Key to Mid-Term Question Paper

Batch 2018-2020
Trimester 3
Legal Aspects of Business
Course code:

Time: 2 hours

Short notes: (4 marks X 5 questions = 20 marks)

1. Who makes law in India?

Answer: For a law to be recognized in India, it must first be introduced in the form of
a "Bill" in either House of the Parliament, then passed by both houses and then
finally the President of India must assent to it before it becomes an "Act of
Parliament".

2. Comment on the statement that “A company’s liability is limited”.

Answer: It is only the members liability in a company is limited. One have to pay as
much you have agreed to pay. Extent which you have agreed to subscribe for shares.

3. What are the documents available for public by way download from the MCA
website/portal of any company incorporated in India?

Answer: Financial statements (Profit/loss, Balance sheet, Memorandum, Articles of

association, director details, charges, etc…

4. “Dominance is not void.” Comment on this statement and write about abuse of
dominance under the Competition Act and various trade practices in the market with
examples.

Answer: Abuse of dominance is operating independently of competitive forces in the

relevant market; affecting competitors or consumers in company's favour. It can be
exploitative practice such as excessive pricing, price discrimination, tied selling;
exclusionary practice such as denial of market access, predatory pricing or refusal to
deal.

5. What are the rights available to a shareholder under the Company Law and who is the
authority to be approached in case the rights are violated?

Answer: Shareholder has the right to get Annual report, Dividend, Attend & Vote @
General Meeting. Group of shareholders can approach National Company Law
Tribunal (NCLT) if their rights are violated.
Case studies: (10 marks X 2 questions = 20 marks)

Case Study I:

The Supreme Court of India on 31st August, 2012 in one of its most anticipated judgment of
recent times has directed the Sahara Group and its two group companies Sahara India Real
Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited
(SHICL) to refund around Rs 17,400 crore to their investors within 3 months from the date of
the order with an interest of 15%. The Supreme Court while confirming the findings of the
Securities Appellate Tribunal (SAT) has further asked SEBI to probe into the matter and find
out the actual investor base who have subscribed to the Optionally Fully Convertible
Debentures (OFCDs) issued by the two group companies SIRECL and SHICL.

Background: Earlier SIRECL and SHICL floated an issue of OFCDs and started collecting
subscriptions from investors with effect from 25th April 2008 up to 13th April 2011. During this
period, the company had a total collection of over Rs 17,656 crore. The amount was collected
from about 30 million investors in the guise of a "Private Placement" without complying with
the requirements applicable to the public offerings of securities. The Whole Time Member of
SEBI while taking cognizance of the matter passed an order dated 23rd June, 2011 thereby
directing the two companies to refund the money so collected to the investors and also
restrained the promoters of the two companies including Mr. Subrata Roy from accessing the
securities market till further orders. Sahara then preferred an appeal before SAT against the
order of the Whole Time Member and after hearing the SAT confirmed and maintained the
order of the Whole Time Member by an order dated 18th October, 2011. Subsequently Sahara
filed an appeal before the Supreme Court of India against the SAT order.

Issues in Question and Observations of the Supreme Court: The Supreme Court of India
while interpreting various provisions of the Companies Act, SEBI Act, Securities Contract
(Regulation) Act, 1956, (SCRA) and various Rules and regulations formulated there-under
made some interesting observations on the issues raised before it which forms the operative
part of the judgment in the form of rule of law on which judicial decision is based on.

Analyse the following issues:

1. Whether listing provisions under the Companies Act mandatorily applies to all public
issues or depends upon the "intention of the company" to get listed. Explain when a
company has to become a listed company?

2. Ministry of Corporate Affairs (MCA) regulates the compliance of unlisted companies

whereas SEBI regulates the compliance of listed companies. Analyse this statement
and explain how the powers of SEBI have been extended in the given case.

Answer:

Although Sahara argued that listing requirement under the Companies Act is not mandatory
and applies to those companies only who "intend to get listed", no company can be forced to
get listed on a stock exchange and in such cases it will be a violation of corporate autonomy.
The Supreme Court rejected this contention and held as long as the law is clear and
unambiguous, and any issue of securities is made to more than 49 persons as per Sec 67(3)
of the Companies Act, the intention of the companies to get listed does not matter at all and
Sec 73 (1) is a mandatory provision of law which companies are required to comply with. The
Supreme Court observed that Section 73(1) of the Act casts an obligation on every company
intending to offer shares or debentures to the public to apply on a stock exchange for listing
of its securities.

This landmark Judgment is undoubtedly a milestone in India's Corporate landscape, as it not

only sanctifies SEBI's absolute power to investigate into the matters of listed companies, but
also into the matters pertaining to the unlisted companies. It vests SEBI with myriad powers
to investigate into any matter concerning the interest of the investors even if it pertains to
companies which are not listed. It clarifies significant points of law and removes the grey areas
relating to issue of securities by the so called unlisted companies taking advantage of the
loopholes of law. Also, in the matters of jurisdiction, this Judgment has bridged the
jurisdictional gap which previously existed between that of the Ministry of Corporate Affairs
and SEBI.

Case Study II:

You have received a cheque. You have deposited the same with your bank within its validity
period. The Bank has returned the cheque citing insufficient funds.

a) As a payee of the cheque what actions can you take against the drawer of the cheque?
b) When can you approach the courts of Metropolitan Magistrate or any authority not
below the rank of Judicial Magistrate of the first class?

Answer:

Following are the conditions that need to be met to constitute an offence within the ambit of
this section:

1. The cheque that has been issued must be for the purpose of discharging, in whole or
in part, any debt or any other liability.

2. It is required that cheques be presented to the bank before the period of 3 months or
within the period of its validity (which is 3 months), whichever comes earlier.
3. Within 30 days of the receipt of information by him from the bank regarding the return
of the cheque as unpaid should the payee or the holder give a notice in writing. This
should be done by the payee or the holder in due course.

4. Once the drawer has received the receipt of notice by the payee or the holder in due
course, the drawer should have failed to make payment for the amount mentioned in
the cheque, within the period of 15 days from the date of receiving the receipt of the
said notice.

5. A complaint should be filed within one month from the date of expiry of the grace time
of 15 days, after the non-payment of the amount due on the dishonoured cheque. This
should be done before a Metropolitan Magistrate or any authority not below the rank
of Judicial Magistrate of the first class. If the complainant satisfies the court that he had
sufficient cause for not making a complaint within such period, the court may take
cognizance of it. This has been mentioned under Section 142 of the Negotiable
Instruments Act, 1881.