Question 1

Xeon Limited has a paid-up equity capital and free reserves to the extent of ₹ 50,00,000. The company is planning to buy-back shares on the open market for ₹ 4,50,000. The company approaches you for advice with regard to the following:
(i) Is special resolution required to be passed?
(ii) What is the time limit for completion of buy-back?
(iii) What should be ratio of aggregate debt to paid-up capital and free reserves after buy-back?

Accepted Answer

**Applicable Law:** Section 68 of the Companies Act, 2013 governs buy-back of shares by a company.

**Given Information:**
- Paid-up equity capital and free reserves = ₹50,00,000
- Proposed buy-back amount = ₹4,50,000
- Buy-back as a percentage of paid-up equity capital and free reserves = (4,50,000 ÷ 50,00,000) × 100 = **9%**

**(i) Is Special Resolution required?**

As per **Section 68(2)(b) of the Companies Act, 2013**, a special resolution is required only when the buy-back exceeds **10%** of the total paid-up equity capital and free reserves of the company. If the buy-back is **up to 10%**, it can be authorised by means of a **Board Resolution** alone, without requiring a special resolution in a general meeting.

In the present case, the buy-back of ₹4,50,000 represents **9%** of ₹50,00,000, which is **less than 10%**. Therefore, **no special resolution is required**. A **Board Resolution** is sufficient to authorise the buy-back.

**(ii) Time limit for completion of buy-back:**

As per **Section 68(4) of the Companies Act, 2013**, every buy-back shall be completed within a period of **one year** from the date of passing of the special resolution or the board resolution, as the case may be.

Accordingly, Xeon Limited must complete the buy-back within **one year** from the date of the Board Resolution authorising such buy-back.

**(iii) Ratio of aggregate debt to paid-up capital and free reserves after buy-back:**

As per **Section 68(2)(d) of the Companies Act, 2013**, t…

Question 2

M/s. Techno Ltd. maintains Register of Members at its registered office in Mumbai. A group of members residing in Kolkata want to inspect the register of members at Kolkata.
(i) Explain with provisions of Companies Act, 2013, whether the company can keep the Registers and Returns at Kolkata.
(ii) Does Mr. Ranjit, Director (but not a shareholder) of the company have the right to inspect the Register of Members?

Accepted Answer

**Register of Members — Registers and Returns at a Place Other than Registered Office**

**(i) Whether the company can keep the Register of Members at Kolkata:**

As per **Section 94 of the Companies Act, 2013**, the registers and returns required to be maintained under **Section 88** (Register of Members) need not necessarily be kept only at the registered office. They **may be kept at any other place in India** in which more than **one-tenth (1/10th) of the total members** entered in the register of members reside, subject to the following conditions:

1. A **special resolution** must be passed by the company in a general meeting authorising the keeping of the register at such other place.
2. The Registrar of Companies (ROC) must be given a **copy of the special resolution** within **30 days** of passing it in Form MGT-6.
3. The register may be kept at any such place in India where **more than 1/10th of total members reside**.

**Application to M/s. Techno Ltd.:** The company can shift/keep its Register of Members at Kolkata **only if** more than 1/10th of its total members reside in Kolkata **and** a special resolution to that effect is passed. If the group of members residing in Kolkata constitutes more than 1/10th of the total members, the company **can** keep the register there upon passing a special resolution and intimating the ROC. If they constitute 1/10th or less, the register **cannot** be kept at Kolkata and the members will have to inspect it at the Mumbai regis…

Question 3

Give four differences between Bailment and Pledge.

Accepted Answer

**Differences between Bailment and Pledge:**

**1. Definition and Scope:**
Bailment is a delivery of goods by one person (bailor) to another (bailee) on the understanding that the goods shall be returned or dealt with in accordance with the bailor's instructions. Pledge, on the other hand, is a special form of bailment where goods are delivered to a creditor (pledgee) as security for a debt or obligation. Thus, every pledge is a bailment, but not every bailment is a pledge.

**2. Purpose:**
In a bailment, the purpose may be varied—safekeeping, repair, transportation, processing, or any other lawful purpose. The purpose is generally unrelated to providing security. In a pledge, the sole and exclusive purpose is to provide security for a debt, loan, or other obligation. The pledgee receives possession only to secure performance of an obligation.

**3. Right to Sell the Goods:**
In a bailment, the bailee does not have the right to sell the goods under normal circumstances. The bailee must return the goods or deal with them as instructed by the bailor. In a pledge, the pledgee has the right to sell the goods in case of default by the pledgor. Upon failure to pay the debt, the pledgee may sell the goods and recover the debt amount from the proceeds, after deducting costs.

**4. Pledgor's Right to Recovery:**
In a bailment, the bailor can demand the return of goods at any time or upon the fulfillment of the purpose for which they were bailed. The return is not conditional on any pa…

Question 4

Mr. D was in urgent need of money amounting ₹ 5,00,000. He asked Mr. K for the money. Mr. K lent the money on the sureties of A, B and C. After one month an agreement between them in case of default in repayment of money by D to K. D makes default in payment. B refused to contribute, examine whether B can escape liability?

Accepted Answer

**Legal Position of B as Co-Surety under the Indian Contract Act, 1872**

**Applicable Provision:** **Section 146 of the Indian Contract Act, 1872** deals with the liability of co-sureties. It provides that where two or more persons are co-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties are, in the absence of any contract to the contrary, bound to contribute equally to the discharge of the debt or damage for which they are all liable.

**Facts of the Case:**
- Mr. D (Principal Debtor) borrowed ₹5,00,000 from Mr. K (Creditor).
- A, B, and C stood as **co-sureties** for the repayment of the loan.
- D made a **default** in repayment.
- B **refused to contribute** towards the debt on D's default.

**Analysis:**
A, B and C are co-sureties for the same debt of ₹5,00,000. Since no contract specifies unequal contribution, each co-surety is bound equally under Section 146. The total liability is ₹5,00,000, and since there are three co-sureties (A, B, and C), each is liable to contribute **₹1,66,667 (approx.)** (i.e., ₹5,00,000 ÷ 3).

B's refusal to contribute does **not** absolve B of liability. The creditor Mr. K can enforce the guarantee against any one or more of the co-sureties for the entire amount, or proportionate amount, as per the terms of the guarantee.

**Conclusion:** **B cannot escape liability.** Under Section 146 of the Indian Cont…

Question 5

PFE Ltd., secured loans in thousands upto current quarter of financial year 2017-18. The company has decided to debit all about at the preceding three years. Inspite of the loss, the Board of Directors have decided to declare interim dividend of 15% for the current financial year. Examine the decision of PFE Ltd. in light of provisions of declaration of interim dividend under the Companies Act, 2013.

Accepted Answer

**The decision of PFE Ltd. to declare interim dividend of 15% is INVALID under the Companies Act, 2013.**

**Applicable Provisions:**
Section 123 of the Companies Act, 2013 governs the declaration and payment of dividends, including interim dividends. The relevant provisions are:

Section 123(1) provides that dividends shall be declared only out of: (a) profits of the company for the financial year calculated in accordance with Schedule II, or (b) retained earnings of previous years.

Section 123(3) contains a critical restriction: **A company shall not declare or pay dividend if it has incurred losses in the year, OR if it has accumulated losses from the preceding years equal to or exceeding the amount of its reserves.**

Section 123(5) specifically provides that interim dividend during any financial year may be declared out of profits of that year or carried forward surpluses, but this is **subject to the same restrictions** mentioned in Sub-section (3).

**Analysis of PFE Ltd.'s Position:**

1. **Current Year Loss**: The Board is deciding to declare dividend "inspite of the loss," which indicates PFE Ltd. has incurred a loss in FY 2017-18. This alone violates the mandate of Section 123(3).

2. **Accumulated Losses**: The company has decided to write off losses from the preceding three years. This indicates significant accumulated losses from those years. The act of writing off losses does not eliminate them from the balance sheet retrospectively; it merely adjusts the curr…

Question 6

MNP Private Ltd. is a company registered under the Companies Act, 2013 with a Paid Up Share Capital of ₹ 45 lakh and turnover of ₹ 3 crores. Explain the meaning of the "Small Company" and examine the following in accordance with the provisions of the Companies Act, 2013: (i) Whether the MNP Private Ltd. can avail the status of small company? (ii) What will be your answer if the turnover of the company is ₹ 1.50 crore?

Accepted Answer

**Meaning of Small Company [Section 2(85) of the Companies Act, 2013]:**

A **"Small Company"** means a company, other than a public company, which satisfies BOTH of the following conditions simultaneously:

**(a) Paid-up Share Capital:** Does not exceed **₹4 crore** or such higher amount as may be prescribed (ceiling: ₹10 crore); AND

**(b) Turnover:** As per its last profit and loss account, does not exceed **₹40 crore** or such higher amount as may be prescribed (ceiling: ₹100 crore).

**Companies excluded from the definition of Small Company (even if criteria are met):**
- A **holding company or subsidiary company**
- A company registered under **Section 8** (charitable/not-for-profit companies)
- A company or body corporate governed by any **special Act**

*Note: The thresholds were enhanced by the Companies (Specification of Definitions Details) Amendment Rules, 2021, effective from 1st April 2021, raising the capital limit from ₹2 crore to ₹4 crore and the turnover limit from ₹20 crore to ₹40 crore.*

**(i) Whether MNP Private Ltd. can avail the status of Small Company (Turnover: ₹3 crore):**

Applying the current thresholds under Section 2(85):
- **Paid-up Share Capital:** ₹45 lakh ≤ ₹4 crore — **Condition Satisfied** ✓
- **Turnover:** ₹3 crore ≤ ₹40 crore — **Condition Satisfied** ✓

Both conditions are satisfied. Assuming MNP Private Ltd. is not a holding/subsidiary/Section 8 company, it **qualifies as a Small Company** under the Companies Act, 2013.

**(ii) If the …

Question 7

Rera Ltd. a company incorporated under the Companies Act, 2013, has authorised share capital of ₹ 100 crore, accumulated loss of ₹ 50 crore and securities premium ₹ 100 crore as per the audited accounts for the Financial Year 2016-17. The CEO of the company informed the directors of the company that the Corporate Social Responsibility (CSR) committee is required to be constituted as per the Companies Act, 2013. The directors seek your advice as a professional regarding the criteria required to constitute CSR committee and whether it is applicable to Rera Ltd. or not.

Accepted Answer

**Relevant Provision:** Section 135(1) of the Companies Act, 2013 governs the constitution of a Corporate Social Responsibility (CSR) Committee.

**Criteria for constituting a CSR Committee:**

Every company which fulfils ANY ONE of the following criteria during the immediately preceding financial year is required to constitute a CSR Committee of its Board:

(a) **Net worth** of ₹500 crore or more; OR

(b) **Turnover** of ₹1,000 crore or more; OR

(c) **Net profit** of ₹5 crore or more.

**Composition of CSR Committee:** The CSR Committee shall consist of **3 or more directors**, out of which at least **one director shall be an independent director**. However, if the company is not required to appoint an independent director under Section 149(4), the Committee may consist of **2 or more directors**.

**Applicability to Rera Ltd.:**

As per Section 2(57) of the Companies Act, 2013, **Net Worth** = Paid-up Share Capital + Securities Premium + Free Reserves — Accumulated Losses.

Using the figures given (treating authorised share capital as the ceiling for paid-up capital):

Maximum possible Net Worth = ₹100 crore (Authorised Share Capital) + ₹100 crore (Securities Premium) — ₹50 crore (Accumulated Loss) = **₹150 crore**.

This is well below the threshold of ₹500 crore. No information on turnover or net profit meeting the prescribed thresholds has been provided.

**Conclusion:** Since Rera Ltd. does not meet any of the three criteria prescribed under Section 135(1) of the Compan…

Question 8

ABC Ltd. sells its products through some agents and it is not the custom in their business to sell the products on cash basis. On 1st March, one of the agents sold goods of ABC Ltd. to M/s. Parvit Pvt. Ltd. (on credit) which was involved at the time of stock sale. ABC Ltd. used Mr. Prem for compensation towards his loss caused due to goods sold to M/s. Parvit Pvt. Ltd. Will ABC Ltd. succeed in its claim?

Accepted Answer

**Relevant Law:** Section 212 and Section 222 of the Indian Contract Act, 1872 govern the duties of an agent and the principal's liability for acts done within the scope of authority.

**Analysis of the Case:**

**Nature of Authority:** The facts state that it is **not the custom** in ABC Ltd.'s business to sell on a cash basis. This means **credit sales are the established custom and trade practice**. Consequently, the agent Mr. Prem was impliedly authorised to sell the goods of ABC Ltd. on credit. Selling to M/s. Parvit Pvt. Ltd. on credit was therefore an act done **within the scope of authority conferred upon the agent**.

**Agent's Duty under Section 212:** An agent is bound to conduct the business of his principal with such **skill and diligence** as is generally possessed by persons engaged in similar business, and to make compensation to the principal only in respect of **direct consequences of his own neglect, want of skill, or misconduct**.

**Principal's Obligation under Section 222:** The employer (principal) of an agent is **bound to indemnify** the agent against the consequences of all **lawful acts** done by such agent in exercise of the authority conferred upon him.

**Application to Facts:** Since selling on credit was the established custom and the agent acted within his authority, the sale to M/s. Parvit Pvt. Ltd. on credit was a **lawful act within the agent's authority**. There is no indication that Mr. Prem knew about the insolvency of M/s. Parvit Pvt. L…

Question 9

X owned a land with fifty tainted trees. He sold his land and the timber (obtained after cutting the fifty trees) to Y. X wants to know whether the sale of timber (tangibles) relates to sale of immovable property. Advise him with reference to provisions of "General Clauses Act, 1897".

Accepted Answer

**Provisions of the General Clauses Act, 1897 — Definition of Immovable Property**

**Section 3(26) of the General Clauses Act, 1897** defines **'immovable property'** to include **land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.**

**Section 3(36) of the General Clauses Act, 1897** defines **'movable property'** as property of every description **except immovable property.**

**Analysis of the given case:**

The critical point in determining the nature of property is the **stage at which the transaction takes place** — whether the trees were standing (attached to earth) or had already been severed from the earth.

In the present case, X owned land with **fifty standing trees** ('tainted trees' refers to trees standing on the land). Before the sale, X **cut the fifty trees** and converted them into **timber**. The sale to Y was then made of:
1. The **land** — clearly immovable property.
2. The **timber** — i.e., trees already cut and severed from the earth.

**Standing trees** are rooted in the earth and hence form part of immovable property under Section 3(26). However, once trees are **felled/cut and converted into timber**, they are **detached from the earth** and no longer satisfy the definition of immovable property. Such timber is, therefore, **movable property** under Section 3(36).

**Conclusion — Advice to X:**

The sale of **timber** (obtained after cutting the fifty trees prior to the …

Question 10

Alpha Ltd., A Section 8 company is planning to declare dividend at the Annual General Meeting for the financial Year ended 31-01-2018. Mr. Chopra is holding 800 equity shares as on date. State whether the act of the company is acceptable as per the provisions of the Companies Act, 2013.

Accepted Answer

**Answer: The act is NOT acceptable.**

Alpha Ltd., being a Section 8 company, is **prohibited from declaring or distributing any dividend** to its members under the Companies Act, 2013.

**Legal Framework:** Section 8 of the Companies Act, 2013 permits incorporation of companies for charitable, educational, or other objects of public utility. However, such companies have mandatory restrictions on profit distribution:

1. **Absolute Prohibition on Dividend**: Section 8 companies cannot declare, pay, or distribute any dividend to their members. This is a **fundamental characteristic** of Section 8 companies. All profits and surpluses must be retained within the company and cannot be distributed.

2. **Mandatory Application of Profits**: All income and profits generated by a Section 8 company must be applied exclusively towards the objects stated in its Memorandum of Association. No surplus can be distributed to members in any form.

3. **No Alternative Distribution Methods**: Section 8 companies cannot circumvent the restriction through bonus shares, gifts, or any other mechanism of profit distribution to shareholders.

**Reason for Restriction**: Section 8 companies enjoy special tax treatment and regulatory benefits specifically because they operate on a non-profit basis. Their entire structure is predicated on the prohibition of profit distribution. Allowing dividends would defeat the fundamental purpose of such companies.

**Conclusion**: Alpha Ltd.'s proposal to declare d…

Question 11

As per the provisions of the Companies Act, 2013, every company is required to file with the Registrar of Companies, the Annual Return as prescribed in section 92, in Form MGT-7. Explain the particulars required to be contained in it.

Accepted Answer

**Annual Return — Form MGT-7 under Section 92 of the Companies Act, 2013**

Every company is required to prepare and file its **Annual Return** with the Registrar of Companies (ROC) in **Form MGT-7** (or MGT-7A for small companies and one-person companies). As per **Section 92(1) of the Companies Act, 2013**, the Annual Return shall contain the following particulars:

**1. Registered Office, Principal Business Activities, and Particulars of Holding, Subsidiary, and Associate Companies:**
The return must state the registered office address, the main business activities undertaken by the company, and complete details of its holding company, subsidiaries, and associate companies, if any.

**2. Shares, Debentures, and Other Securities:**
Details of the share capital, including the number and nominal value of shares authorised, issued, subscribed, and paid-up must be disclosed. Particulars of debentures and other securities issued or redeemed during the year, along with details of stock and bonds, must also be furnished.

**3. Shareholding Pattern:**
The return must contain the pattern of shareholding as on the close of the financial year — including the names of members holding at least 2% of the total paid-up share capital and details of changes in shareholding since the close of the previous financial year.

**4. Indebtedness:**
Particulars of **debentures, bonds, and loans** outstanding as at the close of the financial year — whether secured or unsecured — must be included.

*…

Question 12

PKC Ltd. wants to appoint Mr. Praveen Kumar, a practicing Chartered Accountant as the statutory auditor of the company and asked the proposed auditor to give a certificate in this regard. What are the contents of the certificate to be issued in accordance with the Companies (Audit & Auditors) Rules, 2014?

Accepted Answer

According to **Rule 8 of the Companies (Audit & Auditors) Rules, 2014**, a proposed auditor must furnish a certificate containing the following:

**1. Non-Disqualification Declaration**: A statement that the proposed auditor (Mr. Praveen Kumar) is not disqualified under **Section 141 of the Companies Act, 2013**. Disqualifications include being a body corporate, having been convicted of offences involving moral turpitude, being a director or employee of the company or its associates, and other statutory restrictions.

**2. Eligibility Criteria Compliance**: A statement that the proposed auditor fulfills all the **eligibility criteria specified in Section 141 of the Companies Act, 2013**. As a practicing Chartered Accountant, he must hold a valid certificate of practice issued by the **Institute of Chartered Accountants of India (ICAI)**, possess the required qualifications and experience, and meet all other prescribed conditions for appointment as an auditor.

**3. Consent and Awareness**: A statement that the proposed auditor has been informed about all the **conditions of appointment** and has willingly **consented to such appointment**. This ensures he understands his duties, responsibilities, and the terms under which he will function as the statutory auditor.

**4. Additional Information**: The certificate should also contain:
- The auditor's full name and professional registration number/PIN issued by ICAI
- Date of issue and the auditor's signature
- Any declaration of…

Question 13

Explain briefly any four effects by repeal of an existing Act by control legislation enumerated in Section 6 of the General Clauses Act, 1897.

Accepted Answer

**Section 6 of the General Clauses Act, 1897** specifies the effects when an existing Act is repealed by control legislation. Four important effects are:

**1. Non-Revival of Previous Law** — When an Act is repealed, the law which existed prior to the repealed Act does not automatically revive or come back into force. The repeal operates prospectively and does not restore the previous legal position unless expressly provided in the repealing Act or any related statute. This prevents legal uncertainty arising from the automatic resurrection of potentially obsolete prior laws.

**2. Continuance of Things Done Under Repealed Act** — Any act, appointment, regulation, rule, order, notification, bye-law or other instrument made or issued under the repealed Act shall continue in force so far as it is consistent with the new Act, and for so long as it is not superseded. Subordinate legislation, administrative orders, and official appointments made under the old Act remain valid and operative until expressly modified or cancelled under the new legislation. This ensures administrative continuity.

**3. Continuation of Pending Proceedings** — Any civil or criminal proceeding which has been commenced under or by virtue of the repealed Act shall be continued and concluded under the new Act as if such proceeding had been commenced under the new Act. However, if the new Act contains no corresponding provision, the proceeding may be continued under the old Act. This ensures that incomplete l…

Question 14

Differentiate Mandatory Provision from a Directory Provision. What factors decide whether a provision is directory or mandatory?

Accepted Answer

**Mandatory Provision** is a provision in a statute, regulation, or document that MUST be strictly complied with. Non-compliance renders the act, decision, or transaction void or voidable. These provisions are essential and relate to substantive requirements that go to the heart of the matter. A mandatory provision typically uses words like 'shall,' 'must,' 'ought to,' or 'it is necessary.' In contrast, a **Directory Provision** is one that lays down the manner or procedure in which something should be done but is not absolutely essential. Non-compliance does not invalidate the act or transaction if the essential purpose has been achieved. Directory provisions use language like 'may,' 'should,' or 'it is desirable.'

**Key Differences:**

1. **Compliance Requirement:** Mandatory provisions require strict and literal compliance; directory provisions require substantial compliance.

2. **Effect of Non-Compliance:** Breach of a mandatory provision renders the act void or voidable; breach of a directory provision does not invalidate the act if its essential objective is achieved.

3. **Nature:** Mandatory provisions are substantive in character; directory provisions are usually procedural.

4. **Language Used:** Mandatory provisions use imperative language ('shall,' 'must'); directory provisions use permissive language ('may,' 'should').

**Factors Determining Whether a Provision is Mandatory or Directory:**

1. **Language of the Provision:** The use of words like 'shall' or 'mus…

Question 15

Mr. V draws a cheque of ₹ 11,000 and gives to Mr. B by way of gift.

Accepted Answer

**(a) Whether Mr. B is a Holder in Due Course:**

**No**, — Mr. B is **not a Holder in Due Course**.

As per **Section 9 of the Negotiable Instruments Act, 1881**, a **Holder in Due Course** is a person who obtains possession of a negotiable instrument:
1. For **valuable consideration**,
2. Before the amount became payable, and
3. In **good faith**, without notice of any defect in the title of the transferor.

In the present case, Mr. B received the cheque of ₹11,000 from Mr. V **by way of gift**. A gift, by definition, is made **without consideration**. Since the essential requirement of **valuable consideration** is absent, Mr. B does **not** qualify as a Holder in Due Course under Section 9.

**(b) Whether Mr. B is entitled to receive ₹11,000 from the bank:**

**Yes** — Mr. B is **entitled** to receive the amount of ₹11,000 from the bank.

Even though Mr. B is not a Holder in Due Course, he is a **Holder** within the meaning of **Section 8 of the Negotiable Instruments Act, 1881**. A **holder** is any person who is entitled in his own name to possess the instrument and to receive or recover the amount due thereon from the parties thereto.

Mr. B, being the **payee** of the cheque drawn by Mr. V, is the rightful holder. The bank is obligated to pay the holder upon proper presentment. The distinction between a 'holder' and a 'holder in due course' becomes significant only when there are **defects in title** — a holder in due course gets **better title** and is protected agai…

Question 16

Bazaar Limited called an AGM in order to lay down the financial statements for shareholders' approval. Due to lack of Quorum, the meeting was cancelled. The directors did not file the annual returns with the Registrar. The directors were of the idea that the time for filing of returns within 60 days from the date of AGM would not apply, as AGM was cancelled. Has the company contravened the provisions of Companies Act, 2013? If the company has contravened the provisions of the Act, how will it be penalized?

Accepted Answer

**Contravention of Companies Act, 2013 — Analysis**

**Position regarding Cancellation of AGM due to Lack of Quorum:**

The directors' action of treating the AGM as "cancelled" is itself contrary to law. Under **Section 103(2) of the Companies Act, 2013**, if a quorum is not present within half an hour from the time appointed for holding the meeting, the meeting shall stand **adjourned** to the same day in the next week at the same time and place, or to such other date, time, and place as the Board may determine. A meeting cannot simply be "cancelled" for want of quorum — it must be adjourned. At the adjourned meeting, if quorum is still not present within half an hour, the members present shall themselves constitute the quorum.

**Position regarding Filing of Annual Return:**

The directors' contention that the obligation to file annual returns within 60 days does not apply because the AGM was cancelled is **incorrect**. Under **Section 92(4) of the Companies Act, 2013**, every company is required to file a copy of the annual return with the Registrar of Companies within **sixty days from the date on which the AGM is held**, OR, where **no AGM is held in any year**, within sixty days from the date on which the AGM **should have been held**, together with a statement specifying the reasons for not holding the AGM.

Therefore, even if the AGM was not validly held, the 60-day clock runs from the **date on which it ought to have been held**. The company has contravened Section 9…

Question 17

Bazaar Limited issued a notice with the agenda for nine businesses to Denote Limited. Two businesses were regarding appointment of Mr. Saini and Mr. Pratap as directors. The chairman decided to move the resolutions for all the nine businesses together to save the time of the members present. Examine the validity.

Accepted Answer

**Governing Provision:** Section 162 of the Companies Act, 2013 deals with the appointment of directors to be voted individually.

**Rule under Section 162:** At a general meeting of a company, a motion for the appointment of **two or more persons as directors by a single resolution** shall **not be moved** unless a proposal to move such a motion has first been agreed to at the meeting **without any vote being cast against it**. Any resolution passed in contravention of this provision shall be **void**, whether or not any objection was raised at the time of passing it.

**Analysis of the given case:**

Bazaar Limited had nine agenda items, two of which were the appointment of **Mr. Saini** and **Mr. Pratap** as directors. The chairman proposed to move resolutions for all nine businesses **together** to save time.

**(a) For the seven other businesses:** Moving resolutions together is generally permissible, subject to the nature of business and any specific requirements. There is no general bar under the Act on combining other ordinary or special business resolutions, provided proper notice was given.

**(b) For the appointment of Mr. Saini and Mr. Pratap as directors:** This directly attracts Section 162. The chairman moved a **single composite resolution** covering the appointment of two directors without first obtaining the **unanimous agreement** of the meeting (i.e., without a prior resolution being passed with no vote against it). This is a clear violation of Section 162…

Question 18

State any four contents of a Directors Responsibility Statement as required under Section 134 of the Companies Act, 2013.

Accepted Answer

The Directors Responsibility Statement as required under **Section 134(5) of the Companies Act, 2013** must contain the following four key contents:

**Content 1: Accounting Policies and Fair View** — The Directors declare that they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as on the last day of the financial year and the profit or loss of the company for that year.

**Content 2: Maintenance of Accounting Records** — The Directors declare that they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

**Content 3: Proper Systems for Compliance** — The Directors declare that they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively to ensure adherence to regulatory requirements.

**Content 4: Internal Financial Controls** — The Directors declare that there are adequate internal financial controls with reference to financial statements and that these internal financial controls are operating effectively during the financial year to ensure accuracy and reliability of financial reporting.

These declarations form th…

Question 19

Define Grammatical Interpretation. What are the exceptions to grammatical interpretation?

Accepted Answer

**Grammatical Interpretation** refers to the method of interpreting statutes based on the plain, literal, and ordinary grammatical meaning of the words used in the legal text. It applies the rules of grammar and the ordinary sense of the language as understood by a common person to determine the legislative intent. This approach presumes that Parliament/Legislature has used words in their natural and ordinary sense, and the courts should give effect to this meaning.

**Exceptions to Grammatical Interpretation:**

**1. Absurdity Exception:** When a strictly grammatical interpretation leads to an absurd, ridiculous, or nonsensical result that Parliament could not have intended, the courts may depart from the literal meaning. The provision must be interpreted in a way that produces a sensible and reasonable result.

**2. Object and Purpose Exception:** When the plain grammatical meaning defeats the main object, purpose, or mischief sought to be remedied by the statute, the literal interpretation is set aside. The interpretation must align with the legislative intent and the underlying purpose of the Act.

**3. Internal Inconsistency Exception:** Where a literal reading creates an internal conflict or inconsistency within the statute itself, the grammatical interpretation is abandoned to maintain harmony and coherence throughout the Act. The provision is read in a manner that avoids contradictions.

**4. Manifest Injustice Exception:** When grammatical interpretation would produc…

Question 20

What is a Document as per the Indian Evidence Act, 1872?

Accepted Answer

A **Document** is defined under **Section 3(a) of the Indian Evidence Act, 1872** as any matter expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means, intended to be used or which may be used as evidence of that matter.

The definition comprises the following essential elements:

**Expression or Description**: The matter must be expressed or described in some form. It is not limited to written text but includes any mode of communication or representation.

**Substance and Medium**: The matter must be expressed upon a substance. This can be paper, wood, metal, stone, parchment, or any other physical or digital medium capable of bearing marks or expressions.

**Mode of Expression**: Letters, figures, or marks are the means used to express the matter. These terms are broad and encompass handwriting, typing, printing, diagrams, symbols, codes, braille, and digital recordings.

**Intention for Use as Evidence**: The document must be intended to be used or may be used as evidence. This indicates that the substance and expression must relate to a factual matter that could serve as evidence in legal proceedings.

**Scope and Illustrations**: The definition is comprehensive and includes conventional documents such as letters, contracts, wills, and deeds, as well as non-traditional forms like photographs, x-rays, maps, plans, films, sound recordings, and digital documents. Even electronic records and data stored in computers…

Question 21

What is the meaning of service by post as per provisions of The General Clauses Act, 1897?

Accepted Answer

**Service by post** under the General Clauses Act, 1897 refers to the mode of serving a notice, order, or other document on a person through postal service, as provided under **Section 27**.

**Meaning and provisions:**

Service by post is an alternative method of service where a document is served by sending it through the post office as a **registered letter addressed to the person at his last known address**. This method is used when personal service or other modes of service are not practicable or convenient.

**Key features:** (1) The document must be enclosed in a letter and sent by registered post, either with or without acknowledgment due; (2) Service is **deemed to be made at the time when the letter would be delivered in the ordinary course of post**, not necessarily when actually received; (3) It creates a legal presumption that the letter was delivered unless the contrary is proved; (4) The sender need not prove actual receipt by the addressee, only that the letter was properly posted.

**Legal effect:** Once a document is posted by registered letter to the last known address of the person, the law presumes it was delivered, irrespective of whether the addressee actually received it. This protects the sender from the need to prove actual delivery and prevents delays in legal proceedings caused by disputes over service. The onus shifts to the person claiming non-service to prove that the letter was not delivered.

**Significance:** This provision is widely used in …

Question 22

Bholenath drew a cheque in favour of Surendra. After having issued the cheque, Bholenath requested Surendra not to present the cheque for payment and gave a stop payment request to the bank in respect of the cheque issued by him. Decide, under the provisions of the Negotiable Instruments Act, 1881 whether the said acts of Bholenath constitute an offence?

Accepted Answer

**Relevant Provision:** Section 138 of the Negotiable Instruments Act, 1881 provides that where a cheque drawn by a person on an account maintained with a banker is returned unpaid — either because the amount standing to the credit is insufficient or because it exceeds the amount arranged to be paid — the drawer shall be deemed to have committed an offence.

**Issue 1 — Does a stop payment instruction by itself constitute an offence?**

The mere act of Bholenath issuing a stop payment instruction to the bank, or requesting Surendra not to present the cheque, does **not by itself** constitute an offence under the Negotiable Instruments Act, 1881. An offence under Section 138 is not complete until the following conditions are cumulatively satisfied:
(i) The cheque is presented to the bank within its validity period;
(ii) The cheque is returned unpaid by the bank;
(iii) The payee/holder gives written notice of dishonour to the drawer within 30 days of receiving information from the bank;
(iv) The drawer fails to make payment within 15 days of receipt of such notice.

Since none of these conditions have yet been triggered (the cheque has not yet been presented), no offence is presently constituted.

**Issue 2 — Effect if Surendra presents the cheque despite the request:**

If Surendra, ignoring Bholenath's request, presents the cheque and it is returned unpaid solely because of the stop payment instruction, Bholenath **will be liable** under Section 138. The **Supreme Court** in …

Question 23

Harsh purchased 1000 shares of Singhana Ltd. from Pratik and sent those shares to the company for transfer in his name. The company neither transferred the shares nor sent any notice of refusal of transfer to any party within the period stipulated in the Companies Act, 2013. What is the time frame in which the company is supposed to reply to transfers? Does Harsh, the transferee have any remedies against the company for not sending any intimation in relation to transfer of shares to him?

Accepted Answer

**Time Frame for Company to Act on Share Transfer:**

As per **Section 56(4) of the Companies Act, 2013**, every company shall, unless prohibited by any provision of law or any order of court, tribunal, or other authority, deliver the certificates of all securities allotted, transferred, or transmitted within **thirty (30) days** of receipt of the instrument of transfer (or intimation of transmission, as the case may be).

Further, if the company intends to **refuse** the transfer, it must send notice of such refusal to the transferee and the transferor within **thirty (30) days** from the date on which the instrument of transfer was delivered to the company.

In the present case, **Singhana Ltd.** received the shares from Harsh for transfer in his name. The company was obligated to either:
(a) Complete the transfer and issue a share certificate in Harsh's name, **or**
(b) Send a notice of refusal to both Harsh (transferee) and Pratik (transferor),

within **30 days** of receipt of the transfer instrument. Since the company did neither, it has defaulted under Section 56(4).

**Remedies Available to Harsh (Transferee):**

As per **Section 58(2) of the Companies Act, 2013**, if a public company without sufficient cause refuses to register the transfer of securities, or fails to send notice of refusal within the prescribed period, the **transferee may appeal to the National Company Law Tribunal (NCLT)** within **sixty (60) days** from the date on which the instrument of transfer…

Question 24

TDL Ltd., a public company is planning to bring a public issue of equity shares in June, 2018. The company has appointed underwriters for getting its shares subscribed. As a Chartered Accountant of the company appraise the Board of TDL Ltd. about the provisions of payment of underwriter's commission as per Companies Act, 2013.

Accepted Answer

**Provisions Relating to Payment of Underwriter's Commission under Companies Act, 2013**

**Governing Provision:** The payment of underwriter's commission in connection with a public issue is governed by **Section 40(6) of the Companies Act, 2013** read with **Rule 13 of the Companies (Prospectus and Allotment of Securities) Rules, 2014**.

**Conditions for Payment of Underwriter's Commission:**

A company may pay commission to any person (including an underwriter) in connection with subscription or procurement of subscription to its securities, subject to the following conditions:

**(1) Authorization by Articles of Association:** The payment of commission must be **authorised by the Articles of Association** of TDL Ltd. If the Articles do not permit such payment, they must be amended before the commission is paid.

**(2) Limit on Rate of Commission:** The commission paid or agreed to be paid shall **not exceed the prescribed percentage** of the price at which the shares are issued:
- In case of **shares** — the rate shall not exceed **5%** of the issue price of shares, or such lower rate as may be specified in the Articles of Association.
- In case of **debentures** — the rate shall not exceed **2.5%** of the issue price.

Since TDL Ltd. is issuing equity shares, the maximum permissible rate of underwriter's commission is **5% of the issue price per share**.

**(3) Disclosure in Prospectus:** The prospectus issued by TDL Ltd. must disclose:
- The **amount or rate of commiss…

Question 25

Can equity share with differential voting rights be issued? If yes, state the conditions under which such shares may be issued.

Accepted Answer

**Yes, equity shares with differential voting rights (DVR shares) can be issued.** Section 43 of the Companies Act, 2013 provides that a company limited by shares may issue equity shares with differential rights as to dividend, voting or otherwise, subject to such conditions as may be prescribed. The detailed conditions are prescribed under **Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014**.

**Conditions for Issue of Equity Shares with Differential Voting Rights:**

**1. Authorization in Articles of Association:** The **articles of association** of the company must authorize the issue of shares with differential rights.

**2. Shareholder Approval:** The issue must be authorized by an **ordinary resolution** passed at a general meeting of shareholders (or by a special resolution if the articles of association so require).

**3. Limit on DVR Shares:** The shares with differential rights shall not exceed **26% of the total post-issue paid-up equity share capital** including equity shares with differential rights issued at any point of time.

**4. No Default in Filing:** The company should **not have defaulted** in filing its financial statements and annual returns for the **immediately preceding 3 financial years**.

**5. No Subsisting Default in Payments:** The company should have no subsisting default in:
   - Payment of a **declared dividend** to its shareholders;
   - Repayment of **matured deposits**;
   - Redemption of its **preference shares or debent…

Question 26

Explain the term 'charge'. State the order in which a charge along with the time limit for registration of charge with the registrar?
OR
Explain provisions for 'Appointment of Trustee for Depositories' under the Companies Act, 2013.

Accepted Answer

**OPTION 1: Meaning of 'Charge' and Registration with the Registrar**

**Meaning of Charge [Section 2(16) of the Companies Act, 2013]:**
The term **'charge'** is defined under Section 2(16) of the Companies Act, 2013 as **a lien created on the property or assets of a company or any of its undertakings or both as security, and includes a mortgage**. In simple terms, it is a right given to a creditor over the property of a company as a security for a loan or obligation.

Charges are of two types:
- **Fixed Charge**: Created on a specific, identifiable asset (e.g., land, building, machinery). The company cannot deal with that asset without the charge-holder's consent.
- **Floating Charge**: Created on a class of assets that keeps changing in the ordinary course of business (e.g., stock-in-trade, debtors). It crystallises into a fixed charge upon the happening of certain events.

**Duty to Register Charge [Section 77]:**
Every company creating a charge — whether within or outside India — on its property or assets or any of its undertakings, is under a **duty to register the particulars of such charge** with the Registrar of Companies (ROC). The registration must be done along with the instrument creating the charge, signed by both the company and the charge-holder.

**Order and Time Limit for Registration:**
The time limits for registration of a charge are prescribed under **Section 77(1) of the Companies Act, 2013** as follows:

**Stage 1 — Within 30 days of creation:** The comp…

Question 27

Rahul, a transporter, was entrusted with the duty of transporting tomatoes from a rural area to a city by Avinash. Due to heavy rains, the goods were stranded below the market rate in the nearby market where he was stranded for long. Before the tomatoes may perish. Can Avinash recover the loss from Rahul on the ground that Rahul had acted beyond his authority?

Accepted Answer

**Legal Position:** Avinash **cannot** recover the loss from Rahul on the ground that Rahul had acted beyond his authority.

**Relevant Provision:** The situation is governed by **Section 188 of the Indian Contract Act, 1872**, which provides that an agent has authority, in an **emergency**, to do all such acts for the purpose of protecting his principal from losses as would be done by a person of ordinary prudence in his own case under similar circumstances.

**Application to the Facts:**

Rahul was a transporter and therefore stands in the position of a **bailee** under Section 148 of the Indian Contract Act, 1872. He was entrusted with perishable goods (tomatoes) for transportation. Due to heavy rains — a circumstance beyond his control — he was stranded. The tomatoes were at imminent risk of perishing entirely if not sold immediately.

In such a situation, Rahul faced an **emergency** where inaction would have caused total loss to Avinash. By selling the tomatoes below market rate in the nearby market, Rahul acted as a **person of ordinary prudence** would under similar circumstances — he mitigated the loss by salvaging whatever value was possible, rather than allowing the goods to rot completely.

**Conclusion:** Rahul's act of selling the tomatoes below market rate was within his implied authority under Section 188. He exercised reasonable judgment to protect Avinash from a greater loss. Since Rahul acted in good faith and with reasonable care under emergency conditions…

Question 28

State the rules laid down by the Negotiable Instruments Act, 1881 for ascertaining the date of maturity of a bill of exchange.

Accepted Answer

**Rules for Ascertaining the Date of Maturity of a Bill of Exchange under the Negotiable Instruments Act, 1881**

The **Negotiable Instruments Act, 1881** lays down the following rules for determining the date of maturity of a bill of exchange:

**1. Days of Grace (Section 22):** Every bill of exchange which is not expressed to be payable on demand, at sight, or on presentment is entitled to **three days of grace**. The instrument is deemed to mature on the **last (third) day of grace**. If the instrument is payable on demand or at sight, no days of grace are added and it matures on presentment.

**2. Bill Payable After Date:** When a bill is payable at a certain period after date, the period of payment is calculated from the **date of drawing** of the bill. The date of drawing is excluded, and three days of grace are added to arrive at the maturity date.

**3. Bill Payable After Sight (Section 23):** When a bill is payable at a certain period after sight, the period is calculated from the **date of acceptance** by the drawee. If the bill is dishonoured by non-acceptance, the period is reckoned from the date of **noting or protesting** for non-acceptance.

**4. Bill Payable After a Specified Event:** When a bill is payable at a certain period after the occurrence of a specified event, the time is calculated from the **date on which the event occurs**. The date of occurrence of the event is excluded from the calculation.

**5. Calculation in Months (Section 24):** When the per…

Question 29

Rupa Limited, a listed company appointed M/s. VG & ASSOCIATES an audit firm as Company's auditor in the Annual General Meeting held on 30-09-2017. Explain the provisions of the Companies Act, 2013 relating to the appointment or reappointment of an auditor in relation to the tenure of an auditor.

Accepted Answer

The provisions of the Companies Act, 2013 relating to auditor appointment and reappointment are governed by **Section 139**, which prescribes the tenure and eligibility conditions as follows:

**Appointment and Tenure Duration:** Section 139(1) stipulates that every company shall appoint an auditor or auditors at each general meeting, and the auditor shall hold office from the conclusion of that meeting until the conclusion of the next annual general meeting or until new auditors are appointed or reappointed, whichever is earlier. Consequently, an auditor holds office for a **tenure of 5 consecutive years** from the date of appointment.

**Reappointment Restrictions and Cooling-off Period:** Section 139(10) prescribes a critical restriction: no person who has completed a term of 5 consecutive years as an auditor shall be eligible for reappointment as an auditor of a company **unless a period of 5 years has elapsed after the end of his term**. This mandatory 5-year cooling-off period between tenures ensures rotation and independence.

**Application to M/s. VG & ASSOCIATES in Rupa Limited:** Given that the audit firm was appointed on 30-09-2017, the timeline would be as follows: **First Term:** 30-09-2017 to 30-09-2022 (5 consecutive years); **Cooling-off Period:** 30-09-2022 to 30-09-2027 (5 years); **Eligible for Reappointment:** From 30-09-2027 onwards.

**Exception:** Section 139(10) provides an exception to the cooling-off period for small companies and private companies w…

CA Inter Cost & Mgmt

Drill 5 questions from this paper — instant grading

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Write it like this

1The skeleton

2Examiner-rewarded phrases

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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