29

Explain the conditions and the manner in which a company may issue Global Depository Receipts in a foreign country. OR What is the time limit for registration of charge with the registrar? Where should the company's Registrar of charges keep? State the persons who have the right to inspect the Company's Register of charges.

Accepted Answer

**PART (a): Issue of Global Depository Receipts (GDRs) in a Foreign Country**

**Legal Basis:** Section 41 of the Companies Act, 2013 read with the Companies (Issue of Global Depository Receipts) Rules, 2014 governs the issue of GDRs by Indian companies in foreign countries.

**Conditions for Issue of GDRs:**

1. **Authorization by Special Resolution:** The company must be authorized by a special resolution passed in a general meeting before issuing GDRs.

2. **Board Authorization:** The Board of Directors must also authorize the issue of GDRs through a Board resolution.

3. **No Default:** The company must not be in default in complying with the provisions of the Companies Act, 2013 — particularly in filing annual returns, financial statements, or in repayment of deposits or interest thereon.

4. **Regulatory Compliance:** The company must not be barred by SEBI, RBI, or any other regulatory authority from accessing capital markets or issuing securities.

5. **FEMA Compliance:** The issue must be in accordance with the Foreign Exchange Management Act, 1999 and applicable RBI guidelines.

**Manner of Issue of GDRs:**

Step 1: The company issues **underlying equity shares** (or securities) to a **Domestic Custodian Bank** in India.

Step 2: The Domestic Custodian Bank holds the underlying securities and instructs the **Overseas Depository Bank** to issue GDRs against these underlying shares.

Step 3: The **Overseas Depository Bank** issues GDRs to foreign investors. Each GDR re…

Question 30

Aziz consigned electronic goods for sale to Aziz. Aziz employed Rabin a reputed auctioneer to sell the goods consigned to him through auction. Aziz authorized Rabin to receive the proceeds and transfer those proceeds once in 45 days. Rabin sold goods on auction for ₹ 2,00,000 but before transferring the proceeds of the auction, became insolvent. Assess the liability of Aziz according to the provisions of the Indian Contract Act, 1872.

Accepted Answer

**Facts of the Case:** The principal consigned electronic goods for sale to **Aziz** (agent). Aziz employed **Rabin**, a reputed auctioneer, as a sub-agent to sell the goods through auction. Aziz authorised Rabin to receive the auction proceeds and remit them once in 45 days. Rabin sold the goods for ₹2,00,000 but became insolvent before transferring the proceeds.

**Relevant Provisions of the Indian Contract Act, 1872:**

Under **Section 190** of the Indian Contract Act, 1872, an agent cannot normally delegate his authority to a sub-agent. However, an agent may lawfully employ a sub-agent where the nature of the agency or the custom of trade so requires. Selling goods through auction inherently requires the employment of a professional auctioneer — this falls squarely within the exception of the nature of agency and custom of trade.

Under **Section 191**, a sub-agent is a person employed by the original agent and acting under that agent's control in the business of the agency. Rabin, employed by Aziz to conduct the auction and collect proceeds, is a **properly appointed sub-agent**.

Under **Section 192**, where a sub-agent is properly appointed, the principal is bound by the acts of the sub-agent, and the **agent is responsible to the principal for the acts of the sub-agent**. The sub-agent is responsible to the agent, not to the principal (except in cases of fraud or wilful wrong).

**Assessment of Aziz's Liability:**

Since Rabin was a **properly appointed sub-agent**, t…

CA Inter Corp Laws

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2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap