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© The Institute of Chartered Accountants of India

Test Series: October, 2022
MOCK TEST PAPER 2
INTERMEDIATE GROUP – I
PAPER – 2: CORPORATE AND OTHER LAWS
ANSWERS
Division A
I. 1. (b)
2. (a)
3. (b)
II. 4. (d)
5. (c)
6. (c)
7. (c)
8. (b)
9. (c)
10. (b)
11. (d)
12. (c)
13. (c)
14. (b)
15. (d)
16. (d)
17. (c)
18. (d)
19. (a)
20. (a)
Division B
1. (a) According to section 42 of the Companies Act, 2013 any private or public company may make
private placement through issue of a private placement offer letter.
However, the offer shall be made to the persons not exceeding fifty or such higher number as
may be prescribed, in a financial year. For counting number of persons, Qualified Institutional
Buyers (QIBs) and employees of the company being offered securities under a scheme of
employees’ stock option will not be considered.
Further, Rule 14 (2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014
prescribes maximum of 200 persons who can be offered securities under the private placement in
a financial year, though this limit should be counted separately for each type of security.

It is to be noted that if a company makes an offer or invitation to more than the prescribed
number of persons, it shall be deemed to be an offer to the public and accordingly, it shall be
governed by the provisions relating to prospectus.
Also, a company is not permitted to make fresh offer under this section if the allotment with
respect to any offer made earlier has not been completed or otherwise, that offer has been
withdrawn or abandoned by the company. This provision is applicable even if the issue is of
different kind of security.
Any offer or invitation not in compliance with the provisions of this section shall be treated as a
public offer and all provisions will apply accordingly.
In the given case Purple Limited, though a public company can raise funds through private
placement as provisions related to private placement allow even a public company to raise funds
through this route. The company has given offer to 55 persons out of which 4 are qualified
institutional buyers and hence, the offer is given effectively to only 51 persons which is well within
the limit of 200 persons. From this point of view, the company complies the private placement
provisions.
However, as per the question, the company has given another private placement offer of
debentures before completing the allotment in respect of first offer and therefore, the second
offer does not comply with the provisions of section 42. Hence, the offers given by the company
will be treated as public offer.
In case the company gives offer for debentures in the same financial year after allotment of
equity shares is complete then both the offers can well be treated as private placement offers.
(b) (i) Section 127 of the Companies Act, 2013 provides for punishment for failure to distribute
dividend on time. One of such situations is where a shareholder has given directions to the
company regarding the payment of the dividend and those directions cannot be complied
with and the same has not been communicated to the shareholder.
In the instant case, A Ltd. has failed to communicate to the shareholder Mr. B about the
discrepancy (as per bank, account number as given by Mr. B doesn't tally with the records
of the bank) which led to non-compliance of his direction regarding payment of dividend.
Hence, the penal provisions under section 127 will be attracted.
(ii) According to section 123 of the Companies Act, 2013, a company may, before the
declaration of any dividend in any financial year, transfer such percentage of its profits for
that financial year as it may consider appropriate to the reserves of the company. Such
transfer is not mandatory and the percentage to be transferred to reserves is at the
discretion of the company.
As per the given facts, G Medical Instruments Limited has earned a profit of ` 910 crores for
the financial year 2021-2022. It has proposed a dividend @ 10%. However, it does not
intend to transfer any amount to the reserves of the company out of the profits of current
year.
As per the provisions stated above, the amount to be transferred to reserves out of profits
for any financial year is at the discretion of the company acting through its Board of
Directors. Therefore, at its discretion, if G Medical Instruments Limited decides not to
transfer any profit to reserves before the declaration of dividend at 10%, it is legally allowed
to do so.
(c) As per the provisions of section 142 of the Indian Contract Act 1872, where the guarantee has
been obtained by means of misrepresentation made by the creditor concerning a material part of
the transaction, the surety will be discharged. Further according to provisions of section 134, the
surety is discharged by any contract between the creditor and the principal debtor, by which the
principal debtor is released, or by any act or omission of the creditor, the legal consequence of
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which is the discharge of the principal debtor.
In the given question, Prisha wanted to purchase air conditioner whose compressor should be of
copper, on credit from Ricky. Mr. Shiv has given the guarantee for payment of price. Ricky sold
the air conditioner of a particular brand on misrepresenting that it is made of copper while it is
made of aluminium of which both Prisha & Mr. Shiv were unaware. After being aware of the facts,
Prisha denied for payment of price. Ricky filed the suit against Mr. Shiv for payment of price.
On the basis of above provisions and facts of the case, as guarantee was obtained by Ricky by
misrepresentation of the facts, Mr. Shiv will not be liable. He will be discharged from liability.
(d) By virtue of provisions of section 9 of the Negotiable Instrument Act 1881, any person who for
consideration became the possessor of a negotiable instrument in good faith and without having
sufficient cause to believe that any defect existed in the title of the person from whom he derived
his title. Exception to section 47 provides if a negotiable instrument is delivered to a person, upon
condition, i.e. it will be effective on the happening of a certain event, such negotiable instrument
cannot be further negotiated unless such event happens. However, if it is transferred t o a holder
in due course, his rights will not be affected by such condition.
‘Shama’ issued a promissory note to ‘Vihari’ on the condition that he (‘Vihari’) will demand
payment only on the death of ‘Kayah’. Before the death of ‘Kayah’, ‘Vihari’ indorsed a nd delivered
the promissory note to ‘Deepak’, who receive the promissory note in good faith. On due date,
‘Deepak’ presented the promissory note for payment but ‘Shama’ denied for payment.
From the above provisions and facts of the case, it can be said that ‘Deepak’ has received the
promissory note in good faith, he is a holder in due course and his rights will not be affected by
any condition attached to the instrument by any prior party. Therefore, ‘Deepak’ can recover the
amount due on the promissory note from ‘Shama’.
2. (a) According to Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, the following
category of receipt is not considered as deposit:
Any amount received and held pursuant to an offer made in accordance with the provisions of the
Companies Act, 2013 towards subscription to any securities, including share application money
or advance towards allotment of securities, pending allotment, so long as such amount is
appropriated only against the amount due on allotment of the securities applied for;
It is clarified by way of Explanation that if the securities for which application money or advance
for such securities was received cannot be allotted within 60 days from the date of receipt of the
application money or advance for such securities and such application money or advance is not
refunded to the subscribers within 15 days from the date of completion of 60 days, such amount
shall be treated as a deposit under these rules.
Further, it is clarified that any adjustment of the amount for any other purpose shall not be treated
as refund.
In the given question, Rashmika Limited has received Rs. 50 Lakhs as share application money
on 01.06.2021. It failed to allot shares within the prescribed limit. Further, on 30.07.20 21 the
company adjusted the amount of Rs. 5 Lakhs received from Mr. Kumar (a customer of the
company), by way of book adjustment towards the dues payable by him to the company.
In the light of the facts of the question and provisions of Law:
(1) If such application money or advance is not refunded to the subscribers within 15 days from
the date of completion of 60 days, such amount shall be treated as a deposit. In the
question, the prescribed limit of 60 days will end on 31.07.2021 and the company has 15
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more days to refund such application money to the subscribers. Otherwise, after lapse of
such 15 days, the amount not so refunded will be treated as deposit. Hence, the Company
Secretary of Rashmika Limited is not correct in treating the entire amount of Rs. 50 Lakh as
‘Deposits’ on 31.07.2021.
(2) Any adjustment of the amount for any other purpose shall not be treated as refund. Thus,
the amount of Rs. 5 Lakh adjusted against payment due to be received from Mr. Kumar,
cannot be treated as refund.
(b) Directors’ Responsibility Statement: According to section 134(5) of the Companies Act, 2013,
the Directors’ Responsibility Statement referred to in 134(3)(c) shall state that —
(1) in the preparation of the annual accounts, the applicable accounting standards had been
followed along with proper explanation relating to material departures;
(2) the directors had selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view
of the state of affairs of the company at the end of the financial year and of the profit and
loss of the company for that period;
(3) the directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for safeguarding the assets
of the company and for preventing and detecting fraud and other irregularities;
(4) the directors had prepared the annual accounts on a going concern basis; and
(5) the directors, in the case of a listed company, had laid down internal financial controls to be
followed by the company and that such internal financial controls are adequate and were
operating effectively.
(6) the directors had devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and operating effectively.
(c) (i) According to section 202 of the Indian Contract Act, 1872, where the agent has himself an
interest in the property which forms the subject matter of the agency, the agency cannot, in
the absence of an express contract, be terminated to the prejudice of suc h interest.
In other words, when the agent is personally interested in the subject matter of agency, the
agency becomes irrevocable.
In the given question, A gives authority to B to sell A’s land, and to pay himself, out of the
proceeds, the debts due to him from A.
As per the facts of the question and provision of law, A cannot revoke this authority, nor it
can be terminated by his insanity.
(ii) According to section 191 of the Indian Contract Act, 1872, a “Sub -agent” is a person
employed by, and acting under the control of, the original agent in the business of the
agency.
Section 210 provides that, the termination of the authority of an agent causes the
termination (subject to the rules regarding the termination of an agent’s authority) of the
authority of all sub-agents appointed by him.
In the given question, B is the agent of A, and C is the agent of B. Hence, C becomes a
sub- agent.
Thus, when A revokes the authority of B (agent), it results in termination of authority of sub -
agent appointed by B i.e. C (sub-agent).
(d) As per section 130 of the Negotiable Instruments Act, 1881, a cheque marked “not negotiable” is
a transferable instrument. The inclusion of the words ‘not negotiable’ however makes a

significant difference in the transferability of the cheques i.e., they cannot be negotiated. The
holder of such a cheque cannot acquire title better than that of the transferor.
In the given question, A gave to B the blank cheque with ‘not negotiable crossing’. B had an
authority to fill only a sum of Rs. 3,000 but he filled it up Rs. 5,000. This makes B’s title defective.
B then endorsed it to C for consideration of Rs. 5,000.
In the light of above stated facts and provision, C is not entitled to recover the full amount from A
or B as C cannot acquire a title better than that of the transferor (B).
3. (a) (i) According to section 8(6) of the Companies Act, 2013, the Central Government may by
order revoke the licence of the company where the company contravenes any of the
requirements or the conditions of section 8 subject to which a licence is issued or where the
affairs of the company are conducted fraudulently, or in violation of the objects of the
company or prejudicial to public interest, and on revocation, the Registrar shall put ‘Limited’
or ‘Private Limited’ against the company’s name in the register. But before such revocation,
the Central Government must give it a written notice of its intention to revoke the licence
and opportunity to be heard in the matter.
Hence, in the instant case, the Central Government can revoke the license given to P
Cricket Club as section 8 company, as the affairs of the company are conducted
fraudulently and dividend was paid to its members which is in contravention to the
conditions given under section 8.
(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is
essential in the public interest, direct that the company be wound up under this Act or
amalgamated with another company registered under this section.
However, no such order shall be made unless the company is given a reasonable
opportunity of being heard. [Section 8(7)] Hence, the stated company may be wound up.
(iii) A company registered under this section shall amalgamate only with another company
registered under this section and having similar objects. [Section 8(10)]
In the instant case, P Cricket Club cannot be merged with Z Net Private Limited as the
objects of both the companies are different and not similar.
(b) Section 140 of the Companies Act, 2013 prescribes procedure for removal of auditors. Under
section 140 (1) the auditor appointed under section 139 may be removed from his office before
the expiry of his term only by a special resolution of the company, after obtaining the previous
approval of the Central Government in that behalf in the prescribed manner.
From this sub section it is clear that the approval of the Central Government shall be taken first
and thereafter the special resolution of the company should be passed.
Provided that before taking any action under this sub-section, the auditor concerned shall be
given a reasonable opportunity of being heard.
Therefore, in terms of section 140 (1) of the Companies Act, 2013 read with Rule 7 of the
Companies (Audit & Auditors) Rules, 2014, the following steps should be taken for the removal of
an auditor before the completion of his term:
The application to the Central Government for removal of auditor shall be made in Form ADT-2
and accompanied with fees as provided for this purpose under the Companies (Registration
Offices and Fees) Rules, 2014.
The application shall be made to the Central Government within thirty days of the resolution
passed by the Board.

The company shall hold the general meeting within sixty days of receipt of approval of the
Central Government for passing the special resolution.
Hence, in the instant case, the decision of ABC Ltd. to remove XYZ & Associates, auditors of the
company at the general meeting held on 25-5-2022 subject to approval of Central Government is
not valid. The Approval of the Central Government shall be taken before passing the special
resolution in the general meeting.
(c) (i) The bill of exchange is drawn, mentioning expressly as ‘payable on demand’. The bill will be at
maturity for payment on 04-1-2022, if presented on 01-01-2022:
This statement is not valid as no days of grace are allowed in the case of bill payable on demand.
(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor. The drawer
claims that he is discharged form his liability as the holder fails to give notice of dishonour of the
bill to all the parties thereto:
As per section 93 of the Negotiable Instruments Act, 1881, notice of dishonor must be given by
the holder to all parties other than the maker or the acceptor or the drawee whom the holder
seeks to make liable. Accordingly, notice of dishonour to the acceptor of a bill is not necessary.
Therefore, claim of drawer that he is discharged from his liability on account of holder’s failure to
give notice to all the parties thereto, is invalid.
(d) Impact of the words “Means” and “Includes” in the definitions- The definition of a word or
expression in the definition section may either be restricting of its ordinary meaning or may be
extensive of the same.
When a word is defined to ‘mean’ such and such, the definition is ‘prima facie’ restrictive and
exhaustive, we must restrict the meaning of the word to that given in the definition section.
But where the word is defined to ‘include’ such and such, the definition is ‘prima facie’ extensive,
here the word defined is not restricted to the meaning assigned t o it but has extensive meaning
which also includes the meaning assigned to it in the definition section.
Example:
Definition of Director [section 2(34) of the Companies Act, 2013]—Director means a director
appointed to the board of a company. The word “means” suggests exhaustive definition.
Definition of Whole time director [Section 2(94) of the Companies Act, 2013] —Whole time
director includes a director in the whole time employment of the company. The word “includes”
suggests extensive definition. Other directors may be included in the category of the whole time
director.
4. (a) Entrenchment: Usually an article of association may be altered by passing special resolution but
entrenchment makes it more difficult to change it. So, entrenchment means making something
more protective.
Section 5 of the Companies Act, 2013 describes the provisions relating to entrenchment.
Articles may contain provisions for entrenchment [Section 5(3)]: The articles may contain
provisions for entrenchment to the effect that specified provisions of the articles may be altered
only if conditions or procedures as that are more restrictive than those applicable in the case of a
special resolution, are met or complied with.
Manner of inclusion of the entrenchment provision [Section 5(4)]: The provisions for
entrenchment shall only be made either on formation of a company, or by an amendment in the
articles agreed to by all the members of the company in the case of a private company and by a
special resolution in the case of a public company.

Notice to the registrar of the entrenchment provision [Section 5(5)]: Where the articles
contain provisions for entrenchment, whether made on formation or by amendment, the company
shall give notice to the Registrar of such provisions in such form and manner as may be
prescribed.
(b) As per the provisions of section 2(16) of the Companies Act, 2013, “charge” means an interest or
lien created on the property or assets of a company or any of its undertakings or both as security
and includes mortgage.
Whenever a company borrows money by way of loans including term loans or working capital
loans from financial institutions or banks or any other persons, by offering its property or assets,
as security a charge is created on such property or assets in favour of the lender. Such a charge
is compulsorily registrable under the provisions of the Companies Act, 2013 in accordance with
Chapter VI and the rules made in this regard.
Thus, when Krish (Private) Limited obtains working capital loans from financial institut ions by
offering stock and Accounts Receivables as security, it is required to create a charge on such
property or assets in favour of the lender. Hence, for Rs. 25 Lakh working capital loan, it is
required to create a charge on it.
Krish (Private) Limited is not required to create a charge for Rs. 5 Lakh adhoc overdraft on the
personal guarantee of a director. Since, charge is always created on the property or assets of a
company and personal guarantee of director is not a property or asset of company.
(c) Financial Year: According to Section 3(21) of the General Clauses Act, 1897, financial year shall
mean the year commencing on the first day of April.
The term Year has been defined under section 3(66) as a year reckoned according to the British
calendar. Thus, as per the General Clauses Act, 1897, year means calendar year which starts
from January to December.
Difference between Financial Year and Calendar Year: Financial year starts from first day of
April but Calendar Year starts from first day of January.

(d) (i) Historical Setting: The history of the external circumstances which led to the enactment in
question is of much significance in construing any enactment. We have, for this purpose, to
take help from all those external or historical facts which are necessary in the understand ing
and comprehension of the subject matter and the scope and object of the enactment.
History in general and Parliamentary History in particular, ancient statutes, contemporary or
other authentic works and writings all are relevant in interpreting and con struing an Act.
(ii) Use of Foreign Decisions: Foreign decisions of countries following the same system of
jurisprudence as ours and given on laws similar to ours can be legitimately used for
construing our own Acts. However, prime importance is always to be given to the language
of the Indian statute. Further, where guidance can be obtained from Indian decisions,
reference to foreign decisions may become unnecessary.
5. (a) According to section 53 of the Companies Act, 2013, except as provided in section 54, a
company shall not issue shares at a discount. Any share issued by a company at a discount shall
be void.
According to section 54 of the Companies Act, 2013, notwithstanding anything contained in
section 53, a company may issue sweat equity shares of a class of shares already issued, if the
prescribed conditions are fulfilled.
(1) As per facts of the question and provisions of section 53 and 54 of the Companies Act,
2013, Yuvan Limited cannot issue at a discount of Rs. 1 per share. Hence, the advise of the
underwriter to issue shares at a discount is not valid.
(2) In terms of provisions of section 54 of the Companies Act, 2013, if the above shares have
been issued to employees as Sweat equity shares and prescribed conditions are fulfilled,
then the issue of shares at discount is valid.
(b) As per the provisions of Section 77 of the Companies Act, 2013, in case the charge was not
registered within 30 days of creation of the charge, the Registrar may, on an application by the
company, allow such registration to be made within a period of 60 days of such creation (i.e.
another 30 days are granted after the expiry of original 30 days), on payment of additional fees
as prescribed.
Procedure for Extension of Time Limit: For seeking extension of time, the company is required
to make an application to the Registrar in the prescribed form. It should be supported by a
declaration from the company signed by its company secretary or a director that such belated
filing shall not adversely affect the rights of any other intervening creditors of the company.
The application so made must satisfy the Registrar that the company had sufficient cause for not
filing the particulars and the instrument of charge, if any, within the original period of thirty days.
Only then he will allow registration of charge within the extended period. Further, requisite
additional fee or advalorem fee, as applicable, must also be paid.
(c)
Point of distinction Contract of Indemnity Contract of Guarantee
Number of party/ there are only two parties there are three parties creditor,
Parties to the contract namely the indemnifier principal debtor and surety.
[promisor] and the indemnified
[promisee]
Nature of liability The liability of the indemnifier The liability of the surety is
is primary and unconditional. secondary and conditional as the
primary liability is that of the
principal debtor.
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Time of liability The liability of the indemnifier The liability arises only on the non
arises only on the happening of performance of an existing
a contingency. promise or non-payment of an
existing debt.
Time to act The indemnifier need not act at The surety acts at the request of
the request of indemnity holder principal debtor.
Right to sue third indemnifier cannot sue a third surety can proceed against
party party for loss in his own name principal debtor in his own right
as there is no privity of because he gets all the right of a
contract. Such a right would creditor after discharging the
arise only if there is an debts.
assignment in his favour.
Purpose Reimbursement of loss For the security of the creditor
Competency to All parties must be competent In the case of a contract of
contract to contract guarantee, where a minor is a
principal debtor, the contract is
still valid.
(d) Associated Words to be Understood in Common Sense Manner: When two words or
expressions are coupled together one of which generally excludes the other, obviously the more
general term is used in a meaning excluding the specific one. On the other hand, there is the
concept of ‘Noscitur A Sociis’ (‘it is known by its associates’), that is to say ‘the meaning of a
word is to be judged by the company it keeps’. When two or more words which are capable of
analogous (similar or parallel) meaning are coupled together, they are to be understood in their
cognate sense (i.e. akin in origin, nature or quality). They take, as it were, their colour from each
other, i.e., the more general is restricted to a sense analogous to the less general. It is a rule
wider than the rule of ejusdem generis, rather ejusdem generis is only an application of the
noscitur a sociis. It must be borne in mind that nocitur a sociis, is merely a rule of construction
and it cannot prevail in cases where it is clear that the wider words have been deliberately used
in order to make the scope of the defined word correspondingly wider.

MOCK TEST PAPER 2
INTERMEDIATE: GROUP – I
Division A is compulsory
In Division B, Question No.1 is compulsory
Attempt any Three questions out of the remaining Four questions
Time Allowed – 3 Hours Maximum Marks – 100
Division A (30 Marks)
I. Jai and Veeru, two friends, formed a private limited company as Basanti Taanga Private Limited and got
it registered on 10th January, 2018. The registered office of the company was situated at Kolkata, West
Bengal. The company had an authorised share capital of ` 50 lacs divided into 5 lacs equity shares of
` 10/- each. The issued, subscribed and paid-up share capital of the company was of ` 30 lacs divided
into 3 lacs equity shares of ` 10 each. The company was engaged in supplying various motor parts to
the vehicles companies. ‘Basanti’ was a registered Trade mark of Basanti Motorwala Private Limited of
Mumbai since 15th January, 2016 under the Trade Marks Act, 1999. This company was also engaged
in manufacturing and supplying various auto parts to the vehicles companies.
Basanti Motorwala Private Ltd. of Mumbai came to know on 20th January, 2022 about Basanti Taanga
Private Limited of Kolkata who was using identical name and mark. Being a registered proprietor of a
trade mark, Basanti Motorwala Private Ltd. filed an objection with an appropriate authority under
Companies Act, 2013 on 15th March, 2022 that the name Basanti Taanga Private Limited or the mark
the company was using is found to be identical with or too nearly resembles to the registered trade mark
of Basanti Motorwala Private Ltd. and as such the appropriate authority should direct Basanti Taanga
Private Limited to change its name. The appropriate authority after going through all the details rejected
the application of Basanti Motorwala Private Ltd.
Thereafter on 14 th July, 2020, Basanti Motorwala Private Ltd. requested Basanti Taanga Private Limited
to change its name and Basanti Taanga Private Limited accepted the same in good relationship. Basanti
Taanga Private Limited complied with all the formalities under Companies Act, 2013 such as passing of
all necessary resolutions, taking approval from appropriate authority, filing of documents with the
Registrar of Companies etc. The name of the company Basanti Taanga Private Limited was changed to
Jai Veeru Private Limited. A fresh certificate of incorporation was issued to the company by the Registrar
after being satisfied with the name change application of the company. Subsequent to the issuance of
the new incorporation certificate, steps were taken up to incorporate the new name in all copies of the
Memorandum of Association, Articles of Association and other documents of the compa ny.
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks]
1. In the above case scenario, what can be the most evident reason for the appropriate authority to
reject the application of Basanti Motorwala Private Ltd?
(a) The appropriate authority rejected the application on the basis that the names of both the
companies are different- Basanti Motorwala Private Ltd and Basanti Taanga Private Limited.
(b) The appropriate authority rejected the application as Basanti Motorwala Private Ltd (owner of
the registered mark) should had filed the objection within three years of the registration of
company with identical name.
(c) The appropriate authority could have rejected the application on the basis that both the
companies are located in different cities and thus can use almost similar names.

(d) The appropriate authority could have rejected the application on the basis that both the
companies have different years of incorporation and both are located in different cities .
2. In the above case scenario, what ought to have been the time limit within which Basanti Motorwala
Private Ltd, should have filed the objection for wrong name:
(a) On or before 9 th January, 2021
(b) On or before 9 th January, 2022
(c) On or before 9 th January, 2023
(d) They can file the objection at any time
3. According to above case, a fresh certificate of incorporation was issued to the company by the
Registrar after being satisfied with the name change application of the company. Which of the
following statements is correct in this context?
(a) The change in name of the company is said to be complete and effective from the date of
passing of resolution in the general meeting of members.
(b) The change in name of the company is said to be complete and effective from the date of
issue of fresh certificate of incorporation by the Registrar.
(c) The change in name of the company is said to be complete and effective from the date on
which documents were filed with the Registrar.
(d) The change in name of the company is said to be complete and effective from the date of the
order of Ministry of Corporate Affairs approving the change of name.
II. Prem and Amar are friends. Prem is the owner of three cars. Amar is a resident of Bhiwadi. He had to
daily commute from Bhiwadi to Gurugram. He was using the services of various cab providers for
commuting. Due to the rising prices and daily tension of booking a cab, Amar asked his friend Prem to
rent one of his cars to him for a period of two month. They mutually agreed for a monthly rent of ` 8,000.
Prem bought a new car to gift to his son on his 19 th birthday. Prem’s son Guddu, wanted to take his
friends out for a ride in the new car for a treat. They went the famous Labela Café. Guddu found a Rado
watch in the cafe; lying on the floor. Guddu tried to find the owner of the watch but all his efforts went in
vain. Guddu got the watch repaired from the showroom by paying ` 9,500. Three days after Guddu
found the watch, he came to know about the real owner of the watch, from the advertisement newspaper
stating the loss of a watch in Labela Café, along with the reward of ` 10,000 to the finder of the watch.
Guddu went to the owner to return the watch. Guddu demanded ` 15,000 as he had paid ` 9,500 for
the repair of the watch.
After the expiry of one month from the date of lending the car to Amar, Prem went to Paris for 1.5
months. Prem informed Amar to return back the car at his residence. After the expiry 2 months (from
the date of renting the car), Amar thought to retain the car with him for a further period of 1 month, for
the ease of commuting. However, he did not inform Prem about the same and thought of paying ` 4,000
for this extra 15 days to Prem (Prem was already not in India for 15 days, so in any case car could not
be delivered to him directly).
4. With reference to the provision of the Indian Contract Act, 1872, which of the statement is correct?
(a) Amar can retain the car as he had no malicious intention and was ready to pay ` 4,000 for
retaining the car for 15 days
(b) Amar being a friend of Prem is authorised to retain the car after 2 months and also Prem was
not in India at that time
2

(c) After the expiry of 2 months, the car can be retained at least for the time of 15 days when
Prem was not in India but not for the balance 15 days for which Amar was ready to pay
` 4,000
(d) It was not justifiable for Amar to retain the car after the expiry of 2 months
5. According to the provision of the Indian Contract Act, 1872, choose the correct statement.
(a) Guddu has a right to claim only the amount spent on repairing the watch.
(b) Guddu has no right to claim the prize money.
(c) Guddu can retain the watch till the owner pays him at least the prize money.
(d) The owner is not liable to pay anything to Guddu. Rather, he can sue Guddu for stealing the
watch.
6. The instrument creating a charge or modification thereon shall be preserved for a period of ______
years from the date of satisfaction of charge by the company.
(a) 5
(b) 7
(c) 8
(d) 15 (1 Mark)
7. Shreya is a director of Shree Limited. She intends to participate in the board meeting through video
conferencing and has intimated the same to the chairperson at the beginning of calendar year.
Advise, Shreya for how long such declaration shall be valid.
(a) 1 month
(b) 6 month
(c) 1 year
(d) She has to furnish declaration for each meeting separately (1 Mark)
8. Order Instrument is an instrument which is payable to a person or payable to a person or his order
or payable to order of a person or where the last indorsement is in full, such instrument can be
negotiated by ………………….
(a) Simple delivery
(b) Indorsement and delivery
(c) Indorsement
(d) Registered post (2 Mark)
9. A bill of exchange is due on 2 nd January, 2022. How many days of grace shall be provided to this
bill of exchange due at maturity:
(a) 1 day
(b) 2 days
(c) 3 days
(d) 5 days (1 Mark)
3

10. What among the following could be considered in the term ‘Immovable Property’ as defined under
section 3(26) of the General Clauses Act, 1897?
(i) The soil for making bricks
(ii) Right to catch fish
(iii) Right to drain water
(iv) Doors and Windows of the house
(a) Only (i) and (iv)
(b) Only (i), (ii) and (iv)
(c) Only (i) and (ii)
(d) Only (ii), (iii) and (iv) (2 Marks)
11. The Annual General Meeting (AGM) of Green Limited was held on 31.8.2022. Suppose the
Chairman of the company after two days of AGM went abroad for next 31 days. Due to the
unavailability of the Chairman, within time period prescribed for submission of copy of report of
AGM with the registrar, the report as required was signed by two Directors of the company, of
which one was additional Director of the company. Comment on the signing of this report of AGM.
(a) Yes, the signing is in order as the report can be signed by any director in the absence of
Chairman.
(b) No, the signing is not in order as only the Chairman is authorised to sign the report
(c) Yes, the signing is in order, as in the absence of Chairman at least two directors sh ould sign
the report.
(d) No, the signing is not in order, since in case the Chairman is unable to sign, the report shall
be signed by any two directors of the company, one of whom shall be the Managing director,
if there is one and company secretary of the company. (2 Marks)
12. Yellow Limited’s General Meetings are held at its registered office situated in Kochi. The minute
book of General meetings of Yellow Limited will be kept at:
(a) That place where members of Yellow Limited will decide.
(b) That place where all employees of Yellow Limited will decide.
(c) Registered office of the company Yellow Limited.
(d) That place where senior officials of Yellow Limited will decide. (1 Mark)
13. Red Limited is accepting deposits of various tenures from its members from time to time. The
current Register of Deposits, maintained at its registered office is complete. State the minimum
period for which it should mandatorily be preserved in good order.
(a) Four years from the financial year in which the latest entry is made in the Register.
(b) Six years from the financial year in which the latest entry is made in the Register.
(c) Eight years from the financial year in which the latest entry is made in the Register.
(d) Ten years from the latest date of entry. (1 Mark)
14. During the half year ended September 2021, the board of directors (BOD) of New Era Limited has
4

made an application to the Tribunal for revision in the accounts of the company for the financial
year ended on March 2019. Further during the year ended March 2022, the BOD has again made
an application to the Tribunal for revision in the board’s report pertaining to the year ended March
2021. You are required to state the validity of the acts of the Board of directors.
(a) The act of the BOD is valid only to the extent of application made for revisions in accounts as
board’s report are not eligible for revision.
(b) The act of the BOD is valid as application made for revision in the accounts and board’s report
pertains to two different financial year.
(c) The act of the BOD is invalid as the law provides for only one time application to be made in
a financial year for revision of accounts and boards report.
(d) The act of the BOD is invalid as to the application made for revision in accounts pertains to a
period beyond 2 years immediately preceding the year 2022. The application made for
revision in the Board report is however valid in law. (2 Marks)
15. One Person Company shall file a copy of the duly adopted financial statements to the Registrar in:
(a) 30 days of the date of meeting in which it was adopted.
(b) 90 days of the date of meeting in which it was adopted.
(c) 90 days from the closure of the financial year.
(d) 180 days from the closure of the financial year. (1 Mark)
16. The AGM shall be called by giving 21 clear days’ notice. However, it can be called by giving shorter
notice if members entitled to vote at that meeting give their consent in writing or by electronic mode.
In such cases how many members have to give their consent?
(a) 75% of members entitled
(b) 90% of members entitled
(c) 91% of members entitled
(d) 95% of members entitled (1 Mark)
17. Every company shall pay a penal rate of interest of ----------------- per annum for the overdue period
in case of deposits, whether secured or unsecured, matured and claimed but remaining unpaid:
(a) 9%
(b) 14%
(c) 18%
(d) 24% (1 Mark)
18. Pick the odd one out of the following aids to interpretation:
(a) Preamble
(b) Marginal Notes
(c) Proviso
(d) Usage (1 Mark)

19. ________________________ is the cardinal rule of construction that words, sentences and
phrases of a statute should be read in their ordinary, natural and grammatical meaning so that they
may have effect in their widest amplitude.
(a) Rule of Literal Construction
(b) Rule of Harmonious Construction
(c) Rule of Beneficial Construction
(d) Rule of Exceptional Construction (1 Mark)
20. ………………. means that when two or more words that are susceptible of analogous meaning, are
coupled together they are understood to be used in their cognate sense.
(a) Noscitur a Sociis
(b) Contemporanea Expositio
(c) prima facie
(d) absoluta sententia expositore non indiget (1 Mark)
Division B (70 Marks)

1. (a) Purple Limited wants to raise funds for its upcoming project. Accordingly, it has issued private
placement offer letters for issuing equity shares to 55 persons, of which four are qualified
institutional buyers and remaining are individuals. Before the completion of allotment of equity
shares under this offer letter, company issued another private placement offer letter to another 155
persons in their individual names for issue of its debentures.
Being a public company is it possible for Purple Limited to issue securities under a private
placement offer? By doing so, whether the company is in compliance with provisions relating to
private placement or should these offers be treated as public offers? What if the offer for
debentures is given after allotment of equity shares but within the same financial year? (6 Marks)
(b) (i) A Limited declared and paid 10% dividend to all its shareholders except Mr. B, holding 500
equity shares, who instructed the company to deposit the dividend amount direct ly in his bank
account. The company accordingly remitted the dividend, but the bank returned the payment
on the ground that the account number as given by Mr. B doesn't tally with the records of the
bank. The company, however, did not inform Mr. B about this discrepancy. Comment on this
issue with reference to the provisions of the Companies Act, 2013 regarding failure to
distribute dividend.
(ii) G Medical Instruments Limited is a manufacturing company & has proposed a dividend
@ 10% for the year 2021-2022 out of the profits of current year. The company has earned a
profit of ` 910 crores during 2021-2022. The company does not intend to transfer any amount
to the general reserves out of the profits. Is G Medical Instruments Limited allowed to do so,
as per the provisions of the Companies Act, 2013? (6 Marks)
(c) Ricky is the owner of electronics shop. Prisha reached the shop to purchase an air conditioner
whose compressor should be of copper. As Prisha wanted to purchase the air conditioner on credit,
Ricky demand a guarantor for such transaction. Mr. Shiv (a friend of Prisha) came forward and
gave the guarantee for payment of air conditioner. Ricky sold the air conditioner of a particular
brand, misrepresenting that it is made of copper while it is made of aluminium. Neither Prisha nor
Mr. Shiv had the knowledge of fact that it is made of aluminium. On being aware of the facts, Prisha
denied for payment of price. Ricky filed the suit against Mr. Shiv. Explain with reference to the
Indian Contract Act 1872, whether Mr. Shiv is liable to pay the price of air conditioner?

(d) ‘Shama' made a promissory note for ` 4,500 payable to ‘Vihari’, and delivered the same to ‘Vihari’
on the condition that he (‘Vihari’) will demand payment only on the death of ‘Kayah’. Before the
death of ‘Kayah’, ‘Vihari’ indorsed and delivered the promissory note to ‘Deepak’, who receive the
promissory note in good faith. On the date of maturity, ‘Deepak’ presented the promissory note for
payment but ‘Shama’ denied for payment by stating that he issued this promissory note on the
condition that it can be paid only on the death of ‘Kayah’. Can ‘Deepak’ recover the amount due
on the promissory note from ‘Shama’ under the provisions of the Negotiable Instrument Act 1881?
2. (a) Rashmika Ltd. received share application money of ` 50.00 Lakh on 01.06.2021 but failed to allot
shares within the prescribed time limit.
The share application money of ` 5.00 Lakh received from Mr. Kumar, a customer of the company,
was refunded by way of book adjustment towards the dues payable by him to the company on
30.07.2021. The Company Secretary of Rashmika Ltd. reported to the Board that the entire amount
of ` 50.00 Lakh shall be deemed to be 'Deposits' as on 31.07.2021 and the company is required
to comply with the provisions of the Companies Act, 2013 applicable to acce ptance of deposits in
relation to this amount.
You are required to examine the validity of the reporting of the Company Secretary in the light of
the relevant provisions of the Companies Act, 2013. (4 Marks)
(b) The Companies Act, 2013 has prescribed an additional duty on the Board of directors to include in
the Board’s Report a “Directors’ Responsibility Statement”. Briefly enumerate any four matters to
be furnished in the said statement. (6 Marks)
(c) Explain whether the agency shall be terminated in the following cases under the provisions of the
Indian Contract Act, 1872:
(i) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due
to him from A. Afterwards, A becomes insane.
(ii) A appoints B as A's agent to sell A's land. B, under the authority of A, appoints C as agent of
B. Afterwards, A revokes the authority of B but not of C. What is the status of agency of C?
(4 Marks)
(d) A signs his name on a blank cheque with ‘not negotiable crossing’ which he gives to B with an
authority to fill up a sum of ` 3,000 only. But B fills it for ` 5,000. B then endorsed it to C for a
consideration of ` 5,000 who takes it in good faith. Examine whether C is entitled to recover the
full amount of the instrument from B or A as per the provisions of the Negotiable Instruments Act,
1881. (3 Marks)
3. (a) P Cricket Club was formed as a Limited Liability Company under Section 8 of the Companies Ac t,
2013 with the object of promoting cricket by arranging introductory cricket courses at district level
and friendly matches. The club has been earning surplus. Of late, the affairs of the company are
conducted fraudulently and dividend was paid to its members. Mr. Y, a member decided make a
complaint with Regulatory Authority to curb the fraudulent activities by cancelling the licence given
to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the licence? If so, state the
provisions.
(ii) Whether the Company may be wound up?
(iii) Whether the P Cricket Club can be merged with Z Net Private Limited, a company engaged
in the business of networking? (5 Marks)
7

(b) XYZ & Associates, a firm of Chartered Accountants was re-appointed as auditors at the Annual
General Meeting of ABC Ltd. held on 30-09-2021. However, the Board of Directors recommended
to remove them before expiry of their term by passing a resolution in the Board Meeting held on
31-03-2022. Subsequently, having given consideration to the Board recommendation, XYZ &
Associates were removed at the general meeting held on 25-05-2022 by passing a special
resolution. The approval of the Central Government was not taken before passing the special
resolution. Explaining the provisions for removal of second and subsequent auditors, examine the
validity of removal of XYZ & Associates by ABC Ltd. under the provisions of the Companies Act,
2013. (5 Marks)
(c) Examine the following cases with respect to their validity. State your answer with reasons.
(i) A bill of exchange is drawn, mentioning expressly as 'payable on demand'. The bill will be at
maturity for payment on 04-01-2022, if presented on 01-01-2022.
claims that he is discharged from his liability as the holder fails to give notice of dishonour of
the bill to all the parties thereto. (4 Marks)
(d) Explain the impact of the two words "means" and "includes" in a definition, while interpreting such
definition. (3 Marks)
4. (a) The Articles of Association of a Company may contain provisions for entrenchment under Section
5 of the Companies Act, 2013. What is meant by entrenchment provisions in this context? Also
state the relevant provisions of the said Act dealing with entrenchment provisions. (6 Marks)
(b) Krish (Private) Limited on 7 th May 2022 obtained ` 25 lakhs working capital loan by offering its
Stock and Accounts Receivables as security and ` 5 Lakhs adhoc overdraft on the personal
guarantee of a Director of Krish (Private) Limited, from a financial institution. Is the company
required to create charge for working capital loan and adhoc overdraft in accordance with the
provisions of the Companies Act, 2013? (4 Marks)
(c) A confusion, regarding the meaning of ‘financial year’ arose among the financial executive and
accountant of a company. Both were having different arguments regarding the meaning of financial
year & calendar year. What is the correct meaning of financial year under the provision of the
General Clauses Act, 1897? How it is different from calendar year? (4 Marks)
(d) In what way are the following terms considered as external aid in the interpretation of statutes:
(i) Historical Setting
(ii) Use of Foreign Decisions (3 Marks)
5. (a) Yuvan Limited is a public company incorporated in Pune. The Board of Directors (BOD) of the
company wants to bring a public issue of 1,00,000 equity shares of ` 10 each. The BOD has
appointed an underwriter for this issue for ensuring the minimum subscription of the issue. The
underwriter advised the BOD that due to current economic situation of the Country it would be
better if the company offers these shares at a discount of ` 1 per share to ensure full subscription
of this public issue. The Board of Directors agreed to the suggestion of underwriter and offered the
shares at a discount of ` 1 per share. The issue was fully subscribed and the shares were allotted
to the applicants in due course.
(1) Decide whether the advise of underwriter to issue of shares as mentioned above is valid as
per provisions of the Companies Act, 2013.

(2) What would be your answer in the above case if the shares are issued to employees as Sweat
equity shares? (5 Marks)
(b) Bows Limited is required to create a charge on one of its assets. However, the above charge could
not be registered within the required period of 30 days. State the provisions related to extension of
time and procedure for registration of charges, in case when the charge was not registered within
30 days of its creation. (5 Marks)
(c) Distinguish between a contract of Indemnity and a contract of Guarantee as per the Indian Contract
Act, 1872. (4 Marks)
(d) “Associate words to be understood in common sense manner.” Explain this statement with
reference to rules of interpretation of statutes. (3 Marks)

PAPER – 2 : CORPORATE & OTHER LAW
Question No. 1 is compulsory.
Attempt any three questions from the remaining four questions.
Question 1
(a) MNP Limited is a registered public company having the following:
i Directors and their Relatives 18
ii Employees 26
iii Ex-Employees (Shares were allotted during employment) 15
iv Members holding shares jointly (7 x 2) 14
v Other Members 137
The Board of Directors of MNP Limited proposes to convert the company into a private
limited company. Referring the provisions of the Companies Act, 2013, advise:
i. Whether the company can be converted into a private company?
ii. Whether existing number of members need to be reduced for the proposed private
company? (3 + 3 = 6 Marks)
(b) (i) SKIP Limited (the Company) was incorporated on 01.04.2019. The balances
extracted from its audited financial statement are as given below:
Financial Year (FY) Net Profit before tax Net Profit after tax (Ignore
Income Tax computation)
2019-20 ` 5.00 crore ` 3.75 crore
2020-21 ` 7.00 crore ` 5.25 crore
The Company proposes to allocate the minimum required amount for CSR Activities
to be undertaken during FY 2021-22, if it is mandatory. You are requested to advice
the Company in this regard and compute the minimum amount to be allocated, if so
required, taking into account the relevant provisions of the Companies Act, 2013.
(3 Marks)
(ii) SKS Limited issued 8% ` 1,50,000; Redeemable Preference Shares of ` 100 each
in the month of May, 2010, which are liable to be redeemed within a period of 10
years. Due to the Covid-19 pandemic, the Company is neither in a position to
redeem the preference shares nor to pay dividend in accordance with the terms of
issue. The Company with the consent of Redeemable Preference Shareholders of
70% in value, made a petition to the Tribunal [NCLT] to accord approval to issue
further redeemable preference shares equal to the amount due. Will the petition be
approved by the Tribunal in the light of the provisions of the Companies Act, 2013?

2 INTERMEDIATE EXAMINATION: MAY, 2022
Can the company include the dividend unpaid in the above issue of redeemable
preference shares? (3 Marks)
(c) (i) Ramu has given authority to Prem to buy certain goods at the market rate. Prem
buys the goods at a higher rate than the market rate. However, Ramu accepted the
purchase in spite of higher rate. Afterwards, Ramu comes to know that the goods
purchased belonged to Prem himself. Decide, whether Ramu is bound by ratification
done?
(ii) Hari, authorises Bharat, a merchant in Mumbai, to recover dues from Bankey & Co.
Bharat instructs Deepak, a solicitor, to take legal proceedings against Bankey &
Co., for recovery of the money. Explain the legal position of Deepak, referring
provisions of the Indian Contract Act, 1872, related to agency. (2 + 2 = 4 Marks)
(d) Examine the validity of the following statements with reference to the Negotiable
Instruments Act, 1881.
(i) When payment on an instrument is made in due course, both the instrument and the
parties to it are discharged.
(ii) Alteration of rate of interest specified in the Promissory Note is not a material
alteration.
(iii) Conversion of the blank indorsement into an indorsement in full is not a material
alteration and it does not require authentication. (3 Marks)
Answer
(a) According to Section 2(68) of the Companies Act, 2013, "Private company" means a
company having prescribed minimum paid-up share capital, and which by its articles,
limits the number of its members to two hundred.
However, where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this clause, be treated as a single member.
It is further provided that following shall not be included in the number of members -
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were
members of the company while in that employment and have continued to be
members after the employment ceased.
Accordingly, total Number of members in MNP Limited are:
(i) Directors and their relatives 18
(ii) Joint shareholders (7x2) 7
(iii) Other Members 137
Total 162

PAPER – 2 : CORPORATE AND OTHER LAWS 3
(i) MNP Limited may be converted into a private company only if the total members of
the company are limited to 200. In the instant case, since existing number of
members are 162 which is within the prescribed maximum limit of 200, so MNP
Limited can be converted into a private company.
(ii) There is no need for reduction in the number of members for the proposed private
company as existing number of members are 162 which does not exceed maximum
limit of 200.
(b) (i) According to section 135(1) of the Companies Act, 2013, every company having net
worth of rupees five hundred crore or more, or turnover of rupees one thousand
crore or more or a net profit of rupees five crore or more during the immediately
preceding financial year shall constitute a Corporate Social Responsibility
Committee of the Board.
Further, according to section 135(5), the Board of every company referred to in sub-
section (1), shall ensure that the company spends, in every financial year, at least
two per cent. of the average net profits of the company made during the three
immediately preceding financial years or where the company has not completed the
period of three financial years since its incorporation, during such immediately
preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
Here, the “Net Profit” shall not include such sums as may be prescribed, and shall
be calculated in accordance with the provisions of section 198.
In the instant case,
1. Net Profit before tax of SKIP Limited for the FY 2020-21 is ` 7 crore, hence,
SKIP Limited is required to constitute a CSR committee during FY 2021-22 as
the Net profit before tax for the FY exceeds ` 5 crore.
2. Minimum contribution towards CSR will be: 2% of average net profits since
incorporation (SKIP Limited was incorporated on 1.04.2019.)
Average Net Profit since incorporation: (` 5 crore + ` 7 crore)/ 2 = ` 6 crore
Minimum contribution towards CSR will be: 2% of ` 6 crore = ` 0.12 crore or
` 12 Lacs
(ii) According to section 55(3) of the Companies Act, 2013, where a company is not in a
position to redeem any preference shares or to pay dividend, if any, on such shares
in accordance with the terms of issue (such shares hereinafter referred to as
unredeemed preference shares), it may—
➢ with the consent of the holders of three-fourths in value of such preference
shares, and
➢ with the approval of the Tribunal on a petition made by it in this behalf,

issue further redeemable preference shares equal to the amount due, including the
dividend thereon, in respect of the unredeemed preference shares, and on the issue
of such further redeemable preference shares, the unredeemed preference shares
shall be deemed to have been redeemed.
Provided that the Tribunal shall, while giving approval under this sub-section, order
the redemption forthwith of preference shares held by such persons who have not
consented to the issue of further redeemable preference shares.
In the instant case, since the company made a petition to the NCLT with the
consent of Redeemable Preference Shareholders of 70% in value, the said petition
is not valid and will not be approved by the NCLT.
If the consent has been taken by three-fourths (75%) in value of such preference
shares, the company can include the dividend unpaid in the above issue of
redeemable preference shares.
(c) (i) According to section 198 of the Indian Contract Act, 1872, no valid ratification can
be made by a person whose knowledge of the facts of the case is materially
defective.
In the instant case, Ramu has given authority to Prem to buy certain goods at the
market rate. Prem buys the goods at a higher rate than the market rate. However,
Ramu accepted the purchase inspite of higher rate. Afterwards, Ramu comes to
know that the goods belonged to Prem himself. The ratification is not binding on
Ramu.
(ii) As per section 194 of the Indian Contract Act, 1872, where an agent, holding an
express or implied authority to name another person to act for the principal in the
business of the agency, has named another person accordingly, such person shall
be an agent of the principal for such part of the business of the agency as is
entrusted to him.
In the instant case, Hari, authorizes Bharat, a merchant in Mumbai, to recover dues
from Bankey & Co. Bharat instructs Deepak, a solicitor, to take legal proceedings
against Bankey & Co. for recovery of the money.
Here, Deepak, a solicitor, is a substituted agent to act for the principal in the
business of the agency, to take legal proceedings for recovering of money.
(d) (i) When payment on an instrument is made in due course, both the instrument
and the parties to it are discharged: Valid
Reasoning: As per section 78 of the Negotiable Instrument Act, 1881, when
payment on an instrument is made in due course, both the instrument and the

parties to it are discharged subject to the provision of section 82(c). The payment
on an instrument may be made by any party to the instrument. It may even be made
by a stranger provided it is made on account of the party liable to pay.
(ii) Alteration of rate of interest specified in the Promissory Note is not a material
alteration: Not valid
Reasoning: An alteration is material which in any way alters the operation of the
instrument and affects the liability of parties thereto. Hence, Alteration of rate of
interest is material alteration.
(iii) Conversion of the blank indorsement into an indorsement in full is not a
material alteration and it does not require authentication: Valid
Reasoning: Conversion of a blank indorsement into an indorsement in full [under
Section 49 of the Negotiable Instruments Act, 1881] is not a material alteration. It
has been authorised by the Act and do not require any authentication.
Question 2
(a) (i) Beauty Limited obtained a working capital loan from a Nationalized Bank against the
hypothecation of Stocks & Accounts receivable of the Company. An instrument
creating the charge was duly signed by the Company and the Bank. The Company
is not willing to register the charges with the Registrar of Companies. In the light of
the provisions, if the Companies Act, 2013, discuss:
(1) Is there any provision empowering the Nationalized Bank (charge holder) to
get the charges registered?
(2) When can the Registrar refuse to register the charges the present scenario?
(4 Marks)
(ii) ABC Ltd. has declared dividend of ` 2/- per equity share in the general meeting.
Mr. Suresh is holding 5000 equity shares of ` 10 face value each, on which
` 10,000 towards call money is due. Whether the dividend amount payable to him
be adjusted against such dues as per the provisions of the Companies Act, 2013?
Give reasons for your answer. (2 Marks)
(b) XYZ Ltd. received a communication from Central Government for preparation of
periodical financial results and complete audit or limited review of such periodical
financial results. The Board of Directors have raised an objection on the ground that as it
is an unlisted company, periodical financial results need not to be prepared. Examine,
referring the provisions of the Companies Act, 2013, in this regard. (4 Marks)

(c) Examine the validity of the following statements under the provisions of the Indian
Contract Act, 1872.
(i) Creditor should proceed legal action first against the Principal Debtor and later
against the surety.
(ii) A guarantee which extends to a single debt/ specific transaction is called continuing
Guarantee.
(iii) Variation which is not material and beneficial to the surety will not discharge him of
his liability.
(iv) If the bailee does not use the goods according to the terms and conditions of
bailment, the contract of bailment becomes void. (4 Marks)
(d) Healthcare Services Limited (the Bidder), bids the tender floated by Super Care Hospital
(the Tenderer), attaching a cheque dated 01.04.2021 for ` 5,00,000 towards earnest
money deposit. Since the tender process was extended, the Tenderer returned the
cheque expiring on 30.06.2021 to the Bidder for its resubmission after having revalidated
by changing the date of the cheque to 01.07.2021. Accordingly, the revalidated cheque
was resubmitted by the Bidder to the Tenderer. The cheque was presented by the
Tenderer to the banker. It was dishonoured by the bank. Examine, whether the cheque
altered with a new date shall be deemed to be a valid cheque binding the Bidder for
payment as per the Negotiable Instruments Act, 1881? (3 Marks)
Answer
(a) (i) (1) Registration by charge holder: Section 78 of the Companies Act, 2013,
empowers the holder of charge to get the charge registered in case the
company creating the charge on its property fails to do so.
Accordingly, if a charge is created, the company is primarily responsible for
registering the charge however it fails to do so within the prescribed period of
30 days [as provided in section 77 (1)], the person in whose favour the charge
is created (i.e. charge-holder) may apply to the Registrar for registration of the
charge along with the instrument of charge within the prescribed time, form
and manner. In light of above provisions, the Nationalized Bank can get the
charges registered.
(2) Registrar refuse to register the charges: However, the Registrar shall not
allow such registration by the charge-holder, if the company itself registers the
charge or shows sufficient cause why such charge should not be registered.
(ii) As per clause (d) of proviso to section 127 of the Companies Act, 2013, where the
dividend is declared by a company and there remains calls in arrears or any other
sum due from a member, then the dividend can be lawfully adjusted by the company
against any such dues.

Thus, ABC Ltd. can adjust the call money dues from Mr. Suresh of ` 10,000 against
the dividend amount payable to him of ` 10,000 (5000 shares x ` 2 /- per share).
(b) Periodical Financial Results [Section 129A of the Companies Act, 2013]
The Central Government may, require such class or classes of unlisted companies, as
may be prescribed,—
(a) to prepare the financial results of the company on periodical basis and in prescribed
form
(b) to obtain approval of the Board of Directors and complete audit or limited review of
such periodical financial results in the prescribed manner; and
(c) file a copy with the Registrar within a period of thirty days of completion of the
relevant period with such fees as may be prescribed.
Therefore, the objection of the Board of Directors on the ground that as XYZ Ltd. is an
unlisted company, periodical financial results need not be prepared, is not correct.
Section 129A clearly specifies that even unlisted company has to prepare Periodical
Financial Results.
(c) (i) Creditor should proceed legal action first against the Principal Debtor and
later against the surety: Invalid
Reasoning: As per Section 128 of the Indian Contract Act, 1872, the surety’s
liability is co-extensive with that of Principal debtor. It’s not mandatory that creditor
should proceed legal action in case of default, first against the Principal debtor and
later against the surety. It is on creditor to start action first either against the
Principal debtor or the surety.
(ii) A guarantee which extends to a single debt/ specific transaction is called
continuing Guarantee: Invalid
Reasoning: Continuing Guarantee [Section 129 of the Indian Contract Act, 1872] -
A guarantee which extends to a series of transaction is called a continuing
guarantee. It applies not to a specific number of transactions but to any number of
transactions and makes the surety liable for the unpaid balance at the end of the
guarantee.
(iii) Variation which is not material and beneficial to the surety will not discharge
him of his liability: Valid
Reasoning: Based on the principle held in the M.S Anirudhan v Thomco’s Bank Ltd.
AIR 1963 SC 746 that the surety’s liability will not be discharged where the
alteration is for beneficial to him and is not substantial in nature.

(iv) If the bailee does not use the goods according to the terms and conditions of
bailment, the contract of bailment becomes void: Invalid
Reasoning: As per Section 153, a contract of bailment is voidable at the option of
the bailor, if the bailee does not use the goods according to the terms and
conditions of bailment.
(d) An alteration is material which in any way alters the operation of the instrument and
affects the liability of parties thereto.
By material alteration the identity of original instrument is destroyed and those parties
who had agreed to be liable on the original instrument cannot be made liable on the new
contract contained in the altered instrument to which they never consented (Gour
Chandra vs Prasanna Kumar 33 Cal 812). It makes no difference whether the alteration
is made by a party who is in possession of the same, or by a stranger while the
instrument was in the custody of a party, because the party in custody of instrument is
bound to preserve it in its integrity. The rule is defended on the ground that no man shall
be permitted to take the chance of committing a fraud without running any risk of loss by
the event when it is detected.
The party who consents to the alteration as well as the party who makes the alteration
are disentitled to complain against such alteration.
In the given question, the tenderer (Super Care Hospital) returned the cheque to the
bidder (i.e. the drawer of cheque- Healthcare Services Limited) for its resubmission after
having revalidated by changing the date of the cheque. The drawer himself altered the
date of the cheque for re-validating the same instrument, he cannot take advantage of it
by saying that the cheque becomes void as there was a material alteration thereto. It is
always open to a drawer to voluntarily re-validate a negotiable instrument including a
cheque [Veera Exports v T. Kalavathy (2002) 1 SCC97].
In the light of the above discussion, the cheque altered with a new date shall be deemed
to be a valid cheque and thus, binding the Bidder for payment.
Question 3
(a) As per the financial statement as at 31.03.2021, the Authorized and Issued share capital
of Manorama Travels Private Limited (the Company) is of ` 100 Lakh divided into 10
Lakh equity shares of ` 10 each. The subscribed and paid-up share capital on that date
is ` 80 Lakh divided into 8 Lakh equity shares of ` 10 each. The Company has reduced
its share capital by cancelling 2 Lakh issued but unsubscribed equity shares during the
financial year 2021-22, without obtaining the confirmation from the National Company
Law Tribunal (the Tribunal). It is noted that the Company has amended its Memorandum
of Association by passing the requisite resolution at the duly convened meeting for the
above purpose. While filing the relevant e-form the Practicing Company Secretary

refused to certify the form for the reason that the action of the Company reducing the
share capital without confirmation of the Tribunal is invalid.
In light of the above facts and in accordance with the provisions of the Companies Act,
2013, you are requested to (i) examine, the validity of the decision of the Company and
contention of the practicing Company Secretary and (ii) state, the type of resolution
required to be passed for amending the capital clause of the Memorandum of
Association. (5 Marks)
(b) The Board of Directors of ABC Limited are proposing to raise funds from the public
through issue of equity shares. However due to volatile financial markets, the price per
share and the number of shares to be issued are left open and to be decided post
closure of the issue. As a financial advisor of the company, what would you suggest to
the Board in this regard as per the provisions of the Companies Act, 2013? (5 Marks)
(c) 'A' draws a cheque for ` 5,000 in favour of 'B'. 'A' had sufficient funds in his bank account
to meet it, when the cheque ought to be presented in the bank. The bank fails before the
cheque is presented. 'B' wants to claim it from 'A'. Decide, whether 'A' is liable as per the
Negotiable Instruments Act, 1881. (4 Marks)
(d) Explain the provision related to 'Effect of Repeal' as per the General Clauses Act, 1897.
(3 Marks)
Answer
(a) According to section 61 of the Companies Act, 2013, a limited company having a share
capital is empowered to alter its capital clause of the Memorandum of Association. The
provisions are as under:
(1) According to the section, a limited company having a share capital may, if so
authorised by its articles, alter its memorandum in its general meeting to cancel
shares which, at the date of the passing of the resolution in that behalf, have not been
taken or agreed to be taken by any person, and diminish the amount of its share capital
by the amount of the shares so cancelled.
(2) It provides that the cancellation of shares shall not be deemed to be a reduction of
share capital.
According to the given facts, in the said question, the company reduced its share capital
without obtaining the confirmation from the NCLT. The Company amended its
memorandum by passing the requisite resolution at the duly convened meeting.
However, Company Secretary refused to certify stating that action of company reducing
the share capital without confirmation of the Tribunal, is invalid.
Accordingly, in the light of the stated facts, following shall be the answers:

(i) Decision of the company is valid, as for alteration of share capital by cancellation of
shares and diminishing of amount of share capital by the amount of the shares so
cancelled, does not require confirmation of the Tribunal. As per the law, passing of
the resolution in that behalf at the duly convened meeting by amending
Memorandum of Association, is the sufficient compliance. Therefore, contention of
practicing Company Secretary is not valid.
(ii) According to section13, save as provided in section 61 of the Companies Act, 2013,
company may alter the provisions of its memorandum with the approval of the
members by a special resolution.
(b) As a financial consultant the Board of Directors of ABC Limited would be advised to issue
a Red Herring Prospectus. The expression “red herring prospectus” means a prospectus
which does not include complete particulars of the quantum or price of the securities
included therein. [Explanation to Section 32]
Thus, ABC Limited may raise funds from public through red herring prospectus whereby
the price per security and number of securities are left open to be decided post closure of
the issue.
The company may follow the provisions of section 32 in issuing a red herring prospectus:
(1) Red Herring Prospectus is issued prior to issue of Prospectus: A company
proposing to make an offer of securities may issue a red herring prospectus prior to
the issue of a prospectus.
(2) Filing with the registrar: A company proposing to issue a red herring prospectus
shall file it with the Registrar at least three days prior to the opening of the
subscription list and the offer.
(3) Obligations under Red Herring Prospectus vis-à-vis Prospectus: A red herring
prospectus shall carry the same obligations as are applicable to a prospectus and
any variation between the red herring prospectus and a prospectus shall be
highlighted as variations in the prospectus.
(4) Filing of Red Herring Prospectus with Registrar and SEBI upon closing of
Offer: Upon the closing of the offer of securities under this section, the prospectus
stating therein the total capital raised, whether by way of debt or share capital, and
the closing price of the securities and any other details as are not included in the
red herring prospectus shall be filed with the Registrar and the Securities and
Exchange Board.
(c) According to section 84 of the Negotiable Instruments Act, 1881, if a holder does not
present a cheque within reasonable time after its issue, and the bank fails causing
damage to the drawer, the drawer is discharged as against the holder to the extent of the
actual damage suffered by him.

In the given situation, when the cheque ought to be presented, ‘A’ had sufficient funds at
the bank to meet it. The bank failed before the cheque was presented. Thus, the drawer
(‘A’) is discharged, but the holder (‘B’) can prove against the bank for the amount of the
cheque.
(d) “Effect of Repeal”: According to section 6 of the General Clauses Act, 1897, where any
Central legislation or any regulation made after the commencement of this Act repeals
any Act made or yet to be made, unless another purpose exists, the repeal shall not:
➢ Revive anything not enforced or prevailed during the period at which repeal is
effected or;
➢ Affect the previous operation of any enactment so repealed or anything duly done or
suffered thereunder; or
➢ Affect any right, privilege, obligation or liability acquired, accrued or incurred under
any enactment so repealed; or
➢ Affect any penalty, forfeiture or punishment incurred in respect of any offence
committed against any enactment so repealed; or
➢ Affect any inquiry, litigation or remedy with regard to such claim, privilege, debt or
responsibility or any inquiry, litigation or remedy may be initiated, continued or
insisted.
Question 4
(a) (i) ABC Private Ltd. has two wholly owned subsidiary companies, D Private Limited
and E Private Limited. Examine, whether, D Private Limited and E Private Limited
will be treated as related party as per the provisions of the Companies Act, 2013?
(ii) Sapphire Private Limited has registered its articles along with memorandum as on
1st July 2021. The directors of the company seeks your advice regarding the effect
of registration of the company on the company itself and on its members.
(3 + 3 = 6 Marks)
(b) ABC Limited is an unlisted company, having its registered office at Kolkata. The Annual
General Meeting was held at Goa on 1st July 2021 at 3.00 PM and concluded at 8.00 PM.
Consent of all the members to conduct AGM at Goa were received by 24th June 2021 by
Email.
(i) Examine the validity of the meeting as per the provisions of the Companies Act,
2013.
(ii) State, the consequences if a resolution has passed in such meeting, without
sufficient disclosure regarding interest of a director. (2 + 2 = 4 Marks)

(c) The Ministry of Corporate Affairs (MCA) published in the Gazette of India, the proposed
draft of Rules further to amend certain rules under the Companies Act, 2013. The MCA
made some modifications in the draft Rules already published. In the light of the
provisions of the General Clauses Act, 1897, answer the following:
(i) Is it required for MCA to publish a draft of the proposed Rules?
(ii) In case of any irregularities in the publication of the draft, can it be questioned?
(iii) Is MCA entitled to make suitable changes in the draft?
(iv) Is it necessary to re-publish the Rules in the amended form when the changes
made are ancillary to the earlier draft? (4 Marks)
(d) Does an explanation added to a section widen the ambit of a section? (3 Marks)
Answer
(a) (i) According to section 2(76)(viii) of the Companies Act, 2013, Related party, with
reference to a company, means any body corporate which is -
(A) a holding, subsidiary or an associate company of such company;
(B) a subsidiary of a holding company to which it is also a subsidiary; or
(C) an investing company or the venturer of the company;
In the given question, D Private Limited and E Private Limited are wholly owned
subsidiary companies of ABC Private Ltd. According to stated clause (B), above, D
Private Limited and E Private Limited are related parties.
However, as per the Notification No. G.S.R. 464(E) dated 5th June, 2015, clause
(viii) shall not apply with respect to section 188 to a private company, though being
a related parties.
Alternate Answer
According to section 2(76)(viii)(B) of the Companies Act, 2013, Related party, with
reference to a company, means any body corporate which is a subsidiary of a
holding company to which it is also a subsidiary.
However, Clause (viii) shall not apply with respect to section 188 (Related Party
transactions) to a private company vide Notification No. G.S.R. 464(E) dated 5th
June, 2015.
In the given question, D Private Limited and E Private Limited are wholly owned
subsidiary companies of ABC Private Ltd. According to stated clause (B), above, D
Private Limited and E Private Limited are related parties.

However, as per the mentioned Notification, clause (viii) shall not apply with respect
to section 188 to a private company. Therefore, D Private Limited and E Private
Limited are not related parties for the purpose of section 188.
(ii) As per Section 9 and 10 of the Companies Act, 2013 following shall be the effect of
registration of a company:
(1) From the date of incorporation, the subscribers to the memorandum and all
members of the company, shall become a body corporate.
(2) Such a registered company shall be capable of exercising all the functions of
an incorporated company with the perpetual succession with power to acquire,
hold and dispose of property, and to contract and to sue and be sued.
(3) The memorandum and articles shall, when registered, bind the company and
the members thereof to the same extent as if they respectively had been
signed by the company and by each member, and contained covenants on its
and his part to observe all the provisions of the memorandum and of the
articles.
(4) All monies payable by any member to the company under the memorandum or
articles shall be a debt due from him to the company.
(b) (i) Section 96(2) of the Companies Act, 2013, states that every annual general meeting
shall be called during business hours, that is, between 9 a.m. and 6 p.m. on any day
that is not a National Holiday and shall be held either at the registered office of the
company or at some other place within the city, town or village in which the
registered office of the company is situated.
Provided that annual general meeting of an unlisted company may be held at any
place in India if consent is given in writing or by electronic mode by all the members
in advance.
In the given question, ABC Limited is an unlisted company and consent of all
members to conduct the AGM at Goa has been received in advance (24 th June,
2021). Also, the meeting was started well within the prescribed time i.e. at 3.00 PM.
Hence, the meeting was validly called.
(ii) Section 102 of the Companies Act, 2013 mentions that where any special business
is to be transacted at the company’s general meeting, then an ‘Explanatory
Statement’ should be annexed to the notice calling such general meeting, which
must specify, the nature of concern or interest, financial or otherwise, if any, in
respect of each item of every director and the manager, if any.
Effect of non-disclosure: As per section 102(4), if as a result non-disclosure or
insufficient disclosure in explanatory statement, any benefit accrues to a director,

such director shall hold such benefit in trust for the company, and shall be liable to
compensate the company to the extent of the benefit received by him.
If any default is made in complying with the provisions of this section, every such
director who is in default, shall be liable for such contravention with penalty [Section
102(5)].
(c) The answer can be given in terms of section 23 of the General Clauses Act, 1897.
Following shall be the answers in the light of the given information and the relevant legal
provisions:
(i) Yes, MCA is required to publish a draft of the proposed Rules for the information of
persons likely to be affected thereby.
(ii) No, in case of any irregularities in the publication of the draft, it cannot be
questioned. The publication in the Official Gazette of a rule or bye-law after
previous publication, shall be conclusive proof that the rule or bye-laws has been
duly made. It raises a conclusive presumption that after the publication of the rules
in the Official Gazette, it is to be inferred that the procedure for making the rules
had been followed. Any irregularities in the publication of the draft cannot therefore
be questioned.
(iii) Yes, MCA is entitled to make suitable changes in the draft before finally publishing
them.
(iv) No, it is not necessary to re-publish the Rules in the amended form when the
changes made are ancillary to the earlier draft.
(d) Sometimes an explanation is added to a section of an Act for the purpose of explaining
the main provisions contained in that section. If there is some ambiguity in the provisions
of the main section, the explanation is inserted to harmonise and clear up the ambiguity
in the main section. Something may added to or something may be excluded from the
main provision by insertion of an explanation. But the explanation should not be
construed to widen the ambit of the section.
Question 5
(a) HD Software Private Limited is engaged in the business of providing software services.
The company appointed its statutory auditors. The engagement letter was signed with a
clause that fee to be mutually decided. However, the remuneration was not finalized.
Directors of the company seeks your advice for, provisions related to remuneration of
directors1 as per the provisions of the Companies Act, 2013.
1 To be read as ‘auditors’

OR
ABC & Co., Chartered Accountants, are statutory auditors of Moon Exports Limited. In an
inquiry, it is proved that 'A', one of the partners of the firm has acted in fraudulent manner
and colluded in fraud to its partners. Explain the consequences of such act under the
provisions of the Companies Act, 2013. (5 Marks)
(b) (i) Mr. Ram, a shareholder of PQR Ltd., has made a request to the company for
providing a copy of minutes book of general meeting. Whether the shareholder of a
company is entitled to receive a copy of minutes book? Explain, provisions of the
Companies Act, 2013. (3 Marks)
(ii) Explain the provision relating to 'Credit Rating' which an 'Eligible Company' should
follow to raise public deposits as per the Companies Act, 2013. (2 Marks)
(c) Mr. Truth deposited 100 bags of groundnut in the factory of Mr. False for safe keeping.
Mr. False mixed the groundnut bags with the other groundnut bags in the factory with the
consent of Mr. Truth and consumed it to produce edible oil.
(i) Whether Mr. Truth is entitled to claim his share in the edible oil produced under the
provisions of the Indian Contact Act, 1872?
(ii) What will be the consequences in case the groundnut bags were mixed without the
consent of Mr. Truth under the above said Act? (4 Marks)
(d) What is the effect of proviso? Does it qualify the main provisions of the enactment?
Explain it with reference to Interpretation of Statutes. (3 Marks)
Answer
(a) Section 142 of the Companies Act, 2013, provides for remuneration of auditors.
According to this section the remuneration of the auditors of a company shall be fixed by
the company in general meeting or in such manner as the company in general meeting
may determine.
The remuneration shall, in addition to the fee payable to an auditor, include the
expenses, if any, incurred by the auditor in connection with the audit of the company and
any facility extended to him but does not include any remuneration paid to him for any
other service rendered by him at the request of the company.
As per the facts of the question and stated provision, remuneration of the appointed
statutory auditors of a company shall be fixed by the HD Software Private Limited in
general meeting or in such manner as the company in general meeting may determine.
OR
According to section 147(5) of the Companies Act, 2013, where, in case of audit of a
company being conducted by an audit firm, it is proved that the partner or partners of the
audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud

by, or in relation to or by, the company or its directors or officers, the liability, for such act
shall be of the partner or partners concerned of the audit firm and of the firm jointly and
severally.
Provided that in case of criminal liability of an audit firm, in respect of liability other than
fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or,
as the case may be, colluded in any fraud shall only be liable.
Here, ‘A’ the partner of ABC & Co. on inquiry was found that he acted in a fraudulent
manner or colluded in fraud to its partners.
Accordingly, ‘A’ the partner, partners concerned and the firm ‘ABC & Co.’ jointly and
severally liable for the fine.
With respect to criminal liability of the firm ‘ABC & Co.’, the concerned partner or
partners, who acted in a fraudulent manner or colluded in any fraud, shall only be liable.
(b) (i) In line with section 119 read with Rule 26 of the Companies (Management and
Administration) Rules, 2014, any member shall be entitled to be furnished, within
seven working days after he has made a request in that behalf to the company, with
a copy of any minutes of any general meeting, on payment of such sum as may be
specified in the articles of association of the company.
As Mr. Ram, in the given case, is the shareholder of PQR Ltd., so shall be entitled
to receive a copy of any minutes book of general meeting.
(ii) Obtaining of Credit Rating: The provisions relating to obtaining of ‘Credit Rating’
to be followed by an ‘eligible company’ are contained in Section 76 (1) of the
Companies Act, 2013 read with Rule 3(8) of the Companies (Acceptance of
Deposits) Rules, 2014 as amended from time to time.
Accordingly, an ‘eligible company’ which desires to raise public deposits shall be
required to obtain the rating (including its net-worth, liquidity and ability to pay its
deposits on due date) from a recognised credit rating agency. The given rating
which ensures adequate safety, shall be informed to the public at the time of
invitation of deposits from the public. Further, the rating shall be obtained every
year during the tenure of deposits.
(c) The given question is based on section 155, 156 & 157 of the Indian Contract Act, 1872.
(i) W.r.t. this part of the question, Mr. Truth deposited his ground nut bags for safe
keeping in the factory of the Mr. False. He mixed the ground nut bags of Mr. Truth
with the other ground nut bags lying in the factory with the consent of Mr. Truth and
consumed the same for producing edible oils.
According to section 155 of the Indian Contract Act, 1872, if the Bailee, mixes the
goods bailed with his own goods, with the consent of the bailor, both the parties

shall have an interest in proportion to their respective shares in the mixture thus
produced.
Accordingly, Mr. Truth is entitled to claim his share in the edible oil produced.
(ii) According to section 156 & 157 of the Indian Contract Act, 1872, where the bailee,
without the consent of the bailor, mixes the goods bailed with his own goods and
the goods can be separated or divided, the property in the goods remains in the
parties respectively; but the bailee is bound to bear the expense of separation or
division and any damage arising from the mixture.
In the given case, the goods were mixed without consent of Mr. Truth, and if such
mixture can be separated, then Mr. False will bear the expense of separation and
the damage, if any, arising from mixture.
However, in the light of given facts, as mixture of goods were consumed to produce
oil, and so it cannot be separated and therefore Mr. False shall be liable to
compensate Mr. Truth.
(d) Normally a Proviso is added to a section of an Act to except something or qualify
something stated in that particular section to which it is added. A proviso should not be,
ordinarily, interpreted as a general rule. Usually, a proviso is embedded in the main body
of the section and becomes an integral part of it.
The effect of the proviso is to qualify the preceding enactment which is expressed in
terms which are too general.
It is a cardinal rule of interpretation that a proviso or exception to a particular provision of
a statute only embraces the field which is covered by the main provision. It carves out an
exception to the main provision to which it has been enacted as a proviso and to no
other. (Ram Narain Sons Ltd. vs. Assistant Commissioner of Sales Tax, AIR 1955 SC
765).

Question 1
(a) (i) Chhavish, an Indian citizen and resident of India formed “Ekta Readymade
Garments (OPC) Private Ltd.” as One Person Company on 1st April 2018 with his
wife Mrs. Jyoti as nominee. The authorized and paid-up share capital of the
company is ` 35 lakhs. He got in touch with a readymade garments buyer and was
expecting to receive a substantial order by August 2020 where final delivery will be
completed by December 2020. To expand the production capacity, the decided to
invest an additional capital of ` 10 lakhs in plant and machinery. As a result, the
company’s authorized and paid-up share capital is now ` 45 Lakhs. Promoter of the
company seeks your advice. Considering the case and referring the provisions of
the Companies Act, 2013, advice:
(A) Who is eligible to act as a member of OPC?
(B) Whether “Ekta Readymade Garments (OPC) Private Ltd.” can convert into any
other kind of company as on 1 st December 2020?
(C) If the company increases its paid up share capital by ` 30 lakhs in August,
2019, can it be converted in any other kind of company immediately?
(3 Marks)
(ii) Following is the extract of the Balance sheet Beltex Ltd. as on 31st March, 2020:
Particulars Amount
(` )
Equity & Liabilities
(1) Shareholder’s Fund
(a) Share Capital:
Authorized Capital:
10,000, 12% Preference Shares of ` 10 1,00,000
each
1,00,000 equity shares of ` 10 each 10,00,000 11,00,000
Issued & Subscribed Capital:
8000,12% Preference Shares of ` 10 80,000
each fully paid up
90,000 equity shares of ` 10 each, ` 8 7,20,000
paid up

2 INTERMEDIATE (NEW) EXAMINATION: DECEMBER, 2021
(b) Reserve and Surplus

General Reserve 1,20,000
Capital Reserve 75,000
Securities Premium 25,000
Surplus in statement of P& L 2,00,000 4,20,000
(2) Non-Current Liabilities:
(a) Long-term borrowings:
Secured Loan: 12% partly convertible
Debenture @ ` 100 each 5,00,000
On 1st April, 2020 the company has made final call at ` 2 each on 90,000 Equity Shares.
The call money was received by 25th April, 2020. Thereafter, the company decided to
capitalize it’s reserves by way of bonus @ 1 share for every 4 shares to existing
shareholders.
Answer the following questions according to the Companies Act, 2013, in above case:
(A) Which of the above-mentioned sources can be used by company to issue bonus
shares?
(B) Calculate the amount to be capitalized from free reserves to issue bonus shares?
(C) If the company did not ask for the final call on April 1 st, 2020. Can it still issue bonus
shares to its members? (3 Marks)
(b) (i) Mr. Raman, a Chartered Accountant, was appointed as an auditor of Surya
Distributors Ltd., in the AGM of the company held in August, 2020, in which he
accepted the assignment. Later on, in November, 2020, he joined as a partner in
the Consultancy firm where Mr. Som is also a partner. Mr. Som is also working as a
Finance executive of Surya Distributors Ltd. Explaining the provisions of the
Companies Act, 2013, decide whether Mr. Raman is required to vacate the office as
an auditor. (2 Marks)
(ii) Managing Director of ABC Ltd. himself appointed Mr. Aakash, a practicing chartered
accountant as first auditor of the company. Is it a valid appointment? Als o explain
the provisions of the Companies Act, 2013, in this regard? (2 Marks)
(iii) The Board of Directors of ABC Limited at its board meeting declared dividend on its
paid-up equity share capital which was later on approved by the company’s Annual
General Meeting. In the meantime, the directors diverted the amount of total
dividend to be paid to shareholders for purchase of investments for the company.
Due to this dividend was paid to shareholders after 45 days declaration.

Examining the provisions of the Companies Act, 2013, state whether the act of
directors is in violation of the provisions of the Companies Act, 2013. Also explain
what are the consequences of the above act of directors. (2 Marks)
(c) Due to urgent need of money amounting to ` 3,00,000, Pawan approached Raman and
asked him for the money. Raman lent the money on the guarantee of Suraj, Tarun and
Usha. Pawan makes default in payment and Suraj pays full amount to Raman. Suraj,
afterwards, claimed contribution from Tarun and Usha refused to contribute on the basis
that there is no contract between Suraj and him. Examine referring to the provisions of
the Indian Contract Act, 1872, whether Tarun can escape from his liability. (4 Marks)
(d) ‘M’ is the holder of a bill of exchange made payable to the order of ‘F’.
The bill of exchange contains the following endorsements in blank:
First endorsement ‘N’
Second endorsement ‘O’
Third endorsement ‘P’ and
Fourth endorsement ’Q’
‘M’ strikes out, without Q’s consent, the endorsements by ‘O’ and ‘P’. Decide, with
reasons, whether ‘M’ is entitled to recover anything from ‘Q’ under the provisions of the
Negotiable Instruments Act, 1881. (3 Marks)
Answer
(a) (i) (A) The memorandum of OPC shall indicate the name of the other person
(nominee), who shall, in the event of the subscriber’s death or his incapacity to
contract, become the member of the company.
Only a natural person who is an Indian citizen whether resident in India or
otherwise-
(a) shall be eligible to incorporate One Person Company (OPC);
(b) shall be a nominee for the sole member of One Person Company (OPC).
(B) OPC cannot convert voluntarily into any kind of company unless two years
have expired from the date of incorporation, except where the paid up share
capital is increased beyond fifty lakh rupees or its average annual turnover
during the relevant period exceeds two crore rupees. 1
Ekta Readymade Garments Ltd. was incorporated on 1 st April, 2018.
1 The Ministry of Corporate Affairs w.e.f 1 st April, 2021 has removed the condition whereby OPC cannot
convert voluntarily into any kind of company unless two years have expired from the date of
incorporation, except where the paid up share capital is increased beyond fifty lakh rupees or its
average annual turnover during the relevant period exceeds two crore rupees.

Ekta Readymade Garments Ltd. cannot voluntarily convert the OPC into any
other kind of company before expiry of two years from 1st April, 2018 i.e. upto
31st March, 2020. Thus, it can convert into any other kind of company as on
1st December, 2020.
(C) If the paid up share capital of Ekta Readymade Garments Ltd. is increased to
` 65 lakhs (35+30), it will be converted into other forms company immediately.
(ii) Issue of Bonus Shares
(1) According to section 63 (1) of the Companies Act, 2013, a company may issue
fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account.
However, no issue of bonus shares shall be made by capitalising reserves
created by the revaluation of assets.
(2) Section 63 (2) provides that the company can issue bonus shares only when
the partly paid-up shares, if any outstanding on the date of allotment, are made
fully paid-up.
(A) The following sources can be used by the company to issue bonus shares:
1. General Reserve
2. Securities Premium
3. Surplus in statement of P&L
(B) Amount of bonus shares to be issued = 90,000 shares x 1/4
= 22,500 shares
Amount that ought to be capitalized for issue of = 22,500 x ` 10 per share
bonus shares = ` 2,25,000
Total amount available to be capitalized from = 1,20,000+25,000+2,00,000
free reserves to issue bonus shares = ` 3,45,000
Hence, the amount to be capitalized from free reserves to issue bonus shares
will be ` 2,25,000.
(C) A company can issue bonus shares on only fully paid shares. Hence, if the
company did not ask for the final call on 1st April, 2020, it cannot issue bonus
shares to its members.
(b) (i) Section 141(3)(c) of the Companies Act, 2013, prescribes that any person who is a
partner or in employment of an officer or employee of the company will be
disqualified to act as an auditor of a company. Sub-section (4) of section 141

provides that an auditor who becomes subject, after his appointment, to any of the
disqualifications specified in sub-sections (3) of section 141, he shall be deemed to
have vacated his office as an auditor.
In the present case, Mr. Raman, an auditor of Surya Distributors Ltd., joined as
partner with consultancy firm where Mr. Som is also a partner and Mr. Som is also
the Finance executive of Surya Distributors Ltd. Hence, Mr. Raman has attracted
clause (3)(c) of section 141 and, therefore, he shall be deemed to have vacated
office of the auditor of Surya Distributors Ltd.
(ii) Section 139(6) of the Companies Act, 2013 provides that “the first auditor or
auditors of a company shall be appointed by the Board of directors within 30 days
from the date of registration of the company”.
In the instant case, the appointment of Mr. Aakash, a practicing Chartered
Accountant as first auditor by the Managing Director of ABC Ltd. by himself is in
violation of section 139(6) of the Companies Act, 2013, which requires the Board of
Directors to appoint the first auditor of the company.
In view of the above, the Managing Director of ABC Ltd. cannot appoint the first
auditor of the company himself.
(iii) According to section 124 of the Companies Act, 2013, where a dividend has been
declared by a company but has not been paid or claimed within 30 days from the
date of the declaration, the company shall, within 7 days from the date of expiry of
the said period of 30 days, transfer the total amount of dividend which remains
unpaid or unclaimed to a special account to be opened by the company in any
scheduled bank to be called the Unpaid Dividend Account.
Further, according to section 127 of the Companies Act, 2013, where a dividend has
been declared by a company but has not been paid or the warrant in respect thereof
has not been posted within 30 days from the date of declaration to any entitled
shareholder, every director of the company shall, if he is knowingly a party to the
default, be liable for punishment.
The Board of Directors of ABC Limited at its meeting recommended a dividend on
its paid-up equity share capital which was later on approved by the shareholders at
the Annual General Meeting. In the meantime, the directors diverted the total
dividend to be paid to the shareholders for purchase of investments in the n ame of
the company. As a result, dividend was paid to shareholders after 45 days.
1. Since, declared dividend has not been paid within 30 days from the date of the
declaration to any shareholder entitled to the payment of dividend, the
company shall, within 7 days from the date of expiry of the said period of 30
days, transfer the total amount of dividend which remains unpaid or unclaimed
to the Unpaid Dividend Account.

2. The Board of Directors of ABC Limited has violated section 127 of the
Companies Act, 2013 as it failed to pay dividend to shareholders within 30
days due to its decision to divert the total dividend to be paid to shareholders
for purchase of investments in the name of the company.
Consequences: The following are the consequences for violation of the above
provisions:
(a) Every director of the company shall, if he is knowingly a party to the default, be
punishable with maximum imprisonment of two years and shall also be liable
for a minimum fine rupees one thousand for every day during which such
default continues.
(b) The company shall also be liable to pay simple interest at the rate of 18% p.a .
during the period for which such default continues.
(c) Equality of burden is the basis of Co-suretyship. This is contained in section 146 of the
Indian Contract Act, 1872, which states that “when 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 c o-
sureties in the absence of any contract to the contrary, are liable, as between
themselves, to pay each an equal share of the whole debt, or of that part of it which
remains unpaid by the principal debtor”.
Accordingly, on the default of Pawan in payment, Tarun cannot escape from his liability.
All the three sureties Suraj, Tarun and Usha are liable to pay equally, in absence of any
contract between them.
(d) According to section 40 of the Negotiable Instruments Act, 1881,
Where the holder of a negotiable instrument—
➢ without the consent of the indorser,
➢ destroys or impairs the indorser’s remedy against a prior party,
the indorser is discharged from liability to the holder to the same extent as if the
instrument had been paid at maturity.
In the given question, ‘M’ strikes out, without Q’s consent, the endorsements by ‘O’ and
‘P’. In the light of the above provision of law and facts of the question, ‘M’ is not entitled
to recover anything from ‘Q’.
Question 2
(a) Explain the provisions of e-voting in an annual general meeting in the following cases as
per the Companies Act, 2013:
(i) ‘A’ and his wife ‘B’ has joint Demat Account in Alfa Investment Ltd. in such a case,
who will cast the vote in e-voting system?

(ii) AGM is gong to be held on 07-09-2020. Then what will be the e- voting period and
the time of closing? (4 Marks)
(b) Examine the validity of the following with reference to the relevant provisions of the
Companies Act, 2013:
(i) The Board of Directors of a company refuse to convene the extraordinary general
meeting of the members on the ground that the requisitionists have not given
explanatory statement for the resolution proposed to be passed at the meeting.
(ii) The Board of Directors refuse to convene the extraordinary general meeting on the
ground that the requisitions have not been signed by the joint holder of the shares.
(iii) Adjournment of extraordinary general meeting called upon the requisition of
members on the ground that the quorum was not present in the meeting. (6 Marks)
(c) Shyam, at the request of Govind, sells goods which were, in the possession of Govind.
However, Govind had no right to dispose of such goods. Shyam did not know this and
handed over the proceed of the sale to Govind. Afterwards, Manohar, who was the true
owner of the goods, sued Shyam and recovered the value of the goods. In the light of the
provisions of the Indian Contract Act,1872, answer the following questions:
(i) Is Govind liable to indemnify Shyam for his payment to Manohar?
(ii) What will be the liability of Govind if the goods is a prohibited drug? (4 Marks)
(d) A is a payee and holder of a bill of exchange. He endorses it in blank and del ivers it to B.
B endorses it in full to C or order. C without endorsement transfers the bill to D. State
giving reasons whether D, as bearer of the bill of exchange, is entitled to recover the
payment from A or B or C. (3 Marks)
Answer
(a) (i) Joint shareholders must concur in voting unless the articles provide to the
contrary.
The voting in case of joint shareholders is done in the order of seniority, which is
determined on the basis of the order in which their names appear in the register of
members/ shareholders. The joint- holders have a right to instruct the company as
to the order in which their names are to appear in the register.
As per Rule 21 of the Companies (Management and Administration) Rules, 2014,
the Scrutinizers shall arrange for Polling papers and distribute them to the members
and proxies present at the meeting; in case of joint shareholders, the polling paper
shall be given to the first named holder or in his absence to the joint holder
attending the meeting as appearing in the chronological order in the folio.
Thus, in the given case, ‘A’ or his wife ‘B’, whosoever names appears first in
chronological order in the register of members/ shareholders shall be entitled to
vote.

(ii) Time period for e-voting: The facility for remote e-voting shall remain open for not
less than three days and shall close at 5.00 p.m. on the date preceding the date of
the general meeting.
Thus, if the Annual General Meeting is going to be held on 7.9.2020, the facility for
remote e- voting shall open on 4.9.2020 and close at 5.00 p.m. on 6.9.2020.
(b) (i) Rule 17 of the Companies (Management and Administration) Rules, 2014 provides
that no explanatory statement as required under section 102 of the Companies Act,
2013, need be annexed to the notice of an extraordinary general meeting convened
by the requistionists and the requistionists may disclose the reasons for the
resolution(s) which they propose to move at the meeting.
Hence, the Board of Directors cannot refuse to convene the extraordinary general
meeting of the members on the ground that the requistionists have not given the
explanatory statement for the resolution proposed to be passed at the meeting.
(ii) The notice shall be signed by all the requistionists or by a requistionists duly
authorised in writing by all other requistionists on their behalf or by sending an
electronic request attaching therewith a scanned copy of such duly signed
requisition.
Hence, it is imperative for joint holders (or by requistionist duly authorised in writing
by joint holder) also to sign the notice to call the meeting. Thus, Board of directors
are correct in refusing to convene the extra ordinary general meeting on the ground
that the requisitions have not been signed by the joint holder of shares.
(iii) According to section 103(2)(b) of the Companies Act, 2013, if the quorum is not
present within half-an-hour from the time appointed for holding a meeting of the
company the meeting, if called by requisitionists under section 100, shall stand
cancelled.
Thus, if quorum is not present for the meeting called by requisitionists, it shall stand
cancelled and cannot be adjourned.
(c) According to section 178 of the Indian Contract Act, 1872, where a mercantile agent is,
with the consent of the owner, in possession of goods or the documents of title to goods,
any pledge made by him, when acting in the ordinary course of business of a mercantile
agent, shall be as valid as if he were expressly authorised by the owner of the goods to
make the same; provided that the pawnee acts in good faith and has not at the time of
the pledge notice that the Pawnor has no authority to pledge.
It is also to be noted that:
1. The possession of goods must be with the consent of the owner. If possession has
been obtained dishonestly or by a trick, a valid pledge cannot be effected.
2. The pledgee should have no notice of the pledger's defect of title. If the pledgee
knows that the pledger has a defective title, the pledge will not be valid.

(i) In the given question, Shyam had no notice of the Govind’s defect of title. He acted
in ordinary course of business of a mercantile agent considering Govind as owner of
the good and genuinely handed over the proceed of the sale to him. Therefore, said
transaction is invalid.
Thus, Govind shall be liable to indemnify Shyam for his payment to Manohar.
(ii) Govind shall not be liable to indemnify Shyam as selling of prohibited drugs is a
prohibited act and against the public policy.
(d) According to section 49 of the Negotiable Instruments Act, 1881, the holder of a
negotiable instrument indorsed in blank may—
• without signing his own name, by writing above the endorser’s signature a direction
to pay to any other person as endorsee, convert the indorsement in blank into an
indorsement in full; and the holder does not thereby incur the responsibility of an
endorser.
According to section 55, if a negotiable instrument, after having been indorsed in blank, is
indorsed in full, the amount of it cannot be claimed from the endorser in full, except by the
person to whom it has been indorsed in full, or by one who derives title through such person.
As per the facts of the question and above mentioned provisions of the Negotiable
Instruments Act, 1881, D as the bearer of the Bill of Exchange, is entitled to receive
payment or to sue drawer, acceptor, or A who indorsed the bill in blank, but he cannot
sue B or C.
Question 3
(a) (i) RD Ltd. issued a prospectus. All the statements contained therein were literally true.
It also stated that company had paid dividends for a number of years but did not
disclose the fact that the dividends were not paid out of trading profits but out of
capital profits. An allotee of shares claims to avoid the contract on the ground that
the prospectus was false in material particulars. Decide that the argument of
shareholder, as per the provision of the Companies Act, 2013, is correct or not?
(3 Marks)
(ii) Define “Small Company”. (2 Marks)
(b) Referring the provisions of the Companies Act, 2013, regarding appointment of auditors,
answer the following:
(i) XYZ Ltd. is a newly established company owned by the Central Government. State
the provisions regarding appointment of its first auditor.
(ii) Mr. Kamal is the auditor of XYZ Limited, which is a Government company. He has
resigned on 31st December, 2020 while the financial year of the company ends on
31st March, 2021. Explain the provisions regarding filling or such vacancy. Would
your answer differ if it is other than a Government company? (5 Marks)

(c) Referring the provisions of the Negotiable Instruments Act, 1881 give the answer of the
following.
(i) A promissory note was made without mentioning any time for payment. T he holder
added the words ‘on demand’ on the face of the instrument. Whether this may be
treated as material alteration in the instrument?
(ii) Ankit draws a cheque for ` 2,000 and hands it over to Shreya by way of gift.
Whether Shreya is a holder in due course? (4 Marks)
(d) Explain the Mischief Rule / the rule in Heydon’s case for interpretation of statute. Also
give four matters it considers in construing an Act. (3 Marks)
Answer
(a) (i) According to section 34 of the Companies Act, 2013, where a prospectus, issued,
circulated or distributed, includes any statement which is untrue or misleading in
form or context in which it is included or where any inclusion or omission of any
matter is likely to mislead, every person who authorises the issue of such
prospectus shall be liable under section 447.
Further, Section 35(3) provides that, where it is proved that a prospectus has been
issued with intent to defraud the applicants for the securities of a company or any
other person or for any fraudulent purpose, every person referred to in sub-section
(1) of section 35, shall be personally responsible, without any limitation of liability,
for all or any of the losses or damages that may have been incurred by any person
who subscribed to the securities on the basis of such prospectus.
In the given question, the non-disclosure of the fact that dividends were paid out of
capital profits is a concealment of material fact as a company is normally required to
distribute dividend only from trading or revenue profits and under exceptional
circumstances it can pay dividend out of capital profits. Hence, a material
misrepresentation has been made.
Accordingly, in the given case the allottee can avoid the contract of allotment of
shares.
(ii) According to section (85) of the Companies Act, 2013, ‘Small company’ means a
company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher
amount as may be prescribed which shall not be more than ten crore rupees;
and
(ii) turnover of which as per profit and loss account for the immediately preceding
financial year does not exceed two crore rupees or such higher amount as may
be prescribed which shall not be more than one hundred crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
As per the Companies (Specification of Definitions Details) Rules, 2014, for the
purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act,
paid up capital and turnover of the small company shall not exceed rupees two
crores and rupees twenty crores respectively.
(b) (i) First auditor
(1) According to section 139(7) of the Companies Act, 2013, in the case of a
Government company or any other company owned or controlled, directly or
indirectly, by the Central Government, or by any State Government, or
Governments, or partly by the Central Government and partly by one or more
State Governments, the first auditor shall be appointed by the Comptroller and
Auditor General of India (CAG) within 60 days from the date of registration of
the company.
(2) In case the CAG does not appoint first auditor within the said period, the Board
of Directors of the company shall appoint such auditor within the next 30 days.
(3) Further, in the case of failure of the Board to appoint such auditor within the
next 30 days, it shall inform the members of the company who shall appoint
such auditor within the 60 days at an Extraordinary General Meeting, who shall
hold office till the conclusion of the first annual general meeting.
XYZ Ltd. can follow the above provisions for appointment of its first auditor.
(ii) Casual vacancy
According to section 139(8) of the Companies Act, 2013,
(1) In the case of a company whose accounts are subject to audit by an auditor
appointed by the CAG, casual vacancy of an auditor shall be filled by the CAG
within 30 days.
(2) In case the CAG does not fill the vacancy within the said period, the Board of
Directors shall fill the vacancy within next 30 days.
XYZ Ltd. can follow the above provisions for filling of its casual vacancy of its
auditor.
In case, XYZ Ltd. would have been a company other than a government company,
the following provisions would be applicable for filling of its casual vacancy:
(a) The Board may fill any casual vacancy in the office of an auditor within 30 days
but where such vacancy is caused by the resignation of an auditor, such

appointment shall also be approved by the company at a general meeting

convened within three months of the recommendation of the Board.
(b) Any auditor appointed in a casual vacancy shall hold office until the conclusion
of the next annual general meeting.
(c) (i) Material alteration: An alteration is material which in any way alters the operation
of the instrument and affects the liability of parties thereto.
Any alteration is material
(a) which alters the business effect of the instrument if used for any business
purpose;
(b) which causes it to speak a different language in legal effect form that which it
originally spoke or which changes the legal identity or character of the
instrument.
The following alteration are specifically declared to be material: any alteration of (i)
the date, (ii) the sum payable, (iii) the time of payment, (iv) the place of payment, or
the addition of a place of payment.
A promissory note was made without mentioning any time for payment. The holder
added the words “on demand” on the face of the instrument. As per the above
provision of the Negotiable Instruments Act, 1881 this is not a material alteration as
a promissory note where no date of payment is specified will be treated as payable
on demand. Hence, adding the words “on demand” does not alter the business
effect of the instrument.
(ii) Person to be called as a holder: As per section 8 of the Negotiable Instruments
Act, 1881 ‘holder’ of a Negotiable Instrument means any person entitled in his own
name to the possession of it and to receive or recover the amount due thereon from
the parties thereto.
Person holder in due course: Holder in due course means any person who for
consideration became the possessor of a promissory note, bill of exchange or
cheque (if payable to bearer) or the payee or endorsee there of (if payable to order)
before the amount mentioned in it became payable, and without having sufficient
cause to believe that any defect existed in title of the person from whom he derived
his title.
In the given case, Ankit draws a cheque for ` 2,000 and hands it over to Shreya by
way of gift. Hence, Shreya can be termed as a holder because she has a right to
possession and to receive the amount due in her own name.
But she cannot be termed as a holder in due course.

(d) Mischief Rule/ Heydon’s Rule: Where the language used in a statute is capable of
more than one interpretation, the most firmly established rule for construction is the
principle laid down in the Heydon’s case. This rule enables, consideration of four matters
in constituting an Act:
(1) what was the law before making of the Act,
(2) what was the mischief or defect for which the law did not provide,
(3) what is the remedy that the Act has provided, and
(4) what is the reason for the remedy.
The rule then directs that the courts must adopt that construction which ‘shall sup press
the mischief and advance the remedy’. Therefore, even in a case where the usual
meaning of the language used falls short of the whole object of the legislature, a more
extended meaning may be attributed to the words, provided they are fairly suscepti ble of
it. If the object of any enactment is public safety, then its working must be interpreted
widely to give effect to that object. Thus, in the case of Workmen’s Compensati on Act,
1923 the main object being provision of compensation to workmen, it was held that the
Act ought to be so construed, as far as possible, so as to give effect to its primary
provisions.
However, it has been emphasized by the Supreme Court that the rule in Heydon’s case is
applicable only when the words used are ambiguous and are reasonably capable of more
than one meaning [CIT v. Sodra Devi (1957) 32 ITR 615 (SC)].
Question 4
(a) (i) Diya Limited, incorporated under the provisions of the Companies Act, 2013, has
two subsidiaries – Jai Limited and Vijay Limited. All the three companies have
prepared their financial statements for the year ended 31 st March, 2021. Examining
the provisions of the Companies Act, 2013, explain in what manner the
subsidiaries– Jai Limited and Vijay Limited shall prepare their Balance Sheet and
Statement of Profit & Loss? (3 Marks)
(ii) The Companies Act, 2013 has prescribed an additional duty on the Board of
directors to include in the Board’s Report a ‘Directors’ Responsibility Statement’.
Briefly explain any three matters to be furnished in the said statement. (3 Marks)
(b) What are provisions of the Companies Act, 2013 relating to the appointment of
‘Debenture Trustee’ by a company? Whether the following can be appointed as
‘Debenture Trustee’?
(i) A shareholder of the company who has shares of ` 10,000.
(ii) A creditor whom the company owes ` 999 only.
(iii) A person who has given a guarantee for repayment of amount of debentures issued
by the company. (4 Marks)

(c) A confusion, regarding the meaning of ‘financial year’ arose among the financial
executive and accountant of a company. Both were having different arguments regarding
the meaning of financial year & calendar year. What is the correct meaning of financial
year under the provision of the General Clauses Act, 1897? How it is different from
calendar year? (4 Marks)
(d) In what way are the following terms considered as external aid in the interpretation of
statutes:
(i) Historical Setting
(ii) Use of Foreign Decisions (3 Marks)
Answer
(a) (i) According to section 129(3) of the Companies Act, 2013, where a company has one
or more subsidiaries or associate companies, it shall, in addition to financial
statements provided under sub-section (2), prepare a consolidated financial
statement (CFS) of the company and of all the subsidiaries and associate
companies in the same form and manner as that of its own and in accordance with
applicable accounting standards, which shall also be laid before the annual general
meeting of the company along with the laying of its financial statement under sub-
section (2).
The company shall also attach along with its financial statement, a separate
statement containing the salient features of the financial statement of its subsidiary
or subsidiaries and associate company or companies in Form AOC-1 as per Rule 5
of the Companies (Accounts) Rules, 2014.
Provided further that the Central Government may provide for the consolidation of
accounts of companies in such manner as may be prescribed under Rule 6 of the
Companies (Accounts) Rules, 2014.
Since, consolidation of accounts is to be done by the holding company (i.e. Diya
Limited), Jai Limited and Vijay Limited shall prepare their Balance Sheet and
Statement of Profit and Loss Account normally following the relevant provisions of
the Companies Act, 2013 compliant with the applicable Accounting Standards.
(ii) Directors’ Responsibility Statement: According to section 134(5) of the
Companies Act, 2013, the Directors’ Responsibility Statement referred to in
134(3)(c) shall state that—
(1) in the preparation of the annual accounts, the applicable accounting standards
had been followed along with proper explanation relating to material
departures;
(2) the directors had selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the company

at the end of the financial year and of the profit and loss of the company for
that period;
(3) the directors had taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of this Act for
safeguarding the assets of the company and for preventing and detecting fraud
and other irregularities;
(5) the directors, in the case of a listed company, had laid down internal financial
controls to be followed by the company and that such internal financial controls
are adequate and were operating effectively.
Here, the term “internal financial controls” means the policies and procedures
adopted by the company for ensuring the orderly and efficient conduct of its
business, including adherence to company’s policies, the safeguarding of its
assets, the prevention and detection of frauds and errors, the accuracy and
completeness of the accounting records, and the timely preparation of reliable
financial information;
(6) the directors had devised proper systems to ensure compliance with the
provisions of all applicable laws and that such systems were adequate and
(b) Appointment of Debenture Trustee: Under section 71 (5) of the Companies Act, 2013,
no company shall issue a prospectus or make an offer or invitation to the public or to its
members exceeding five hundred for the subscription of its debentures, unless the
company has, before such issue or offer, appointed one or more debenture trustees and
the conditions governing the appointment of such trustees shall be such as may be
prescribed.
Rule 18 (2) of the Companies (Share Capital and Debentures) Rules, 2014, framed under
the Companies Act for the issue of secured debentures provide that before the
appointment of debenture trustee or trustees, a written consent shall be obtained from
such debenture trustee or trustees proposed to be appointed and a statement to that
effect shall appear in the letter of offer issued for inviting the subscription of the
debentures.
Further according to the provided rules inter-alia, no person shall be appointed as a
debenture trustee, if he-
(1) beneficially holds shares in the company;
(2) is beneficially entitled to moneys which are to be paid by the company otherwise
than as remuneration payable to the debenture trustee;
(3) has furnished any guarantee in respect of the principal debts secured by the
debentures or interest thereon;

Thus, based on the above provisions answers to the given questions are as follows:
(i) A shareholder who has holds shares of ` 10,000, cannot be appointed as a
debenture trustee.
(ii) A creditor whom company owes ` 999 cannot be appointed as a debenture trustee.
The amount owed is immaterial.
(iii) A person who has given guarantee for repayment of principal and interest thereon in
respect of debentures also cannot be appointed as a debenture trustee.
(c) Financial Year: According to Section 3(21) of the General Clauses Act, 1897, financial
year shall mean the year commencing on the first day of April.
The term Year has been defined under section 3(66) as a year reckoned according to the
British calendar. Thus, as per the General Clauses Act, 1897, year means calendar year
which starts from January to December.
Difference between Financial Year and Calendar Year: Financial year starts from first
day of April but Calendar Year starts from first day of January.
(d) (i) Historical Setting: The history of the external circumstances which led to the
enactment in question is of much significance in construing any enactment. We
have, for this purpose, to take help from all those external or historical facts which
are necessary in the understanding and comprehension of the subject matter and
the scope and object of the enactment. History in general and Parliamentary History
in particular, ancient statutes, contemporary or other authentic works and writings
all are relevant in interpreting and construing an Act.
(ii) Use of Foreign Decisions: Foreign decisions of countries following the same
system of jurisprudence as ours and given on laws similar to ours can be
legitimately used for construing our own Acts. However, prime importance is always
to be given to the language of the Indian statute. Further, where guidance can be
obtained from Indian decisions, reference to foreign decisions may become
unnecessary.
Question 5
(a) Examine that following offers of ABC Limited are in compliance with provisions of the
Companies Act, 2013, related to private placement or should these offers be treated as
public:
(i) ABC limited wants to raise funds for its upcoming project. It has issued private
placement offer letters to 55 persons in their individual name to issue its equity
shares. Out of these four are qualified institutional buyers.
(ii) If in case (i) before allotment under this offer letter company issued another private
placement offer to another 155 persons in their individual name for issue of its
debentures.

(iii) Being a public company can it issue securities in a private placement offers?
(5 Marks)
(b) Discuss the following situations in the light of ‘Deposit provisions’ as contained in the
Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014, as
amended from time to time.
(i) Bhupendra, one of the Directors of Moon Technology Private Limited, a start-up
company, requested his close friend Paras to lend to the company ` 20.00 lacs in a
single tranche by way of a convertible note repayable within a period of six years
from the date of its issue. Advise whether it is a deposit or not.
(ii) Shriram Readymade Garments Limited wants to accept deposits of ` 50.00 lacs
from its member for tenure, which is less than six months. Is there any possibility to
do so?
(iii) The turnover of Y Ltd. is ` 400 crore as per last audited financial statement and net
worth is ` 50 crores. Can Y Ltd. accept deposits from the public as per section 73 of
the Companies Act, 2013? (5 Marks)
OR
New Pharma Ltd. issued a notice for holding its annual general meeting on 7 th September
2020. The notice was posted to the members on 16th August 2020. Some members of the
company alleged that the company has not complied with the provision of the Companies
Act, 2013, with regard to the period of notice and as such the meeting was invalid.
Referring to the provision of the Companies Act, 2013, decide:
(i) Whether meeting has been validly called?
(ii) If there is a shortfall in the notice, state and explain by how many days does the
notice fall short of statutory requirements?
(iii) Whether the length of serving of notices be curtailed by Article of Association?
(c) Alpha Motor Ltd. agreed to sell a bike to Ashok under hire-purchase agreement on
guarantee of Abhishek. The Terms were: hire-purchase price ` 96,000 payable in 24
monthly instalments of ` 8,000 each. Ownership to be transferred on the payment of last
instalment. State whether Abhishek is discharged in each of the following alternative
case under the provisions of the Indian Contract Act,1872:
(i) Ashok paid 12 instalments but failed to pay next two instalments. Alpha Motor Ltd.
sued Abhishek for the payment of arrears and Abhishek paid these two instalments
i.e. 13th and 14th. Abhishek then gave a notice to Alpha Motor Ltd. to revoke his
guarantee for the remaining months.
(ii) If after 15 th months, Abhishek died due to COVID-19. (4 Marks)

(d) Give the definition of the following as per the General Clauses Act, 1897:
(i) “Rule”
(ii) “Oath”
(iii) “Person” (3 Marks)
Answer
(a) According to section 42 of the Companies Act, 2013 any private or public company may
make private placement through issue of a private placement offer letter.
However, the offer shall be made to the persons not exceeding fifty or such higher
number as may be prescribed, in a financial year. For counting number of persons,
Qualified Institutional Buyers (QIBs) and employees of the company being offered
securities under a scheme of employees’ stock option will not be considered.
Further, Rule 14 (2) of the Companies (Prospectus and Allotment of Securities) Rules,
2014 prescribes maximum of 200 persons who can be offered securities under the
private placement in a financial year, though this limit should be counted separately for
each type of security.
It is to be noted that if a company makes an offer or invitation to more than the
prescribed number of persons, it shall be deemed to be an offer to the public and
accordingly, it shall be governed by the provisions relating to prospectus.
Also, a company is not permitted to make fresh offer under this section if the allotment
with respect to any offer made earlier has not been completed or otherwise, that offer
has been withdrawn or abandoned by the company. This provision is applicable even if
the issue is of different kind of security.
Any offer or invitation not in compliance with the provisions of this section shall be
treated as a public offer and all provisions will apply accordingly.
(i) In the given case ABC Limited, though is a public company but the private
placement provisions allow even a public company to raise funds through this route.
The company has given offer to 55 persons out of which 4 are qualified institutional
buyers and hence, the offer is given effectively to only 51 persons which is well
within the limit of 200 persons. From this point of view, the company complies the
private placement provisions.
(ii) However, as per the question, the company has given another private placement
offer of debentures before completing the allotment in respect of first offer and
therefore, the second offer does not comply with the provisions of section 42 .
Hence, the offers given by the company will be treated as public offer.
In case the company gives offer for debentures in the same financial year after
allotment of equity shares is complete then both the offers can well be treated as
private placement offers.

(iii) According to section 42 of the Companies Act, 2013 any private or public company
may make private placement through issue of a private placement offer letter.
Hence, ABC Limited can issue securities in a private placement offer.
(b) (i) In terms of Rule 2 (1)(c)(xvii) of the Companies (Acceptance of Deposits) Rules,
2014, if a start-up company receives rupees twenty-five lakh or more by way of a
convertible note (convertible into equity shares or repayable within a period not
exceeding ten years from the date of issue) in a single tranche, from a person, it
shall not be treated as deposit.
In the given case, Moon Technology Private Limited, a start-up company, received
` 20.00 lacs from Paras in a single tranche by way of a convertible note which is
repayable within a period of six years from the date of its issue. The amount
received is below threshold limit of ` 25.00 lacs. Hence, the amount of ` 20.00 lacs
shall be considered as deposit and the provisions for acceptance of deposit will
apply accordingly.
(ii) According to Rule 3 (1) of the Companies (Acceptance of Deposits) Rules, 2014, a
company is not permitted to accept or renew deposits (whether secured or
unsecured) which is repayable on demand or in less than six months. Further, the
maximum period of acceptance of deposit cannot exceed thirty six months.
However, as an exception to this rule, for the purpose of meeting any of its short-
term requirements of funds, a company is permitted to accept or renew deposits for
repayment earlier than six months subject to the conditions that:
(1) such deposits shall not exceed ten per cent. of the aggregate of the paid-up
share capital, free reserves and securities premium account of the company; and
(2) such deposits are repayable only on or after three months from the date of
such deposits or renewal.
In the given case of Shriram Readymade Garments Limited, it wants to accept
deposits of ` 50.00 lacs from its members for a tenure which is less than six
months. It can do so if it justifies that the deposits are required for the purpose of
meeting any of its short-term requirements of funds but in no case such deposits
shall exceed 10% ten per cent of the aggregate of its paid-up share capital, free
reserves and securities premium account and further, such deposits shall be
repayable only on or after three months from the date of such deposits.
(iii) As per Rule 2 (1) (e) of the Companies (Acceptance of Deposits) Rules, 2014, the
term “eligible company” means a public company as referred to in section 76 (1),
having a net worth of not less than one hundred crore rupees or a turnover of not
less than five hundred crore rupees and which has obtained the prior consent in
general meeting by means of a special resolution and also filed the said resolution
with the Registrar of Companies before making any invitation to the public for
acceptance of deposits:

However, an eligible company, which is accepting deposits within the limits

specified under section 180 (1) (c), may accept deposits by means of an ordinary
resolution.
Thus, a public company can accept deposit from public if it is an eligible company.
In the given question, Y Ltd. has a turnover of ` 400 crore and net worth of
` 50 crore. Hence, it cannot be termed as an eligible company and thus can not
accept deposits from the public.
OR
According to section 101(1) of the Companies Act, 2013, a general meeting of a
company may be called by giving not less than clear twenty-one days' notice either
in writing or through electronic mode in such manner as may be prescribed.
Also, it is to be noted that 21 clear days mean that the date on which notice is
served and the date of meeting, are excluded for sending the notice.
Further, Rule 35(6) of the Companies (Incorporation) Rules, 2014, provides that in
case of delivery by post, such service shall be deemed to have been effected-in the
case of a notice of a meeting, at the expiration of forty eight hours after the letter
containing the same is posted.
Hence, in the given question:
(i) A 21 days’ clear notice must be given. In the given question, only 19 clear
days’ notice is served (after excluding 48 hours from the time of its posting and
the day of sending and date of meeting). Therefore, the meeting was not
validly called.
(ii) As explained in (i) above, notice falls short by 2 days.
(iii) The Companies Act, 2013 does not provide anything specific regarding the
condonation of delay in giving of notice. Hence, the delay in giving the notice
calling the meeting cannot be condoned.
(c) According to section 130 of the Indian Contract Act, 1872, the continuing guarantee may
at any time be revoked by the surety as to future transactions by noti ce to the creditors.
Once the guarantee is revoked, the surety is not liable for any future transaction however
he is liable for all the transactions that happened before the notice was given.
A specific guarantee can be revoked only if liability to principal debtor has not accrued.
(i) In the given question Ashok paid 12 instalments (out of total 24 monthly
instalments), but failed to pay next two instalments. Abhishek (guarantor) paid the
13th and 14 th installments but then he revoked guarantee for the remaining months.
Thus, Abhishek is not liable for installments that was made after the notic e, but he
is liable for installments made before the notice (which he had paid i.e. 13 th and 14th
installments).

(ii) According to section 131 of the Indian Contract Act, 1872, in the absence of any
contract to the contrary, the death of surety operates as a revocation of a continuing
guarantee as to the future transactions taking place after the death of surety.
However, the surety’s estate remains liable for the past transactions which have
already taken place before the death of the surety.
In the given question, Abhishek (guarantor) died after 15th month. This will operate
as a revocation of a continuing guarantee as to the future transactions taking place
after the death of surety (i.e. Abhishek). However, the Abhishek’s estate remains
liable for the past transactions (i.e. 15 th month and before) which have already taken
place before the death of the surety.
(d) (i) Rule: As per section 3(51) of the General Clauses Act, 1897, ‘Rule’ shall mean a
rule made in exercise of a power conferred by any enactment, and shall include a
Regulation made as a rule under any enactment.
(ii) Oath: As per section 3(37) of the General Clauses Act, 1897, ‘Oath’ shall include
affirmation and declaration in the case of persons by law allowed to affirm or
declare instead of swearing.
(iii) Person: As per section 3(42) of the General Clauses Act, 1897, “Person” shall
include:
(1) any company, or
(2) association, or
(3) body of individuals, whether incorporated or not.

Question 1
(a) The information extracted from the audited Financial Statement of Smart Solutions
Private Limited as at 31st March, 2020 is as below:
(1) Paid-up equity share capital ` 50,00,000 divided into 5,00,000 equity shares
(carrying voting rights) of ` 10 each. There is no change in the paid-up share capital
thereafter.
(2) The turnover is ` 2,00,00,000.
It is further understood that Nice Software Limited, which is a public limited company, is
holding 2,00,000 equity shares, fully paid-up, of Smart Solutions Private Limited. Smart
Solutions Private Limited has filed its Financial Statement for the said year with the
Registrar of Companies (ROC) excluding the Cash Flow Statement within the prescribed
time line during the financial year 2020-21. The ROC has issued a notice to Smart
Solutions Private Limited as it has failed to file the cash flow statement along with the
Balance Sheet and Profit and Loss Account. You are to advise on the following points
explaining the provisions of the Companies Act, 2013:
(i) Whether Smart Solutions Private Limited shall be deemed to be a small company
whose significant equity shares are held by a public company?
(ii) Whether Smart Solutions Private Limited has defaulted in filing its financial
statement? (6 Marks)
(b) (i) The balances extracted from the financial statement of ABC Limited are as below:
Sr. Particulars Balances as on 31-03-2020 Balances as on 30-09-2020
No. as per Audited Financial (Provisional ` in crore)
Statement (` in crore)
1. Net Worth 100.00 100.00
2. Turnover 500.00 1000.00
3. Net Profit 1.00 5.00
Explaining the provisions of the Companies Act, 2013, you are requested to
examine whether ABC Limited is required to constitute 'Corporate Social
Responsibility Committee' (CSR Committee) during the second half of the financial
year 2020-21. (3 Marks)

2 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021
(ii) ASR Limited declared dividend at its Annual General Meeting held on 31-12-2020.
The dividend warrant to Mr. A, a shareholder was posted on 22nd January, 2021.
Due to postal delay Mr. A received the warrant on 5th February, 2021 and encashed
it subsequently. Can Mr. A initiate action against the company for failure to
distribute the dividend within 30 days of declaration under the provisions of the
Companies Act, 2013? (3 Marks)
(c) Paul (minor) purchased a smart phone on credit from a mobile dealer on the surety given
by Mr. Jack, (a major). Paul did not pay for the mobile. The mobile dealer demanded the
payment from Mr. Jack because the contract entered with Paul (minor) is void. Mr. Jack
argued that he is not liable to pay the amount since Paul (Principal Debtor) is not liable.
Whether the argument is correct under the Indian Contract Act, 1872?
What will be your answer if Jack and Paul both are minor? (4 Marks)
(d) A signs his name on a blank cheque with ‘not negotiable crossing’ which he gives to B
with an authority to fill up a sum of ` 3,000 only. But B fills it for ` 5,000. B then
endorsed it to C for a consideration of ` 5,000 who takes it in good faith. Examine
whether C is entitled to recover the full amount of the instrument from B or A as per the
provisions of the Negotiable Instruments Act, 1881. (3 Marks)
Answer
(a) (i) According to section 2(85) of the Companies Act, 2013, small company means a
company, other than a public company, having-
(A) paid-up share capital not exceeding fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than ten crore rupees; and
(B) turnover as per profit and loss account for the immediately preceding financial
year not exceeding two crore rupees or such higher amount as may be
prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to a holding company or a subsidiary
company.
Also, according to section 2(87), subsidiary company, in relation to any other
company (that is to say the holding company), means a company in which the
holding company exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary companies.
In the given question, Nice Software Limited (a public company) holds 2,00,000
equity shares of Smart Solutions Private Limited (having paid up share capital of
5,00,000 equity shares @ ` 10 totalling ` 50 lakhs). Hence, Smart Solutions Private
Limited is not a subsidiary of Nice Software Limited and hence it is a private
company and not a deemed public company.

Further, the paid up share capital (` 50 lakhs) and turnover (` 2 crores) is within the
limit as prescribed under section 2(87), hence, Smart Solutions Private Limited can
be categorised as a small company.
(ii) According to section 2 (40), Financial statement in relation to a company,
includes—
(a) a balance sheet as at the end of the financial year;
(b) a profit and loss account, or in the case of a company carrying on any activity
not for profit, an income and expenditure account for the financial year;
(c) cash flow statement for the financial year;
(d) a statement of changes in equity, if applicable; and
(e) any explanatory note annexed to, or forming part of, any document referred to
in points (a) to (d):
Provided that the financial statement, with respect to One Person Company, small
company and dormant company, may not include the cash flow statement.
Smart Solutions Private Limited being a small company is exempted from filing a
cash flow statement as a part of its financial statements. Thus, Smart Solutions
Private Limited has not defaulted in filing its financial statements with ROC.
(b) (i) According to section 135(1) of the Companies Act, 2013, every company having net
worth of rupees five hundred crore or more, or turnover of rupees one thousand
crore or more or a net profit of rupees five crore or more during the immediately
preceding financial year shall constitute a Corporate Social Responsibility
Committee of the Board consisting of three or more directors, out of which at least
one director shall be an independent director.
In the given question, the company does not fulfil any of the given criteria (net
worth/ turnover/ net profit) for the immediately preceding financial year ( i.e.,
1.4.2019 to 31.3.2020). Hence, ABC Limited is not required to constitute Corporate
Social Responsibility Committee for the financial year 2020-21.
(ii) Section 127 of the Companies Act, 2013, requires that the declared dividend must
be paid to the entitled shareholders within the prescribed time limit of thirty days
from the date of declaration of dividend. In case dividend is paid by issuing divi dend
warrants, such warrants must be posted at the registered addresses within the
prescribed time. Once posted, it is immaterial whether the same are received within
thirty days by the shareholders or not.
In the given question, the dividend was declared on 31.12.2020 and the dividend
warrant was posted within 30 days from date of declaration of dividend (posted on
22nd January, 2021). It is immaterial if Mr. A has received it on 5 th February 2021
(i.e., post 30 days from 31.12.2020). Hence, Mr. A cannot initiate action against the

company for failure to distribute the dividend within 30 days of declaration.

(c) In the case of a contract of guarantee, where a minor is a principal debtor, the contract is
still valid.
In the given question, the contract is a valid contract and Jack (major) shall be liable to
pay the amount even if Paul (Principal debtor) is not liable (as Paul is minor).
If both Jack and Paul are minors then the agreement of guarantee is void because the
surety as well as the principal debtor are incompetent to contract.
(d) As per section 130 of the Negotiable Instruments Act, 1881, a cheque marked “not
negotiable” is a transferable instrument. The inclusion of the words ‘not negotiable’
however makes a significant difference in the transferability of the cheques i.e., they
cannot be negotiated. The holder of such a cheque cannot acquire title better than that of
the transferor.
In the given question, A gave to B the blank cheque with ‘not negotiable crossing’. B had
an authority to fill only a sum of ` 3,000 but he filled it up ` 5,000. This makes B’s title
defective. B then endorsed it to C for consideration of ` 5,000.
In the light of above stated facts and provision, C is not entitled to recover the full amount
from A or B as C cannot acquire a title better than that of the transferor (B).
Question 2
(a) Examine the validity of the following statements in respect of Annual General Meeting
(AGM) as per the provisions of the Companies Act, 2013:
(i) The first AGM of a company shall be held within a period of six months from the
date of closing of the first financial year.
(ii) The Registrar may, for any special reason, extend the time within which the first
AGM shall be held.
(iii) Subsequent (second onwards) AGMs should be held within 6 months from closing
of the financial year.
(iv) There shall be a maximum interval of 15 months between two AGMs. (4 Marks)
(b) (i) KSR Limited, an unlisted company furnishes the following data :
(a) Paid-up share capital as on 31-3-2021 ` 45 Crore.
(b) Turnover for the year ended 31-3-2021 ` 175 Crore
(c) Outstanding loan from bank as on 3-3-2021 ` 105 crore (` 110 Crore loan
obtained from bank) and the outstanding balance as on 31-3-2021 ` 90 crore
after repayment.
Whether as per provision of the Companies Act, 2013 the company is required to
appoint Internal Auditor during the year 2021-2022? (3 Marks)

(ii) State the provisions of the Companies Act, 2013 relating to appointment of First
Auditor of a Government Company. (3 Marks)
(c) Mr. Stefen owns a chicken firm near Gurgaon, where he breeds them and sells eggs and
live chicken to retail shops in Gurgaon. Mr. Flemming also owns a similar firm near
Gurgaon, doing the same business. Mr. Flemming had to go back to his native place in
Australia for one year. He needed money for travel so he had pledged his firm to Mr.
Stefen for one year and received a deposit of ` 25 lakhs and went away. At that point of
time, stock of live birds were 100,000 and eggs 10,000. The condition was that when
Flemming returns, he will repay the deposit and take possession of his firm with live birds
and eggs.
After one year Flemming came back and returned the deposit. At that time there were
109,000 live birds (increase is due to hatching of eggs out of 10,000 eggs he had left),
and 15,000 eggs.
Mr. Stefen agreed to return 100,000 live birds and 10,000 eggs only.
State the duties of Mr. Stefen as Pawnee and advise Mr. Flemming about his rights in the
given case. (4 Marks)
(d) Mr. Harsha donated ` 50,000 to an NGO by cheque for sponsoring the education of one
child for one year. Later on he found that the NGO was a fraud and did not engage in
philanthropic activities.
He gave a "stop payment" instruction to his bankers and the cheque was not honoured
by the bank as per his instruction.
The NGO has sent a demand notice and threatened to file a case against Harsha. Advise
Mr. Harsha about the course of action available under the Negotiable Instruments Act,
1881. (3 Marks)
Answer
(a) (i) According to section 96 of the Companies Act, 2013, first annual general meeting of
the company should be held within 9 months from the closing of the fir st financial
year.
Hence, the statement that the first AGM of a company shall be held within a period
of six months from the date of closing of the first financial year is incorrect.
(ii) According to proviso to section 96(1), the Registrar may, for any special reason,
extend the time within which any annual general meeting, other than the first annual
general meeting, shall be held, by a period not exceeding three months.
Thus, the Registrar cannot extend (for any reason) the time period within which the
first AGM shall be held. Given statement is incorrect.

(iii) According to section 96, subsequent AGM (i.e. second AGM onwards) of the
company should be held within 6 months from the closing of the financial year.
Hence, the given statement is correct.
(iv) According to section 96, the gap between two annual general meetings should not
exceed 15 months.
Hence, the given statement is correct, that there shall be a maximum interval of 15
months between two AGMs.
(b) (i) According to the Companies (Accounts) Rules, 2014, every unlisted public company
having-
(A) paid up share capital of 50 crore rupees or more during the preceding financial
year; or
(B) turnover of 200 crore rupees or more during the preceding financial year; or
(C) outstanding loans or borrowings from banks or public financial institutions
exceeding 100 crore rupees or more at any point of time during the preceding
financial year; or
(D) outstanding deposits of 25 crore rupees or more at any point of time during the
preceding financial year;
shall be required to appoint an internal auditor which may be either an individual or
a partnership firm or a body corporate.
In the given question, KSR Limited has outstanding loan from bank exceeding 100
crores rupees i.e., ` 105 crore on 3.3.2021 during the preceding financial year
2020-21. Hence, it is required to appoint Internal Auditor during the year 2021-22.
(ii) According to section 139(7) of the Companies Act, 2013-
(1) In the case of a Government company or any other company owned or
controlled, directly or indirectly, by the Central Government, or by any State
Government, or Governments, or partly by the Central Government and par tly
by one or more State Governments, the first auditor shall be appointed by the
Comptroller and Auditor General of India (CAG) within 60 days from the date of
registration of the company.
(2) In case the CAG does not appoint first auditor within the said period, the Board
of Directors of the company shall appoint such auditor within the next 30 da ys.
(3) Further, in the case of failure of the Board to appoint such auditor within the
next 30 days, it shall inform the members of the company who shall appoint
such auditor within 60 days at an Extra ordinary General Meeting, who shall
hold office till the conclusion of the first annual general meeting.

(c) According to section 163 of the Indian Contract Act, 1872, in the absence of any contract
to the contrary, the bailee is bound to deliver to the bailor, or according to his directions,
any increase or profit which may have accrued from the goods bailed.
In the given question, when Mr. Flemming returned from Australia there were 1,09,000
live birds and 15,000 eggs (1,00,000 birds and 10,000 eggs were originally deposited by
Mr. Flemming). Mr. Stefen agreed to return 1,00,000 live birds and 10,000 eggs only and
not the increased number of live birds and eggs.
In the light of the provision of law and facts of the question, following are the answers:
Duties of Mr. Stefen: Mr. Stefen (pawnee) is bound to deliver to Mr. Flemming (pawnor),
any increase or profit (9,000 live birds and 5,000 eggs) which has occurred from the
goods bailed (i.e the live birds and eggs).
Right of Mr. Flemmimg: Mr. Flemming is entitled to recover from Pawnee any increase
in goods so pledged .
(d) In the given instance, Mr. Harsha donated ` 50,000 to NGO by cheque for sponsoring
child education for 1 year. On founding that NGO was fraud, Mr. Harsha instructed
bankers for stop payment. In lieu of that, NGO sent a demand notice and threatened to
file a case against him.
Section 138 of the Negotiable Instruments Act, 1881 deals with dishonor of cheque which
is issued for the discharge, in whole or in part, of any debt or other liability. However, any
cheque given as gift or donation, or as a security or in discharge of a mere moral
obligation, would be considered outside the purview of section 138.
Here the cheque is given as a donation for the sponsoring child education for 1 year and
is not legally enforceable debt or other liability on Mr. Harsha. Therefore, he is not liable
for the donated amount which is not honoured by the bank to the NGO.
Question 3
(a) State Cricket Club was formed as a Limited Liability Company under Section 8 of the
Companies Act, 2013 with the object of promoting cricket by arranging introductory
cricket courses at district level and friendly matches. The club has been earning surplus.
Of late, the affairs of the company are conducted fraudulently and dividend was paid to
its members. Mr. Cool, a member decided make a complaint with Regulatory Authority to
curb the fraudulent activities by cancelling the licence given to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the licence? If so,
state the provisions.
(ii) Whether the Company may be wound up?
(iii) Whether the State Cricket Club can be merged with M/s. Cool Net Private Limited, a
company engaged in the business of networking? (5 Marks)

(b) AB & Associates, a firm of Chartered Accountants was re-appointed as auditors at the
Annual General Meeting of X Ltd. held on 30-09-2019. However, the Board of Directors
recommended to remove them before expiry of their term by passing a resolution in the
Board Meeting held on 31-03-2020. Subsequently, having given consideration to the
Board recommendation, AB & Associates were removed at the general meeting held on
25-05-2020 by passing a special resolution subject to approval of the Central
Government. Explaining the provisions for removal of second and subsequent auditors,
examine the validity of removal of AB & Associates by X Ltd. under the provisions of the
(c) Examine the following cases with respect to their validity. State your answer with
reasons.
(i) A bill of exchange is drawn, mentioning expressly as 'payable on demand'. The bill
will be at maturity for payment on 04-01-2021, if presented on 01-01-2021.
(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor. The
drawer claims that he is discharged from his liability as the holder fails to give notice
of dishonour of the bill to all the parties thereto. (3 Marks)
(d) Explain the impact of the two words "means" and "includes" in a definition, while
interpreting such definition. (3 Marks)
Answer
(a) (i) According to Section 8(6) of the Companies Act, 2013, the Central Government may
by order revoke the licence of the company where the company contravenes any of
the requirements or the conditions of section 8 subject to which a licence is issued
or where the affairs of the company are conducted fraudulently, or in violation of the
objects of the company or prejudicial to public interest, and on revocation, the
Registrar shall put ‘Limited’ or ‘Private Limited’ against the company’s name in the
register. But before such revocation, the Central Government must give it a written
notice of its intention to revoke the licence and opportunity to be heard in the
matter.
Hence, in the instant case, the Central Government can revoke the license given to
State Cricket Club as section 8 company, as the affairs of the company are
conducted fraudulently and dividend was paid to its members which is in
contravention to the conditions given under section 8.
(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied
that it is essential in the public interest, direct that the company be wound up under
this Act or amalgamated with another company registered under this section.
opportunity of being heard. [Section 8(7)] Hence, the stated company may be
wound up.

(iii) A company registered under this section shall amalgamate only with another
company registered under this section and having similar objects. [Section 8(10)]
In the instant case, State Cricket Club cannot be merged with Cool Net Private
Limited as the objects of both the companies are different and not similar.
(b) Section 140 of the Companies Act, 2013 prescribes procedure for removal of auditors.
Under section 140 (1) the auditor appointed under section 139 may be removed from hi s
office before the expiry of his term only by a special resolution of the company, after
obtaining the previous approval of the Central Government in that behalf in the
prescribed manner.
From this sub section it is clear that the approval of the Central Government shall be
taken first and thereafter the special resolution of the company should be passed.
Provided that before taking any action under this sub-section, the auditor concerned shall
be given a reasonable opportunity of being heard.
Companies (Audit & Auditors) Rules, 2014, the following steps should be taken for the
removal of an auditor before the completion of his term:
The application to the Central Government for removal of auditor shall be made in Form
ADT-2 and accompanied with fees as provided for this purpose under the Companies
(Registration Offices and Fees) Rules, 2014.
The application shall be made to the Central Government within thirty days of the
resolution passed by the Board.
The company shall hold the general meeting within sixty days of receipt of approval of
the Central Government for passing the special resolution.
Hence, in the instant case, the decision of X Ltd. to remove AB & Associates, auditors of
the company at the general meeting held on 25-5-2020 subject to approval of Central
Government is not valid. The Approval of the Central Government shall be taken before
passing the special resolution in the general meeting.
(c) (i) The bill of exchange is drawn, mentioning expressly as ‘payable on demand’. The
bill will be at maturity for payment on 04-1-2021, if presented on 01-01-2021: This
statement is not valid as no days of grace are allowed in the case of bill payable on
demand.
(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor. The
drawer claims that he is discharged form his liability as the holder fails to give notice
of dishonour of the bill to all the parties thereto:
As per section 93 of the Negotiable Instruments Act, 1881, notice of dishonor must
be given by the holder to all parties other than the maker or the acceptor or the
drawee whom the holder seeks to make liable. Accordingly, notice of dishonour to

the acceptor of a bill is not necessary. Therefore, claim of drawer that he is

discharged from his liability on account of holder’s failure to give notice to all the
parties thereto, is invalid.
(d) Impact of the words “Means” and “Includes” in the definitions- The definition of a
word or expression in the definition section may either be restricting of its ordinary
meaning or may be extensive of the same.
When a word is defined to ‘mean’ such and such, the definition is ‘prima facie’ restrictive
and exhaustive, we must restrict the meaning of the word to that given in the definition
section.
But where the word is defined to ‘include’ such and such, the definition is ‘prima facie’
extensive, here the word defined is not restricted to the meaning assigned to it but has
extensive meaning which also includes the meaning assigned to it in the definition
section.
Example:
Definition of Director [section 2(34) of the Companies Act, 2013]—Director means a
director appointed to the board of a company. The word “means” suggests exhaustive
definition.
Definition of Whole time director [Section 2(94) of the Companies Act, 2013] —Whole
time director includes a director in the whole time employment of the company. The word
“includes” suggests extensive definition. Other directors may be included in the category
of the whole time director.
Question 4
(a) (i) "The offer of buy-back of its own shares by a company shall not be made within a
period of six months from the date of the closure of the preceding offer of buy -back,
if any and cooling period to make further issue of same kind of shares including
allotment of further shares shall be a period of one year from the completion of buy
back subject to certain exceptions." Examine the validity of this statement by
explaining the provisions of the Companies Act, 2013 in this regard. (3 Marks)
(ii) ABC Limited proposes to issue series of debentures frequently within a period of
one year to raise the funds without undergoing the complicated exercise of issuing
the prospectus every time of issuing a new series of debentures. Examine the
feasibility of the proposal of ABC Limited having taken into account the concept of
deemed prospectus dealt with under the provisions of the Companies Act, 2013.
(3 Marks)
(b) The Promoters of Jayshree Spinning Mills Limited contributed in the shape of unsecured
loan to the company in fulfilment of the margin money requirements stipulated by State
Industries Development Corporation Ltd. (SIDCL) for granting loan. In the light of the

provisions of the Companies Act, 2013 and Rules made thereunder whether the
unsecured loan will be regarded as Deposit or not. What will be your answer in case the
entire loan obtained from SIDCL is repaid? (4 Marks)
(c) Examine the validity of the following statements with reference to the General Clauses
Act, 1897:
(i) Insurance Policies covering immovable property have been held to be immovable
property.
(ii) The word "bullocks" could be interpreted to include "cows". (4 Marks)
(d) Whether Foreign decisions can be used for construing Indian Statute? Explain. (3 Marks)
Answer
(a) (i) According to proviso to section 68(2) of the Companies Act, 2013, no offer of buy-
back, shall be made within a period of one year from the date of the closure of the
preceding offer of buy-back, if any.
Section 68 (8) casts an obligation that where a company completes a buy-back of
its shares or other specified securities under this section, it shall not make further
issue of same kind of shares including allotment of further shares under section 62
(1) (a) or other specified securities within a period of six months except by way of
bonus issue or in the discharge of subsisting obligations such as conversion of
warrants, stock option schemes, sweat equity or conversion of preference shares or
debentures into equity shares.
Keeping in view of the above provisions, the statement “the offer of buy -back of its
own shares by a company shall not be made within a period of six months from the
date of the closure of the preceding offer of buy back, if any and cooling period to
make further issue of same kind of shares including allotment of further shares shall
be a period of one year from the completion of buy back subject to certain
exceptions” is not valid.
(ii) Information Memorandum together with Shelf Prospectus is deemed
Prospectus. The expression “shelf prospectus” means a prospectus in respect of
which the securities or class of securities included therein are issued for
subscription in one or more issues over a certain period without the issue of a
further prospectus. [Explanation to Section 31]
Any class or classes of companies, as the Securities and Exchange Board may
provide by regulations in this behalf, may file a shelf prospectus with the Registrar
at the stage-
(i) of the first offer of securities included therein which shall indicate a period not
exceeding one year as the period of validity of such prospectus which shall
commence from the date of opening of the first offer of securities under that
prospectus, and

(ii) in respect of a second or subsequent offer of such securities issued during the
period of validity of that prospectus,
No further prospectus is required for issue of securities. [Sub-section (1)]
Hence, the proposal of ABC Limited to take into account the concept of deemed
prospectus is correct.
(b) According to Rule 2 (1) (c) of the Companies (Acceptance of Deposits) Rules, 2014, the
following amount is not considered as deposit:
Any amount brought in by the promoters of the company by way of unsecured loan in
pursuance of the stipulation of any lending financial institution or a bank subject to the
fulfillment of following conditions:
(a) the loan is brought because of the stipulation imposed by the lending institutions on
the promoters to contribute such finance;
(b) the loan is provided by the promoters themselves or by their relatives or by both;
and
(c) such exemption shall be available only till the loans of financial institution or bank
are repaid and not thereafter.
Hence, in the instant case, the unsecured loan contributed by promoters of Jayshree
Spinning Mills Limited will not be regarded as deposit as the unsecured loan is brought
because of the stipulation imposed by the SIDCL and the loan is provided by the
promoters themselves.
In case the entire loan obtained from SIDCL is repaid, then the unsecured loan provided
by promoters of Jayshree Spinning Mills Limited will be regarded as deposit.
(c) (i) Insurance Policies covering immovable property have been held to be
immovable property: This statement is not valid.
Insurance policy is a written document containing an agreement between the
insurer and insured. It includes a matter intended to be used or may be used for the
purpose or recording of the matter. Hence, the insurance policies covering
immovable property is not covered under the definition of immovable property.
(ii) The word ‘bullocks’ could be interpreted to include ‘cows’: This statement is
not valid. Where a word connoting a common gender is available but the word used
conveys a specific gender, there is a presumption that the provisions of General
Clauses Act, 1897 do not apply. Thus, the word ‘bullocks’ could not be interpreted
to include ‘cows’.
(d) Use of Foreign Decisions: Foreign decisions of countries following the same system of
construing our own Acts. However, prime importance is always to be given to the

language of the Indian statute. Further, where guidance can be obtained from Indian
decisions, reference to foreign decisions may become unnecessary.
Question 5
(a) Examine the validity of the following different decisions/proposals regarding change of
office by A Ltd. under the provisions of the Companies Act, 2013:
(i) The Registered office is shifted from Thane (Local Limit of Thane District) to Dadar
(Local limit of Mumbai District), both places falling within the jurisdiction of the
Registrar of Mumbai, by passing a special resolution but without obtaining the
approval of the Regional Director.
(ii) The Registered office is situated in Mumbai, Maharashtra (within the jurisdiction of
the Registrar, Mumbai, Maharashtra State) whereas the Corporate Office is situated
in Pune, Maharashtra State (within the jurisdiction of the Registrar, Pune). A Ltd.
proposes to shift its corporate office from· Pune to Mumbai under the authority of a
Board· resolution.
(iii) The registered office situated in certain place of a city is proposed to be shifted to
another place within the local limits of the same city under the authority of Board
Resolution. (5 Marks)
(b) Johnson Limited goes for Public issue of its shares. The issue was over subscribed. A
default was committed with respect to allotment of shares by the officers of the company.
There were no Managing Director, Whole time Director or any other officer/person
designated by the Board with the responsibility of Complying with the provisions of the
Act.
State, who are the persons considered as officers in default under the Companies Act,
2013.
Examine who will be considered in default in the instant case? (5 Marks)
OR
Mr. Laurel, a shareholder in Hardly Limited, a listed company, desires to inspect the
minutes book of General Meetings and to have copy of some resolutions. In the light of
the provisions of the Companies Act, 2013 answer the following:
(i) Whether he can inspect the minutes book and to have copies of the minutes at free
of cost?
(ii) Whether he can authorize his friend to inspect the minutes book on behalf of him by
signing a power of authority?
(c) A rented his house to B on lease for 3 years. The lease agreement is terminable on 3
month notice by either party. C, the son of A, being in need of a separate house to live,
served a notice on B, without any authority, to vacate the house within a month and

requested his father A to ratify his action. Examine whether it shall be valid for A to ratify
the action of C taking into account the provisions of the Indian Contract Act, 1872?
(4 Marks)
(d) Ajit was supposed to submit an appeal to High Court of Kolkata on 30th March, 2 020,
which was the last day on which such appeal could be submitted. Unfortunately, on that
day High Court was closed due to total Lockdown all over India due to Covid-19
pandemic. Examine the remedy available to Ajit under the provisions of the General
Clauses Act, 1897. (3 Marks)
Answer
(a) Regarding the validity of Proposals w.r.t change of registered office by A Ltd. in
the light of the section 12 of the Companies Act, 2013:
(i) In the first case, where the Registered office is shifted from Thane to Dadar (one
District to another District) falling under jurisdiction of same ROC i.e. Registr ar of
Mumbai.
As per Section 12 (5) of the Act which deals with the change in registered office
outside the local limit from one town or city to another in the same state, may take
place by virtue of a special resolution passed by the company. No approval of
regional director is required. Accordingly, said proposal is valid.
(ii) Section 12 talks about shifting of Registered office only, In the second case the
corporate office is being shifted from Pune to Mumbai under the authority of Board
resolution. Shifting of corporate office under the board resolution is valid.
[Note: It may be assumed that corporate office and registered office are same.
Then in this case, registered office situated in Mumbai is changed from Mumbai to
Pune falling the jurisdiction of different of ROC’s in the same State .
In line section 12 (5) of the Act, where a company changes the place of its
registered office from the jurisdiction of one Registrar to the jurisdiction of another
Registrar within the same State, there such change is to be confirmed by the
Regional Director on an application made by the company. Accordingly, the said
proposal may be treated as invalid, due to lack of confirmation by Regional director
of such change.]
(iii) In the third case, change of registered office within the local limits of the same city.
Said proposal is valid in terms it has been passed under the authority of Board
resolution.
(b) As per section 39 of the Companies Act, 2013, which deals with the allotment of
securities, states that in case of any default related to minimum subscription and of
return of allotment money under sub-section (3) and (4), the company and its officer who

is in default shall be liable to a penalty, for each default, of one thousand rupees for each
day during which such default continues or one lakh rupees, whichever is less.
As per section 2(60) of the Act, Officer who is in default, has been described as:
For the purpose of any provision in this Act which enacts that an officer of the company
who is in default shall be liable to any penalty or punishment by way of imprisonment,
fine or otherwise, means any of the following officers of a company, namely:—
(i) whole-time director (WTD);
(ii) key managerial personnel (KMP);
(iii) where there is no key managerial personnel, such director or directors as specified
by the Board, or all the directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board or any key managerial
personnel, is charged with any responsibility.
(v) any person in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act,
(vi) every director, in respect of a contravention of any of the provisions of this Act,
(vii) in respect of the issue or transfer of any shares of a company, the share transfer
agents, registrars and merchant bankers to the issue or transfer;
In the given case, as stated Johnson Limited, committed a default with respect to the
allotment of shares by the officers. As in company there were no managing director,
whole time director, or any other officer/person designated by the Board with the
responsibility of complying with the provisions of the Act. Therefore, in such situation,
all the directors of the company may be treated as officers in default.
OR
As per section 119 of the Companies Act, 2013, the books containing the minutes of the
proceedings of any general meeting of a company shall be open for inspection, during
business hours, by any member, without charge, subject to such reasonable restrictions
as specified in the articles of the company or as imposed in the general mee ting.
Any member shall be entitled to be furnished, within seven working days after he has
made a request in that behalf to the company, and on payment of s uch fees as may be
prescribed, with a copy of any minutes .
Accordingly, following are the answers:
(i) As in given case, Mr. Laurel, in requirement with law, he can inspect the minutes
book and so to have soft copies of the same up to last three years.
(ii) As provision does not specify anything on authorizing any one else to inspect the
minutes book. Therefore, Mr. Laurel cannot authorize his friend to inspect the

minutes book on behalf of him

(c) As per section 200 of the Indian contract Act, 1872, an act done by one person on behalf
of another, without such other person’s authority, which, if done with authority, would
have the effect of subjecting a third person to damages, or of terminating any right or
interest of a third person, cannot, by ratification, be made to have such effect.
In the given instance, A rented his house to B on lease for 3 years. The lease agreement
was terminable on three months’ notice. C, son of A, gives notice of termination to B,
without any authority, to vacate the house within a month. Also requested A to ratify his
action.
Here by the act of C, the interest of B is affected, therefore the principle of ratification
does not apply. Hence, it’s not valid for A to ratify the action of C, thereby causing the
notice to be binding on B.
(d) The given answer is based on section 10 which deals with “Computation of time” under
the General Clauses Act, 1897. Where by any legislation or regulation, any act or
proceeding is directed or allowed to be done or taken in any court or office on a certain
day or within a prescribed period then, if the Court or office is closed on that day or last
day of the prescribed period, the act or proceeding shall be considered as done or taken
in due time if it is done or taken on the next day afterwards on which the Court or office is
open.
In the question, Ajit was supposed to submit an appeal to High Court on 30 th March 2020,
which was the last day of filing the same. On that day High Court was closed due to total
lockdown all over India.
In line with said provision, Ajit can submit an appeal on the day on which the High Court
is open.

Attempt any four questions from the remaining five questions.
Question 1
(a) A Ltd. issued 1,00,000 equity shares of ` 100 each at par to the public by issuing a
prospectus. The prospectus discloses the minimum subscription amount of ` 15,00,000
required to be received on application of shares and share application money shall be
payable at ` 20 per share. The prospectus further reveals that A Ltd. has applied for
listing of shares in 3 recognized stock exchanges of which 1 application has been
rejected. The issue was fully subscribed and A Ltd. received an amount of ` 20,00,000
on share application. A Ltd., then proceeded for allotment of shares.
Examine the three disclosures in the above case study which are the deciding factors in
an allotment of shares and the consequences for violation, if any under the provisions of
the Companies Act, 2013. (6 Marks)
(b) (i) Three chartered accountants, Mr. Robert, Mr. Ram and Mrs. Rohini, formed a
Limited Liability Partnership under the Limited Liability Partnership Act, 2008 in the
name of 'R & Associates LLP', practicing chartered accountants. SR Ltd. intends to
appoint 'R & Associates LLP' as auditors of the company.
Examine the validity of the proposal of SR Ltd. to appoint 'R & Associates LLP', a
body corporate, as an auditor of the company as per the provisions of the
(ii) A company received a proxy form 54 hours before the time fixed for the start of the
meeting. The company refused to accept the proxy form on the ground that the
Articles of the company provided that a proxy form must be filed 60 hours before the
start of the meeting. Define proxy and decide under the provisions of the
Companies Act, 2013, whether the proxy holder can compel the company to admit
the proxy in this case? (3 Marks)
(c) Radheshyam borrowed a sum of ` 50,000 from a Bank on the security of gold on
1.07.2019 under an agreement which contains a clause that the bank shall have a right
of particular lien on the gold pledged with it. Radheshyam thereafter took an unsecured
loan of ` 20,000 from the same bank on 1.08.2019 for three months. On 30.09.2019 he
repaid entire secured loan of ` 50,000 and requested the bank to release the gold
pledged with it. The Bank decided to continue the lien on the gold until the unsecured
loan is fully repaid by Radheshyam. Decide whether the decision of the Bank is valid
within the provisions of the Indian Contract Act, 1872 ? (4 Marks)
(d) Referring to the provisions of the Negotiable Instruments Act, 1881, examine the validity
of the following:
2 INTERMEDIATE (NEW) EXAMINATION: JANUARY, 2021
A Bill of Exchange originally drawn by R for a sum of ` 10,000 but accepted by S only for
` 7,000. (3 Marks)
Answer
(a) As per the requirement of the question, disclosures which are the deciding factors in an
allotment of shares are laid down in section 39 of the Companies Act, 2013.
According to Section 39(1), no allotment of any securities of a company offered to the
public for subscription shall be made unless-
• the amount stated in the prospectus as the minimum amount has been subscribed,
and
• the sums payable on application for the amount so stated have been paid to, and
received by the company by cheque or other instrument.
• The amount payable on application on every security shall not be less than five per
cent of the nominal amount of the security or such other percentage or amount, as
may be specified by the Securities and Exchange Board by making regulations in
this behalf.
In the question, A Ltd. issued shares to public by issuing of prospectus, disclosing
minimum subscription, sum payable on application for the amount; and the amount
received on share application is more than 5% of the nominal amount of the security.
Further, it revealed that A Ltd. has applied for listing of shares in 3 recognized stock
exchanges of which one application was rejected.
In the given instance, there is compliance to section 23, as nothing is talked about
matters required to be included in the prospectus under section 26 (1) and about filing
with the registrar; assuming that the said requirements have been complied with,
requirement of section 39 as regards obtaining of minimum subscription and the
minimum amount receivable on application (not less than 5% of the nominal value of the
securities offered) are fulfilled.
The provisions of section 40 of the Companies Act, 2013 states that every company
making public offer shall, before making such offer, make an application to one or more
recognized stock exchange or exchanges and obtain permission for the securities to be
dealt with in such stock exchange or exchanges.
The above provision is very clear that not only the company has to apply for listing of the
securities at a recognized stock exchange, but also obtain permission thereof from all the
stock exchanges where it has applied, before making the public offer. Since one of the
three recognized stock exchanges, where the company has applied for enlisting , has
rejected the application and the company has proceeded with making the offer of shares,
it has violated the provisions of section 40. Therefore, this shall be deemed to be
irregular allotment of shares.
Consequently, A Ltd. shall be required to refund the application money to the applicants
in the prescribed manner within the stipulated time frame.
(b) (i) As per the provisions of Section 141 (3) of the Companies Act, 2013 read with Rule
10 of Companies (Audit and Auditors) Rule 2014, a body corporate other than a
limited liability partnership registered under the Limited Liability Partnership Act,
2008 shall not be qualified for appointment as auditor of a company.
In the given case, proposal of SR Ltd. to appoint ‘R & Associates LLP’ as auditors of
the company is valid as the restriction marked for appointment as auditor for a body
corporate is not applicable to Limited Liability Partnership.
(ii) Section 105 of the Companies Act, 2013 deals with the provisions of proxy for
meetings.
Section 105(1) of the Act provides that any member of a company entitled to attend
and vote at a meeting of the company shall be entitled to appoint another person as
a proxy to attend and vote at the meeting on his behalf.
Further, Section 105(4) of the Act provides that a proxy received 48 hours before
the meeting will be valid even if the articles provide for a longer period.
In the given case, the company received a proxy form 54 hours before the time fixed
for start of the meeting. The Company refused to accept proxy on the ground that
articles of the company provides filing of proxy before 60 hours of the meeting. In
the said case, in line with requirement of the above stated legal provision, a proxy
received 48 hours before the meeting will be valid even if the articles provide for a
longer period. Accordingly, the proxy holder can compel the company to admit the
proxy.
(c) General lien of bankers: According to section 171 of the Indian Contract Act, 1872,
bankers, factors, wharfingers, attorneys of a High Court and policy brokers may, in the
absence of a contract to the contrary, retain, as a security for a general balance of
account any goods bailed to them; but no other persons have a right to retain, as a
security for such balance, goods bailed to them, unless there is an express contract to
the effect.
Section 171 empowers the banker with general right of lien in absence of a contract
whereby it is entitled to retain the goods belonging to another party, until all the dues are
discharged. Here, in the first instance, the banker under an agreement has a right of
particular lien on the gold pledged with it against the first secured loan of ` 50,000/-,
which has already been fully repaid by Radheshyam. Accordingly, Bank’s decision to
continue the lien on the gold until the unsecured loan of ` 20,000/- (which is the second
loan) is not valid.
(d) As per the provisions of Section 86 of the Negotiable Instruments Act, 1881, if the holder
of a bill of exchange acquiesces in a qualified acceptance, or one limited to part of the
sum mentioned in the bill, or which substitutes a different place or time for payment, or
which, where the drawees are not partners, is not signed by all the drawees, all previous
parties whose consent is not obtained to such acceptance are discharged as against the
holder and those claiming under him, unless on notice given by the holder they assent to
such acceptance.
Explanation to the above section states that an acceptance is qualified where it
undertakes the payment of part only of the sum ordered to be paid.
In view of the above provisions, the bill, which has been drawn by R for ` 10,000/-, has
been accepted by S only for ` 7,000/-. It is a clear case of qualified acceptance, which
may either be rejected by R or he may give assent to the acceptance of ` 7,000/- only.
Question 2
(a) RS Ltd. received share application money of ` 50.00 Lakh on 01.06.2019 but failed to
allot shares within the prescribed time limit.
The share application money of ` 5.00 Lakh received from Mr. Khanna, a customer of the
Company, was refunded by way of book adjustment towards the dues payable by him to
the company on 30.07.2019. The Company Secretary of RS Ltd. reported to the Board
that the entire amount of ` 50.00 Lakh shall be deemed to be 'Deposits' as on
31.07.2019 and the Company is required to comply with the provisions of the Companies
Act, 2013 applicable to acceptance of deposits in relation to this amount.
You are required to examine the validity of the reporting of the Company Secretary in the
light of the relevant provisions of the Companies Act, 2013. (4 Marks)
(b) (i) The Board of Directors of Dilip Telelinks Ltd. consists of Mr. Choksey, Mr. Patel
(Directors) and Mr. Shukla (Managing Director). The company has also employed a
full time Secretary. The Profit and Loss Account and Balance Sheet were signed by
Mr. Choksey and Mr. Patel. Examine whether the authentication of financial
statements of the company is in accordance with the provisions of the Companies
Act, 2013 ? (3 Marks)
(ii) X Ltd. is a listed company having a paid-up share capital of ` 25 crore as at
31st March, 2019 and turnover of ` 100 crore during the financial year 2018-19. The
Company Secretary has advised the Board of Directors that X Ltd. is not required to
appoint 'Internal Auditor' as the company's paid up share capital and turnover are
less than the threshold limit prescribed under the Companies Act, 2013. Do you
agree with the advice of the Company Secretary? Explain your view referring to the
(c) Explain whether the agency shall be terminated in the following cases under the
provisions of the Indian Contract Act, 1872:
(i) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the
debts due to him from A. Afterwards, A becomes insane.
(ii) A appoints B as A's agent to sell A's land. B, under the authority of A, appoints C as
agent of B. Afterwards, A revokes the authority of B but not of C. What is the status
of agency of C ? (4 Marks)
(d) A promissory note specifies that three months after, A will pay ` 10,000 to B or his order
for value received. It is to be noted that no rate of interest has been stipulated in the
promissory note. The promissory note falls due for payment on 01.09.2019 and paid on
31.10.2019 without any interest. Explaining the relevant provisions under the Negotiable
Instruments Act, 1881, state whether B shall be entitled to claim interest on the overdue
amount? (3 Marks)
Answer
(a) According to Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, the
following category of receipt is not considered as deposit:
Any amount received and held pursuant to an offer made in accordance with the
provisions of the Companies Act, 2013 towards subscription to any securities, including
share application money or advance towards allotment of securities, pending allotment,
so long as such amount is appropriated only against the amount due on allotment o f the
securities applied for;
It is clarified by way of Explanation that if the securities for which application money or
advance for such securities was received cannot be allotted within 60 days from the date
of receipt of the application money or advance for such securities and such application
money or advance is not refunded to the subscribers within 15 days from the date of
completion of 60 days, such amount shall be treated as a deposit under these rules.
Further, it is clarified that any adjustment of the amount for any other purpose shall not
be treated as refund.
In the given question, RS Limited has received ` 50 Lakhs as share application money
on 01.06.2019. It failed to allot shares within the prescribed limit. Further, on 30. 07.2019
the company adjusted the amount of ` 5 Lakhs received from Mr. Khanna (a customer of
the company), by way of book adjustment towards the dues payable by him to the
company.
(1) If such application money or advance is not refunded to the subscribers within 15
days from the date of completion of 60 days, such amount shall be treated as a
deposit. In the question, the prescribed limit of 60 days will end on 31.07.2019 and
the company has 15 more days to refund such application money to the
subscribers. Otherwise, after lapse of such 15 days, the amount not so refunded will
be treated as deposit. Hence, the Company Secretary of RS Limited is not correct in
treating the entire amount of ` 50 Lac as ‘Deposits’ on 31.07.2019.
(2) Any adjustment of the amount for any other purpose shall not be treated as refund.
Thus, the amount of ` 5 Lakhs adjusted against payment due to be received from
Mr. Khanna, cannot be treated as refund.
(b) (i) According to Section 134(1) of the Companies Act, 2013, the financial statement,
including consolidated financial statement, if any, shall be approved by the Board of
Directors before they are signed on behalf of the Board by the chairperson of the
company where he is authorised by the Board or by two directors out of which one
shall be managing director, if any, and the Chief Executive Officer, the Chief
Financial Officer and the company secretary of the company, wherever they are
appointed, or in the case of One Person Company, only by one director, for
submission to the auditor for his report thereon.
In the instant case, the Balance Sheet and Profit and Loss Account have been
signed only by Mr. Choksey and Mr. Patel, the directors. In view of Section 134(1)
of the Companies Act, 2013, Mr. Shukla, the Managing Director should have been
one of the two signing directors.
Further, since the company has also employed a full- time Secretary, he should also
sign the Balance Sheet and the Statement of Profit and Loss.
(ii) According to the provisions of Section 138 of the Companies Act, 2013, read with
Rule 13 of the Companies (Accounts) Rules, 2014, the following class of companies
shall be required to appoint an internal auditor which may be either an individual or
a partnership firm or a body corporate, namely:
(1) every listed company;
(2) every unlisted public company having-
(A) paid up share capital of 50 crore rupees or more during the preceding
financial year; or
(B) turnover of 200 crore rupees or more during the preceding financial year;
(C) outstanding loans or borrowings from banks or financial institutions
exceeding one hundred crore rupees or more at any point of time during
the preceding financial year; or
(D) outstanding deposits of twenty five crore rupees or more at any point of
time during the preceding financial year.
Besides, some private companies are also required to appoint an internal auditor
which may be either an individual or a partnership firm or a body corporate.
Thus, X limited (which is a listed company) is required to appoint an internal auditor,
irrespective of its paid-up share capital or turnover (as the limit of paid- up share
capital or turnover is applicable for unlisted public company).
Hence, the advice of the Company Secretary is not correct.
(c) (i) According to section 202 of the Indian Contract Act, 1872, where the agent has
himself an interest in the property which forms the subject matter of the agency, the
agency cannot, in the absence of an express contract, be terminated to the
prejudice of such interest.
In other words, when the agent is personally interested in the subject matter of
agency, the agency becomes irrevocable.
In the given question, A gives authority to B to sell A’s land, and to pay himself, out
of the proceeds, the debts due to him from A.
As per the facts of the question and provision of law, A cannot revoke this authority,
nor it can be terminated by his insanity.
(ii) According to section 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person
employed by, and acting under the control of, the original agent in the business of
the agency.
termination (subject to the rules regarding the termination of an agent’s authority) of
the authority of all sub-agents appointed by him.
In the given question, B is the agent of A, and C is the agent of B. Hence, C
becomes a sub- agent.
Thus, when A revokes the authority of B (agent), it results in termination of authority
of sub-agent appointed by B i.e. C (sub-agent).
(d) When no rate of interest is specified in the instrument: As per the provisions of
Section 80 of the Negotiable Instruments Act, 1881, when no rate of interest is specified
in the instrument, interest on the amount due thereon shall, notwithstand ing any
agreement relating to interest between any parties to the instrument, be calculated at the
rate of eighteen per centum per annum, from the date at which the same ought to have
been paid by the party charged, until tender or realization of the amoun t due thereon, or
until such date after the institution of a suit to recover such amount as the Court directs.
In the given question, the promissory note falls due for payment on 1.9.2019 and was
paid on 31.10.2019. The note does not mention any rate of interest, hence interest will be
charged @ 18% p.a.
Thus, B shall be entitled to claim interest on the overdue amount for the period from
01.09.2019 to 31.10.2019, @ 18% p.a.
Question 3
(a) State the reasons for the issue of shares at premium or discount. Also write in brief the
purposes for which the securities premium account can be utilized? (5 Marks)
(b) Mr. R, holder of 1000 equity shares of ` 10 each of AB Ltd. approached the Company in
the last week of September, 2019 with a claim for the payment of dividend of ` 2000
declared @ 20% by the Company at its Annual General Meeting held on 31.08.2011 with
respect to the financial year 2010-11. The Company refused to accept the request of R
and informed him that his shares on which dividend has not been claimed till date, have
also been transferred to the Investor Education And Protection Fund.
Examine, in the light of the provisions of the Companies Act, 2013, the validity of the
decision of the Company and suggest the remedy, if available, to him for obtaining the
unclaimed amount of dividend and re-transfer of corresponding shares in his name.
(5 Marks)
(c) Gireesh, a legal successor of Ripun, the deceased person, signs a Bill of Exchange in his
own name admitting a liability of ` 50,000 i.e. the extent to which he inherits the assets
from the deceased payable to Mukund after 3 months from 1st January, 2019. On
maturity, when Mukund presents the bill to Gireesh, he (Gireesh) refuses to pay for the
bill on the ground that since the original liability was that of Ripun, the deceased,
therefore, he is not liable to pay for the bill.
Referring to the provisions of the Negotiable Instruments Act, 1881 decide whether
Mukund can succeed in recovering ` 50,000 from Gireesh. Would your answer be still
the same in case Gireesh specified the limit of his liability in the bill and the value of his
inheritance is more than the liability ? (4 Marks)
(d) Sohel, a director of a Company, not being personally concerned or interested, financially
or otherwise, in a matter of a proposed motion placed before the Board Meeting, did not
disclose his interest although he has knowledge that his sister is interested in that
proposal. He restrains from making any disclosure of his interest on the presumption that
he is not required by law to disclose any interest as he is not personally interested or
concerned in the proposal. He made his presumption relying on the 'Rule of Literal
Construction'. Explaining the scope of interpretation under this rule in the given situation,
decide whether the decision of Sohel is correct? (3 Marks)
Answer
(a) When a company issues shares at a price higher than their face value, the shares are
said to be issued at premium and the differential amount is termed as premium. On the
other hand, when a company issues shares at a price lower than their face value, the
shares are said to be issued at discount and the differential amount is termed as
discount. However, as per the provisions of section 53 of the Companies Act, 2013, a
company is prohibited to issue shares at a discount except in the case of an issue of
sweat equity shares given under section 54 of the Companies Act, 2013.
As per the provisions of sub-section (1) of section 52 of the Companies Act, 2013, where
a company issues shares at a premium, whether for cash or otherwise, a sum equal to
the aggregate amount of the premium received on those shares shall be transferred to a
“securities premium account”.
Application of Securities Premium Account: As per the provisions of sub-section (2)

of section 52 of the Companies Act, 2013, the securities premium account may be
applied by the company—
(a) towards the issue of unissued shares of the company to the members of the
company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any
issue of shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable
preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
(b) According to section 124 of the Companies Act, 2013:
(1) Unpaid or Unclaimed Dividend to be transferred to the Unpaid Dividend
Account - Where a dividend has been declared by a company but has not been
paid or claimed within thirty (30) days from the date of declaration, the company
shall, within seven (7) days from the expiry of the said period of 30 days, transfer
the total amount of unpaid or unclaimed dividend to a special account called the
Unpaid Dividend Account (UDA). The UDA shall be opened by the company in any
scheduled bank.
(2) Transfer of Unclaimed Amount to Investor Education and Protection Fund
(IEPF) - Any money transferred to the Unpaid Dividend Account which remains
unpaid or unclaimed for a period of seven (7) years from the date of such transfer
shall be transferred by the company along with interest accrued thereon to the
Investor Education and Protection Fund.
(3) Transfer of Shares to IEPF- All shares in respect of which dividend has not been
paid or claimed for 7 consecutive years or more shall be transferred by the company
in the name of Investor Education and Protection Fund along with a statement
containing the prescribed details.
(4) Right of Owner of ‘transferred shares’ to Reclaim - Any claimant of shares so
transferred to IEPF shall be entitled to reclaim the ‘transferred shares’ from Investor
Education and Protection Fund in accordance with the prescribed procedure and on
submission of prescribed documents.
As per the provisions of sub-section (3) of section 125 of the Companies Act, 2013, read
with rule 7 of Investor Education and Protection Fund Authority (Accounting, Audit,
Transfer and Refund) Rules, 2016, any person, whose unclaimed dividends have been
transferred to the Fund, may apply for refund, to the Authority, by submitting an online
application.
In the given question, Mr. R did not claim the payment of dividend on his shares for a
period of more than 7 years (i.e. expiry of 30 days from 31.08.2011 to last week of
September 2019). As a result, his unclaimed dividend (` 2,000) along with such shares
(1,000 equity shares) must have been transferred to Investor Education and Protection
Fund Account. Therefore, the company is justified in refusing to accept the request of Mr.
R for the payment of dividend of ` 2,000 (declared in Annual General Meeting on
31.8.2011).
In terms of the above stated provisions, Mr. R should be advised as under:
(i) If Mr. R wants to reclaim the transferred shares, he should apply to IEPF authorities
along with the necessary documents in accordance with the prescribed procedure.
(ii) He is also entitled to get refund of the dividend amount, which was transferred to
the above fund; in accordance with the prescribed rules.
(c) Liability of a legal representative (Section 29 of the Negotiable Instruments Act, 1881):
A legal representative of a deceased person, who signs his name on a promissory note,
bill of exchange or cheque is liable personally thereon unless he expressly limits his
liability to the extent of the assets received by him.
Thus, in the absence of an express contract to the contrary, the liability of a legal
representative is unlimited. However, a legal representative may, by an express
agreement, limit his liability to the extent of the assets received by him.
In the light of the stated provision, Mukund can succeed in recovering ` 50,000 from
Gireesh as he has admitted liability of ` 50,000 i.e. to the extent of the assets received
by him from the Ripun, the deceased.
Yes, the limit of liability specified in the bill by Gireesh, will remain same even if value of
his inheritance is more than the liability, in case he specified the liability by an express
agreement.
(d) Rule of Literal Construction
Normally, where the words of a statute are in themselves clear and unambiguous, then
these words should be construed in their natural and ordinary sense and it is not open to
the court to adopt any other hypothetical construction. This is called the rule of literal
construction.
This principle is contained in the Latin maxim “absoluta sententia expositore non indeget”
which literally means “an absolute sentence or preposition needs not an expositor”. In
other words, plain words require no explanation.
Sometimes, occasions may arise when a choice has to be made between two
interpretations – one narrower and the other wider or bolder. In such a situation, if the
narrower interpretation would fail to achieve the manifest purpose of the legislation, one
should rather adopt the wider one.
When we talk of disclosure of ‘the nature of concern or interest, financial or otherwise’ of

a director or the manager of a company in the subject-matter of a proposed motion (as
referred to in section 102 of the Companies Act, 2013), we have to interpret in its broader
sense of referring to any concern or interest containing any information and facts that
may enable members to understand the meaning, scope and implications of the items of
business and to take decisions thereon. What is required is a full and frank disclo sure
without reservation or suppression, as, for instance where a son or daughter or father or
mother or brother or sister is concerned in any contract or matter, the shareholders ought
fairly to be informed of it and the material facts disclosed to them. Here a restricted
narrow interpretation would defeat the very purpose of the disclosure.
In the given question, Sohel (a director) did not disclose his interest in a matter placed
before the Board Meeting (in which his sister has interest), as he is not personally
interested or concerned in the proposal.
Here, he ought to have considered broader meaning of the provision of law; and
therefore, even though he was personally not interested or concerned in the proposal, he
should have disclosed the interest.
Question 4
(a) CDS Ltd. is planning to make a private placement of securities. The Managing Director
arranged to obtain a brief note from some source explaining the salient features of the
issue of private placement that the Board of Directors shall keep in mind while approving
the proposal on this subject. The brief note includes, inter alia, the information /
suggestions on the following points:
(i) A private placement shall be made only to a select group of identified persons not
exceeding 200 in a financial year.
The aforesaid ceiling of identified persons shall not apply to the offer made to the
qualified institutional buyers but is applicable to the employees of the Company who
will be covered under the Company's Employees Stock Option Scheme.
(ii) The offer on private placement basis shall be made only once in a financial year for
any number of identified persons not exceeding 200.
The Company solicits your remarks on the points referred above as to whether they are
valid or not? Reasoned remarks should be given in accordance with the provisions of the
(b) (i) Referring to the provisions of the Companies Act, 2013, examine the validity of the
following:
Safar Limited having a net worth of ` 130 crore wants to accept deposits from its
members. It has approached you to advise whether it falls within the category of an
eligible company? What special care has to be taken while accepting such deposits
from members? (3 Marks)
(ii) Moon Light Ltd. is having its establishment in USA. It obtained a loan there creating
a charge on the assets of the foreign establishment. The Company received a
notice from the Registrar of Companies for not filing the particulars of charge
created by the Company on the property or assets situated outside India. The
Company wants to defend the notice on the ground that it shall not be the duty of
the company to register the particulars of the charge created on the assets not
located in India. Do you agree with the stand taken by the Company? Give your
answer with respect to the provisions of the Companies Act, 2013. (3 Marks)
(c) (i) PK and VK had a long dispute regarding the ownership of a land for which a legal
suit was pending in the court. The court fixed the date of hearing on 29.04.2018,
which was announced to be a holiday subsequently by the Government. What will
be the computation of time of the hearing in this case under the General Clauses
Act, 1897? (2 Marks)
(ii) Income Tax Act, 1961 provides that the gratuity paid by the government to its
employees is fully exempt from tax. You are required to explain the scope of the
term 'government' and clarify whether the exemption from gratuity income will be
available to the State Government Employees? Give your answer in accordance
with the provisions of the General Clauses Act, 1897. (2 Marks)
(d) What is External Aid to interpretation? Explain how the Dictionary definitions are the
External Aids to Interpretations? (3 Marks)
Answer
(a) As per the provisions of sub-section (2) of section 42 of the Companies Act, 2013, private
placement shall be made only to a select group of persons who have been identified by
the Board (herein referred to as "identified persons"), whose number shall not exceed 50
or such higher number as may be prescribed, in a financial year subject to such
conditions as may be prescribed.
It is also provided that any offer or invitation made to qualified institutional buyers, or to
employees of the company under a scheme of employees’ stock option as per provisions
of section 62(1)(b) shall not be considered while calculating the limit of two hundred
persons.
According to Rule 14 (2) of the Companies (Prospectus and Allotment of Securities)
Rules, 2014, an offer or invitation to subscribe securities under private placement shall
not be made to persons more than two hundred in the aggregate in a financial year.
As per Explanation given in this Rule, it is clarified that the restrictions aforesaid would
be reckoned individually for each kind of security that is equity share, preference share
or debenture.
Referring to the above mentioned provisions of sub-section (2) of section 42 of the

Companies Act, 2013 and Rule 14 the Companies (Prospectus and Allotment of
Securities) Rules, 2014, we can conclude as follows:
(i) The company is correct in proposing that private placement shall be made only to a
select group of identified persons not exceeding 200 in a financial year. This part of
the proposal is correct.
The company is also correct in proposing that the aforesaid ceiling of identified
persons shall not apply to offer made to the qualified institutional buyers, but the
company is not correct in saying that the said ceiling is applicable to employees
covered under the Company’s Employee Stock Option Scheme. Hence, the second
part of the proposal is only partially correct.
(ii) The Companies (Prospectus and Allotment of Securities) Rules, 2014 provides that
an offer or invitation to subscribe securities under private placement shall not be
made to persons more than 200 in aggregate in a financial year.
Keeping the ceiling of 200 persons in aggregate during a financial year, offer of
private placement can be made more than once in a financial year. Therefore, the
second statement is not fully correct.
(b) (i) According to Rule 2(1)(e) of the Companies (Acceptance of Deposits) Rules, 2014,
an “eligible company” as referred to in section 76(1) of the Companies Act, 2013
means a public company, having a net worth of not less than one hundred crore
rupees or a turnover of not less than five hundred crore rupees and which has
obtained the prior consent of the company in general meeting by means of a special
resolution and also filed the said resolution with the Registrar of Companies before
making any invitation to the public for acceptance of deposits.
However, an ‘eligible company’, which is accepting deposits within the limits
specified under section 180 (1) (c), may accept deposits by means of an ordinary
resolution.
According to Rule 4 (a) of the Companies (Acceptance of Deposits) Rules, 2014, an
‘eligible company’ shall accept or renew any deposit from its members, if the
amount of such deposit together with the amount of deposits outstanding as on the
date of acceptance or renewal of such deposits from members does not exceed ten
per cent. of the aggregate of the paid-up share capital, free reserves and securities
premium account of the company.
Safar Limited is having a net worth of ` 130 crores. Hence, it falls in the category of
‘eligible company’.
The fact that turnover has not been stated in the question will not affect this answer,
since fulfilling any one criteria will be sufficient.
Thus, Safar Limited has to ensure that acceptance of deposits from its members
together with the amount of deposits outstanding as on the date of acceptance or
renewal of such deposits from the members, in no case, exceeds 10% of the
aggregate of the paid-up share capital, free reserves and securities premium
account of the company.
(ii) According to section 77 of the Companies Act, 2013, it shall be duty of the company
creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise and situated in or outside India, to
register the particulars of the charge.
Thus, charge may be created within India or outside India. Also the subject-matter
of the charge i.e. the property or assets or any of the company’s undertakings, may
be situated within India or outside India.
In the given question, the company has obtained a loan by creating a charge on the
assets of the foreign establishment.
As per the above provisions, it is the duty of the company creating a charge within
or outside India, on its property or assets or any of its undertakings, whether
tangible or otherwise and whether situated in or outside India, to register the
particulars of the charge.
Hence, the stand taken by Moon Light Ltd. not to register the particulars of charge
created on the assets located outside India is not correct.
(c) (i) According to Section 10 of the General Clauses Act, 1897, where by any legislation
or regulation, any act or proceeding is directed or allowed to be done or taken in
any court or office on a certain day or within a prescribed period then, if the Court or
office is closed on that day or last day of the prescribed period, the act or
proceeding shall be considered as done or taken in due time if it is done or taken on
the next day afterwards on which the Court or office is open.
In the given question, the court fixed the date of hearing of dispute between PK and
VK, on 29.04.2018, which was subsequently announced to be a holiday.
Applying the above provisions we can conclude that the hearing date of 29.04.2018,
shall be extended to the next working day.
(ii) According to section 3(23) of the General Clauses Act, 1897, ‘Government’ or ‘the
Government’ shall include both the Central Government and State Government.
Hence, wherever, the word ‘Government’ is used, it will include Central Government
and State Government both.
Thus, when the Income Tax Act, 1961, provides that gratuity paid by the
government to its employees is fully exempt from tax, the exemption from gratuity
income will be available to the State Government employees also.
(d) External aids are the factors that help in interpreting/construing an Act and have been
given the convenient nomenclature of ‘External Aids to Interpretation’. Apart from the
statute itself there are many matters which may be taken into account when the statute is
ambiguous. These matters are called external aids.
Dictionary Definitions: Dictionary Definitions is one of the External Aids to
interpretation. First we have to refer to the Act in question to find out if any particular
word or expression is defined in it. Where we find that a word is not defi ned in the Act
itself, we may refer to dictionaries to find out the general sense in which that word is
commonly understood. However, in selecting one out of the several meanings of a word,
we must always take into consideration the context in which it is used in the Act. It is the
fundamental rule that the meanings of words and expressions used in an Act must take
their colour from the context in which they appear. Further, judicial decisions laying down
the meaning of words in construing statutes in ‘pari materia’ will have greater weight than
the meaning furnished by dictionaries. However, for technical terms reference may be
made to technical dictionaries.
Question 5
(a) (i) London Limited, at a general meeting of members of the company, passed an
ordinary resolution to buy-back 30 percent of its equity share capital. The articles of
the company empower the company for buy-back of shares. Explaining the
provisions of the Companies Act, 2013, examine:
(A) Whether company's proposal is in order?
(B) Would your answer be still the same in case the company instead of 30
percent, decides to buy-back only 20 per cent of its equity share capital?
(3 Marks)
(ii) The Board of Directors of Rajesh Exports Ltd., a subsidiary of Manish Ltd., decides
to grant a loan of ` 3 lakh to Bhaskar, the finance manager of Manish Ltd., getting
salary of ` 40,000 per month, to buy 500 partly paid-Up equity shares of ` 1,000
each of Rajesh Exports Ltd. Examine the validity of Board's decision with reference
to the provisions of the Companies Act, 2013. (2 Marks)
OR
(a) The role of doctrine of 'Indoor management' is opposed to that of the role of 'Constructive
notice'. Comment on this statement with reference to the Companies Act, 2013.
(5 Marks)
(b) Veena Ltd. held its Annual General Meeting on September 15, 2018. The meeting was
presided over by Mr. Mohan Rao, the Chairman of the Company's Board of Directors. On
September 17, 2018, Mr. Mohan Rao, the Chairman, without signing the minutes of the
meeting, left India to look after his father who fell sick in London. Referring to the
provisions of the Companies Act, 2013, state the manner in which the minutes of the
above meeting are to be signed in the absence of Mr. Mohan Rao and by whom?
(5 Marks)
(c) Satya has given his residential property on rent amounting to ` 25,000 per month to
Tushar. Amit became the surety for payment of rent by Tushar. Subsequently, without
Amit's consent, Tushar agreed to pay higher rent to Satya. After a few months of this,
Tushar defaulted in paying the rent.
(i) Explain the meaning of contract of guarantee according to the provisions of the
Indian Contract Act, 1872.
(ii) State the position of Amit in this regard. (4 Marks)
(d) "The act done negligently shall be deemed to be done in good faith."
Comment with the help of the provisions of the General Clauses Act, 1897. (3 Marks)
Answer
(a) (i) According to the provisions of section 68 (2) of the Companies Act, 2013, no
company shall purchase its own shares or other specified securities under sub-
section (1), unless—
(a) the buy-back is authorised by its articles;
(b) a special resolution has been passed at a general meeting of the company
authorising the buy-back:
Provided that nothing contained in this clause shall apply to a case where—
(i) the buy-back is, ten per cent or less of the total paid-up equity capital and
free reserves of the company; and
(ii) such buy-back has been authorised by the Board by means of a
resolution passed at its meeting;
(c) the buy-back is twenty-five per cent or less of the aggregate of paid-up capital
and free reserves of the company:
Provided that in respect of the buy-back of equity shares in any financial year, the
reference to twenty-five per cent in this clause shall be construed with respect to its
total paid-up equity capital in that financial year.
In the instant case, London Limited, at a general meeting of members of the
company, passed an ordinary resolution to buy back 30% of its equity share capital.
The articles of the company empower the company for buy back of shares.
(A) the Company’s proposal is not in order, since a special resolution as required
by the above provision has not been passed, rather an ordinary resolution has
only been passed.
(B) if the company instead of 30%, decides to buy back only 20% (even if it is
within the specified limit of 25%) of its equity share capital, then also special
resolution is required. Hence, our answer will not change. This proposal of the
company will also be not in order.
(ii) As per section 67(2) of the Companies Act, 2013, no public company shall give,
whether directly or indirectly and whether by means of a loan, guarantee, the
provision of security or otherwise, any financial assistance for the purpo se of, or in
connection with, a purchase or subscription made or to be made, by any person of
or for any shares in the company or in its holding company.
As per the provisions of section 67(3)(c) of the Companies Act, 2013, nothing stated
above, shall apply to the giving of loans by a company to persons in the
employment of the company other than its directors or key managerial personnel,
for an amount not exceeding their salary or wages for a period of six months with a
view to enabling them to purchase or subscribe for fully paid-up shares in the
company or its holding company to be held by them by way of beneficial ownership.
If we analyse the provisions of section 67(3)(c) of the Companies Act, 2013, we can
come to know that the relaxation given here can be availed only when all the
following three conditions are fulfilled:
1. The loan has been given to the employees of the company other than its
directors or key managerial personnel (not the employee of its holding
company). - Therefore this condition has not been fulfilled;
2. The amount does not exceed their salary or wages for a period of six months.-
This condition has not been fulfilled.
3. The amount should be utilized by the employee for purchase of fully shares or
subscribe for fully paid-up shares in the company or its holding company to be
held by them by way of beneficial ownership. - Here Mr. Bhaskar is going to
purchase the shares in Rajesh Exports Ltd., which is neither his employer
company, nor holding company of his employer company and the shares are
not fully paid-up. Therefore, this condition has also not been fulfilled.
Even in case Mr. Bhaskar would not have fulfilled any one of the above conditions,
the decision of the Board of Directors of Rajesh Exports Ltd. would not have been
valid. Therefore we can conclude that the decision of the Board of Directors of
Rajesh Exports Ltd. is not valid.
OR
(a) Doctrine of Indoor Management
According to this doctrine, persons dealing with the company cannot be assumed to have
knowledge of internal problems of the company. They can simply assume that all the
required things were done properly in the company.
Stakeholders need not enquire whether the necessary meeting was convened and held
properly or whether necessary resolution was passed properly. They are entitled to take
it for granted that the company had gone through all these proceedings in a regular
manner.
The doctrine helps protect external members from the company and states that the
people are entitled to presume that internal proceedings are as per documents submitted
with the Registrar of Companies.
The doctrine of indoor management was evolved around 150 years ago in the context of
the doctrine of constructive notice. The role of doctrine of indoor management is opposed
to of the role of doctrine of constructive notice. Whereas the doctrine of constructive
notice protects a company against outsiders, the doctrine of indoor management protects
outsiders against the actions of a company. This doctrine also is a possible safeguard
against the possibility of abusing the doctrine of constructive notice.
Basis for Doctrine of Indoor Management
1. What happens internal to a company is not a matter of public knowledge. An
outsider can only presume the intentions of a company, but not know the
information he/she is not privy to.
2. If not for the doctrine, the company could escape creditors by denying the authority
of officials to act on its behalf.
Exceptions to Doctrine of Indoor Management (Applicability of doctrine of
constructive notice)
Knowledge of irregularity: In case this ‘outsider’ has actual knowledge of irregularity
within the company, the benefit under the rule of indoor management would no longer be
available. In fact, he/she may well be considered part of the irregularity.
Negligence: If, with a minimum of effort, the irregularities within a company could be
discovered, the benefit of the rule of indoor management would not apply. The protection
of the rule is also not available in the circumstances where company does not make
proper inquiry.
Forgery: The rule does not apply where a person relies upon a document that turns out
to be forged since nothing can validate forgery. A company can never be held bound for
forgeries committed by its officers.
The above doctrines have been well considered while framing the provisions of various
Acts pertaining to the companies worldwide. The Companies Act, 2013 and the earlier
Acts relevant for the Companies in India are no exception to the same.
(b) Section 118 of the Companies Act, 2013 provides that every company shall prepare, sign
and keep minutes of proceedings of every general meeting, including the meeting called
by the requisitionists and all proceedings of meeting of any class of shareholders or
creditors or Board of Directors or committee of the Board and also resolution passed by
postal ballot within thirty days of the conclusion of every such meeting concerned.
Minutes kept shall be evidence of the proceedings recorded in a meeting.
By virtue of Rule 25 of the Companies (Management and Administration) Rules, 2014
read with section 118 of the Companies Act, 2013, each page of every such book shall
be initialled or signed and the last page of the record of proceedings of each meeting or
each report in such books shall be dated and signed by, in the case of minutes of
proceedings of a general meeting, by the chairman of the same meeting within the
aforesaid period of thirty days or in the event of the death or inability of that chairman
within that period, by a director duly authorized by the Board for the purpose.
Therefore, the minutes of the meeting referred to in the case of Veena Ltd. can be signed
in the absence of Mr. Mohan Rao, by any director, authorized by the Board in this
respect.
(c) (i) Contract of guarantee: As per the provisions of section 126 of the Indian Contract
Act, 1872, a contract of guarantee is a contract to perform the promise made or
discharge the liability, of a third person in case of his default.
Three parties are involved in a contract of guarantee:
Surety- person who gives the guarantee,
Principal debtor- person in respect of whose default the guarantee is given,
Creditor- person to whom the guarantee is given
(ii) According to the provisions of section 133 of the Indian Contract Act, 1872, where
there is any variance in the terms of contract between the principal debtor and
creditor without surety’s consent, it would discharge the surety in respect of all
transactions taking place subsequent to such variance.
In the instant case, Satya (Creditor) cannot sue Amit (Surety), because Amit is
discharged from liability when, without his consent, Tushar (Principal debtor) has
changed the terms of his contract with Satya (creditor). It is immaterial whether the
variation is beneficial to the surety or does not materially affec t the position of the
surety.
(d) Good Faith
In general, anything done with due care and attention, which is not malafide is presumed
to have been done in good faith.
But, according to section 3(22) of the General Clauses Act, 1897, a thing shall be
deemed to be done in “good faith” where it is in fact done honestly, whether it is done
negligently or not.
The question of good faith under the General Clauses Act is one of fact. It is to determine
with reference to the circumstances of each case.
It is therefore understood that the General Clauses Act, 1897 considers the honesty in
doing the Act as a primary test to constitute the thing done in good faith and therefore the
act done honestly but with negligence may also be termed as done in good faith as per
the General Clauses Act, 1897.
The term “Good faith” has been defined differently in different enactments. This definition
of the good faith does not apply to that enactment which contains a special definition of
the term “good faith” and there the definition given in that particular enactment has to be
followed. This definition may be applied only if there is nothing repugnant in subject or
context, and if that is so, the definition is not applicable.
Question 1
(a) Mr. Raja along with his family members is running successfully a trading business. He is
capable of developing his ideas and participating in the market place. To achieve this,
Mr. Raja formed a single person economic entity in the form of One Person Company
with his brother Mr. King as its nominee. On 4th May 2020, Mr. King withdrew his
consent as Nominee of the One Person Company. Can he do so under the provisions of
the Companies Act, 2013?
Examine whether the following individuals are eligible for being nominated as Nominee of
the One Person Company as on 5th May 2020 under the above said Act.
(i) Mr. Shyam, son of Mr. Raja who is 15 years old as on 5th May 2020.
(ii) Ms. Devaki an Indian Citizen, sister of Mr. Raja stays in Dubai and India. She
stayed in India during the period from 2nd January 2019 to 16th August 2019.
Thereafter she left for Dubai and stayed there.
(iii) Mr. Ashok, an Indian Citizen residing in India who is presently a member of a 'On e
Person Company'. (6 Marks)
(b) The Board of Directors of Moon Light Limited, a listed company appointed Mr. Tel,
Chartered Accountant as its first auditor within 30 days of the date of registration of the
Company to hold office from the date of incorporation to conclusion of the first Annual
General Meeting (AGM). At the first AGM, Mr. Tel was re-appointed to hold office from
the conclusion of its first AGM till the conclusion of 6th AGM. In the light of the provisions
of the Companies Act, 2013, examine the validity of appointment/ reappointment in the
following cases:
(i) Appointment of Mr. Tel by the Board of Directors.
(ii) Re-appointment of Mr. Tel at the first AGM in the above situation.
(iii) In case Mr. Bell, Chartered Accountant, was appointed as auditor at the first AGM to
hold office from the conclusion of its first AGM till the conclusion of 5th AGM. ie., 4
years tenure. (6 Marks)
(c) X has made an agency agreement with Y to authorize him to purchase goods on the
behalf of X for the year 2020 only. The agency agreement was signed by both and it
contains all the terms and conditions for the agent. It has a condition that Y is allowed to
purchase goods maximum upto the value of ` 10 lakhs only. In the month of April 2020,
Y has purchased a single item of ` 12 lakhs from Z as an agent of X. The market value of

2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020
the item purchased was ` 14 lakhs but a discount of ` 2 lakhs was given by Z. The agent
Y has purchased this item due to heavy discount offered and the financially benefit to X.
After delivery of the item Z has demanded the payment from X as Y is the agent of X. But
X denied to make the payment stating that Y has exceeded his author ity as an agent
therefore he is not liable for this purchase. Z has filed a suit against X for payment .
Decide whether Z will succeed in his suit against X for recovery of payment as per
provisions of The Indian Contract Act, 1872. (3 Marks)
(d) State with reasons whether each of the following instruments is an Inland Instrument or a
Foreign Instrument as per The Negotiable Instruments Act, 1881:
(i) Ram draws a Bill of Exchange in Delhi upon Shyam a resident of Jaipur and
accepted to be payable in Thailand after 90 days of acceptance.
(ii) Ramesh draws a Bill of Exchange in Mumbai upon Suresh a resident of Australia
and accepted to be payable in Chennai after 30 days of sight.
(iii) Ajay draws a Bill of Exchange in California upon Vijay a resident of Jodhpur and
accepted to be payable in Kanpur after 6 months of acceptance.
(iv) Mukesh draws a Bill of Exchange in Lucknow upon Dinesh a resident of China and
accepted to be payable in China after 45 days of acceptance. (4 Marks)
Answer
(a) As per section 3 of the Companies Act, 2013, the memorandum of One Person Company
(OPC) shall indicate the name of the other person (nominee), who shall, in the event of
the subscriber’s death or his incapacity to contract, become the member of the company.
The other person (nominee) whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation along with its Memorandum of Association and
Articles of Association.
Such other person (nominee) may withdraw his consent in such manner as may be
prescribed.
Therefore, in terms of the above law, Mr. King, the nominee, whose name was given in
the memorandum, can withdraw his consent as a nominee of the OPC by giving a notice
in writing to the sole member and to the One Person Company.
Following are the answers to the second part of the question as regards the eligibility for
being nominated as nominee:
(i) As per the Rule 3 of the Companies (Incorporation) Rules, 2014, no minor shall
become member or nominee of the OPC. Therefore, Mr. Shyam, being a minor is
not eligible for being nominated as Nominee of the OPC.
(ii) As per the Rule 3 of the Companies (Incorporation) Rules, 2014, only a natural

person who is an Indian citizen and resident in India, shall be a nominee or the sole
member of a One Person Company. The term “Resident in India” means a person
who has stayed in India for a period of not less than 182 days during the
immediately preceding financial year. Here Ms. Devaki though an Indian Citizen but
not resident in India as she stayed for a period of less than 182 days during the
immediately preceding financial year in India. So, she is not eligible for being
nominated as nominee of the OPC.
(iii) As per the Rule 3 of the Companies (Incorporation) Rules, 2014, a person shall not
be a member of more than one OPC at any point of time and the said person shall
not be a nominee of more than one OPC. Mr. Ashok, an Indian Citizen residing in
India who is a member of an OPC (Not a nominee in any OPC), can be nominated
as nominee.
(b) As per section 139(6) of the Companies Act, 2013, the first auditor of a company, other
than a Government company, shall be appointed by the Board of Directors within thirty
days from the date of registration of the company and such auditor shall hold office till
the conclusion of the first annual general meeting.
Whereas Section 139(1) of the Companies Act, 2013 states that every company shall, at
the first annual general meeting (AGM), appoint an individual or a firm as an auditor of
the company who shall hold office from the conclusion of 1st AGM till the conclusion of its
6th AGM and thereafter till the conclusion of every sixth AGM.
As per section 139(2), no listed company or a company belonging to such class or
classes of companies as may be prescribed, shall appoint or re-appoint an individual as
auditor for more than one term of five consecutive years.
As per the given provisions following are the answers:
(i) Appointment of Mr. Tel by the Board of Directors is valid as per the provisions of
section 139(6).
(ii) Appointment of Mr. Tel at the first Annual General Meeting is valid due to the fact
that the appointment of the first auditor made by the Board of Directors is a
separate appointment and the period of such appointment is not to be considered,
while Mr. Tel is appointed in the first Annual General Meeting, which is for the
period from the conclusion of the first Annual General Meeting to the conclusion of
the sixth Annual General Meeting.
(iii) As per law, auditor appointed shall hold office from the conclusion of 1st AGM till the
conclusion of its 6th AGM i.e., for 5 years. Accordingly, here appointment of
Mr. Bell, which is for 4 years, is not in compliance with the said legal provision, so
his appointment is not valid.

(c) An agent does all acts on behalf of the principal but incurs no personal liability. The
liability remains that of the principal unless there is a contract to the contrary. An agent
also cannot personally enforce contracts entered into by him on behalf of the principal. In
the light of section 226 of the Indian Contract Act, 1872, Principal is considered to be
liable for the acts of agents which are within the scope of his authority. Further section
228 of the Indian Contract Act, 1872 states that where an agent does more than he is
authorised to do, and what he does beyond the scope of his authority cannot be
separated from what is within it, the principal is not bound to recognise the transaction.
In the given case, the agency agreement was signed between X and Y, authorizing Y to
purchase goods maximum upto the value of ` 10 lakh. But Y purchased a single item of
` 12 lakh from Z as an agent of X at a discounted rate to financially benefit to X. On
demand of payment by Z, X denied saying that Y has exceeded his authority therefore he
is not liable for such purchase. Z filed a suit against X for payment.
As said above, liability remains that of the principal unless there is a contract to the
contrary. The agency agreement clearly specifies the scope of authority of Y for the
purchase of goods, however he exceeded his authority as an agent. Therefore, in the
light of section 228 as stated above, since the transaction is not separable, X is not
bound to recognize the transaction entered between Z and Y, and therefore may
repudiate the whole transaction. Hence, Z will not succeed in his suit against X for
recovery of payment.
(d) “Inland instrument” and “Foreign instrument” [Sections 11 & 12 of the Negotiable
Instruments Act, 1881]
A promissory note, bill of exchange or cheque drawn or made in India and made payable
in, or drawn upon any person resident in India shall be deemed to be an inland
instrument.
Any such instrument not so drawn, made or made payable shall be deemed to be foreign
instrument.
Following are the answers as to the nature of the Instruments:
(i) In first case, Bill is drawn in Delhi by Ram on a person (Shyam), a resident of Jaipur
(though accepted to be payable in Thailand after 90 days) is an Inland instrument.
(ii) In second case, Ramesh draws a bill in Mumbai on Suresh resident of Australia and
accepted to be payable in Chennai after 30 days of sight, is an Inland instrument.
(iii) In third case, Ajay draws a bill in California (which is situated outside India) and
accepted to be payable in India (Kanpur), drawn upon Vijay, a person resident in
India (Jodhpur), therefore the Instrument is a Foreign instrument.
(iv) In fourth case, the said instrument is a Foreign instrument as the bill is drawn in
India by Mukesh upon Dinesh, the person resident outside India (China) and also
payable outside India (China) after 45 days of acceptance.

Question 2
(a) The Authorized share capital of SSP Limited is ` 5 crore divided into 50 Lakhs equity
shares of ` 10 each. The Company issued 30 Lakhs equity shares for subscription which
was fully subscribed. The Company called so far ` 8 per share and it was paid up. Later
on the Company proposed to reduce the Nominal Value of equity share from ` 10 each
to ` 8 each and to carry out the following proposals:
(i) Reduction in Authorized Capital from ` 5 crore divided into 50 Lakhs equity shares
of ` 10 each to ` 4 crore divided into 50 Lakhs equity shares of ` 8 each.
(ii) Conversion of 30 Lakhs partly paid up equity shares of ` 8 each to fully paid up
equity shares of ` 8 each there by relieving the shareholders from making further
payment of ` 2 per share.
State the procedures to be followed by the Company to carry out the above proposals
under the provisions of the Companies Act, 2013. (5 Marks)
(b) PQ Limited is a public company having its registered office in Mumbai. It has 3680
members. The company sent notice to all its members for its Annual general Meeting to
be held on 2nd September 2019 (Monday) at 11 :00 AM at its registered office. On the
day of meeting there were only 12 members personally present upto 11:30 AM. The
Chairman adjourned the meeting to same day in next week at the same time and place.
On the day of adjourned meeting only 10 members were personally present. The
Chairman initiated the meeting after 11:30 AM and passed the resolutions after
discussion as per the agenda of the meeting given in the notice. Comment whether the
AGM conducted after adjournment is valid or not as per the provisions of section 103 of
Companies Act 2013 by explaining the relevant provisions in this regard.
What would be your answer in the above case, if PQ Limited is a Private company?
(2 + 2 = 4 Marks)
(c) S Ltd acquired 10% paid up share capital of H Ltd on 15th March 2017. H Ltd acquired
55% paid up share capital of S Ltd on 10th March 2018. H Ltd. on 25th September, 2020
decided to issue bonus shares in the ratio of 1:1 to the existing shareholders.
Accordingly, bonus shares were allotted to S Ltd. Examine under the provisions of the
Companies Act, 2013 and decide
(i) the validity of holding of shares by S Ltd. in H Ltd.
(ii) allotment of Bonus shares by H Ltd. to S Ltd. (4 Marks)
(d) (i) Mr. CB was invited to guarantee an employee Mr. BD who was previously dismissed
for dishonesty by the same employer. This fact was not told to Mr. CB. Later on,
the employee embezzled funds. Whether CB is liable for the financial loss as surety
under the provisions of the Indian Contract Act, 1872?

(ii) Mr. X agreed to give a loan to Mr. Y on the security of four properties. Mr. A gave
guarantee against the loan. Actually Mr. X gave a loan of smaller amount on the
security of three properties. Whether Mr. A is liable as surety in case Mr. Y failed to
repay the loan? (2 + 2 = 4 Marks)
Answer
(a) (i) Procedure for reduction of share capital-
In order to carry out proposals by SSP Limited to reduce the nominal value of the
equity share, the company has to comply with the procedure given under section 66
of the Companies Act, 2013 which deals with the Reduction of share capital.
Procedure
(1) Reduction of share capital by special resolution: Subject to confirmation by
the Tribunal on an application by the company, a company limited by shares or
limited by guarantee and having a share capital may, by a special resolution,
reduce the share capital in any manner and in particular, may—
(a) extinguish or reduce the liability on any of its shares in respect of the
share capital not paid-up; or
(b) either with or without extinguishing or reducing liability on any of its
shares,—
(i) cancel any paid-up share capital which is lost or is unrepresented by
available assets; or
(ii) pay off any paid-up share capital which is in excess of the wants of
the company, alter its memorandum by reducing the amount of its
share capital and of its shares accordingly.
(2) Issue of Notice from the Tribunal: The Tribunal shall give notice of every
application made to it to the Central Government, Registrar and the creditors
of the company and shall take into consideration the representations, if any,
made to it by them within a period of three months from the date of receipt of
the notice.
(3) Order of tribunal: The Tribunal may, if it is satisfied that the debt or claim of
every creditor of the company has been discharged or determined or has been
secured or his consent is obtained, make an order confirming the reduction of
share capital on such terms and conditions as it deems fit.
(4) Publishing of order of confirmation of tribunal: The order of confirmation of
the reduction of share capital by the Tribunal shall be published by the
company in such manner as the Tribunal may direct.
(5) Delivery of certified copy of order to the registrar: The company shall
deliver a certified copy of the order of the Tribunal and of a minute approved

by the Tribunal to the Registrar within thirty days of the receipt of the copy of
the order, who shall register the same and issue a certificate to that effect.
(ii) Alteration of Share Capital:
SSP Limited proposes to alter its share capital. The Present authorized share
capital ` 5 Crore will be altered to ` 4 Crore. According to Section 61 of the
Companies Act, 2013, a limited company having a share capital may alter its capital
part of the memorandum.
A limited company having a share capital may, if so authorized by its articles, alter
its memorandum in its general meeting to -
1. Cancel shares which, at the date of the passing of the resolution in that behalf,
have not been taken or agreed to be taken by any person, and diminish the amount
of its share capital by the amount of the shares so cancelled. The cancellation of
shares shall not be deemed to be reduction of share capital.
2. A company shall within 30 days of the shares having been consolidated,
converted, sub-divided, redeemed, or cancelled or the stock having been
reconverted, shall give a notice to the Registrar in the prescribed form along with an
altered memorandum [Section 64 of the Companies Act, 2013].
The Company has to follow the above procedures to alter its authorized share
capital.
(b) According to section 103 of the Companies Act, 2013, unless the articles of the company
provide for a larger number, in case of a public company, fifteen members personally
present may fulfil the requirement of quorum, if the number of members as on the date of
meeting is more than one thousand but up to five thousand.
If the specified quorum is not present within half-an-hour from the time appointed for
holding a meeting of the company, the meeting shall stand adjourned to the same day in
the next week at the same time and place, or to such other date and such other time and
place as the Board may determine.
If at the adjourned meeting also, a quorum is not present within half-an-hour from the
time appointed for holding meeting, the members present shall be the quorum.
In the instant case, there were only 12 members personally present on the day of
meeting of PQ Limited upto 11:30 AM. This was not in compliance with the required
quorum as per the law. In the adjourned meeting also, the required quorum was not
present but in the adjourned meeting, the members present shall be considered as
quorum in line with the provisions of section 103.
Hence, the AGM conducted by PQ Limited after adjournment is valid.
As per the provisions of section 103(1)(b), in case of a private company, two members
personally present, shall be quorum for the meeting of a company. Therefore, in case,

PQ Limited is a private company, then only two members personally present shall be the
quorum for AGM and there was no need for adjournment.
(c) As per Section 19 of the Companies Act, 2013, no company shall, hold any shares in its
holding company and no holding company shall allot or transfer its shares to any of its
subsidiary companies and any such allotment or transfer of shares of a company to its
subsidiary company shall be void.
However, this shall not apply where the subsidiary company is a shareholder even before
it became a subsidiary company of the holding company.
In the given case, H Ltd. has acquired 55% paid up share capital of S Ltd. on 10th March
2018. Whereas, S Ltd. has been holding 10% paid up share capital of H Ltd. since 15th
March, 2017. The said instance as asked in the question falls under the exception stated
above.
Therefore -
(i) Holding of shares by S Ltd. in H Ltd. is valid in view of the proviso (c) to sub-section
(1) of section 19 of the Act, which states that the restrictions of provisions of section
19(1) will not be applicable where the subsidiary company is a shareholder even
before it became a subsidiary company of the holding company.
(ii) Allotment of bonus shares by H Ltd. to S Ltd. is also valid in view of the above
proviso.
(d) (i) As per section 143 of the Indian Contract Act, 1872, any guarantee which the
creditor has obtained by means of keeping silence as to material circumstances, is
invalid. In the given instance, Mr. CB was invited to give guarantee of an employee
Mr. BD to the same employer who previously dismissed Mr. BD for dishonesty. This
fact was not told to Mr. CB. Here, keeping silence as to previous dismissal of Mr.
BD for dishonesty is a material fact and if Mr. BD later embezzled the funds of the
employer, Mr. CB will not be held liable for the financial loss as surety since such a
contract of guarantee entered is invalid in terms of the above provisions.
(ii) As per the provisions of section 133 of the Indian Contract Act, 1872, any variance,
made without the surety’s consent, in the terms of the contract between the
principal [debtor] and the creditor, discharges the surety as to transactions
subsequent to the variance.
In the given instance, the actual transaction was not in terms of the guarantee given
by Mr. A. The loan amount as well as the securities were reduced without the
knowledge of the surety.
So, accordingly, Mr. A is not liable as a surety in case Y failed to repay the loan.

Question 3
(a) Explain the following in brief with reference to Companies Act 2013:
(i) National Financial Reporting Authority (NFRA)
(ii) Corporate Social Responsibility (CSR) Committee (3 + 3 = 6 Marks)
(b) (i) Mrs. K went to a Jewellary shop to purchase diamond ornaments. The owners of
jewellary shop are notorious and indulging in smuggling activities. Mrs. K purchased
diamond ornaments honestly without making proper enquiries. Was the purchase
made in Good faith as per the provisions of the General Clauses Act, 1897 so as to
convey good title?
(ii) There are two ways to reach city A from city B. The distance between the two cities
by roadways is 100 kms and by water ways 80 kms. How is the distance measured
for the purpose of any Central Act under the provisions of the General Clauses Act,
1897? (2 + 2 = 4 Marks)
(c) Sun Light Limited was incorporated on 22nd January 2019 with the objects of providing
software services. The Company adopted its first financial year as from 22nd January
2019 to 31st March 2020. The financial statement for the said period, after providing for
depreciation in accordance with Schedule II of the Companies Act, 2013 revealed net
profit. The Board of Directors declared 20% interim dividend at their meeting held on 7th
July 2020, before holding its first Annual General Meeting. In the light of the provisions of
the Companies Act, 2013 and Rules made thereunder:
(i) Whether the Company has complied due diligence in declaring interim dividend?
(ii) Whether the Company can declare dividend in case it was registered under Section
8 of the Companies Act, 2013?
(iii) What are the penal consequences in case of failure to pay the interim dividend?
(4 Marks)
(d) Vikram accepts a Bill of Exchange for ` 50,000 which is an accommodation bill drawn by
A on 1st January 2020 to be payable at Mumbai on 1st July 2020. A transfers the bill to B
on 1st February 2020 without any consideration. B further transfers it to C on 1st March
2020 for value. Then C transfers it again to D on 1st April 2020 without consideration. D
holds the bill till maturity and on the due date of payment he presented the bill for
payment but the bill is dishonoured by Vikram.
Discuss the rights of A, B, C and D to recover the amount of this bill as per the provisions
of the Negotiable Instruments Act, 1881. (3 Marks)

Answer
(a) (i) National Financial Reporting Authority (NFRA)
According to section 132 of the Companies Act, 2013, the Central Government may,
by notification, constitute the National Financial Reporting Authority (NFRA) to
provide for matters relating to accounting and auditing standards under this Act.
Notwithstanding anything contained in any other law for the time being in force, the
NFRA shall—
(a) make recommendations to the Central Government on the formulation and
laying down of accounting and auditing policies and standards for adoption by
companies or class of companies or their auditors, as the case may be;
(b) monitor and enforce the compliance with accounting standards and auditing
standards in such manner as may be prescribed;
(c) oversee the quality of service of the professions associated with ensuring
compliance with such standards, and suggest measures required for
improvement in quality of service and such other related matters as may be
prescribed; and
(d) perform such other functions relating to clauses (a), (b) and (c) as may be
prescribed.
(ii) Corporate Social Responsibility (CSR)Committee:
According to section 135(1) of the Companies Act, 2013, every company having
(1) net worth of rupees 500 crore or more, or
(2) turnover of rupees 1000 crore or more or
(3) a net profit of rupees 5 crore or more
during the immediately preceding financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors, out of
which at least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director
under sub-section (4) of section 149, it shall have in its Corporate Social
Responsibility Committee two or more directors.
Duties of CSR Committee [Section 135(3)]:
The CSR Committee shall-
(a) formulate and recommend to the Board, a CSR Policy which shall indicate the
activities to be undertaken by the company in areas or subject, specified in
Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred

to in clause (a); and
(c) monitor the CSR Policy of the company from time to time.
(b) (i) In the instant case, the purchase of diamond ornaments by Mrs. K from a Jewellary
Shop, the owners of which are notorious and indulged in smuggling activities, made
in good faith, will not convey good title.
As per section 3 (22) of the General Clauses Act, 1897, a thing shall be deemed to
be done in “good faith” where it is in fact done honestly, whether it is done
negligently or not.
The definition of good faith as is generally understood in the civil law and which may
be taken as a practical guide in understanding the expression in the Indian Contract
Act, 1872 is that nothing is said to be done in good faith which is done without due
care and attention as is expected with a man of ordinary prudence. An honest
purchase made carelessly without making proper enquiries cannot be said to have
been made in good faith so as to convey good title.
(ii) “Measurement of Distances” [Section 11 of the General Clauses Act, 1897]: In the
measurement of any distance, for the purposes of any Central Act or Regulation
made after the commencement of this Act, that distance shall, unless a different
intention appears, be measured in a straight line on a horizontal plane.
(c) (i) According to section 123(3) of the Companies Act, 2013, the Board of Directors of a
company may declare interim dividend during any financial year or at any time
during the period from closure of financial year till holding of the annual general
meeting out of the surplus in the profit and loss account or out of profits of the
financial year for which such interim dividend is sought to be declared or out of
profits generated in the financial year till the quarter preceding the date of
declaration of the interim dividend.
In the instant case, Sun Light Limited has complied due diligence in declaring
interim dividend as the Interim Dividend was declared by Board of Directors at their
meeting held on 7th July, 2020 before holding its first Annual General Meeting.
Also, the financial statement revealed net profit so the interim dividend can be paid
out of profits of the financial year ending 31st March, 2020.
(ii) According to section 8 (1) of the Companies Act, 2013, a company having licence
under Section 8 (Formation of companies with charitable objects, etc.) is prohibited
from paying any dividend to its members. Its profits are intended to be applied only
in promoting the objects for which it is formed.
(iii) Penal consequences: According to section 127 of the Companies Act, 2013, where
a dividend has been declared by a company but has not been paid or the warrant in
respect thereof has not been posted within thirty days from the date of declaration
to any shareholder entitled to the payment of the dividend, every director of the

company shall, if he is knowingly a party to the default, be punishable with

imprisonment which may extend to two years and with fine which shall not be less
than one thousand rupees for every day during which such default continues and
the company shall be liable to pay simple interest at the rate of eighteen per cent
per annum during the period for which such default continues.
(d) According to section 43 of the Negotiable Instruments Act, 1881, a negotiable instrument
made, drawn, accepted, indorsed, or transferred without consideration, or for a
consideration which fails, creates no obligation of payment between the parties to the
transaction. But if any such party has transferred the instrument with or without
endorsement to a holder for consideration, such holder, and every subsequent holder
deriving title from him, may recover the amount due on such instrument from the
transferor for consideration or any prior party thereto.
In view of the above provisions, A and B have no right to recover the bill amount. But, C,
being a holder for consideration and the subsequent party D have right to recover the
amount of the bill.
Question 4
(a) Viki Limited engaged in the business of consumer durables. It is managed by a team of
professional managers. The Company has not made default in payment of statutory
dues, and repayment of debenture/ Institutional loan with interest. The Company
advertised a circular in the newspaper dated 20th September 2020 inviting the deposits
from the members and public for the first time. The latest audited financial statement of
the Company revealed the following data, as on 31.3.2020:
Paid up share capital ` 70 Crores
Securities Premium ` 20 Crores
Free Reserves ` 20 Crores
Long-term borrowings ` 50 Crores
The Company in the advertisement invited public deposit for a period of 4 Months Plan A
and Plan B for 36 Months.
(i) Explain the term 'eligible company' and calculate the Maximum amount of Deposit
that can be accepted from Public (Non-Member) for Plan A and Plan B based on
latest audited Financial Statement under the provisions of the Companies Act, 2013.
(ii) Calculate the maximum amount of deposit Viki Limited can accept from the public
under Plan B in case it is a wholly owned Government Company under the
provisions of the said Act. (6 Marks)

(b) AB Limited is a public company having its registered office in Coimbatore. The company
has incurred a net loss of ` 20 lakhs in the Financial Year (FY) 2019-20. The Board of
Directors (BOD) wants to declare dividend for the FY 2019-20. The balances of the
company as per the latest audited financial statements are as follows:
1. Equity Share Capital (` 10 each) - 100 lakhs
2. General Reserve - 150 lakhs
3. Debenture redemption Reserve - 50 lakhs
The company has not declared any dividend in the preceding three financial years.
Decide whether AB Limited is allowed to declare dividend or not for the FY 2019-20 by
explaining the relevant provisions of the Companies Act in this regard.
If allowed to declare dividend then state the maximum amount of dividend that can be
paid by AB Limited as per the Section 123 of Companies Act 2013. (2 + 2 = 4 Marks)
(c) Define the following terms with reference to the General Clauses Act, 1897:
(i) Affidavit
(ii) Good Faith (2 + 2 = 4 Marks)
(d) Write a short note on "Proviso" with reference to the rules of interpretation. (3 Marks)
Answer
(a) (i) According to Rule 2(1)(e) of the Companies (Acceptance of Deposits) Rules, 2014
"eligible company" means a public company as referred to in sub-section (1) of
section 76 of the Companies Act, 2013, having a net worth of not less than one
hundred crore rupees or a turnover of not less than five hundred crore rupees and
which has obtained the prior consent of the company in general meeting by means
of a special resolution and also filed the said resolution with the Registrar of
Companies before making any invitation to the Public for acceptance of deposits.
Provided that an eligible company, which is accepting deposits within the limits
specified under clause (c) of sub-section (1) of section 180, may accept deposits by
means of an ordinary resolution.
Net worth of Viki Limited as per section 2(57) of the Companies Act, 2013 can be
calculated as follows:
Paid up share capital: ` 70 crores
Free Reserves: ` 20 crores
Securities premium: ` 20 crores
Total: ` 110 crores
Hence, Viki Limited is an eligible company, since its Net worth is in excess of
` 100 crores.

Tenure for which Deposits can be Accepted: As per Rule 3(1)(a) of the
Companies (Acceptance of Deposits) Rules, 2014, a company is not permitted to
accept or renew deposits (whether secured or unsecured) which is repayable on
demand or in less than six months. Further, the maximum period of acceptance of
deposit cannot exceed thirty six months.
Exception to the rule of tenure of six months: As per the proviso to the above
rule, for the purpose of meeting any of its short-term requirements of funds, a
company may accept or renew deposits for repayment earlier than six months
subject to the condition that such deposits shall not exceed ten per cent. of the
aggregate of the paid-up share capital, free reserves and securities premium
As per Rule 3(1)(b) of the Companies (Acceptance of Deposits) Rules, 2014, such
deposits are repayable not earlier than three months from the date of such deposits
or renewal thereof.
Maximum Amount of Deposits: As per Rule 3(4)(b) of the Companies (Acceptance
of Deposits) Rules, 2014, an eligible company is permitted to accept or renew
deposits from persons other than its members. As per the law the amount of such
deposit together with the amount of outstanding deposits (excluding deposits from
members) on the date of acceptance or renewal can be maximum twenty-five per
cent. of the aggregate of its paid-up share capital, free reserves and securities
premium account of the company.
For Plan A: Since the maximum period of deposits is 4 months, the maximum
amount of deposits shall not exceed ten per cent. of the aggregate of the paid-up
share capital, free reserves and securities premium account of the company.
Maximum amount of deposits: 10% of 110 crores (70 + 20 + 20) = 11 crores.
For Plan B: Maximum amount of deposits: 25% of 110 crores (70 + 20 + 20) -11
crores (outstanding deposit under plan A) = 16.5 crores.
(ii) In terms of Rule 3(5) of the Companies (Acceptance of Deposits) Rules, 2014, in
case Viki Limited is a wholly owned Government Company, so it can accept deposit
together with the amount of other outstanding deposits as on the date of acceptance
or renewal maximum up to thirty-five per cent. of the aggregate of its paid-up share
capital, free reserves and securities premium account.
For Plan B: Maximum amount of deposits: 35% of 110 crores (70 + 20 + 20) = 38.5
crores.
(b) In the given case, AB Limited has not made adequate profits during the current year
ending on 31st March, 2020, but it still wants to declare dividend. Therefore, Rule 3 of
the Companies (Declaration and Payment of Dividend) Rules, 2014 will be applied.

According to the said rule, the required conditions are:

Condition I: The rate of dividend declared shall not exceed the average of the rates at
which dividend was declared by the company in the three years immediately preceding
that year. Since the company has not declared any dividend in the preceding three
financial years, hence condition I is not applicable in this case.
Condition II: The total amount to be drawn from such accumulated profits shall not
exceed 10% of its paid-up share capital and free reserves as appearing in the latest
audited financial statement.
Paid-up capital+Free reserves = ` (100+150) Lakhs (General reserves are free reserves)
= ` 250 Lakhs
10% thereof = ` 25 Lakhs
Condition III: The amount so drawn shall first be utilized to set off the losses incurred in
the financial year in which dividend is declared before any dividend in respect of equity
shares is declared.
The amount drawn as stated above = ` 25 Lakhs
Less: loss for the financial year 2019-2020 = ` 20 Lakhs
Amount available = ` 5 Lakhs
Hence, the quantum of dividend is further restricted to ` 5 lakhs.
Condition IV: The balance of reserves after such withdrawal shall not fall below 15% of
its paid up share capital as appearing in the latest audited financial statement.
Accumulated Reserves ` 150 Lakhs
Proposed withdrawal declaration of dividend ` 5 Lakhs
Balance of Reserves ` 145 Lakhs
This is more than 15% of paid-up capital (i.e. 15% of ` 100 Lakhs) i.e. ` 15 lakhs.
Thus, the company can declare a dividend of ` 5 lakhs.
Hence, by following above provisions, AB Limited is allowed to declare dividend for the
FY 2019-2020 and the maximum amount of dividend that can be paid is ` 5 Lakhs.
(c) (i) “Affidavit” [Section 3(3) of the General Clauses Act, 1897]: ‘Affidavit’ shall include
affirmation and declaration in the case of persons by law allowed to affirm or
declare instead of swearing.
The above definition is inclusive in nature. It states that Affidavit shall include
affirmation and declarations. This definition does not define affidavit. However, we
can understand this term in general parlance. Affidavit is a written statement
confirmed by oath or affirmation for use as evidence in Court or before any

authority.
(ii) “Good Faith” [Section 3(22) of the General Clauses Act, 1897]: A thing shall be
deemed to be done in “good faith” where it is in fact done honestly, whether it is
done negligently or not.
The question of good faith under the General Clauses Act is one of fact. It is to be
determined with reference to the circumstances of each case. Thus, anything done
with due care and attention, which is not malafide, whether it is done negligently or
not is presumed to have been done in good faith.
(d) Proviso: The normal function of a proviso is to except something out of the enactment or
to qualify something stated in the enactment which would be within its purview if the
proviso were not there. The effect of the proviso is to qualify the preceding enactment
which is expressed in terms which are too general. As a general rule, a proviso is added
to an enactment to qualify or create an exception to what is in the enactment. Ordinarily
a proviso is not interpreted as stating a general rule.
It is a cardinal rule of interpretation that a proviso to a particular provision of a statute
only embraces the field which is covered by the main provision. It carves out an
exception to the main provision to which it has been enacted as a proviso and to no
other. (Ram Narain Sons Ltd. Vs. Assistant Commissioner of Sales Tax, AIR SC 765).
Question 5
(a) (i) ABC Limited is a public company incorporated in New Delhi. The Board of Directors
(BOD) of the company wants to bring a public issue of 100000 equity shares of
` 10 each. The BOD has appointed an underwriter for this issue for ensuring the
minimum subscription of the issue. The underwriter advised the BOD that due to
current economic situation of the Country it would be better if the company offers
these shares at a discount of ` 1 per share to ensure full subscription of this public
issue. The Board of Directors agreed to the suggestion of underwriter and offered
the shares at a discount of ` 1 per share. The issue was fully subscribed and the
shares were allotted to the applicants in due course.
Decide whether the issue of shares as mentioned above is valid or not as per
Section 53 of Companies Act 2013. What would be your answer in the above case if
the shares are issued to employees as Sweat equity shares? (2 + 1 = 3 Marks)
(ii) Ram draws a cheque of ` 1 lakh. It was a bearer cheque. Ram kept the cheque with
himself. After some time, Ram gives this cheque to Shyam as a gift on his birthday.
Decide whether Shyam is having a valid title over the cheque and whether Shyam is
a holder in due course or not in relation to this cheque as per the Section 9 of the
Negotiable Instruments Act 1881. (3 Marks)
OR

(a) (i) Are the following instruments signed by Mr. Honest is valid promissory Notes? Give
the reasons.
(a) I promise to pay D's son ` 10000 for value received (D has two sons)
(b) I promise to pay ` 5000/- on demand at my convenience
(ii) Who is the competent authority to issue a promissory note 'payable to bearer'?
Your answers shall be in accordance with the provisions of the Negotiable
Instruments Act, 1881. (3 Marks)
(iii) The Articles of Association of a Company may contain provisions for entrenchment
under Section 5 of the Companies Act, 2013. What is meant by entrenchment
provisions in this context? Also State the relevant provisions of the said Act dealing
with entrenchment provisions. (3 Marks)
(b) Rose (Private) Limited on 3rd April 2019 obtained ` 30 lakhs working capital loan by
offering its Stock and Accounts Receivables as security and ` 5 Lakhs adhoc overdraft
on the personal guarantee of a Director of Rose (Private) Limited, from a financial
institution.
(i) Is it required to create charge for working capital loan and adhoc overdraft in
accordance with the provisions of the Companies Act, 2013?
(ii) State the provisions relating to extension of time and procedure for registration of
charges in case the above charge was not registered within 30 days of its creation.
(4 Marks)
(c) Distinguish between a contract of Indemnity and a contract of Guarantee as per The
Indian Contract Act, 1872. (4 Marks)
(d) “Associate words to be understood in common sense manner.” Explain this statement
with reference to rules of interpretation of statutes. (3 Marks)
Answer
(a) (i) As per the provisions of sub-section (1) of section 53 read with section 54 of the
Companies Act, 2013, a company shall not issue shares at a discount, except in the
case of an issue of sweat equity shares. As per the provisions of sub-section (2) of
section 53 of the Companies Act, 2013, any share issued by a company at a
discount shall be void.
In terms of the above provisions, issue of shares by ABC Limited at a discount of
` 1 per share is not valid.
In case the above shares have been issued to employees as Sweat equity shares ,
then the issue of shares at discount is valid. [Section 54(1) of the Companies Act,
2013.

(ii) “Holder in due course” [Section 9 of the Negotiable Instruments Act, 1881]—
“Holder in due course” means—
□ any person
□ who for consideration
□ became the possessor of a promissory note, bill of exchange or cheque (if
payable to bearer), or the payee or endorsee thereof, (if payable to order),
□ before the amount mentioned in it became payable, and
□ without having sufficient cause to believe that any defect existed in the title of
the person from whom he derived his title.
In the instant case, Ram draws a cheque for ` 1 lakh and hands it over to Shyam by
way of gift. Here, Shyam’s title is good and bonafide. As a holder he is entitled to
receive ` 1 lakh from the bank on whom the cheque is drawn. However, Shyam is not a
holder in due course as he does not get the cheque for value and consideration.
OR
(a) (i) Promissory Note: As per the provisions of Section 4 of the Negotiable Instruments
Act, 1881, a promissory note is an instrument in writing (not being a bank-note or a
currency note) containing an unconditional undertaking, signed by the maker, to pay
a certain sum of money to or to the order of a certain person, or to the bearer of the
instruments.
(a) This is not a valid promissory note as D has two sons and it is not specified in
the promissory note that which son of D is the payee.
(b) This is not a valid promissory note as details of the payee are not mentioned in
it and it is not an unconditional undertaking.
(ii) A promissory note cannot be made payable to the bearer (Section 31 of Reserve
Bank of India Act, 1934). Only the Reserve Bank or the Central Government can
make or issue a promissory note 'payable to bearer'.
(iii) Entrenchment: Usually an article of association may be altered by passing special
resolution but entrenchment makes it more difficult to change it. So entrenchment
means making something more protective.
Section 5 of the Companies Act, 2013 describes the provisions relating to
entrenchment.
Articles may contain provisions for entrenchment [Section 5(3)]: The articles
may contain provisions for entrenchment to the effect that specified provisions of
the articles may be altered only if conditions or procedures as that are more
restrictive than those applicable in the case of a special resolution, are met or
complied with.

Manner of inclusion of the entrenchment provision [Section 5(4)]: The provisions

for entrenchment shall only be made either on formation of a company, or by an
amendment in the articles agreed to by all the members of the company in the case of
a private company and by a special resolution in the case of a public company.
Notice to the registrar of the entrenchment provision [Section 5(5)]: Where the
articles contain provisions for entrenchment, whether made on formation or by
amendment, the company shall give notice to the Registrar of such provisions in
such form and manner as may be prescribed.
(b) As per the provisions of Section 2(16) of the Companies Act, 2013, “charge” means an
interest or lien created on the property or assets of a company or any of its undertakings
or both as security and includes mortgage.
(i) Whenever a company obtains working capital loans from financial institutions by
offering stock and Accounts Receivables as security, Rose (Private) Limited is
required to create a charge on such property or assets in favour of the lender.
Hence, for ` 30 Lakhs working capital loan, it is required to create a charge on it.
Rose (Private) Limited is not required to create a charge for ` 5 Lakh adhoc
overdraft on the personal guarantee of a director. Since charge is always created on
the property or assets of a company and personal guarantee of director is not a
property or asset of company.
(ii) As per the provisions of Section 77 of the Companies Act, 2013, in case the above
charge was not registered within 30 days of creation of the charge, the Registrar
may, on an application by the company, allow such registration to be made within a
period of 60 days of such creation (i.e. another 30 days are granted after the expiry
of original 30 days), on payment of additional fees as prescribed.
Procedure for Extension of Time Limit: For seeking extension of time, the
company is required to make an application to the Registrar in the prescribed form.
It should be supported by a declaration from the company signed by its company
secretary or a director that such belated filing shall not adversely affect the rights of
any other intervening creditors of the company.
The application so made must satisfy the Registrar that the company had sufficient
cause for not filing the particulars and the instrument of charge, if any, within the
original period of thirty days. Only then he will allow registration of charge within the
extended period. Further, requisite additional fee or advalorem fee, as applicable,
must also be paid.
(c)
Number of party/ there are only two parties there are three parties
Parties to the contract namely the indemnifier creditor, principal debtor
[promisor] and the and surety.

indemnified [promisee]
Nature of liability The liability of the The liability of the surety is
indemnifier is primary and secondary and conditional
unconditional. as the primary liability is
that of the principal debtor.
Time of liability The liability of the The liability arises only on
indemnifier arises only on the non performance of an
the happening of a existing promise or non-
contingency. payment of an existing
debt.
Time to act The indemnifier need not The surety acts at the
act at the request of request of principal debtor.
indemnity holder
Right to sue third party indemnifier cannot sue a surety can proceed against
third party for loss in his principal debtor in his own
own name as there is no right because he gets all
privity of contract. Such a the right of a creditor after
right would arise only if discharging the debts.
there is an assignment in
his favour.
Purpose Reimbursement of loss For the security of the
creditor
Competency to All parties must be In the case of a contract of
contract competent to contract guarantee, where a minor
is a principal debtor, the
contract is still valid.
expressions are coupled together one of which generally excludes the other, obviously
the more general term is used in a meaning excluding the specific one. On the other
hand, there is the concept of ‘Noscitur A Sociis’ (‘it is known by its associates’), that is to
say ‘the meaning of a word is to be judged by the company it keeps’. When two or more
words which are capable of analogous (similar or parallel) meaning are coupled together,
they are to be understood in their cognate sense (i.e. akin in origin, nature or quality).
They take, as it were, their colour from each other, i.e., the more general is restricted to a
sense analogous to the less general. It is a rule wider than the rule of ejusdem generis,
rather ejusdem generis is only an application of the noscitur a sociis. It must be borne in
mind that nocitur a sociis, is merely a rule of construction and it cannot prevail in cases
where it is clear that the wider words have been deliberately used in order to make the
scope of the defined word correspondingly wider.

PAPER – 2 : CORPORATE & OTHER LAWS
Attempt any four questions from the remaining five questions.
Question 1
(a) (i) Herry Limited is a company registered in Thailand. It has no place of business
established in India, yet it is doing online business through telemarketing in India
having its main server for online business outside India. State the status of the
Company under the provisions of the Companies Act, 2013.
(ii) SKP Limited (Registered in India), a wholly owned subsidiary company of Herry
Limited decided to follow different financial year for consolidation of its accounts
outside India. State the procedure to be followed in this regard.
(iii) Naveen incorporated a "One Person Company" making his sister Navita as the
nominee. Navita is leaving India permanently due to her marriage abroad. Due to
this fact, she is withdrawing her consent of nomination in the said One Person
Company. Taking into considerations the provisions of the Companies Act, 2013
answer the questions given below.
(A) If Navita is leaving India permanently, is it mandatory for her to withdraw her
nomination in the said One Person Company?
(B) If Navita maintained the status of Resident of India after her marriage, then
can she continue her nomination in the said One Person Company? (6 Marks)
(b) Examine whether the following persons are eligible for being appointed as auditor under
the provisions of the Companies Act, 2013 :
(i) "Mr. Prakash" is a practicing Chartered Accountant and "Mr. Aakash", who i s a
relative of "Mr. Prakash" is holding securities of "ABC Ltd." having face value of
` 70,000/- (market value ` 1, 10,000/-). Directors of ABC Ltd. want to appoint Mr.
Prakash as an auditor of the company:
(ii) Mr. Ramesh is a practicing Chartered Accountant indebted to MNP Ltd. for ` 6 lacs.
Directors of MNP Ltd. want to appoint Mr. Ramesh as an auditor of the company.
(iii) Mrs. KVJ spouse of Mr. Kumar, a Chartered Accountant, is the store keeper of PRC
Ltd. Directors of PRC Ltd. want to appoint Mr. Kumar as an auditor of the company.
(6 Marks)
(c) (i) Srushti acquired valuable diamond at a very low price by a voidable contract under
the provisions of the Indian Contract Act, 1872. The voidable contract was not
rescinded. Srushti pledged the diamond with Mr. VK. Is this a valid pledge under the
Indian Contract Act, 1872?
(ii) Whether a Pawnee has a right to retain the goods pledged. (4 Marks)

(d) ‘A’ draws a bill amounting ` 5,000 of 3 month's maturity period on ‘B’ but signs it in the
fictitious name of 'C'. Bill is payable to the order of ‘C’ and it is duly accepted by 'B'. ‘D’
obtains the bill from 'A' and thus becomes its 'Holder-in-Due course. On maturity ‘D’
presents bill to ‘B’ for payment. Is ‘B’ bound to make the payment of the bill? Examine it
referring to the provisions of the Negotiable Instruments Act, 1881. (3 Marks)
Answer
(a) (i) According to section 2(42) of the Companies Act, 2013, “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.
According to Rule 2(1)(c)(iv) of the Companies (Registration of Foreign
Companies) Rules, 2014, “electronic mode” means carrying out electronically
based, whether main server is installed in India or not, including, but not
limited to online services such as telemarketing, telecommuting, telemedicine,
education and information research.
Looking to the above description, it can be said that being involved in
telemarketing in India having its main server for online business outside India,
Herry Limited will be treated as foreign company.
(ii) Where a company or body corporate, which is a holding company or a subsidiary or
associate company of a company incorporated outside India and is required to
follow a different financial year for consolidation of its accounts outside India, the
Central Government may, on an application made by that company or body
corporate in such form and manner as may be prescribed, allow any period as its
financial year, whether or not that period is a year.
Any application pending before the Tribunal as on the date of commencement of the
Companies (Amendment) Act, 2019, shall be disposed of by the Tribunal in
accordance with the provisions applicable to it before such commencement.
Also, a company or body corporate, existing on the commencement of this Act,
shall, within a period of two years from such commencement, align its financial year
as per the provisions of this clause.
SKP Limited is advised to follow the above procedure accordingly.
[Note: This answer is based on the assumption that Herry limited is a foreign
Company registered outside India as inferred from part (i) of the question]
(iii) As per Rule 3 & 4 of the Companies (Incorporation) Rules, 2014 following the
answers :

(A) Yes, it is mandatory for Navita to withdraw her nomination in the said OPC as
she is leaving India permanently as only a natural person who is an Indian
citizen and resident in India shall be a nominee in OPC.
(B) Yes, Navita can continue her nomination in the said OPC, if she maintained
the status of Resident of India after her marriage by staying in India for a
period of not less than 182 days during the immediately preceding financial
year.
(b) (i) As per section 141 (3)(d)(i) of the Companies Act, 2013, an auditor is disqualified to
be appointed as an auditor if he, or his relative or partner holding any security of or
interest in the company or its subsidiary, or of its holding or associate company or a
subsidiary of such holding company.
Further as per proviso to this Section, the relative of the auditor may hold the
securities or interest in the company of face value not exceeding of ` 1,00,000.
In the present case, Mr. Aakash (relative of Mr. Prakash, an auditor), is having
securities of ABC Ltd. having face value of ` 70,000 (market value ` 1,10,000),
which is within the limit as per requirement of under the proviso to section 141
(3)(d)(i). Therefore, Mr. Prakash will not be disqualified to be appointed as an
auditor of ABC Ltd.
(ii) As per section 141(3)(d)(ii), an auditor is disqualified to be appointed as an auditor
if he or his relative or partner is indebted to the company, or its subsidiary, or its
holding or associate company or a subsidiary of such holding company, in excess of
` 5 Lacs.
In the instant case, Mr. Ramesh will be disqualified to be appointed as an auditor of
MNP Ltd. as he indebted to MNP Ltd. for ` 6 lacs.
(iii) As per section 141(3)(f), an auditor is disqualified to be appointed as an auditor if a
person whose relative is a director or is in the employment of the company as a
director or a key managerial personnel.
In the instant case, since Mrs. KVJ Spouse of Mr. Kumar (Chartered Accountant) is
the store keeper (not a director or KMP) of PRC Ltd., hence Mr. Kumar will not be
disqualified to be appointed as an auditor in the said company.
(c) (i) Pledge by person in possession under voidable contract [Section 178A of the
Indian Contract Act, 1872]: When the pawnor has obtained possession of the goods
pledged by him under a contract voidable under section 19 or section 19A, but the
contract has not been rescinded at the time of the pledge, the pawnee acquires a
good title to the goods, provided he acts in good faith and without notice of the
pawnor’s defect of title.
Therefore, the pledge of diamond by Srushti with Mr. VK is valid.

(ii) Right of retainer [Section 173 of the Indian Contract Act, 1872]: Yes, the pawnee
may retain the goods pledged, not only for payment of the debt or the performance
of the promise, but for the interest, of the debt, and all necessary expenses incurred
by him in respect of the possession or for the preservation of the goods pledged.
(d) Bill drawn in fictitious name: The problem is based on the provision of Section 42 of
the Negotiable Instruments Act, 1881. In case a bill of exchange is drawn payable to the
drawer's order in a fictitious name and is endorsed by the same hand as the drawer's
signature, it is not permissible for the acceptor to allege as against the holder in due
course that such name is fictitious.
Accordingly, in the instant case, B cannot avoid payment by raising the plea that the
drawer, C is fictitious. The only condition is that the signature of C as drawer and as
endorser must be in the same handwriting.
Therefore, in the given case, B is bound to make the payment of the bill to D.
Question 2
(a) Om Limited served a notice of General Meeting upon its members. The notice stated that
the following resolutions will be considered at such meeting:
(i) Resolution to increase the Authorised share capital of the company.
(ii) Appointment and fixation of the remuneration of Mr. Prateek as the auditor.
A shareholder complained that the amount of the proposed increase and the
remuneration was not specified in the notice. Is the notice valid under the provisions of
the Companies Act, 2013. (4 Marks)
(b) (i) Ravi Limited maintained its books of accounts under Single Entry System of
Accounting. Is it permitted under the provisions of the Companies Act, 2013?
(ii) State the person responsible for complying with the provisions regarding
maintenance of Books of Accounts of a Company.
(iii) Whether a Company can keep books of Accounts in electronic mode accessible
only outside India. (6 Marks)
(c) Bhupendra borrowed a sum of ` 3 lacs from Atul. Bhupendra appointed Atul as his agent
to sell his land and authorized him to appropriate the amount of loan out of the sale
proceeds. Afterward, Bhupendra revoked the agency.
Decide under the provisions of the Indian Contract Act, 1872 whether the revocation of
the said agency by Bhupendra is lawful. (4 Marks)
(d) Mr. X is the payee of an order cheque. Mr. Y steals the cheque and forges Mr. X
signature and endorses the cheque in his own favour. Mr. Y then further endorses the
cheque to Mr. Z, who takes the cheque in good faith and for valuable consideration.

Examine the validity of the cheque as per the provisions of the Negotiable Instruments
Act, 1881 and also state whether Mr. Z can claim the privileges of holder -in-due course.
(3 Marks)
Answer
(a) Under section 102(2)(b) of the Companies Act, 2013, in the case of any meeting other
than an Annual General Meeting, all business transacted thereat shall be deemed to be
special business.
Further, under section 102(1), an explanatory a statement setting out the following
material facts concerning each item of special business to be transacted at a general
meeting, shall be annexed to the notice calling such meeting., namely:-
(a) the nature of concern or interest, financial or otherwise, if any, in respect of each
items, of:
(i) every director and the manager, if any;
(ii) every other key managerial personnel; and
(iii) relatives of the persons mentioned in sub-clauses (i) and (ii);
(b) any other information and facts that may enable members to understand the
meaning, scope and implications of the items of business and to take decision
thereon.
The information about the amount is also a material fact that may enable members
to understand the meaning and implication of items of business to be transacted
and to take decision thereon.
Section 102 also prescribes ordinary businesses for which explanatory stateme nt is
not required.
Part (i) of the question relating to increase in the Authorized Capital falls under
special business and hence in the absence of amount of proposed increase of
share capital, the notice will be treated as invalid.
Part(ii) is an ordinary business and hence explanatory statement is not required.
However, considering the two resolutions mentioned in the question are to be
passed in the same meeting, notice of the meeting is invalid.
Thus, the objection of the shareholder is valid since the details on the item to be
considered are lacking.
The information about the amount is a material fact with reference to the proposed
increase of authorized share capital and remuneration of Mr. Prateek as the auditor.
The notice is, therefore, not a valid notice under Section 102 of the Companies Act,
2013.

(b) (i) According to Section 128(1) of the Companies Act, 2013, every company shall
prepare “books of account” and other relevant books and papers and financial
statement for every financial year.
These books of accounts should give a true and fair view of the state of the affairs
of the company, including that of its branch office(s).
These books of accounts must be kept on accrual basis and according to the double
entry system of accounting.
Hence, maintenance of books of account under Singly Entry System of Accounting
by Ravi Limited is not permitted.
(ii) Persons responsible to maintain books
As per Section 128 (6) of the Companies Act, 2013, the person responsible to take
all reasonable steps to secure compliance by the company with the requirement of
maintenance of books of accounts etc. shall be:
(a) Managing Director,
(b) Whole-Time Director, in charge of finance
(c) Chief Financial Officer
(d) Any other person of a company charged by the Board with duty of complying
with provisions of section 128.
(iii) A Company have has the option of keeping such books of account or other relevant
papers in electronic mode as per Rule 3 of the Companies (Accounts) Rules, 2014.
According to such Rule,
(a) such books of accounts or other relevant books or papers maintained in
electronic mode shall remain accessible in India so as to be usable for
subsequent reference.
(b) There shall be a proper system for storage, retrieval, display or printout of the
electronic records as the Audit Committee, if any, or the Board may deem
appropriate and such records shall not be disposed of or rendered unusable,
unless permitted by law.
(c) The back-up of the books of account and other books and papers of the
company maintained in electronic mode, including at a place outside India, if
any, shall be kept in servers physically located in India on a periodic basis.
Hence, a company cannot keep books of Account in electronic mode
accessible only outside India.
(c) According to Section 202 of the Indian Contract Act, 1872 an agency becomes
irrevocable where the agent has himself an interest in the property which forms the

subject-matter of the agency, and such an agency cannot, in the absence of an express
provision in the contract, be terminated to the prejudice of such interest.
In the instant case, the rule of agency coupled with interest applies and does not come to
an end even on death, insanity or the insolvency of the principal.
Thus, when Bhupendra appointed Atul as his agent to sell his land and authorized him to
appropriate the amount of loan out of the sale proceeds, interest was created in favour of
Atul and the said agency is not revocable. The revocation of agency by Bhupendra is not
lawful.
(d) Forgery confers no title and a holder acquires no title to a forged instrument. Thus, where
a signature on the negotiable instrument is forged, it becomes a nullity. Therefore,
cheque further endorsed to Mr. Z, is not valid.
Since a forged instrument is a nullity, therefore the property in the such instrument
remains vested in the person who is the holder at the time when the forged signatures
were put on it. Forgery is also not capable of being ratified. In the case of forged
endorsement, the person claiming under forged endorsement even if he is purchaser for
value and in good faith, cannot acquire the rights of a holder in due course. Therefore,
Mr. Z, acquires no title on the cheque.
Question 3
(a) Mahima Ltd. was incorporated by furnishing false informations. As per t he Companies
Act, 2013, state the powers of the Tribunal (NCLT) in this regard. (5 Marks)
(b) Referring to the provisions of the Companies Act, 2013, examine the validity of the
following :
(i) The Board of Directors of Anand Ltd. proposes to declare dividend at the rate of
20% to the equity shareholders, despite the fact that the company has defaulted in
repayment of public deposits accepted before the commencement of this Act.
(ii) Whether a Company can declare dividend for the financial year in which i t incurred
loss. (5 Marks)
(c) State whether the following alteration is material alteration under the provisions of the
Negotiable Instruments Act, 1881. ·
A promissory note was made without mentioning any time for payment. The holder added
the words "on demand" on the face of the instrument. (4 Marks)
(d) How will you interpret the term "Instrument" used in a statutes? (3 Marks)
Answer
(a) Order of the Tribunal: According to section 7(7) of the Companies Act, 2013, where a
company has been got incorporated by furnishing false or incorrect information or
representation or by suppressing any material fact or information in any of the documents

or declaration filed or made for incorporating such company or by any fraudulent action,
the Tribunal may, on an application made to it, on being satisfied that the situation so
warrants—
(a) pass such orders, as it may think fit, for regulation of the management of the
company including changes, if any, in its memorandum and articles, in public
interest or in the interest of the company and its members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit.
However before making any order-
(i) the company shall be given a reasonable opportunity of being heard in the matter;
and
(ii) the Tribunal shall take into consideration the transactions entered into by the
company, including the obligations, if any, contracted or payment of any liability.
(b) (i) Section 123(6) of the Companies Act, 2013, specifically provides that a company
which fails to comply with the provisions of section 73 (Prohibition of acceptance of
deposits from public) and section 74 (Repayment of deposits, etc., accepted before
the commencement of this Act) shall not, so long as such failure continues, declare
any dividend on its equity shares.
In the given instance, the Board of Directors of Anand Limited proposes to declare
dividend at the rate of 20% to the equity shareholders, in spite of the fact that the
company has defaulted in repayment of public deposits accepted before the
commencement of the Companies Act, 2013. Hence, according to the above
provision, declaration of dividend by the Anand Limited is not valid.
(ii) As per Second Proviso to Section 123 (1) of the Companies Act, 2013, in the event
of inadequacy or absence of profits in any financial year, a company may declare
dividend out of the accumulated profits of previous years which have been
transferred to the free reserves. However, such declaration of di vidend shall be
subject to the conditions as prescribed under Rule 3 of the Companies (Declaration
and Payment of Dividend) Rules, 2014.
(c) An alteration is material which in any way alters the operation of the instrument and
affects the liability of parties thereto. Any alteration is material (a) which alters the
business effect of the instrument if used for any business purpose; (b) which causes it to
speak a different language in legal effect form that which it originally spoke or which
changes the legal identity or character of the instrument.

In the said case, a promissory note was made without mentioning any time for payment.
The holder added the words “on demand” on the face of the instrument. As per the above
provision of the Negotiable Instruments Act, 1881 this is not a material alteration as a
promissory note where no date of payment is specified will be treated as payable on
demand. Hence, adding the words “on demand” does not alter the business effect of the
instrument.
(d) ‘Instrument’: In common parlance, ‘instrument’ means a formal legal document which
creates or confirms a right or records a fact. It is a formal writing of any kind, such as an
agreement, deed, charter or record, drawn up and executed in a technical form. It also
means a formal legal document having legal effect, either as creating liability or as
affording evidence of it. Section 2(14) of the Indian Stamp Act, 1899 states that
‘instrument’ includes every document by which any right or liability is or purports to be
created, transferred, extended, extinguished or recorded.
Question 4
(a) The Board of Directors of Chandra Ltd. proposes to issue the prospectus inviting offers
from the public for subscribing the shares of the Company. State the reports which shall
be included in the prospectus for the purposes of providing financial information under
the provisions of the Companies Act, 2013. (4 Marks)
(b) Define the term 'deposit' under the provisions of the Companies Act, 2013 and comment
with relevant provisions that the following amount received by a company will be
considered as deposit or not;
(i) ` 5,00,000 raised by Rishi Ltd. through issue of non-convertible debenture not
constituting a charge on the assets of the company and listed on a recognised stock
exchange as per applicable regulations made by Securities and Exchange Board of
India.
(ii) ` 2,00,000 received from Mr. T, an employee of the company who is drawing annual
salary of ` 1,50,000 under a contract of employment with the company in the nature
of non-interest bearing security deposit.
(iii) Amount of ` 3,00,000 received by a private company from a relative of a Director,
declared by the depositor as out of gift received from his mother. (6 Marks)
(c) What do you understand by the term 'Good Faith'. Explain it as per the provisions of the
General Clauses Act, 1897. Mr. X purchased a watch from Mr. Y carelessly without
proper enquiry. Whether the purchase made could said to be made in good faith.
(4 Marks)
(d) At the time of interpreting a statutes what will be the effect of 'Usage' or 'Practice'?
(3 Marks)

Answer
(a) As per section 26(1) of the Companies Act, 2013, every prospectus issued by or on
behalf of a public company either with reference to its formation or subsequently, or by or
on behalf of any person who is or has been engaged or interested in the formation of a
public company, shall be dated and signed and shall state such information and set out
such reports on financial information as may be specified by the Securities and Exchange
Board in consultation with the Central Government:
Provided that until the Securities and Exchange Board specifies the information and
reports on financial information under this sub-section, the regulations made by the
Securities and Exchange Board under the Securities and Exchange Board of India Act,
1992, in respect of such financial information or reports on financial information shall
apply.
Prospectus issued make a declaration about the compliance of the provisions of this Act
and a statement to the effect that nothing in the prospectus is contrary to the provisions
of this Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and
Exchange Board of India Act, 1992 and the rules and regulations made thereunder.
Accordingly, the Board of Directors of Chandra Ltd. who proposes to issue the
prospectus shall provide such reports on financial information as may be specified by the
Securities and Exchange Board in consultation with the Central Government in
compliance with the above stated provision and make a declaration about the compliance
of the above stated provisions.
(b) Deposit: According to section 2 (31) of the Companies Act, 2013, the term ‘deposit’
includes any receipt of money by way of deposit or loan or in any other form, by a
company, but does not include such categories of amount as prescribed in the Rule 2 (1)
(c) of the Companies (Acceptance of deposit) Rules, 2014, in consultation with the
Reserve bank of India.
Amounts received by the company will not be considered as deposit: In terms of R ule 2
(1) (c) of the Companies (Acceptance of deposit) Rules, 2014, following shall be the
answers-
(i) In the first case, where ` 5,00,000 raised by the Rishi Ltd. through issue of non-
convertible debenture not constituting a charge on the assets of the company and
listed on recognised stock exchange as per the applicable regulations made by the
SEBI, will not be considered as deposit in terms of sub-clause (ixa) of the said rule.
(ii) In the second case, ` 2,00,000 was received from Mr. T, an employee of the
company drawing annual salary of ` 1,50,000 under a contract of employment with
the company in the nature of non-interest bearing security deposit. This amount
received by company from employee, Mr. T will be considered as deposit in terms of
sub-clause (x) of the said rule, as amount received is more than his annual salary
under a contract of employment with the company in the nature of non-interest

bearing security deposit.

(iii) In the third case, amount of `3,00,000 received by a private company from a
relative of a Director, declaring details of the amounts so deposited as out of gift
received from his mother. This amount received by the private Company will not be
considered as deposit in terms of sub-clause (viii) of the said rule. Here as per the
requirement, the relative of the director of the private company, from whom money
is received, furnished the declaration in writing to the effect that the amount is given
out of gift received from his mother and not being given out of funds acquired by
him by borrowing or accepting loans or deposits from others.
(c) As per Section 3(22) of the General Clauses Act, 1897, the term “good faith” means a
thing shall be deemed to be done in “good faith” where it is in fact done honestly,
whether it is done negligently or not;
The term “Good faith” has been defined differently in different enactments. This definition
of the good faith does not apply to that enactment which contains a special definition of
the term “good faith” and there the definition given in that particular enactment has to be
followed.
The question of good faith under the General Clauses Act is one of fact. It is to determine
with reference to the circumstances of each case. Thus, anything done with due care and
attention, which is not malafide is presumed to have been done in good faith.
In the given problem in the question, Mr. X purchased a watch from Mr. Y carelessly
without proper enquiry. Such a purchase made could not be said to be made in good
faith as it was done without due care and attention as is expected with a man of ordinary
prudence. An honest purchase made carelessly without making proper enquiries cannot
be said to have been made in good faith so as to convey good title.
(d) Effect of usage: Usage or practice developed under the statute is indicative of the
meaning recognized to its words by contemporary opinion. A uniform notorious practice
continued under an old statute and inaction of the Legislature to amend the same are
important factors to show that the practice so followed was based on correct
understanding of the law. When the usage or practice receives judicial or legislative
approval it gains additional weight.
In this connection, we have to bear in mind two Latin maxims:
(i) 'Optima Legum interpres est consuetude' (the custom is the best interpreter of the
law); and
(ii) 'Contemporanea exposito est optima et fortissinia in lege' (the best way to interpret
a document is to read it as it would have been read when made).
Therefore, the best interpretation/construction of a statute or any other document is that
which has been made by the contemporary authority. Simply stated, old statutes and

documents should be interpreted as they would have been at the time when they were
enacted/written.
Contemporary official statements throwing light on the construction of a statute and
statutory instruments made under it have been used as contemporanea exposition to
interpret not only ancient but even recent statutes in India.
Question 5
(a) X Ltd. issued a notice on 1st Feb, 2018 to its existing shares holders offering to purchase
one extra share for every five shares held by them.
The last date to accept the offer was 15 th Feb, 2018 only. Mr. Kavi has given an
application to renounce the shares offered to him in favour of Mr. Ravi, who is not a
shareholder of the company. Examine the validity of application of Mr. Kavi under the
provisions of the Companies Act, 2013. Would your answer differ if Mr. Kavi is a
shareholder of X Ltd.? (5 Marks)
OR
(a) XYZ unlisted company passed a special resolution in a general meeting on January 5th,
2019 to buy back 30% of its own equity shares. The Articles of Association empowers the
company to buy back its own shares. Earlier the company has also passed a special
resolution to buy back its own shares on January 15 th, 2018. The company further
decided that the payment for buyback be made out of the proceeds of the company's
earlier issue of equity share. In the light of the provisions of the Companies Act, 2013,
(i) Decide, whether the company's proposal is in order.
(ii) What will be your answer if buy back offer date is revised from January 5 th, 2019 to
January 25 th 2019 and percentage of buyback is reduced from 30% to 25% keeping
the source of purchase as above? (5 Marks)
(b) DN Limited hypothecated its plant to a Nationalised Bank and availed a term loan. The
Company registered the charge with the Registrar of Companies. The Company settled
the term loan in full, The Company requested the Bank to issue a letter confirming the
settlement of the term loan. The Bank did not respond to the request. State the relevant
provisions of the Companies Act, 2013 to register the satisfaction of charge in the above
circumstance. State the time frame up to which the Registrar of Companies may allow
the Company to intimate satisfaction of charges. (5 Marks)
(c) 'C' advances to 'B', ` 2,00,000 on the guarantee of 'A'. 'C' has also taken a further
security for the same borrowing by mortgage of B's furniture worth ` 2,00,000 without
knowledge of 'A'. C' cancels the mortgage. After 6 months 'B' becomes insolvent and 'C'
'sues ‘A’ his guarantee. Decide the liability of 'A' if the market value of furniture is worth
`80,000, under the Indian Contract Act, 1872. (4 Marks)
(d) Define the term "Affidavit" under the General Clauses Act, 1897. (3 Marks)

Answer
(a) According to section 62 of the Companies Act, 2013, where at any time, a company
having a share capital proposes to increase its subscribed capital by the issue of further
shares, such shares shall be offered—
(a) to persons who, at the date of the offer, are holders of equity shares of the company
in proportion, as nearly as circumstances admit, to the paid-up share capital on
those shares by sending a letter of offer subject to the following conditions, namely:-
(i) the offer shall be made by notice specifying the number of shares offered and
limiting a time not being less than fifteen days and not exceeding thirty days
from the date of the offer within which the offer, if not accepted, shall be
deemed to have been declined;
(ii) unless the articles of the company otherwise provide, the offer aforesaid shall
be deemed to include a right exercisable by the person concerned to renounce
the shares offered to him or any of them in favour of any other person; and the
notice referred to in clause (i) shall contain a statement of this right;
(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of
earlier intimation from the person to whom such notice is given that he
declines to accept the shares offered, the Board of Directors may dispose of
them in such manner which is not dis-advantageous to the shareholders and
the company.
In the instant case, X Ltd. issued a notice on 1 st Feb, 2018 to its existing shares
holders offering to purchase one extra share for every five shares held by them. The
last date to accept the offer was 15 th Feb, 2018 only. Mr. Kavi has given an
application to renounce the shares offered to him in favour of Mr. Ravi, who is not a
shareholder of the company.
As nothing is specified related to the Articles of the company, it is assumed offer
shall be deemed to include a right of renunciation. Hence, Mr. Kavi can renounce
the shares offered to him in favour of Mr. Ravi, who is not a shareholder of the
company.
In the second part of the question, even if Mr. Ravi is a shareholder of X Ltd. then
also it does not affect the right of renunciation of shares of Mr. Kavi to Mr. Ravi.
Or
(a) (i) In the instant case, the company’s proposal is not in order due to the following
reasons:
(A) Though XYZ unlisted company passed a special resolution but it proposed to
buy back 30% of its own equity shares. But as per section 68(2)(c) of the
Companies Act, 2013, buy-back of equity shares in any financial year shall not
exceed 25% of its total paid up equity capital in that financial year.

(B) The Articles of Association empowers the company to buy back its own
shares. This condition is in order as per section 68(2)(a).
(C) Earlier the company has also passed a special resolution to buy back its own
shares on January 15th, 2018, now the company passed a special resolution
on January 5th, 2019 to buy back its own shares. This is not valid as no offer
of buy-back, shall be made within a period of one year from the date of the
closure of the preceding offer of buy-back, if any. [proviso to section 68(2)]
(D) The company further decided that the payment for buy back be made out of
the proceeds of the company’s earlier issue of equity share. This is not in
order as according to proviso to section 68(1), buy-back of any kind of shares
or other specified securities cannot be made out of the proceeds of an earlier
issue of the same kind of shares or same kind of other specified securities.
(ii) If buy back offer date is revised from 5th January 2019 to January 25th 2019 and
percentage of buy back is reduced from 30% to 25% keeping the source of
purchase as above, then also the company’s proposal is not in order as buy -back of
any kind of shares or other specified securities cannot be made out of the proceeds
of an earlier issue of the same kind of shares or same kind of other specified
securities.
(b) Intimation regarding Satisfaction of Charge
Section 82 of the Companies Act, 2013, requires a company to give intimation of
payment or satisfaction in full of any charge earlier registered, to the Registrar in the
prescribed form. The intimation needs to be given within a period of 30 days from the
date of such payment or satisfaction.
Extended period of intimation: Proviso to Section 82 (1) extends the period of intimation
from thirty days to three hundred days. Accordingly, it is provided that the Registrar may,
on an application by the company or the charge holder, allow such intimation of payment
or satisfaction to be made within a period of 300 days of such payment or satisfaction on
payment of prescribed additional fees.
(c) Surety’s right to benefit of creditor’s securities: According to section 141 of the
Indian Contract Act, 1872, a surety is entitled to the benefit of every security which the
creditor has against the principal debtor at the time when the contract of suretyship is
entered into, whether the surety knows of the existence of such security or not; and, if
the creditor loses, or, without the consent of the surety, parts with such security, the
surety is discharged to the extent of the value of the security.
In the instant case, C advances to B, ` 2,00,000 rupees on the guarantee of A. C has
also taken a further security for ` 2,00,000 by mortgage of B’s furniture without
knowledge of A. C cancels the mortgage. B becomes insolvent, and C sues A on his
guarantee. A is discharged from liability to the amount of the value of the furniture i.e. `
80,000 and will remain liable for balance ` 1,20,000.

(d) “Affidavit” [Section 3(3) of the General Clauses Act, 1897]: ‘Affidavit’ shall include
affirmation and declaration in the case of persons by law allowed to affirm or declare
instead of swearing.
There are two important points derived from the above definition:
1. Affirmation and declaration,
2. In case of persons allowed affirming or declaring instead of swearing.
The above definition is inclusive in nature. It states that Affidavit shall include affirmation
and declarations. This definition does not define affidavit. However, we can understand
this term in general parlance. Affidavit is a written statement confirmed by oath or
affirmation for use as evidence in Court or before any authority.

Question 1
(a) As at 31st March, 2018, the paid up share capital of S Ltd. is ` 1,00,00,000 divided into
10,00,000 equity shares of ` 10 each. Of this, H Ltd. is holding 6,00,000 equity shares
and 4,00,000 equity shares are held by others. Simultaneously, S Ltd. is holding 5%
equity shares of H Ltd. out of which 1% shares are held as a legal representative of a
deceased member of H Ltd. On the basis of the given information, examine and answer
the following queries with reference to the provisions of the Companies Act, 2013 :
(i) Can S Ltd. make further investment in equity shares of H Ltd. during 2018-19?
(ii) Can S Ltd. exercise voting rights at Annual general meeting of H Ltd.?
(iii) Can H Ltd. allot or transfer some of its shares to S Ltd.? (4 Marks)
(b) (i) Modem Jewellery Ltd. decides to pay 5% of the issue price gap of shares as
underwriting commission to the underwriters, but the Articles of the company
authorize only 4% underwriting commission on shares. Examine the validity of the
above decision under the provision of the Companies Act, 2013. (2 Marks)
(ii) PQ Ltd. declared and paid 10% dividend to all its shareholders except Mr. Kumar,
holding 500 equity shares, who instructed the company to deposit the dividend
amount directly in his bank account. The company accordingly remitted the
dividend, but the bank returned the payment on the ground that the account number
as given by Mr. Kumar doesn't tally with the records of the bank. The company,
however, did not inform Mr. Kumar about this discrepancy. ·Comment on this issue
with reference to the provisions of the Companies Act, 2013 regarding failure to
distribute dividend. (2 Marks)
(c) The Government of India is holding 51% of the paid-up equity share capital of Sun Ltd.
The Audited financial statements of Sun Ltd. for the financial year 2017-18 were placed
at its annual general meeting held on 31st August, 2018. However, pending the
comments of the Comptroller and Auditor General of India (CAG) on the said accounts
the meeting was adjourned without adoption of the accounts. On receipt of CAG
comments on the accounts, the adjourned annual general meeting was held on
15th October, 2018 whereat the accounts were adopted. Thereafter, Sun Ltd. filed its
financial statements relevant to the financial year 2017-18 with the Registrar of
Companies on 12 th November, 2018. Examine, with reference to the applicable
provisions of the Companies Act, 2013, whether Sun Ltd. has complied with the statutory
requirement regarding filing of accounts with the Registrar? (4 Marks)

(d) Manoj guarantees for Ranjan, a retail textile merchant, for an amount of ` 1,00,000, for
which Sharma, the supplier may from time to time supply goods on credit basis to Ranjan
during the next 3 months.
After 1 month, Manoj revokes the guarantee, when Sharma had supplied goods on credit
for ` 40,000. Referring to the provisions of the Indian Contract Act, 1872, decide whether
Manoj is discharged from all the liabilities to Sharma for any subsequent credit supply.
What would be your answer in case Ranjan makes default in paying back Sharma for the
goods already supplied on credit i.e. ` 40,000 ? (4 Marks)
(e) Ram purchases some goods on credit from Singh, payable within 3 months. After 2
months, Ram makes out a blank cheque in favour of Singh, signs and delivers it to Singh
with a request to fill up the amount due, as Ram does not know the exact amount
payable by him.
Singh fills up fraudulently the amount larger than the amount payable by Ram and
endorses the cheque to Chandra in full payment of Singh's own due. Ram's cheque is
dishonoured. Referring to the provisions of the Negotiable Instruments Act, 1881, discuss
the rights of Singh and Chandra. (3 Marks)
Answer
(a) The paid up share capital of S Ltd. is ` 1,00,00,000 divided into 10,00,000 equity shares
of ` 10 each. Of this, H Ltd. is holding 6,00,000 equity shares.
Hence, H Ltd. is the holding company of S Ltd. and S Ltd. is the subsidiary company of H
Ltd. by virtue of section 2(87) of the Companies Act, 2013.
In the instant case,
(i) As per the provisions of sub-section (1) of Section 19 of the Companies Act, 2013,
no company shall, either by itself or through its nominees, hold any shares in its
holding company. Therefore, S Ltd. cannot make further investment in equity shares
of H Ltd. during 2018-19.
(ii) As per second proviso to Section 19, a subsidiary company shall have a right to
vote at a meeting of the holding company only in respect of the shares held by it as
a legal representative or as a trustee. Therefore, S Ltd. can exercise voting rights at
the Annual General Meeting of H Ltd. only in respect of 1% shares held as a legal
representative of a deceased member of H Ltd.
(iii) Section 19 also provides that no holding company shall allot or transfer its shares to
any of its subsidiary companies and any such allotment or transfer of shares of a
company to its subsidiary company shall be void. Therefore, H Ltd. cannot allot or
transfer some of its shares to S Ltd.
(b) (i) Section 40(6) of the Companies Act, 2013 provides that a company may pay
commission to any person in connection with the subscription to its securities
subject to such conditions as may be prescribed. Rule 13 of the Companies

34 INTERMEDIATE (NEW) EXAMINATION: MAY, 2019
(Prospectus and Allotment of Securities) Rules, 2014 provides the conditions. As

per Rule 13(c) of the Companies (Prospectus and Allotment of Securities) Rules,
2014, the rate of commission paid or agreed to be paid shall not exceed, in case of
shares, five per cent of the price at which the shares are issued or a rate authorised
by the articles, whichever is less.
In the instant case, Modern Jewellery Ltd. decides to pay 5% of the issue price gap
of shares as underwriting commission to the underwriters, but the Articles of the
company authorize only 4% underwriting commission on shares.
Hence, the company can only pay a maximum of 4% underwriting commission on
shares.
(ii) Section 127 of the Companies Act, 2013 provides for punishment for failure to
distribute dividend on time. One of such situations is where a shareholder has
given directions to the company regarding the payment of the dividend and those
directions cannot be complied with and the same has not been communicated to the
shareholder.
In the instant case, PQ Ltd. has failed to communicate to the shareholder Mr. Kumar
about non-compliance of his direction regarding payment of dividend. Hence, the
penal provisions under section 127 will be attracted.
(c) According to first proviso to section 137(1) of the Companies Act, 2013, where the
financial statements are not adopted at annual general meeting or adjourned annual
general meeting, such unadopted financial statements along with the required documents
shall be filed with the Registrar within thirty days of the date of annual general meeting
and the Registrar shall take them in his records as provisional till the financial statements
are filed with him after their adoption in the adjourned annual general meeting for that
purpose.
According to second proviso to section 137(1) of the Companies Act, 2013, financial
statements adopted in the adjourned AGM shall be filed with the Registrar within thirty
days of the date of such adjourned AGM with such fees or such additional fees as may
be prescribed.
In the instant case, the accounts of Sun Ltd. were adopted at the adjourned AGM held on
15th October, 2018 and filing of financial statements with Registrar was done on 12 th
November, 2018 i.e. within 30 days of the date of adjourned AGM.
Hence, Sun Ltd. has not complied with the statutory requirement regarding filing of
unadopted accounts with the Registrar, but has certainly complied with the provisions by
filing of adopted accounts within the due date with the Registrar.
(d) Discharge of Surety by Revocation: As per section 130 of the Indian Contract Act,
1872 a specific guarantee cannot be revoked by the surety if the liability has already
accrued. A continuing guarantee may, at any time, be revoked by the surety, as to future

transactions, by notice to the creditor, but the surety remains liable for transactions
already entered into.
As per the above provisions, liability of Manoj is discharged with relation to all
subsequent credit supplies made by Sharma after revocation of guarantee, because it is
a case of continuing guarantee.
However, liability of Manoj for previous transactions (before revocation) i.e. for ` 40,000
remains. He is liable for payment of ` 40,000 to Sharma because the transaction was
already entered into before revocation of guarantee.
(e) According to section 44 of the Negotiable Instruments Act, 1881, when the consideration
for which a person signed a promissory note, bill of exchange or cheque consisted of
money, and was originally absent in part or has subsequently failed in part, the sum
which a holder standing in immediate relation with such signer is entitled to receive from
him is proportionally reduced.
Explanation—The drawer of a bill of exchange stands in immediate relation with the
acceptor. The maker of a promissory note, bill of exchange or cheque stands in
immediate relation with the payee, and the indorser with his indorsee. Other signers may
by agreement stand in immediate relation with a holder.
In the given question, Singh is a party in immediate relation with the drawer (Ram) of the
cheque and so he is entitled to recover only the exact amount due from Ram and not the
amount entered in the cheque. However, the right of Chandra, who is a holder for value,
is not adversely affected and he can claim the full amount of the cheque from Singh.
Question 2
(a) State, with reasons, whether the following statements are True or False?
(i) ABC Private Limited may accept the deposits from its members to the extent of
` 50.00 Lakh, if the aggregate of its paid-up capital; free reserves and security
premium account is ` 50.00 Lakh. (1 Mark)
(ii) A Government Company, which is eligible to accept deposits under Section 76 of
the Companies Act, 2013 cannot accept deposits from public exceeding 25% of the
aggregate of its paid- up capital, free reserves and security premium account.
(1 Mark)
(iii) The Registrar of Companies is not bound to issue notice to the holder of charge, if
the company gives intimation of satisfaction of charge in the specified form and
signed by the holder of charge. (1 Mark)
(iv) The Registrar of Companies may allow the company or holder of charge to file
intimation within a period of 300 days of the satisfaction of charge on payment of
fee and additional fees as may be prescribed. (1 Mark)

(b) (i) The Income Tax Authorities in the current financial year 2019-20 observed, during
the assessment proceedings, a need to re-open the accounts of Chetan Ltd. for the
financial year 2008-09 and, therefore, filed an application before the National
Company Law Tribunal (NCLT) to issue the order to Chetan Ltd. for re-opening of
its accounts and recasting the financial statements for the financial year 2008-09.
Examine the validity of the application filed by the Income Tax Authorities to NCLT.
(3 Marks)
(ii) The Board of Directors of A Ltd. requested its Statutory Auditor to accept the
assignment of designing and implementation of suitable financial information system
to strengthen the internal control mechanism of the Company. How will you
approach to this proposal, as an Statutory Auditor of A Ltd., taking into account the
consequences, if any, of accepting this proposal? (3 Marks)
(c) Aarthi is the wife of Naresh. She purchased some sarees on credit from M/s Rainbow
Silks, Jaipur.
M/s Rainbow Silks, Jaipur demanded the amount from Naresh. Naresh refused. M/s
Rainbow Silks, Jaipur filed a suit against Naresh for the said amount. Decide in the light
of provisions of the Indian Contract Act, 1872, whether M/s Rainbow Silks, Jaipur would
succeed? (4 Marks)
(d) Explain the concept of 'Noting', 'Protest' and 'Protest for better security' as per the
Negotiable Instruments Act,1881. (3 Marks)
Answer
(a) (i) As per the provisions of Section 73(2) of the Companies Act, 2013 read with Rule 3
of the Companies (Acceptance of Deposits) Rules, 2014, as amended by the
Companies (Acceptance of Deposits) Amendment Rules, 2016, a company shall
accept any deposit from its members, together with the amount of other deposits
outstanding as on the date of acceptance of such deposits not exceeding thirty five
per cent of the aggregate of the Paid-up share capital, free Reserves and securities
premium account of the company. Provided that a private company may accept
from its members monies not exceeding one hundred per cent of aggregate of the
paid up share capital, free reserves and securities premium account and such
company shall file the details of monies so accepted to the Registrar in such
manner as may be specified.
Therefore, the given statement of eligibility of ABC Private Ltd. to accept deposits
from its members to the extent of ` 50.00 lakh is True.
(ii) A Government company is not eligible to accept or renew deposits under section
76, if the amount of such deposits together with the amount of other deposits
outstanding as on the date of acceptance or renewal exceeds thirty five per cent of
the aggregate of its Paid-up share capital, free Reserves and securities premium

Therefore, the given statement prescribing the limit of 25% to accept deposits is False.
(iii) According to the proviso to section 82(2) of the Companies Act, 2013, no notice
shall be required to be sent, in case the intimation to the Registrar in this regard is
in the specified form and signed by the holder of charge.
Hence, the given statement is True.
(iv) As per section 77 of the Companies Act, 2013, it shall be duty of the company
creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise and situated in or outside India, to
register the particulars of the charge signed by the company and the charge holder
together with the instruments, if any, creating such charge in such form, on payment
of such fees and in such manner as may be prescribed, with the registrar within 30
days of creation. The Registrar may, on an application by the company, allow such
registration to be made within a period of three hundred days of such creation on
payment of such additional fees as may be prescribed.
Hence, the given statement is True.
(b) (i) As per section 130 of the Companies Act, 2013, a company shall not re-open its
books of account and not recast its financial statements, unless an application in
this regard is made by the Central Government, the Income-tax authorities, the
Securities and Exchange Board, any other statutory body or authority or any person
concerned and an order is made by a court of competent jurisdiction or the Tribunal
to the effect that—
(i) the relevant earlier accounts were prepared in a fraudulent manner; or
(ii) the affairs of the company were mismanaged during the relevant period,
casting a doubt on the reliability of financial statements:
However, no order shall be made in respect of re-opening of books of account
relating to a period earlier than eight financial years immediately preceding the
current financial year.
In the given instance, an application was filed for re-opening and re-casting of the
financial statements of Chetan Ltd. for the financial year 2008-2009.
Though application filed by the Income Tax Authorities to NCLT is valid, its
recommendation for reopening and recasting of financial statements for the period
earlier than eight financial years immediately preceding the current financial year
i.e. 2019-2020, is invalid.
(ii) According to section 144 of the Companies Act, 2013, an auditor appointed under
this Act shall provide to the company only such other services as are approved by
the Board of Directors or the audit committee, as the case may be. But such
services shall not include designing and implementation of any financial information
system.

In the said instance, the Board of directors of A Ltd. requested its Statutory Auditor
to accept the assignment of designing and implementation of suitable financial
information system to strengthen the internal control mechanism of the company. As
per the above provision said service is strictly prohibited.
In case the Statutory Auditor accepts the assignment, he will attract the penal
provisions as specified in Section 147 of the Companies Act, 2013.
In the light of the above provisions, we shall advise the Statutory Auditor not to take
up the above stated assignment.
(c) The situation asked in the question is based on the provisions related with the modes of
creation of agency relationship under the Indian Contract Act, 1872. Agency may be
created by a legal presumption; in a case of cohabitation by a married woman (i.e. wife i s
considered as an implied agent of her husband). If wife lives with her husband, there is a
legal presumption that a wife has authority to pledge her husband’s credit for
necessaries. But the legal presumption can be rebutted in the following cases:
(i) Where the goods purchased on credit are not necessaries.
(ii) Where the wife is given sufficient money for purchasing necessaries.
(iii) Where the wife is forbidden from purchasing anything on credit or contracting debts.
(iv) Where the trader has been expressly warned not to give credit to his wife.
If the wife lives apart for no fault on her part, wife has authority to pledge her husband’s
credit for necessaries. This legal presumption can be rebutted only in cases (iii) and (iv)
above.
Applying the above conditions in the given case M/s Rainbow Silks will succeed. It can
recover the said amount from Naresh if sarees purchased by Aarthi are necessaries for
her.
(d) Noting: When a promissory note or bill of exchange has been dishonoured by non-
acceptance or non-payment, the holder may cause such dishonour to be noted by a
notary public upon the instrument, or upon a paper attached thereto, or partly upon each.
Such note must be made within a reasonable time after dishonour, and must specify the
date of dishonor, the reason if any assigned for such dishonor, or if the instrument has
not been expressly dishonoured, the reason why the holder treats it as dishonoured and
the notary’s charges.
Protest: When a promissory note or bill of exchange has been dishonoured by non-
acceptance or non-payment, the holder may, within a reasonable time, cause such
dishonour to be noted and certified by a notary public. Such certificate is called a protest.
Protest for better security: When the acceptor of a bill of exchange has become
insolvent, or his credit has been publicly impeached, before the maturity of the bill, the
holder may, within a reasonable time, cause a notary public to demand better security of

the acceptor, and on its being refused, may with a reasonable time, cause such facts to
be noted and certified as aforesaid. Such certificate is called a protest for better security.
Question 3
(a) Which fund may be utilized by a public limited company for purchasing (buy back) its own
shares? Also explain the provisions of the Companies Act, 2013 regarding the
circumstances in which a company is prohibited to buy back its own shares. (5 Marks)
(b) (i) Alex limited is facing loss in business during the financial year 2018-2019. In the
immediate preceding three financial years, the company had declared dividend at
the rate of 7%, 11% and 12% respectively. The Board of Directors has decided to
declare 12% interim dividend for the current financial year atleast to be in par with
the immediate preceding year. Is the act of the Board of Directors valid ? (3 Marks)
(ii) The Directors of East West Limited proposed dividend at 15% on equity shares for
the financial year 2017-2018. The same was approved in the Annual general body
meeting held on 24th October 2018. The Directors declared the approved dividends.
Mr. Binoy was the holder of 2000 equity of shares on 31 st March, 2018, but he
transferred the shares to Mr. Mohan, whose name has been registered on 18th
June, 2018. Who will be entitled to the above dividend ? (2 Marks)
(c) (i) 'M' draws bill on 'N'. 'N' accepts the bill without any consideration. The bill is
transferred to 'O' without consideration. 'O' transferred it to 'P' for ` 10,000. On
dishonor of the bill, 'P' sued 'O' for recovery of the value of ` 10,000. Examine
whether 'O' has any right to action against M and N? (2 Marks)
(ii) A Bill of Exchange was made without mentioning any time for payment. The holder
added the words "on demand" on the face of the instrument. Does this amount to
any material alteration? Explain. (2 Marks)
(d) 'Preamble does not over-ride the plain provision of the Act.' Comment. Also give suitable
example. (3 Marks)
Answer
(a) Funds utilized for purchase of its own securities: Section 68 of the Companies Act,
2013 states that a company may purchase its own securities out of:
(i) its free reserves; or
(iii) the proceeds of the issue of any shares or other specified securities.
However, buy-back of any kind of shares or other specified securities cannot be made
out of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.

Prohibition for buy-back in certain circumstances [Section 70]

(1) The provision says that no company shall directly or indirectly purchase its own
shares or other specified securities-
(a) through any subsidiary company including its own subsidiary companies; or
(b) through any investment company or group of investment companies; or
(c) if a default is made by the company in repayment of deposits or interest
payment thereon, redemption of debentures or preference shares or payment
of dividend to any shareholder or repayment of any term loan or interest
payable thereon, to any financial institutions or banking company;
But where the default is remedied and a period of three years has lapsed after
such default ceased to subsist, then such buy-back is not prohibited.
(2) No company shall directly or indirectly purchase its own shares or other specified
securities in case such company has not complied with provisions of Sections 92
(Annual Report), 123 (Declaration of dividend), 127 (Punishment for failure to
distribute dividends), and section 129 (Financial Statements).
(b) (i) As per Section 123(3) of the Companies Act, 2013, the Board of Directors of a
company may declare interim dividend during any financial year out of the surplus in
the profit and loss account and out of profits of the financial year in which such
interim dividend is sought to be declared:
Provided that in case the company has incurred loss during the current financial
year up to the end of the quarter immediately preceding the date of declaration of
interim dividend, such interim dividend shall not be declared at a rate higher than
the average dividends declared by the company during the immediately preceding
three financial years.
According to the given facts, Alex Ltd. is facing loss in business during the financial
year 2018-2019. In the immediate preceding three financial years, the company
declared dividend at the rate of 7%, 11% and 12% respectively. Accordingly, the
rate of dividend declared shall not exceed 10%, the average of the rates
(7+11+12=30/3) at which dividend was declared by it during the immediately
preceding three financial years.
Therefore the act of the Board of Directors as to declaration of interim dividend at
the rate of 12% during the F.Y 2018-2019 is not valid.
(ii) Payment of dividend: According to section 123(5) of the Companies Act, 2013,
dividend shall be payable only to the registered shareholder of the share or to his
order or to his banker. As said in the question, East West Limited proposed
dividend for Financial Year 2017- 2018. Mr. Binoy was the holder of 2000 equity
shares on 31st March, 2018. He transferred the shares to Mr. Mohan, whose name
was registered on 18th June 2018 in the register of members.

Since, Mr. Mohan became the registered shareholder before the declaration of
dividend in the Annual General Meeting of the company held on 24 th October, 2018
he will be entitled to the dividend.
(c) (i) Negotiable instrument made, etc. without consideration : A negotiable
instrument—
➢ made, drawn, accepted, endorsed, or transferred without consideration, or
➢ for a consideration which fails,
creates no obligation of payment between the parties to the transaction.
But if any such party has transferred the instrument with or without endorsement to
a holder for a consideration, such holder, and every subsequent holder deriving title
from him, may recover the amount due on such instrument from the transferor for
consideration or any prior party thereto.
In the light of the above provisions, in the given instance the bill was drawn,
accepted and transferred without consideration by ‘M’ to ‘N’, and from ‘N’ to ‘O’
respectively. Therefore, no obligation of payment is created between the parties. So
‘O’ has no right to action against ‘M’ and ‘N’.
(ii) Payment of instrument on which alteration is not apparent: A bill of exchange
was made without mentioning any time for payment. The holder added the words
“on demand” on the face of the instrument. As per the provision of Section 89 of the
Negotiable Instruments Act, 1881 this is not a material alteration since a bill of
exchange where no date of payment is specified will be treated as payable on
demand. Therefore, adding the words “on demand” does not alter the business
effect of the instrument.
Therefore, this cannot be said to have caused material alteration to the instrument.
(d) Preamble: The Preamble expresses the scope, object and purpose of the Act more
comprehensively. The Preamble of a Statute is a part of the enactment and can legitimately
be used as an internal aid for construing it. However, the Preamble does not over-ride the
plain provision of the Act. But if the wording of the statute gives rise to doubts as to its
proper construction, for example, where the words or phrase has more than one meaning
and a doubt arises as to which of the two meanings is intended in the Act, the Preamble
can and ought to be referred to in order to arrive at the proper construction.
In short, the Preamble to an Act discloses the primary intention of the legislature but can
only be brought in as an aid to construction if the language of the statute is not clear.
However, it cannot override the provisions of the enactment.
Example: Use of the word ‘may’ in section 5 of the Hindu Marriage Act, 1955 provides that “a
marriage may be solemnized between two Hindus…..” has been construed to be mandatory
in the sense that both parties to the marriage must be Hindus as defined in section 2 of the
Act. It was held that a marriage between a Christian male and a Hindu female solemnized

under the Hindu Marriage Act was void. This result was reached also having regard to the
preamble of the Act which reads: ‘An Act to amend and codify the law relating to marriage
among Hindus” [GullipoliSowria Raj V. BandaruPavani, (2009)1 SCC714].
Question 4
(a) Explain various instances which make the allotment of securities as irregular allotment
under the Companies Act, 2013. (4 Marks)
(b) Madurai Ltd. issued a notice for holding of its Annual general meeting on 7 th November
2018. The notice was posted to the members on 16 th October 2018. Some members of
the company allege that the company had not complied with the provisions of the
Companies Act, 2013 with regard to the period of notice and as such the meeting was
valid. Referring to the provisions of the Act, decide:
(i) Whether the meeting has been validly called?
(ii) If there is a shortfall, state and explain by how many days does the notice fall short
of the statutory requirement?
(iii) Can the delay in giving notice be condoned? (6 Marks)
(c) (i) The Companies Act, 2013 provides that the amount of dividend remained
unpaid/unclaimed on expiry of 30 days from the date of declaration of dividend shall
be transferred to unpaid dividend account within 7 days from the date of expiry of
such period of 30 days. If the expiry date of such 30 days is 30.10.2018, decide the
last date on or before which the unpaid/unclaimed dividend amount shall be
required to be transferred to a separate bank account in the light of the relevant
provisions of the General Clauses Act, 1897? (2 Marks)
(ii) Referring to the provisions of the General Clauses Act, 1897, find out the day/ date
on which the following Act/Regulation comes into force. Give reasons also,
(1) An Act of Parliament which has not specifically mentioned a particular date.
(2) The Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) (Fifth Amendment) Regulations, 2015 was issued by SEBI vide
Notification dated 14th August, 2015 with effect from 1st January, 2016.
(2 Marks)
(d) How will you understand whether a provision in a statute is 'mandatory' or 'directory'?
(3 Marks)
Answer
(a) Irregular allotment: The Companies Act, 2013 does not specifically provide for the term
“Irregular Allotment” of securities. Hence, we have to examine the requirements of a
proper issue of securities and consider the consequences of non- fulfillment of those
requirements.

In broad terms an allotment of shares is deemed to be irregular when it has been made
by a company in violation of Sections 23, 26, 39 or 40. Irregular allotment therefore
arises in the following instances:
1. Where a company does not issue a prospectus in a public issue as required by
section 23; or
2. Where the prospectus issued by the company does not include any of the matters
required to be included therein under section 26 (1), or the information given is
misleading, faulty and incorrect; or
3. Where the prospectus has not been filed with the Registrar for registration under
section 26 (4); or
4. The minimum subscription as specified in the prospectus has not been received in
terms of section 39; or
5. The minimum amount receivable on application is less than 5% of the nominal value
of the securities offered or lower than the amount prescribed by SEBI in this behalf; or
6. In case of a public issue, approval for listing has not been obtained from one or
more of the recognized stock exchanges under section 40 of the Companies Act,
2013.
(b) According to section 101(1) of the Companies Act, 2013, a general meeting of a
company may be called by giving not less than clear twenty-one days' notice either in
writing or through electronic mode in such manner as may be prescribed.
Also, it is to be noted that 21 clear days mean that the date on which notice is served
and the date of meeting are excluded for sending the notice.
Further, Rule 35(6) of the Companies (Incorporation) Rules, 2014, provides that in case
of delivery by post, such service shall be deemed to have been effected - in the case of a
notice of a meeting, at the expiration of forty eight hours after the letter containing the
same is posted.
(i) A 21 days’ clear notice must be given. In the given question, only 19 clear days’
notice is served (after excluding 48 hours from the time of its posting and the day of
sending and date of meeting). Therefore, the meeting was not validly called.
condonation of delay in giving of notice. Hence, the delay in giving the notice calling
the meeting cannot be condoned.
(c) (i) Section 9 of the General Clauses Act, 1897 provides that, for computation of time,
in any legislation or regulation, it shall be sufficient, for the purpose of excluding the
first in a series of days or any other period of time to use the word “from” and for the

purpose of including the last in a series of days or any other period of time, to use
the word “to”.
As per the facts of the question the company shall transfer the unpaid/unclaimed
dividend to unpaid dividend account within the period of 7 days. 30 th October 2018
will be excluded and 6 th November 2018 shall be included, i.e. 31st October, 2018
to 6th November, 2018 (both days inclusive).
(ii) (1) According to section 5 of the General Clauses Act, 1897, where any Central
Act has not specifically mentioned a particular date to come into force, it
shall be implemented on the day on which it receives the assent of the
President in case of an Act of Parliament.
(2) If any specific date of enforcement is prescribed in the Official Gazette, the Act
shall come into enforcement from such date.
Thus, in the given question, the SEBI (Issue of Capital and Disclosure
Requirements) (Fifth Amendment) Regulations, 2015 shall come into
enforcement on 1st January, 2016 rather than the date of its notification in the
gazette.
(d) Practically speaking, the distinction between a provision which is ‘mandatory’ and one
which is ‘directory’ is that when it is mandatory, it must be strictly observed; when it is
‘directory’ it would be sufficient that it is substantially complied with. However, we have to
look into the substance and not merely the form; an enactment in mandatory form might
substantially be directory and, conversely, a statute in directory form may in substance
be mandatory. Hence, it is the substance that counts and m ust take precedence over
mere form. If a provision gives a power coupled with a duty, it is mandatory; whether it is
or is not so would depend on such consideration as:
(i) the nature of the thing empowered to be done,
(ii) the object for which it is done, and
(iii) the person for whose benefit the power is to be exercised.
Question 5
(a) A group of individuals intend to form a club namely 'Budding Pilots Flying Club' as limited
liability company to impart class room teaching and aircraft flight training to trainee pilots.
It was decided to form a limited liability company for charitable purpose under Section 8
of the Companies Act, 2013 for a period of ten years and thereafter the club will be
dissolved and the surplus of assets over the liabilities, if any, will be distributed amongst
the members as a usual procedure allowed under the Companies Act.
Examine the feasibility of the proposal and advise the promoters considering the

OR
Give the points of distinction between ordinary resolution and special resolution. (5 Marks)
(b) (i) Explain the provisions of the Companies Act, 2013 relating to quorum for general
meeting of a public company having total 30 members, of which, two members are
bodies corporate and one member is the President of India.
Whether the representatives appointed by body corporate and President of India to
participate in the general meeting shall be counted for quorum and can such
representatives cast vote at that general meeting? (3 Marks)
(ii) If a member of a listed company who has casted his vote through electronic voting
can attend general meeting of the company and change his vote subsequently and
can he appoint a proxy? (2 Marks)
(c) (i) "An agent is neither personally liable nor can he personally enforce the contract on
behalf of the principal." Comment.
(ii) What is the liability of a bailee making unauthorized use of goods bailed? (4 Marks)
(d) If it is defined as:
(i) "Company means a company incorporated under the Companies Act, 2013 or under
any previous company Law".
(ii) "Person" includes, _______ under the Consumer Protection Act,1986.
How would you interpret/construct the nature and scope of the above definitions?
(3 Marks)
Answer
(a) According to section 8(1) of the Companies Act, 2013, where it is proved to the
satisfaction of the Central Government that a person or an association of persons
proposed to be registered under this Act as a limited company—
(a) has in its objects the promotion of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any such
other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members;
the Central Government may, by issue of licence, allow that person or association of
persons to be registered as a limited liability company.
In the instant case, the decision of the group of individuals to form a limited liability
company for charitable purpose under section 8 for a period of ten years and thereafter
to dissolve the club and to distribute the surplus of assets over the liabilities, if any,
amongst the members will not hold good, since there is a restriction as pointed out in

point (b) above regarding application of its profits or other income only in promoting its
objects. Further, there is restriction in the application of the surplus assets of such a
company in the event of winding up or dissolution of the company as provided in sub-
section (9) of Section 8 of the Companies Act, 2013. Therefore, the proposal is not
feasible.
OR
Difference between ordinary resolution and Special resolution
Ordinary Resolution—
Section 114(1) of the Companies Act, 2013 states that a resolution shall be ordinary
resolution, if the notice required under this Act has been duly given and it is required to
be passed by the votes cast, whether on a show of hands, or electronically or on a poll,
as the case may be, in favour of the resolution, including the casting vote of the
Chairman, if any, of the Chairman, by members, who, being entitled so to do, vote in
person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if
any cast against the resolution by members, so entitled and voting.
Simply put, the votes cast in the favour of the resolution, by any mode of voting should
exceed the votes cast against it.
Special Resolution—
As per Section 114(2) of the Act, a resolution shall be a special resolution, when–
(a) The intention to propose the resolution as a special resolution has been duly
specified in the notice calling the general meeting or other intimation given to the
members of the resolution;
(b) The notice required under this Act has been duly given; and
(c) The votes cast in favour of the resolution, whether on a show of hands, or
electronically or on a poll, as the case may be, in favour of the resolution, including
the casting vote of the Chairman, if any, of the Chairman, by members, who, being
entitled so to do, vote in person, or where proxies are allowed, by proxy or by postal
ballot, are required to be not less than 3 times the number of the votes, if any, cast
against the resolution by members so entitled and voting.
(b) (i) According to section 103(1)(a)(i) of the Companies Act, 2013, unless the articles of
the company provide for a larger number, in case of public company, if the number
of members as on the date of meeting is not more than one thousand, five members
personally present shall be the quorum for a meeting of the company.In the instant
case, the quorum for the public company will be 5 members personally present.
In the said company, two members are bodies corporate and one member is the
President of India.

Only members present in person and not by proxy are to be counted. Hence,
proxies whether they are members or not will have to be excluded for the purposes
of quorum.
As per section 113 of the Companies Act, 2013, if a company is a member of
another company, it may authorize a person by resolution to act as its
representative at a meeting of the latter company, then such a person shall be
deemed to be a member present in person and counted for the purpose of quorum
and shall be entitled to vote.
As per section 112 of the Companies Act, 2013, the President of India, if he is a
member of a company, may appoint such a person as he thinks fit, to act as his
representative at any meeting of the company. A person so appointed shall be
deemed to be a member of such a company and thus considered as member
personally present and shall be entitled to vote.
(ii) According to Rule – 20(4)(iii)(C) of the Companies (Management and
Administration) Rules, 2014, the notice of the meeting shall clearly state that the
members who have cast their vote by remote e-voting prior to the meeting may also
attend the meeting but shall not be entitled to cast their vote again.
In the instant case, a member of a listed company who has casted his vote through
electronic voting can attend general meeting of the company but cannot c hange his
vote subsequently and is not permitted to appoint a proxy.
(c) (i) According to section 230 of the Indian Contract Act, 1872, in the absence of any
contract to that effect, an agent cannot personally enforce contracts entered into by
him on behalf of his principal, nor is he personally bound by them. Thus, an agent
cannot personally enforce, nor be bound by, contracts on behalf of principal.
Presumption of contract to the contrary: But, such a contract shall be presumed
to exist in the following cases:
(1) Where the contract is made by an agent for the sale or purchase of goods for a
merchant resident abroad/foreign principal;
(2) Where the agent does not disclose the name of his principal or undisclosed
principal; and
(3) Where the principal, though disclosed, cannot be sued.
(ii) Liability of bailee making unauthorised use of goods bailed: According to
section 154 of the Indian Contract Act, 1872, if the bailee makes any use of the
goods bailed, which is not according to the conditions of the bailment, he is liable to
make compensation to the bailor for any damage arising to the goods from or during
such use of them.

(d) Restrictive and extensive definitions: The definition of a word or expression in the
definition section may either be restricting of its ordinary meaning or may be extensive of
the same.
section.
extensive: here the word defined is not restricted to the meaning assigned to it but has
extensive meaning which also includes the meaning assigned to it in the definiti on
section.
Thus,
(i) The definition is restrictive and exhaustive to the effect that only an entity
incorporated under the Companies Act, 2013 or under any previous Companies Act,
shall deemed to be company.
(ii) The definition is inclusive in nature, thereby the meaning assigned to the respective
word (here ‘person’) is extensive. It has a wider scope to include other terms into
the ambit of the definition having regard to the object of the definition.

MOCK TEST PAPER 2
ANSWERS
Division A
I. 1. (b)
2. (a)
3. (b)
II. 4. (d)
5. (c)
6. (c)
7. (c)
8. (b)
9. (c)
10. (b)
11. (d)
12. (c)
13. (c)
14. (b)
15. (d)
16. (d)
17. (c)
18. (d)
19. (a)
20. (a)
Division B
1. (a) According to section 42 of the Companies Act, 2013 any private or public company may make
private placement through issue of a private placement offer letter.
However, the offer shall be made to the persons not exceeding fifty or such higher number as
may be prescribed, in a financial year. For counting number of persons, Qualified Institutional
Buyers (QIBs) and employees of the company being offered securities under a scheme of
employees’ stock option will not be considered.
Further, Rule 14 (2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014
prescribes maximum of 200 persons who can be offered securities under the private placement in
a financial year, though this limit should be counted separately for each type of security.

It is to be noted that if a company makes an offer or invitation to more than the prescribed
number of persons, it shall be deemed to be an offer to the public and accordingly, it shall be
governed by the provisions relating to prospectus.
Also, a company is not permitted to make fresh offer under this section if the allotment with
respect to any offer made earlier has not been completed or otherwise, that offer has been
withdrawn or abandoned by the company. This provision is applicable even if the issue is of
different kind of security.
Any offer or invitation not in compliance with the provisions of this section shall be treated as a
public offer and all provisions will apply accordingly.
In the given case Purple Limited, though a public company can raise funds through private
placement as provisions related to private placement allow even a public company to raise funds
through this route. The company has given offer to 55 persons out of which 4 are qualified
institutional buyers and hence, the offer is given effectively to only 51 persons which is well within
the limit of 200 persons. From this point of view, the company complies the private placement
provisions.
However, as per the question, the company has given another private placement offer of
debentures before completing the allotment in respect of first offer and therefore, the second
offer does not comply with the provisions of section 42. Hence, the offers given by the company
will be treated as public offer.
In case the company gives offer for debentures in the same financial year after allotment of
equity shares is complete then both the offers can well be treated as private placement offers.
(b) (i) Section 127 of the Companies Act, 2013 provides for punishment for failure to distribute
dividend on time. One of such situations is where a shareholder has given directions to the
company regarding the payment of the dividend and those directions cannot be complied
with and the same has not been communicated to the shareholder.
In the instant case, A Ltd. has failed to communicate to the shareholder Mr. B about the
discrepancy (as per bank, account number as given by Mr. B doesn't tally with the records
of the bank) which led to non-compliance of his direction regarding payment of dividend.
Hence, the penal provisions under section 127 will be attracted.
(ii) According to section 123 of the Companies Act, 2013, a company may, before the
declaration of any dividend in any financial year, transfer such percentage of its profits for
that financial year as it may consider appropriate to the reserves of the company. Such
transfer is not mandatory and the percentage to be transferred to reserves is at the
discretion of the company.
As per the given facts, G Medical Instruments Limited has earned a profit of ` 910 crores for
the financial year 2021-2022. It has proposed a dividend @ 10%. However, it does not
intend to transfer any amount to the reserves of the company out of the profits of current
year.
As per the provisions stated above, the amount to be transferred to reserves out of profits
for any financial year is at the discretion of the company acting through its Board of
Directors. Therefore, at its discretion, if G Medical Instruments Limited decides not to
transfer any profit to reserves before the declaration of dividend at 10%, it is legally allowed
to do so.
(c) As per the provisions of section 142 of the Indian Contract Act 1872, where the guarantee has
been obtained by means of misrepresentation made by the creditor concerning a material part of
the transaction, the surety will be discharged. Further according to provisions of section 134, the
surety is discharged by any contract between the creditor and the principal debtor, by which the
principal debtor is released, or by any act or omission of the creditor, the legal consequence of
2

which is the discharge of the principal debtor.
In the given question, Prisha wanted to purchase air conditioner whose compressor should be of
copper, on credit from Ricky. Mr. Shiv has given the guarantee for payment of price. Ricky sold
the air conditioner of a particular brand on misrepresenting that it is made of copper while it is
made of aluminium of which both Prisha & Mr. Shiv were unaware. After being aware of the facts,
Prisha denied for payment of price. Ricky filed the suit against Mr. Shiv for payment of price.
On the basis of above provisions and facts of the case, as guarantee was obtained by Ricky by
misrepresentation of the facts, Mr. Shiv will not be liable. He will be discharged from liability.
(d) By virtue of provisions of section 9 of the Negotiable Instrument Act 1881, any person who for
consideration became the possessor of a negotiable instrument in good faith and without having
sufficient cause to believe that any defect existed in the title of the person from whom he derived
his title. Exception to section 47 provides if a negotiable instrument is delivered to a person, upon
condition, i.e. it will be effective on the happening of a certain event, such negotiable instrument
cannot be further negotiated unless such event happens. However, if it is transferred t o a holder
in due course, his rights will not be affected by such condition.
‘Shama’ issued a promissory note to ‘Vihari’ on the condition that he (‘Vihari’) will demand
payment only on the death of ‘Kayah’. Before the death of ‘Kayah’, ‘Vihari’ indorsed a nd delivered
the promissory note to ‘Deepak’, who receive the promissory note in good faith. On due date,
‘Deepak’ presented the promissory note for payment but ‘Shama’ denied for payment.
From the above provisions and facts of the case, it can be said that ‘Deepak’ has received the
promissory note in good faith, he is a holder in due course and his rights will not be affected by
any condition attached to the instrument by any prior party. Therefore, ‘Deepak’ can recover the
amount due on the promissory note from ‘Shama’.
2. (a) According to Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, the following
category of receipt is not considered as deposit:
Any amount received and held pursuant to an offer made in accordance with the provisions of the
Companies Act, 2013 towards subscription to any securities, including share application money
or advance towards allotment of securities, pending allotment, so long as such amount is
appropriated only against the amount due on allotment of the securities applied for;
It is clarified by way of Explanation that if the securities for which application money or advance
for such securities was received cannot be allotted within 60 days from the date of receipt of the
application money or advance for such securities and such application money or advance is not
refunded to the subscribers within 15 days from the date of completion of 60 days, such amount
shall be treated as a deposit under these rules.
Further, it is clarified that any adjustment of the amount for any other purpose shall not be treated
as refund.
In the given question, Rashmika Limited has received Rs. 50 Lakhs as share application money
on 01.06.2021. It failed to allot shares within the prescribed limit. Further, on 30.07.20 21 the
company adjusted the amount of Rs. 5 Lakhs received from Mr. Kumar (a customer of the
company), by way of book adjustment towards the dues payable by him to the company.
(1) If such application money or advance is not refunded to the subscribers within 15 days from
the date of completion of 60 days, such amount shall be treated as a deposit. In the
question, the prescribed limit of 60 days will end on 31.07.2021 and the company has 15
3

more days to refund such application money to the subscribers. Otherwise, after lapse of
such 15 days, the amount not so refunded will be treated as deposit. Hence, the Company
Secretary of Rashmika Limited is not correct in treating the entire amount of Rs. 50 Lakh as
‘Deposits’ on 31.07.2021.
(2) Any adjustment of the amount for any other purpose shall not be treated as refund. Thus,
the amount of Rs. 5 Lakh adjusted against payment due to be received from Mr. Kumar,
cannot be treated as refund.
(b) Directors’ Responsibility Statement: According to section 134(5) of the Companies Act, 2013,
the Directors’ Responsibility Statement referred to in 134(3)(c) shall state that —
(1) in the preparation of the annual accounts, the applicable accounting standards had been
followed along with proper explanation relating to material departures;
(2) the directors had selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view
of the state of affairs of the company at the end of the financial year and of the profit and
loss of the company for that period;
(3) the directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for safeguarding the assets
of the company and for preventing and detecting fraud and other irregularities;
(5) the directors, in the case of a listed company, had laid down internal financial controls to be
followed by the company and that such internal financial controls are adequate and were
(6) the directors had devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and operating effectively.
(c) (i) According to section 202 of the Indian Contract Act, 1872, where the agent has himself an
interest in the property which forms the subject matter of the agency, the agency cannot, in
the absence of an express contract, be terminated to the prejudice of suc h interest.
In other words, when the agent is personally interested in the subject matter of agency, the
agency becomes irrevocable.
In the given question, A gives authority to B to sell A’s land, and to pay himself, out of the
proceeds, the debts due to him from A.
As per the facts of the question and provision of law, A cannot revoke this authority, nor it
can be terminated by his insanity.
(ii) According to section 191 of the Indian Contract Act, 1872, a “Sub -agent” is a person
employed by, and acting under the control of, the original agent in the business of the
agency.
termination (subject to the rules regarding the termination of an agent’s authority) of the
authority of all sub-agents appointed by him.
In the given question, B is the agent of A, and C is the agent of B. Hence, C becomes a
sub- agent.
Thus, when A revokes the authority of B (agent), it results in termination of authority of sub -
agent appointed by B i.e. C (sub-agent).
(d) As per section 130 of the Negotiable Instruments Act, 1881, a cheque marked “not negotiable” is
a transferable instrument. The inclusion of the words ‘not negotiable’ however makes a

significant difference in the transferability of the cheques i.e., they cannot be negotiated. The
holder of such a cheque cannot acquire title better than that of the transferor.
In the given question, A gave to B the blank cheque with ‘not negotiable crossing’. B had an
authority to fill only a sum of Rs. 3,000 but he filled it up Rs. 5,000. This makes B’s title defective.
B then endorsed it to C for consideration of Rs. 5,000.
In the light of above stated facts and provision, C is not entitled to recover the full amount from A
or B as C cannot acquire a title better than that of the transferor (B).
Hence, in the instant case, the Central Government can revoke the license given to P
Cricket Club as section 8 company, as the affairs of the company are conducted
opportunity of being heard. [Section 8(7)] Hence, the stated company may be wound up.
In the instant case, P Cricket Club cannot be merged with Z Net Private Limited as the
objects of both the companies are different and not similar.
(b) Section 140 of the Companies Act, 2013 prescribes procedure for removal of auditors. Under
section 140 (1) the auditor appointed under section 139 may be removed from his office before
the expiry of his term only by a special resolution of the company, after obtaining the previous
approval of the Central Government in that behalf in the prescribed manner.
From this sub section it is clear that the approval of the Central Government shall be taken first
and thereafter the special resolution of the company should be passed.
Provided that before taking any action under this sub-section, the auditor concerned shall be
given a reasonable opportunity of being heard.
Companies (Audit & Auditors) Rules, 2014, the following steps should be taken for the removal of
an auditor before the completion of his term:
The application to the Central Government for removal of auditor shall be made in Form ADT-2
and accompanied with fees as provided for this purpose under the Companies (Registration
Offices and Fees) Rules, 2014.
The application shall be made to the Central Government within thirty days of the resolution
passed by the Board.

The company shall hold the general meeting within sixty days of receipt of approval of the
Central Government for passing the special resolution.
Hence, in the instant case, the decision of ABC Ltd. to remove XYZ & Associates, auditors of the
company at the general meeting held on 25-5-2022 subject to approval of Central Government is
not valid. The Approval of the Central Government shall be taken before passing the special
resolution in the general meeting.
(c) (i) The bill of exchange is drawn, mentioning expressly as ‘payable on demand’. The bill will be at
maturity for payment on 04-1-2022, if presented on 01-01-2022:
This statement is not valid as no days of grace are allowed in the case of bill payable on demand.
claims that he is discharged form his liability as the holder fails to give notice of dishonour of the
bill to all the parties thereto:
As per section 93 of the Negotiable Instruments Act, 1881, notice of dishonor must be given by
the holder to all parties other than the maker or the acceptor or the drawee whom the holder
seeks to make liable. Accordingly, notice of dishonour to the acceptor of a bill is not necessary.
Therefore, claim of drawer that he is discharged from his liability on account of holder’s failure to
give notice to all the parties thereto, is invalid.
(d) Impact of the words “Means” and “Includes” in the definitions- The definition of a word or
expression in the definition section may either be restricting of its ordinary meaning or may be
extensive of the same.
When a word is defined to ‘mean’ such and such, the definition is ‘prima facie’ restrictive and
exhaustive, we must restrict the meaning of the word to that given in the definition section.
But where the word is defined to ‘include’ such and such, the definition is ‘prima facie’ extensive,
here the word defined is not restricted to the meaning assigned t o it but has extensive meaning
which also includes the meaning assigned to it in the definition section.
Example:
Definition of Director [section 2(34) of the Companies Act, 2013]—Director means a director
appointed to the board of a company. The word “means” suggests exhaustive definition.
Definition of Whole time director [Section 2(94) of the Companies Act, 2013] —Whole time
director includes a director in the whole time employment of the company. The word “includes”
suggests extensive definition. Other directors may be included in the category of the whole time
director.
4. (a) Entrenchment: Usually an article of association may be altered by passing special resolution but
entrenchment makes it more difficult to change it. So, entrenchment means making something
more protective.
Section 5 of the Companies Act, 2013 describes the provisions relating to entrenchment.
Articles may contain provisions for entrenchment [Section 5(3)]: The articles may contain
provisions for entrenchment to the effect that specified provisions of the articles may be altered
only if conditions or procedures as that are more restrictive than those applicable in the case of a
special resolution, are met or complied with.
Manner of inclusion of the entrenchment provision [Section 5(4)]: The provisions for
entrenchment shall only be made either on formation of a company, or by an amendment in the
articles agreed to by all the members of the company in the case of a private company and by a
special resolution in the case of a public company.

Notice to the registrar of the entrenchment provision [Section 5(5)]: Where the articles
contain provisions for entrenchment, whether made on formation or by amendment, the company
shall give notice to the Registrar of such provisions in such form and manner as may be
prescribed.
(b) As per the provisions of section 2(16) of the Companies Act, 2013, “charge” means an interest or
lien created on the property or assets of a company or any of its undertakings or both as security
and includes mortgage.
Whenever a company borrows money by way of loans including term loans or working capital
loans from financial institutions or banks or any other persons, by offering its property or assets,
as security a charge is created on such property or assets in favour of the lender. Such a charge
is compulsorily registrable under the provisions of the Companies Act, 2013 in accordance with
Chapter VI and the rules made in this regard.
Thus, when Krish (Private) Limited obtains working capital loans from financial institut ions by
offering stock and Accounts Receivables as security, it is required to create a charge on such
property or assets in favour of the lender. Hence, for Rs. 25 Lakh working capital loan, it is
required to create a charge on it.
Krish (Private) Limited is not required to create a charge for Rs. 5 Lakh adhoc overdraft on the
personal guarantee of a director. Since, charge is always created on the property or assets of a
company and personal guarantee of director is not a property or asset of company.
(c) Financial Year: According to Section 3(21) of the General Clauses Act, 1897, financial year shall
mean the year commencing on the first day of April.
The term Year has been defined under section 3(66) as a year reckoned according to the British
calendar. Thus, as per the General Clauses Act, 1897, year means calendar year which starts
from January to December.
Difference between Financial Year and Calendar Year: Financial year starts from first day of
April but Calendar Year starts from first day of January.

(d) (i) Historical Setting: The history of the external circumstances which led to the enactment in
question is of much significance in construing any enactment. We have, for this purpose, to
take help from all those external or historical facts which are necessary in the understand ing
and comprehension of the subject matter and the scope and object of the enactment.
History in general and Parliamentary History in particular, ancient statutes, contemporary or
other authentic works and writings all are relevant in interpreting and con struing an Act.
(ii) Use of Foreign Decisions: Foreign decisions of countries following the same system of
construing our own Acts. However, prime importance is always to be given to the language
of the Indian statute. Further, where guidance can be obtained from Indian decisions,
reference to foreign decisions may become unnecessary.
5. (a) According to section 53 of the Companies Act, 2013, except as provided in section 54, a
company shall not issue shares at a discount. Any share issued by a company at a discount shall
be void.
According to section 54 of the Companies Act, 2013, notwithstanding anything contained in
section 53, a company may issue sweat equity shares of a class of shares already issued, if the
prescribed conditions are fulfilled.
(1) As per facts of the question and provisions of section 53 and 54 of the Companies Act,
2013, Yuvan Limited cannot issue at a discount of Rs. 1 per share. Hence, the advise of the
underwriter to issue shares at a discount is not valid.
(2) In terms of provisions of section 54 of the Companies Act, 2013, if the above shares have
been issued to employees as Sweat equity shares and prescribed conditions are fulfilled,
then the issue of shares at discount is valid.
(b) As per the provisions of Section 77 of the Companies Act, 2013, in case the charge was not
registered within 30 days of creation of the charge, the Registrar may, on an application by the
company, allow such registration to be made within a period of 60 days of such creation (i.e.
another 30 days are granted after the expiry of original 30 days), on payment of additional fees
as prescribed.
Procedure for Extension of Time Limit: For seeking extension of time, the company is required
to make an application to the Registrar in the prescribed form. It should be supported by a
declaration from the company signed by its company secretary or a director that such belated
filing shall not adversely affect the rights of any other intervening creditors of the company.
The application so made must satisfy the Registrar that the company had sufficient cause for not
filing the particulars and the instrument of charge, if any, within the original period of thirty days.
Only then he will allow registration of charge within the extended period. Further, requisite
additional fee or advalorem fee, as applicable, must also be paid.
(c)
Number of party/ there are only two parties there are three parties creditor,
Parties to the contract namely the indemnifier principal debtor and surety.
[promisor] and the indemnified
[promisee]
Nature of liability The liability of the indemnifier The liability of the surety is
is primary and unconditional. secondary and conditional as the
primary liability is that of the
principal debtor.
8

Time of liability The liability of the indemnifier The liability arises only on the non
arises only on the happening of performance of an existing
a contingency. promise or non-payment of an
existing debt.
Time to act The indemnifier need not act at The surety acts at the request of
the request of indemnity holder principal debtor.
Right to sue third indemnifier cannot sue a third surety can proceed against
party party for loss in his own name principal debtor in his own right
as there is no privity of because he gets all the right of a
contract. Such a right would creditor after discharging the
arise only if there is an debts.
assignment in his favour.
Purpose Reimbursement of loss For the security of the creditor
Competency to All parties must be competent In the case of a contract of
contract to contract guarantee, where a minor is a
principal debtor, the contract is
still valid.

Test Series: September, 2022
MOCK TEST PAPER 1
I. The aggregate value of the paid-up share capital of Sai Ram Limited, a listed company, was ` 200 crore
divided into 20 crore equity shares of `10/- each at the end of the financial year 2021-22 having its
registered office at Pune. This company had been registered with an authorised share capital of
` 300 crore divided into 30 crore equity shares of `10/- each. The company has very good reputation
in compliance of all legal requirements on time. The company produces health related products such as
ayurvedic medicines, medical instruments, sanitizers, masks, medical soaps etc. The extract of Balance
Sheet of the company as on 31st March, 2022 showed the following figures–
Particulars Amount (` in crore)
Free reserves created out of profits 200
Securities Premium account 80
Credit balance of Profit & Loss account 50
Reserves created out of revaluation of assets 25
Miscellaneous expenditure not written off 10
Turnover of the company during the financial year 2021-22 was ` 700 crore and the net profit calculated
in accordance with section 198 of the Companies Act, 2013 with other adjustments as per CSR Rules
was `4 crore only.
The Board of Directors of the company constituted of the following persons as directors- a Chartered
Accountant ‘Sai Ram’ as the Managing Director, ‘Roshan’ and ‘Prachita’ as independent directors, ‘Hari
Om’, ‘Bindu’, ‘Reddy’ and ‘Komal’. Prakash, Chief compliance officer of the company informed the Board
on 20th April, 2022 that the company attracts the provisions of section 135 of the Companies Act, 2013
and all the formalities have to be complied with accordingly. Thereafter, on 30th April, 2022 a CSR
committee was formed to act and comply the provisions of Corporate Social Responsibility.
The company proposed a list of activities to spend 4% of the average net profits of the company made
during the three immediately preceding financial years in pursuance of its CSR Policy as under –
1. The CSR projects for the benefit of employees of the company and their families only.
2. A contribution of ` 10,000/- to a political party under section 182 of the Companies Act, 2013.
3. A contribution to the PM CARES Fund during Covid pandemic.
4. Local activities like promotion of child and women education.
5. Activities carried out for fulfilment of any other statutory obligations under any law in force in India.
6. CSR projects undertaken through a Section 8 company.

On the basis of above facts and by applying applicable provisions of Companies Act, 2013 and the
applicable Rules therein, choose the correct answer.
1. Prakash, Chief compliance officer of the company informed the Board on 20th April, 2022 that the
company attracts the provisions of section 135 of the Companies Act, 2013. On what basis of the
following he arrived at this conclusion -
(a) On the basis of turnover of the company.
(b) On the basis of turnover and net profit of the company taken together.
(c) On the basis of net worth of the company.
(d) On the basis of net worth and turnover of the company taken together.
2. For the purpose of section 135 of the Companies Act, 2013, the net worth has to calculated as
defined under section 2(57) of the Act. In this context, which of the following statements is correct
with reference to the above case –
(a) The net worth of Sai Ram Limited during the financial year 2021-22 was `520 crore.
(b) The net worth of Sai Ram Limited during the financial year 2021-22 was `530 crore.
(c) The net worth of Sai Ram Limited during the financial year 2021-22 was `555 crore.
(d) The net worth of Sai Ram Limited during the financial year 2021-22 was `620 crore.
3. Sai Ram Limited constituted a Corporate Social Responsibility Committee as per the provisions of
the Act and Companies (Corporate Social Responsibility Policy) Rules, 2014, therein consisting of-
(a) Sai Ram, Hari Om, Bindu and Reddy
(b) Hari Om, Bindu, Reddy and Prakash
(c) Sai Ram, Hari Om, Bindu and Prakash
(d) Sai Ram, Hari Om, Bindu and Roshan
II. Akash wants to wear a new coat for his seminar which is to be held (after 20 days). He bought cloth
material from the market to make a new coat. Akash gives material to Mr. Stitch, a tailor, to make the
coat. Mr. Stitch promised Akash to deliver the coat within the stipulated time of one week. Akash paid
10% advance so that he stitches his coat on priority basis. After one week when Akash went to the tailor
he was shocked to see that the coat is still unstitched. The tailor demanded two more days’ time from
Akash to stitch the coat, but Akash refused and asked the tailor to return his piece of cloth. Tailor
retained the cloth and asked Akash to pay the price, as he already did the cutting of the cloth.
Nishant, Akash 's friend left his car at the company’s authorised showroom for servicing. As Nishant’s
house is located in the remote area of the city, so he instructed the manager of the showroom to park
the vehicle at Akash’s residence. So as per Nishant’s instructions the car was sent to Akash’s house
after servicing. The worker of the showroom parked the car outside Akash’s residence and handed over
the key to Akash's servant. Next day, when Nishant went to pick up his car he found that somebody has
hit the car while it was parked there.
Nishant found a mobile phone and a branded pen lying on the road outside Akash’s residence. Nishant
tried to enquire about the real owner. He took the phone and pen with him and kept it in the drawer of
his study table. Next day, Nishant’s wife came to the room searching for a pen, she saw the pen and
took the pen and went out. Unfortunately, Nishant’s wife lost the pen. After two days, the real owner,
approached him (Nishant), Nishant humbly delivered his phone and apologized for the loss of pen.

4. According to the provisions of the Indian Contract Act, 1872, do you think the tailor has a right of
lien over the cloth?
(a) Yes, he is entitled to retain the coat until he is paid.
(b) No, he has not completed the work within the agreed time
(c) Yes, in case of particular lien he can retain the cloth.
(d) No, but he is not required to return the advance amount
5. Referring to the provision of the Indian Contract Act, 1872, what are the repercussions, when
Nishant found goods belonging to another and takes them into his custody? Choose the correct
statement.
(a) He becomes subjected to the same responsibility as of a bailee.
(b) merely possession of the goods does not make him a bailee
(c) No act is done by owner for placing the goods in the possession of Nishant, so he cannot be
treated as bailee.
(d) In the absence of any express or implied contract, absolves Nishant’s liabilities as bailee
6. A Private Company cannot issue securities:
(a) By way of rights issue
(b) By way of bonus issue
(c) By way of private placement
(d) By issue of Prospectus in Public (1 Mark)
7. The Annual General Meeting of Yellow Limited was held on 25 th June 2022. According to the
provisions of Companies Act, 2013, till what date the company should submit report o n AGM to the
registrar?
(a) 30.06.2022
(b) 10.07.2022
(c) 24.07.2022
(d) 25.07.2022 (2 Marks)
8. As per the provisions of the General Clauses Act, 1897, where an act or omission constitutes an
offence under two or more enactments, then the offender shall be liable to be prosecuted and
punished under:
(a) Under either or any of those enactments
(b) Twice for the same offence
(c) Either (a) or (b) as per the discretion of the court
(d) Under the cumulative effect of both the enactments (1 Mark)

9. Where a company is granted licence under section 8, it is not required to use the word ……………
even though it is a limited company:
(a) Guarantee company
(b) Limited Liability Partnership
(c) Limited or Private Limited, as the case may be
(d) Development Authority (1 Mark)
10. Where an act of parliament does not expressly specify any particular day as to the day of coming
into operation of such Act, then it shall come into operation on the day on which :
(a) It receives the assent of the President
(b) It receives the assent of the Governor General
(c) It is notified in the official gazette
(d) It receives assent of both the houses of Parliament (1 Mark)
11. K Limited decides to raise deposits of ` 10.00 lakh from its members. However, it proposes to
secure such deposits partially by offering a security worth ` 5.00 lakh. Which of the following
options best describe such deposits:
(a) Fully secured deposits (except a small portion)
(b) Unsecured deposits
(c) Partially secured deposits
(d) These cannot be classified as deposits (1 Mark)
12. Every company shall pay a penal rate of interest of ……….. per annum for the overdue period in
case of deposits, whether secured or unsecured, matured and claimed but remaining unpaid:
(a) 9%
(b) 14%
(c) 18%
(d) 24% (1 Mark)
13. When the dividend is declared at the Annual General Meeting of the company, it is known as ….
(a) Final Dividend
(b) Interim Dividend
(c) Dividend on preference shares
(d) Scrip Divided (1 Mark)
14. Every company shall, at the first annual general meeting, appoint an individual or a firm as an
auditor who shall hold office from the conclusion of that meeting till the conclusion of its:
(a) Second annual general meeting
(b) Fourth annual general meeting
(c) Sixth annual general meeting
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(d) Eight annual general meeting (1 Mark)
15. A Ltd. is holding 61% shares in B Ltd. and B Ltd. holds 51% in C Ltd. State which is the correct
statement here:
(a) C Ltd. is the holding company to A Ltd.
(b) C Ltd. is the holding company to B Ltd.
(c) B Ltd. is the Subsidiary to C Ltd.
(d) Both B Ltd. and C Ltd. are subsidiary to A Ltd. (1 Mark)
16. The Best Dry Fruits Ltd was incorporated under the Companies Act, 1913. Whether the provisions
of the Companies Act, 2013 shall apply on it:
(a) No, the provisions of the Companies Act, 2013 shall not apply on it.
(b) Yes, the provisions of the Companies Act, 2013 shall apply on it.
(c) The Companies Act, 1913 was enacted by the British Government, hence only an Act made
by British Government shall apply on such company.
(d) Since, this company was incorporated by the British Government, hence the Companies Act
of UK Govt shall apply. (2 Marks)
17. The financial statement in relation to a dormant company may not include:
(a) balance sheet
(b) cash flow statement
(c) applicable explanatory note
(d) profit and loss account (1 Mark)
18. Any instrument is at maturity on the ……. day after the day on which it is expressed to be payable.
(a) first
(b) second
(c) third
(d) fourth (1 Mark)
19. An instrument which is vague and cannot be clearly identified either as a bill of exchange, or as a
promissory note, is called as:
(a) Bearer instrument
(b) Ambiguous instrument
(c) Order instrument
(d) Inland instrument (1 Mark)
20. When there is a conflict between two or more statues or two or more parts of a statute then which
rule is applicable:
(a) Welfare construction
(b) Strict construction
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(c) Harmonious construction
(d) Mischief Rule (1 Mark)
21. A promissory note dated 31 st August, 2022, is made payable three months after date. What will the
maturity date for this instrument?
(a) 30th October, 2022
(b) 31st October, 2022
(c) 2nd December, 2022
(d) 3rd December, 2022 (2 Marks)
22. ______________ is the cardinal rule of construction that words, sentences and phrases of a statute
should be read in their ordinary, natural and grammatical meaning so that they may have effect in
their widest amplitude.

1. (a) The Annual General Meeting of ABC Bakers Limited held on 30 th May, 2022, declared a dividend
at the rate of 30% payable on its paid-up equity share capital as recommended by Board of
Directors. However, the Company was unable to post the dividend warrant to Mr. Ranjan, an equity
shareholder, up to 25 th July, 2022. Mr. Ranjan filed a suit against the Company for the payment of
dividend along with interest at the rate of 20 percent per annum for the period of default. Decide in
the light of provisions of the Companies Act, 2013, whether Mr. Ranjan would succeed? Also, state
the directors’ liability in this regard under the Act. (6 Marks)
(b) Octagon Limited is holding 58% of the paid up share capital of Pentagon Limited. Vijay, one of the
shareholders of Octagon Limited, holding 10% shares of the company, has made a charitable trust.
He donated his 10% shareholding in Octagon Limited and ` 20 crore to the trust. He appointed
Pentagon Limited as the trustee. All the assets of the trust are held in the name of Pentagon
Limited.
As per the provisions of the Companies Act, 2013, decide whether Pentagon Limited can hold
shares of Octagon Limited. (6 Marks)
(c) Mr. Shiv, a cargo owner, chartered a vessel to carry a cargo of wheat from a foreign port to
Tuticorin. The vessel got stranded on a reef in the sea 300 miles from the destination. The ship’s
managing agents signed a salvage agreement for Mr. Shiv. The goods (wheat) being perishable,
the salvors stored it at their own expense. Salvors intimated the whole incident to the cargo owner.
Mr. Shiv refuse to reimburse the salvor, as it is the Ship-owner, being the bailee of the cargo, who
was liable to reimburse the salvor until the contract remained unterminated. Referring to the
provision of The Indian Contract Act 1872, do you acknowledge or decline the act of salvor, as an
agent of necessity, for Mr. Shiv. Explain? (4 Marks)
(d) Discuss with reasons, whether the following persons can be called as a ‘holder’ under the
Negotiable Instruments Act, 1881:
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(i) Babita finds a cheque payable to bearer, on the road and retains it.
(ii) Biswas, the agent of Chandan, is entrusted with an instrument without indorsement by
Chandan, who is the payee. (3 Marks)
2. (a) The Articles of Association of ABC Limited require the personal presence of 7 members to
constitute quorum of General Meetings. The company has 870 members as on the date of meeting.
The following persons were present in the extra-ordinary meeting to consider the appointment of
Managing Director:
(i) A, the representative of Governor of Karnataka.
(ii) B and C, shareholders of preference shares,
(iii) D, representing Green Limited and Blue Limited
(iv) E, F, G and H as proxies of shareholders.
Can it be said that the quorum was present in the meeting? (6 Marks)
(b) The Companies Act, 2013, prescribes certain classes of unlisted public companies to appoint
internal auditor. Enumerate such unlisted public companies that are required to appoint internal
auditor. (4 Marks)
(c) Shweta and Mira are very good friends. Shweta bailed her jewellery with Mira on the condition to
safeguard it in a bank’s safe locker. However, Mira kept it in safe locker at her residence, where
she usually keeps her own jewellery. After a month all jewellery was lost in a religious riot. Shweta
filed a suit against Mira for recovery. Referring to provisions of the Indian Contract Act, 1872, state
whether Shweta will succeed. (4 Marks)
(d) What is the meaning of ‘Acceptor for honour’ and ‘payment for honour’? Give your answer in terms
of the Negotiable Instruments Act, 1881. (3 Marks)
3. (a) Explain the provisions of the Companies Act, 2013 relating to the ‘Service of Documents’ on a
company and the members of the company? (5 Marks)
(b) Gizmo Limited was incorporated in 1990 in the town of Alwar. Its main business is manufacturing
high quality bangles. It is in the process of appointing statutory auditors for the financial year 2021-
22. Advise whether the following persons are qualified to be appointed as statutory auditor of the
Gizmo Limited:
(1) Priyansh, a qualified chartered accountant, is an employee of Gizmo Limited.
(2) Vinod is a practicing Chartered Accountant indebted to Gizmo Limited for rupees 2 lakh.
(5 Marks)
(c) Mr. Krishna draws a cheque of ` 20,000 and gives to Mr. Balram by way of gift. State with reason
whether -
(1) Mr. Balram is a holder in due course as per the Negotiable Instrument Act, 1881?
(2) Mr. Balram is entitled to receive the amount of ` 20,000 from the bank? (4 Marks)
(d) Explain the principles of “Grammatical Interpretation” and “Logical Interpretation” of a Statute.
(3 Marks)
4. (a) The persons (not being members) dealing with the company are always protected by the doctrine
of indoor management. Explain. (6 Marks)

(b) Sasha Private Limited received ` 3,00,000 from one of the relatives of a Director. The said relative
has furnished a declaration that the amount was received by him from his mother as a gift. Decide
as per the relevant provisions of the Companies Act, 2013, whether the said amount received by
the company will be considered as deposits or not. (4 Marks)
(c) Mr. Sridhar has issued a promissory note of `1000 to Mr. Mohan on 17 th May 2022 payable 3
months after date. After that, a sudden holiday was declared on 20 th August 2022 due to Moharram.
As per the provisions of the General Clauses Act 1897, what should be the date of presentment of
promissory note for payment? Whether it should be 19 th August 2022 or 21 st August 2022?
(4 Marks)
(d) Enumerate when does the rule of Ejusdem Generis apply. (3 Marks)
5. (a) Following is the extract of the Balance sheet ABC Ltd. as on 31 st March, 2022:
Particulars Amount (`)

Equity & Liabilities
(1) Shareholder’s Fund
(a) Share Capital:
Authorized Capital:
10,000, 12% Preference Shares of ` 10 each 1,00,000
1,00,000 equity shares of ` 10 each 10,00,000 11,00,000
Issued & Subscribed Capital:
8000,12% Preference Shares of ` 10 each fully paid up 80,000
90,000 equity shares of ` 10 each, ` 8 paid up 7,20,000
(b) Reserve and Surplus
General Reserve 1,20,000
Capital Reserve 75,000
Securities Premium 25,000
Surplus in statement of P& L 2,00,000 4,20,000
(2) Non-Current Liabilities:
Long-term borrowings:
Secured Loan: 12% partly convertible
Debenture @ ` 100 each 5,00,000
On 1st April, 2022 the company has made final call at ` 2 each on 90,000 Equity Shares. The call
money was received by 25 th April, 2022. Thereafter, the company decided to capitalize it’s reserves
by way of bonus @ 1 share for every 4 shares to existing shareholders.
Answer the following questions according to the Companies Act, 2013, in above case:
(A) Which of the above-mentioned sources can be used by company to issue bonus shares?
(B) Calculate the amount to be capitalized from free reserves to issue bonus shares?
(5 Marks)

(b) Mr. Raj acquired a property from XYZ Limited which was mortgaged to ABC Bank. He settled the
dues to ABC Bank in full and the same was registered with the sub-registrar who has noted that
the mortgage has been settled. But neither the company nor ABC Bank has filed particulars of
satisfaction of charge with the Registrar of Companies. Can Mr. Raj approach the Registrar and
seek any relief in this regard? Discuss this matter in the light of provisions of the Companies Act,
2013. (5 Marks)
(c) As per the provisions of the Indian Contract Act, 1872, what is the meaning of:
(1) Continuing guarantee
(2) Gratuitous Bailment (4 Marks)
(d) What is the meaning of service by post as per provisions of the General Clauses Act, 1897?
(3 Marks)

Test Series: September, 2022
MOCK TEST PAPER 1
ANSWERS
Division A
I. 1. (c)
2. (a)
3. (d)
II. 4. (b)
5. (a)
6. (d)
7. (d)
8. (a)
9. (c)
10. (c)
11. (b)
12. (c)
13. (a)
14. (c)
15. (d)
16. (b)
17. (b)
18. (c)
19. (b)
20. (c)
21. (d)
22. (a)
Division B
1. (a) Section 127 of the Companies Act, 2013 lays down the penalty for non -payment of dividend
within the prescribed time period of 30 days. According to this section where a dividend has been
declared by a company but has not been paid or the warrant in respect thereof has not been
posted within 30 days from the date of declaration of dividend to any shareholder entitled to the
payment of dividend:
(1) every director of the company shall, if he is knowingly a party to the default, be punishable
with imprisonment maximum up to two years and with minimum fine of rupees one thousand
for every day during which such default continues; and

(2) the company shall be liable to pay simple interest at the rate of 18% per annum during the
period for which such default continues.
In the given question, the company was unable to post dividend warrant within 30 days from the
date of declaration of dividend. Thus, the directors will be liable as per the above provisions and
the company is liable to pay simple interest. However, Mr. Ranjan will not succeed if he claims
interest at 20% per annum interest as the limit prescribed under section 127 is 18% per annum.
(b) According to section 19 of the Companies Act, 2013 a company shall not hold any shares in its
holding company either by itself or through its nominees. Also, holding company shall not allot or
transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares
of a company to its subsidiary company shall be void.
Following are the exceptions to the above rule—
(a) where the subsidiary company holds such shares as the legal representative of a deceased
member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary
company of the holding company but in this case, it will not have a right to vote in the
meeting of holding company.
In the given case, one of the shareholders of holding company (Octagon Limited) has transferred
his shares in the holding company to a trust where the shares will be held by subsidiary company
(Pentagon Limited). It means now subsidiary will hold shares in the holding company. But it will
hold shares in the capacity of a trustee. Therefore, we can conclude that in the given situation
Pentagon Limited can hold shares in Octagon Limited.
(c) Section 189 of the Indian Contract Act, 1872 defines agent's authority in an emergency. An agent
has authority, in an emergency, to do all such acts for the purpose of protecting his principal from
loss as would be done by a person of ordinary prudence, in his own case, under similar
circumstances.
In certain circumstances, a person who has been entrusted with another’s property may have to
incur expenses to protect or preserve it. This is called an agency of necessity. Hence, in the
above case the Salvor had implied authority from the cargo owner to take care of the cargo. They
acted as agents of necessity on behalf of the cargo owner. Cargo owner were duty-bound
towards salvor. Salvor is entitled to recover the agreed sum from Mr. Shiv and not from the ship
owner, as a lien on the goods.
(d) Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881,
‘holder’ of a Negotiable Instrument means any person entitled in his own name to the possession
of it and to receive or recover the amount due thereon from the parties thereto.
On applying the above provision in the given cases—
(i) Babita is not a holder of the Instrument though she is in possession of the cheque. She is
not entitled to the possession of it in her own name.
(ii) No, Biswas is not a holder. While the agent may receive payment of the amount mentioned
in the cheque, yet he cannot be called the holder thereof because he has no right to sue on
the instrument in his own name.
2. (a) According to section 103 of the Companies Act, 2013, unless the articles of the company provide
for a larger number in case of a public company, five members personally present if the number
of members as on the date of meeting is not more than one thousand, shall be the quorum.
2

In this case the quorum for holding a general meeting is 7 members to be personally present
(higher of 5 or 7). For the purpose of quorum, only those members are counted who are entitled
to vote on resolution proposed to be passed in the meeting.
Again, only members present in person and not by proxy are to be counted. Hence, proxies
whether they are members or not will have to be excluded for the purposes of quorum.
If a company is a member of another company, it may authorize a person by resolution to act as
its representative at a meeting of the latter company, then such a person shall be deemed to be a
member present in person and counted for the purpose of quorum. Where two or more
companies which are members of another company, appoint a single person as their
representative then each such company will be counted as quorum at a meeting of the latter
company.
Further the President of India or Governor of a State, if he is a member of a company, may
appoint such a person as he thinks fit, to act as his representative at any meeting of the
company. A person so appointed shall be deemed to be a member of such a company and thus
considered as member personally present.
In view of the above there are only three members personally present.
‘A’ will be included for the purpose of quorum. B & C have to be excluded for the purpose of
quorum because they represent the preference shares and since the agenda being the
appointment of Managing Director, their rights cannot be said to be directly affected and
therefore, they shall not have voting rights. D will have two votes for the purpose of quorum as he
represents two companies Green Limited and Blue Limited. E, F, G and H are not to be included
as they are not members but representing as proxies for the members.
Thus, it can be said that the requirement of quorum has not been met and it shall not constitute a
valid quorum for the meeting.
(b) The following class of companies shall be required to appoint an internal auditor which may be
either an individual or a partnership firm or a body corporate, namely:
(A) paid up share capital of 50 crore rupees or more during the preceding financial year; or
(B) turnover of 200 crore rupees or more during the preceding financial year; or
(C) outstanding loans or borrowings from banks or public financial institutions exceeding
100 crore rupees or more at any point of time during the preceding financial year; or
(D) outstanding deposits of 25 crore rupees or more at any point of time during the
preceding financial year; and
(c) According to section 152 of the Indian Contract Act, 1872, the bailee, in the absence of any
special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if
he has taken reasonable care as required under section 151.
In the given question, Shweta and Mira agreed to keep Shweta’s jewellery (bailed to Mira) at the
Bank’s safe locker and not at the latter’s residence (i.e. Mira’s residence). So, Mira is liable to
compensate Shweta for her negligence to keep jewellery at her (Mira’s) residence. Thus, Shweta
will succeed in her claim.

(d) When a bill of exchange has been dishonoured by non-acceptance and any person accepts it for
honour of the drawer or of any indorsers, such person is called ‘an Acceptor for honour’.
The payment which he makes is known as ‘payment for honour.’
3. (a) Under section 20 of the Companies Act, 2013 a document may be served on a company or an
officer thereof by sending it to the company or the officer at the registered office of the company
by registered post or by speed post or by courier service or by leaving it at its registered office or
by means of such electronic or other mode as may be prescribed. However, in case where
securities are held with a depository, the records of the beneficial ownership may be served by
such depository on the company by means of electronic or other mode.
Under section 20 (2), save as provided in the Act or the rule thereunder for filing of documents
with the registrar in electronic mode, a document may be served on Registrar or any member by
sending it to him by post or by registered post or by speed post or by courier or by delivering at
his office or address, or by such electronic or other mode as may be prescribed. However, a
member may request for delivery of any document through a particular mode, for which he shall
pay such fees as may be determined by the company in its annual general meeting.
(b) (1) As per section 141 (3) of the Companies Act, 2013, read with Rule 10 of the Companies
(Audit and Auditors) Rules, 2014, a person is disqualified to be appointed as an au ditor if he
is an officer or employee of the company.
Hence, Priyansh is disqualified to be appointed as an auditor in Gizmo Limited.
(2) As per section 141(3)(d)(ii), an auditor is disqualified to be appointed as an auditor if he or
his relative or partner is indebted to the company, or its subsidiary, or its holding or
associate company or a subsidiary of such holding company, in excess of rupees 5 Lacs. In
the instant case, Vinod will be qualified to be appointed as an auditor of Gizmo Limited as
he is indebted to Gizmo Limited for rupees 2 lacs.
(c) According to section 9 of the Negotiable Instrument Act, 1881, "Holder in due course" means-
• any person
• who for consideration
• becomes the possessor of a promissory note, bill of exchange or cheque (if payable to
bearer), or the payee or indorsee thereof, (if payable to order),
• before the amount mentioned in it became payable, and
• without having sufficient cause to believe that any defect existed in the title of the person
from whom he derived his title.
In the instant case, Mr. Krishna draws a cheque of ` 20,000 and gives to Mr. Balram by way of
gift.
Hence,
(1) Mr. Balram is holder but not a holder in due course since he did not get the cheque for value
and consideration.
(2) Mr. Balram’s title is good and bonafide. As a holder he is entitled to receive ` 20,000 from
the bank on whom the cheque is drawn.
(d) Principles of Grammatical Interpretation and Logical Interpretation: In order to ascertain the
meaning of any law/ statute the principles of Grammatical and Logical Interpretation is applied to
conclude the real meaning of the law and the intention of the legislature behind enacting it.

Grammatical interpretation concerns itself exclusively with the verbal expression of law. It does
not go beyond the letter of the law, whereas Logical interpretation on the other hand, seeks more
satisfactory evidence of the true intention of the legislature.
4. (a) Doctrine of Indoor Management
According to this doctrine, persons dealing with the company need not inquire whether internal
proceedings relating to the contract are followed correctly, once they are satisfied that the
transaction is in accordance with the memorandum and articles of association.
Stakeholders need not enquire whether the necessary meeting was convened and held properly
or whether necessary resolution was passed properly. They are entitled to take it for granted that
the company had gone through all these proceedings in a regular manner.
The doctrine helps to protect external members from the company and states that the people are
entitled to presume that internal proceedings are as per documents submitted with the Registrar
of Companies.
The doctrine of indoor management is opposite to the doctrine of constructive notice. Whereas
the doctrine of constructive notice protects a company against outsiders, the doctrine of indoor
management protects outsiders against the actions of a company. This doctrine also is a
safeguard against the possibility of abusing the doctrine of constructive notice.
(b) According to sub-clause (viii) of Rule 2 (1) (c) of the Companies (Acceptance of Deposits) Rules,
2014, any amount received from a person who, at the time of the receipt of the am ount, was a
director of the company or a relative of the director of the private company, is not considered as
deposit.
The director of the company or relative of the director of the private company, as the case may
be, from whom money is received, is required to furnish to the company at the time of giving the
money, a declaration in writing to the effect that the amount is not being given out of funds
acquired by him by borrowing or accepting loans or deposits from others and the company shall
disclose the details of money so accepted in the Board's report.
` 3,00,000 received by Sasha Private Limited, from one of the relatives of a Director. When the
relative furnishes a declaration that the said amount was received by him from his mothe r as a
gift, then it will not be considered as deposit in terms of sub-clause (viii) of Rule 2 (1) (c).
Thus, the amount given to the private company out of gifted money by one of the relatives of a
director is not a ‘deposit’. As an additional requirement, the company shall disclose the details of
money so accepted in the Board’s report.
(c) Section10 of the General Clauses Act, 1897 provides where by any legislation or regulation, any
act or proceeding is directed or allowed to be done or taken in any court or office on a certain day
or within a prescribed period then, if the Court or office is closed on that day or last day of the
prescribed period, the act or proceeding shall be considered as done or taken in due time if it is
done or taken on the next day afterwards on which the Court or office is open.
A promissory note of `1000 was issued by Mr. Sridhar to Mr. Mohan on 17 th May 2022 which was
payable 3 months after date. After that, a sudden holiday was declared on 20 th August 2022 due
to Moharram.
In the given case, the period of 3 months ends on 17 th August 2022. Three days of grace are to
be added. It falls due on 20 th August 2022 which declared to be a public holiday after the issue of
Promissory Note. In the light of provisions of section 10 of the General Clauses Act 1897, the due
date will be on next day when office is open i.e. 21 st August 2022.

(d) The rule of Ejusdem Generis applies when:
1. The statute contains an enumeration of specific words
2. The subject of enumeration constitutes a class or category
3. That class or category is not exhausted by the enumeration
4. General terms follow the enumeration; and
5. There is no indication of a different legislative intent.
5. (a) Issue of Bonus Shares
According to section 63 (1) of the Companies Act, 2013, a company may issue fully paid -up
bonus shares to its members, in any manner whatsoever, out of—
However, no issue of bonus shares shall be made by capitalising reserves created by the
revaluation of assets.
Section 63 (2) provides that the company can issue bonus shares only when the partly paid -up
shares, if any outstanding on the date of allotment, are made fully paid-up.
(A) The following sources can be used by the company to issue bonus shares:
1. General Reserve
2. Securities Premium
3. Surplus in statement of P&L
(B)
Particulars Amount
Amount of bonus shares to be issued 90,000 shares x 1/4
= 22,500 shares
Amount that ought to be capitalized for issue of bonus 22,500 x ` 10 per share
shares = ` 2,25,000
Total amount available to be capitalized from free reserves = 1,20,000+
to issue bonus shares 25,000+
2,00,000
= ` 3,45,000
Hence, the amount to be capitalized from free reserves to ` 2,25,000
issue bonus shares will be
(b) Section 83 of the Companies Act, 2013 empowers the Registrar to make entries with respect to
the satisfaction and release of charges even if no intimation has been received by him from the
company. Accordingly, with respect to any registered charge if an evidence is shown to the
satisfaction of Registrar that the debt secured by charge has been paid or satisfied in whole or in
part or that the part of the property or undertaking charged has been released from the charge or
has ceased to form part of the company’s property or undertaking, then he may enter in the
register of charges a memorandum of satisfaction that:
 the debt has been satisfied in whole or in part; or
6

 the part of the property or undertaking has been released from the charge or has ceased to
form part of the company’s property or undertaking.
This power can be exercised by the Registrar despite the fact that no intimation has been
received by him from the company.
Information to affected parties: The Registrar shall inform the affected parties within 30 days of
making the entry in the register of charges.
Issue of Certificate: As per Rule 8 (2), in case the Registrar enters a memorandum of
satisfaction of charge in full, he shall issue a certificate of registration of satisfaction of charge in
Form No. CHG-5.
Therefore, Mr. Raj can approach the Registrar and show evidence to his satisfaction that the
charge has been duly settled and satisfied and request the Registrar to enter a memorandum of
satisfaction noting the release of charge.
(c) (1) Continuing guarantee: A guarantee which extends to a series of transaction is called a
continuing guarantee. A surety’s liability continues until the revocation of the guarantee.
The essence of continuing guarantee is that it applies not to a specific number of
transactions but to any number of transactions and makes the surety liable for the unpaid
balance at the end of the guarantee.
(2) Gratuitous Bailment: The word gratuitous means free of charge. So, a gratuitous bailment
is one when the provider of service does it gratuitously i.e. free of charge. Such bailment
would be either for the exclusive benefits of bailor or bailee.
(d) “Meaning of Service by post”: As per section 27 of the General Clauses Act, 1897, where any
legislation or regulation requires any document to be served by post, then unless a different
intention appears, the service shall be deemed to be effected by:
(i) properly addressing
(ii) pre-paying, and
(iii) posting by registered post.
A letter containing the document to have been effected at the time at which the letter would be
delivered in the ordinary course of post.

Test Series: April, 2022
MOCK TEST PAPER 2
I. Madhu Oils and Fats Ltd. is a listed entity. It finalised its annual accounts for the year ended on
31st March, 2021. The Audit Committee of Board (ACB) recommended and subsequently the Board
approved the same.
Annual General meeting of the shareholders was convened on 25th August, 2021, in which the annual
accounts of the company were presented before the shareholders. The shareholders have approved
dividend @ 10%.
A report of the Board of Directors was attached with the annual accounts of the company.
During the said meeting, a shareholder pointed out that during the year of 2020-21 there was a big news
in the media and newspaper that a fraud has happened in the company of an amount of ` 75 lakhs, with
the involvement of a senior management official of the company, who is absconding since the news
came into media. However, there was no mention about the fraud in the Auditor’s Report as well as no
comment in the Board’s Report. The auditor, who was also present in the General Meeting of the
shareholders informed that fraud was detected during the course of audit but no further action was taken
by him (auditor).
1. Going by the facts of the case, by what date should the amount be deposited in a separate account
maintained with the scheduled bank for dividend purposes?
(a) By 30th August 2021
(b) By 1st September 2021
(c) By 7th September 2021
(d) By 24th September 2021
2. By what date should the dividend declared in the meeting, be paid to the members of the company?
(a) By 30th August 2021
(b) By 1st September 2021
(c) By 7th September 2021
(d) By 24th September 2021
3. With regard to preservation of the books of Madhu Oils and Fats Ltd, the books of accounts for the
Financial Year (FY) 2020-21 needs to be kept in good order until at least which of the following
years?
(a) FY 2025-26
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(b) FY 2026-27
(c) FY 2027-28
(d) FY 2028-29
4. The auditor had noticed the fraud that was committed by the senior management. Which is the
correct statement in this respect:
(a) The auditor shall report the matter to the Central Government immediately.
(b) It is not necessary to disclose the details of fraud in the Board’s Report
(c) The auditor shall report the matter to the audit committee constituted under section 177 or to
the Board.
(d) Since the Senior Management Personnel is absconding, the auditor is not required to take
any action.
II. Ramji Lal is in the business of selling wheat, rice, pulses and other food grain items under the banner
of Ramji Lal & Sons. Bhim Singh was working as an employee with Ramji Lal, since past 10 years and
have earned good image and trust. In the absence of Ramji Lal, Bhim Singh takes care of the business
of Ramji Lal as a prudent person.
Ramji Lal executed a Power of Attorney in favour of Bhim Singh for doing the banking transactions i.e.,
to withdraw money, issue of cheque for making payment to creditors etc.
One day, Bhim Singh went to bank for withdrawal of ` 50,000 to make payments for utility bills and for
some petty expenses. When Bhim Singh was counting cash after taking it from the cash window, some
unscrupulous persons just standing behind him, snatched the cash from his hands and disappeared
quickly. Bhim Singh immediately informed the manager of the Bank, lodged FIR with near by Police
Station and also informed Ramji Lal. Police visited the bank premises and asked for the CCTV footage.
However, the incident was not recorded since the CCTV were found damaged. Ramji Lal was annoyed
with this news and asked Bhim Singh that he should be very careful while dealing the banking
transactions, and advised to take care in future.
Due to demand of the food grains in the nearby city, Ramji Lal opened a branch in that city and Bhim
Singh was asked to take care of the business at the branch under the banner of Ramji Lal & Sons and
shall not act beyond his delegated authority, nor he shall employ any staff or agent, with out having the
express authority of him (Ramji Lal). Bhim Singh started doing the business activity under the banner of
Ramji Lal & Sons. He also appointed Chatur Singh, as manager there to look after this business, but
this fact was not made known to Ramji Lal. Chatur Singh was a very cunning person. Since ‘Ramji Lal
& Sons’ has established a good reputation in the market, so Chatur Singh started taking advantages of
brand image. He raised money from several sources, in the name of ‘Ramji Lal & Sons ’ and one day,
ran away, without informing anyone and is absconding from that day.
The fraud came to the light when creditors started demanding money from Ramji Lal on the pretext that
the branch was running the business in the name and style of Ramji Lal & Sons’.
5. When Bhim Singh was returning to shop after withdrawing money from the bank, theft had
occurred. Who is to bear such loss?
(a) Ramji Lal will bear the loss of money due to theft.
(b) Bhim Singh will bear the loss of money due to theft.
(c) Bank will be liable since the dacoity occurred in the bank’s premises.
(d) The person in charge of the CCTV in the bank is responsible.
2

6. Bhim Singh while doing business in the banner of ‘Ramji Lal & Sons’, appointed another person
Chatur Singh as manager of the business without informing his principal, Ramji Lal. Whether Bhim
Singh have the authority to do so?
(a) It is usual to appoint staff to take care of the business. Looking to the volume of busines s,
Bhim Singh has appointed Chatur Singh to manage the business.
(b) Bhim Singh has done beyond the express authority of his principal (Ramji Lal) in employing
Chatur Singh as Manager of that branch.
(c) It is an implied authority to appoint sub-agent since the big business transactions cannot be
handled by a single person.
(d) Chatur Singh should have directly inform to Ramji Lal that he has been appointed as sub -
agent.
7. _________________ cannot be a subscriber to the Memorandum of Association and Articles of
Association.
(a) A company
(b) Government
(c) Minor
(d) Major (1 Mark)
8. In case of a private company, the provisions for entrenchment may be made at the time of formation
of the company or by amendment of articles,
(a) By passing a special resolution
(b) With the consent of all the members
(c) By passing a special resolution and approval of the Central Government
(d) With the consent of all the members and approval of the Central Government (1 Mark)
9. A resolution shall be a special resolution when the votes cast in favour of the resolution by members
are not less than ________ the number of votes, if any, cast against the resolution :
(a) Twice
(b) Three times
(c) Three fourth of
(d) Two third of (1 Mark)
10. Where a company is granted licence under section 8, it is not required to use the word ……………
even though it is a limited company:
(a) Guarantee company
(b) Limited Liability Partnership
(c) Limited or Private Limited, as the case may be
(d) Development Authority (1 Mark)
11. The registrar shall keep a register of charges which shall be open to inspection by ____________
on payment of fee:
(a) the company
(b) the charge holder
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(c) holder
(d) any person (1 Mark)
12. Varsha Limited decides to raise deposits of ` 20.00 lacs from its members. However, it proposes
to secure such deposits partially by offering a security worth ` 15.00 lacs. Which of the following
options best describe such deposits:
(a) Fully secured deposits (except a small portion)
(b) Unsecured deposits
(c) Partially secured deposits
(d) These cannot be classified as deposits (1 Mark)
13. What is the maximum tenure for which a company can accept or renew deposits from its members
as well as public?
(a) 12 months
(b) 24 months
(c) 36 months
(d) 48 months (1 Mark)
14. Amount to be transferred to reserves out of profits before any declaration of dividend is
___________
(a) 5%
(b) 7.5%
(c) 10%
(d) at the discretion of the company. (1 Mark)
15. ABC Limited has its shares listed on a recognized stock exchange in India. During the current
financial year ending on 31 st March 2021, the securities and exchange board of India (SEBI) has
found some irregularities in the filings made by the company. Accordingly, SEBI proposes to make
an application to the Tribunal for reopening of the books of accounts of the Company. You, as an
expert, are called upon by SEBI to advise with which last financial year for reopening of books of
accounts an application can be made?
(a) 2016-2017
(b) 2014-2015
(c) 2011-2012
(d) 2012-2013 (2 Marks)
16. When the law is clear and unambiguous the court shall construe the meaning of a provision based
on strict …………
(a) grammatical meaning
(b) logical meaning
(c) alternative interpretation
(d) hypothetical meaning (1 Mark)

17. According to ________ rule of interpretation, meaning of words should be known from its
accompanying or associated words.
(a) Mischief rule
(b) Primary Rule
(c) Noscitur a Sociis
(d) Golden Rule (1 Mark)
18. An internal aid that may be added to include something within the section or to exclude something
from it, is—
(a) Proviso
(b) Explanation
(c) Schedule
(d) Illustrations (1 Mark)
19. A negotiable instrument drawn in favour of a minor is
(a) Void ab initio
(b) Void but enforceable
(c) Valid
(d) Quasi contract (1 Mark)
20. Which of the following is an essential characteristic of a promissory note:
(a) There must be an order to pay certain sum
(b) It must be payable to bearer
(c) It must be signed by the Payee
(d) It must contain an unconditional undertaking (1 Mark)
21. The preamble is most important in any legislation, it:
(a) Provides definitions in the Act.
(b) Expresses scope, object and purpose of the Act.
(c) Provides summary of the entire Act.
(d) provides side notes often found at the side of a section. (1 Mark)
22. Mr. A issued a cheque amounting to ` 25,000 dated 2 nd February 2020 to Mr. G which was
deposited by Mr. G on 16 th March 2020 in his bank account. The said cheque was returned unpaid
on 17th March 2020 by the bank of Mr. A citing insufficient funds in the account of Mr. A. Mr. G
demanded the payment from Mr. A by issuing the notice on 31 st March 2020 which was received
by Mr. A on 2 nd April 2020. Assuming that Mr. A failed to make the payment within stipulated time,
what is the last date by which Mr. G should have made a complaint in the court?
(a) 17th May 2020
(b) 2nd May 2020
(c) 17th April 2020
(d) 30th April 2020 (2 Marks)

1. (a) Gajendra Ltd. was incorporated in 1995 in the town of Alwar. Its main business is manufacturing
tiles. It is in the process of appointing statutory auditors for the financial year 2021 -22. Advise
whether the following persons are qualified to be appointed as statutory auditor of the Gajendra
Ltd :
(i) Maninder, a qualified Chartered Accountant, holds equity shares of nominal value of
` 2,00,000 of Narender Ltd., which is an associate company of Gajendra Ltd.
(ii) Dinesh, a qualified Chartered Accountant, whose son owes Gajendra Ltd. a sum of ` 99,000
(iii) Rajender, a qualified Chartered Accountant, who has been convicted in the year 2005 by a
Court for an offence involving fraud. (6 Marks)
(b) AJD Pvt. Ltd. is having paid up share capital of ` 45 Lakhs and annual turnover of `185 Lacs. It is
a wholly owned subsidiary of K Ltd.- a listed company. Can AJD Pvt. Ltd. be called a small company
as per the provisions of the Companies Act, 2013. (6 Marks)
(c) A Ltd. sells its products through some agents and it is not the custom in their business to sell the
products on credit. Mr. Pintu, one of the agents sold goods of A Ltd. to Parul Pvt. Ltd. (on credit)
which was insolvent at the time of such sale. A Ltd. sued Mr. Pintu for compensation towards the
loss caused due to sale of products to Parul Pvt. Ltd. Will A Ltd. succeed in its claim? (4 Marks)
(i) Babita, stole a blank cheque of Aman and forged Aman’s signature.
(ii) Arvind, the payee of the cheque, who is prohibited by a court order from receiving the amount
of the cheque. (3 Marks)
2. (a) Comment quoting relevant provisions of the Companies Act, 2013, whether the following amounts
received by a company will be considered as deposits or not:
(i) ` 2,00,000 received by Yash Limited from its employee Mr. A, who draws an annual salary of
` 1,50,000, as a non-interest bearing security deposit under a contract of employment.
(ii) Textile Traders Limited received a loan of ` 30,00,000 from R who is one of its directors.
(4 Marks)
(b) Adil is a student of CA Intermediate. His friend (who is also in CA Intermediate) has approached
him to explain to him the provisions of the Companies Act, 2013, on the following:
(i) Inspection of books of account and other books and papers of the company.
(ii) Period of preservation of books of accounts (6 Marks)
(c) Prisha acquired valuable diamond at a very low price by a voidable contract under the provisions
of the Indian Contract Act, 1872. The voidable contract was not rescinded. Prisha pledged the
diamond with Mr. Vikas. Is this a valid pledge under the Indian Contract Act, 1872? (4 Marks)
(d) What are the ways by which a bill of exchange is said to be dishonoured by non-acceptance. (Write
any four) (3 Marks)
3. (a) Sai along with his six friends desires to incorporate a Section 8 Company under the C ompanies
Act, 2013. He is seeking your advice in the following matters :
(i) What is the minimum paid-up capital requirement in case of a Section 8 Company ?

(ii) Whether a firm can be member of the Section 8 Company ?
(iii) Whether the Section 8 Company can pay dividend to its members ?
Advise, Sai with reference to the provisions of Companies Act, 2013. (5 Marks)
(b) Guru limited is facing loss in business during the financial year 2018-2019. In the immediate
preceding three financial years, the company had declared dividend at the rate of 7%, 11% and
12% respectively. The Board of Directors has decided to declare 12% interim dividend for the
current financial year atleast to be in par with the immediate preceding year. Is the act of the Board
of Directors valid? (5 Marks)
(c) Mr. Mudit is the employee in Senior Research Analyst Private Limited. He went to a Super Mall, a
departmental store, where he purchased some goods for his personal use on credit. Mr. Mudit gave
a cheque drawn on the Senior Research Analyst Private Limited's account to Super Mall towards
the full payment of the dues. The cheque was dishonoured by the company's bank. Mr. Mudit was
neither a director nor a person in-charge of the company.
Explain under the provisions of the Negotiable Instruments Act, 1881, whether Mr. Mudit has
committed an offence under section 138. (4 Marks)
(d) Write short notes on the following in understanding definitions while interpreting statutes:
(i) Ambiguous definitions
(ii) Definitions subject to a contrary context (3 Marks)
4. (a) Paritosh and friends got registered a company in the name of Taxmann advisory Private Limited.
Taxmann is a registered trademark. After 5 years when the owner of trademark came to know
about the same, it filed an application with relevant authority. Can the company be compelled to
change its name by the owner of trademark? Can the owner of registered trademark request the
company and then company changes its name at its discretion? (6 Marks)
(b) Mr. Parth purchased a commercial property in Delhi belonging to PQR Limited after entering into
an agreement with the company. At the time of registration, Mr. Parth comes to know that the title
deed of the company is not free and the company expresses its inability to get the title deed
transferred in his name contending that he ought to have the knowledge of charge created on the
property of the company. Explain, whether the contention of PQR Limited is correct? Give your
answer as per the provisions of the Companies Act, 2013. (4 Marks)
(c) Examine the validity of the following statements with reference to the General Clauses Act, 1897:
Board of Directors of Sabarwal Construction Private Limited authorised by passing resolution in
board meeting Mr. Munim to appoint five employees for accounts department of company.
Mr. Munim appointed five employees including Mr. Rupal who was relative of one of the director of
company. After one month, Mr. Munim observed that Mr. Rupal was not performing his duties
honestly. Mr. Munim issued the order of dismissal of Mr. Rupal with proper reasons. Mr. Rupal filed
a petition in the court that his dismissal order is not valid as Board of Directors had authorised
Mr. Munim only for appointment of employees not for dismissal. Whether is Mr. Rupal correct with
his words? (4 Marks)
(d) Radha Limited has entered into a contract with Gopal Limited. You are invited to read and interpret
the document of contract. What rules of interpretation of deeds and documents would you apply
while doing so? (3 Marks)

5. (a) Amar, a director of Gokul Electricals Ltd. gave in writing to the company that the notice for any
general meeting and of the Board of Directors' meeting be sent to him only by registered post at
his residential address at Kanpur for which he deposited sufficient money. The company sent notice
to him by ordinary mail under certificate of posting. Amar did not receive this notice and could not
attend the meeting and contended that the notice was improper.
Decide, as per the provisions of the Companies Act, 2013:
(i) Whether the contention of Amar is valid.
(ii) Will your answer be the same if Amar remains in U.S.A. for one month during which the notice
of the meeting was served and the meeting was held? (5 Marks)
(b) Kurt Limited is a company engaged in the business of manufacturing papers. The company has
approached you to explain them the following as per the provisions of the Companies Act, 2013:
(a) Quorum for the general meeting if the company has 800 members.
(b) Quorum for the general meeting if the company has 6500 members.
(c) Quorum for the general meeting if the company has 5500 members. The articles of
association has prescribed the quorum for the meeting to be 50. (5 Marks)
(c) Explain the following as per the provisions of the Indian Contract Act, 1872
(i) What is the meaning of ‘Agent’ and ‘Principal’?
(ii) Who can appoint an agent. (4 Marks)
(d) What is the meaning of the following as per provisions of the General Clauses Act, 1897?
(i) Movable Property
(ii) Person (3 Marks)

Test Series: April, 2022
MOCK TEST PAPER 2
ANSWERS
Division A
I. 1. (a)
2. (d)
3. (d)
4. (c)
II. 5. (a)
6. (b)
7. (c)
8. (b)
9. (b)
10. (c)
11. (d)
12. (b)
13. (c)
14. (d)
15. (d)
16. (a)
17. (c)
18. (b)
19. (c)
20. (a)
21. (b)
22. (a)
Division B
1. (a) (i) As per section 141 (3)(d)(i) of the Companies Act, 2013, read with Rule 10 of the
Companies (Audit and Auditors) Rules, 2014, a person is disqualified to be appointed as an
auditor if he, or his relative or partner holding any security of or interest in the company or
its subsidiary, or of its holding or associate company or a subsidiary of such holding
company.
Hence, Maninder is disqualified to be appointed as an auditor in Gajendra Ltd. as he holds
securities in the Narender Ltd. (associate company of Gajendra Ltd.)

(ii) As per section 141(3)(d)(ii) a person is disqualified to be appointed as an auditor if he, or his
relative or partner is indebted to the company, or its subsidiary, or its holding or associate
company or a subsidiary of such holding company, in excess of ` 5 Lacs.
Hence, Dinesh is not disqualified as the limit of indebtedness for the auditor or his relative is
exceeding Rs.5,00,000 and in this case Dinesh's son owes only ` 99,000.
(iii) As per section 141(3)(h), a person who has been convicted by a court of an offence
involving fraud and a period of 10 years has not elapsed from the date of such conviction ,
shall not be qualified to be appointed as an auditor of a company.
Though Rajender was convicted by a court for an offence involving fraud but as a period of
10 years have elapsed, hence, Rajendra is qualified to be appointed as statutory auditor of
Gajendra Ltd.
(b) As per Section 2(85) of the Companies Act 2013 read with Rule 2(1)(t) of the Companies
(Specification of definitions Details) Rules, 2014, “Small Company’’ means a company, other than
a public company, having—
(i) paid-up share capital of which does not exceed two crores rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year
does not exceed twenty crore rupees:
Provided that nothing in this clause shall apply to—
(C) a company or body corporate governed by any special Act;
In the given case, AJD Pvt. Ltd. satisfies the turnover and paid up share capital criteria to be
small company, but being a subsidiary of K Ltd (a listed), it falls under the exclusions to the
definition and hence is not a small Company.
(c) According to section 211 of the Indian Contract Act, 1872, an agent is bound to conduct the
business of his principal according to the direction given by the principal, or, in the absence of
any such directions, according to the custom which prevails in doing business of the same kind at
the place where the agent conducts such business. When the agent acts otherwise, if any loss be
sustained, he must make it good to his principal, and, if any profit accrues, he must account for it.
In the present case, Mr. Pintu, one of the agents, sold goods of A Ltd. to Parul Pvt. Ltd. (on
credit) which was insolvent at the time of such sale. Also, it is not the custom in A Ltd. to sell the
products on credit.
Hence, Mr. Pintu must make good the loss to A Ltd.
(d) Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881
(i) Babita is not a holder because she is in wrongful possession of the instrument (as she stole
and forged Aman’s signature).
(ii) Arvind is not a ‘holder’ because to be called as a ‘holder’ he must be entitled not only to the
possession of the instrument but also to receive the amount mentioned therein.

2. (a) Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 states various amounts
received by a company which will not be considered as deposits. In terms of this Rule the
answers to the given situations shall be as under:
(i) In terms of Rule 2 (1)(c)(x), any amount received from an employee of the company not
exceeding his annual salary under a contract of employment with the company in the nature
of non-interest bearing security deposit, shall not be treated as deposit.
` 2,00,000 received by Yash Limited from its employee Mr. A, who draws an annual salary
of ` 1,50,000, as a non-interest bearing security deposit under a contract of employment will
be considered as deposit in terms of sub-clause (x) of Rule 2(1)(c), for the amount received
is more than his annual salary of ` 1,50,000.
(ii) In terms of Rule 2 (1)(c)(viii), any amount received from a person who is director of the
company at the time of giving loan to the company shall not be treated as deposit if such
director furnishes to the company at the time of giving money, a written declaration to the
effect that the amount is not being given out of funds acquired by him by borrowing or
accepting loans or deposits from others and further, the company shall disclose the details
of money so accepted in the Board's report.
In the given case, ` 30,00,000 received as a loan by Textile Traders Limited from R (a
director) shall not be treated as deposit, if he was a director at the time of giving such loan
and had furnished to the company at time of giving money, a written declaration to the effect
that the amount was not being given out of funds acquired by him by borrowing or accepting
loans or deposits from others and in addition, the company had disclosed the details of
money so accepted in the appropriate Board's report.
(b) (i) Inspection by Directors
As per Section 128(3) of the Companies Act, 2013, any director can inspect the books of
account and other books and papers of the company during business hours. Such
inspection may be done by any type of director - nominee, independent, promoter or whole
time.
The proviso to sub-section 3 provides that a person can inspect the books of account of the
subsidiary, only on authorisation by way of the resolution of Board of Directors.
Assistance by officers and Employees
As per Section 128(4), where an inspection is made under sub-section (3), the officers and
other employees of the company shall give to the person making such inspection all
assistance in connection with the inspection which the company may reasonably be
expected to give.
(ii) Period for preservation of books
According to section 128(5) of the Companies Act, 2013, the books of accounts, together
with vouchers relevant to any entry in such books, are required to be preserved in good
order by the company for a period of not less than eight years immediately preceding the
relevant financial year.
In case of a company incorporated less than eight years before the financial year, the books
of accounts for the entire period preceding the financial year together with the vouchers
shall be so preserved.
As per proviso to sub-section 5, where an investigation has been ordered in respect of a
company under Chapter XIV of the Act related to inspection, inquiry or investigation, the
Central Government may direct that the books of account may be kept for such period
longer than 8 years, as it may deem fit and give directions to that effect.

(c) According to section 178A of the Indian Contract Act, 1872, when the pawnor has obtained
possession of the goods pledged by him under a contract voidable under section 19 or section
19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a
good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of
title.
Therefore, the pledge of diamond by Prisha with Mr. Vikas is valid.
(d) Dishonour by Non-acceptance
A bill of exchange is said to be dishonoured by non-acceptance in any one of the following ways
(Section 91):
(1) When a bill is duly presented for acceptance, and the drawee, or one of several drawees not
being partners, refuse acceptance within forty- eight hours from the time of presentment, the
bill is dishonored. In other words, when the drawee makes default in acceptance upon being
duly required to accept the bill.
(2) where presentment is excused, and the bill is not accepted.
(3) Where the drawee is incompetent to contract, the bill may be treated as dishonored.
(4) Where the drawee is a fictitious person.
(5) Where the drawee could not be found even after reasonable search
(6) When a drawee gives a qualified acceptance, the holder may treat the instrument
dishonored.
3. (a) (i) The requirement of having a minimum paid up share capital shall not apply to a section 8
company vide notification dated 5 th June 2015.
(ii) Yes, under section 8(3) of the Companies Act, 2013, a firm may be a member of the
company registered under section 8.
(iii) According to Section 8(1)(c) of the Companies Act, 2013, section 8 company cannot pay
dividend to its members as it prohibits the payment of dividends to its members.
(b) As per section 123(3) of the Companies Act, 2013, the Board of Directors of a company may
declare interim dividend during any financial year out of the surplus in the prof it and loss account
and out of profits of the financial year in which such interim dividend is sought to be declared.
Provided that in case the company has incurred loss during the current financial year up to the
end of the quarter immediately preceding the date of declaration of interim dividend, such interim
dividend shall not be declared at a rate higher than the average dividends declared by the
company during the immediately preceding three financial years.
According to the given facts, Guru Ltd. is facing loss in business during the financial year 2018-
2019. In the immediate preceding three financial years, the company declared dividend at the
rate of 7%, 11% and 12% respectively. Accordingly, the rate of dividend declared shall not
exceed 10%, the average of the rates (7+11+12=30/3) at which dividend was declared by it
during the immediately preceding three financial years.
Therefore, the act of the Board of Directors as to declaration of interim dividend at the rate of
12% during the financial year 2018-2019 is not valid.
(c) According to section 138 of the Negotiable Instruments Act, 1881, where any cheque drawn by a
person on an account maintained by him with a banker for payment of any amount of money to
another person from/out of that account for discharging any debt or liability, and if it is
4

dishonoured by banker on sufficient grounds, such person shall be deemed to have committed an
offence and shall be liable.
According to section 141, if the person committing an offence under section 138 is a company,
every person who, at the time the offence was committed was in charge of, and was responsible
to the company for the conduct of the business of the company, as well as the company, shall be
deemed to be guilty of the offence and shall be liable to be proceeded against and punished
accordingly.
However, in this case, Mudit is neither a director nor a person-in-charge of the company and is
not connected with the day-to-day affairs of the company and had neither opened nor is
operating the bank account of the company. Further, the cheque, which was dishonoured, was
also not drawn on an account maintained by him but was drawn on an account maintained by the
company. Therefore, Mudit has not committed an offence under section 138.
(d) (i) Ambiguous definitions: Sometime, we may find that the definition section may itself be
ambiguous, and so it may have to be interpreted in the light of the other provisions of the
Act and having regard to the ordinary meaning of the word defined. Such type of definition is
not to be read in isolation. It must be read in the context of the phrase which it defines,
realising that the function of a definition is to give accuracy and certainty to a word or
phrase which would otherwise be vague and uncertain but not to contradict it or depose it
altogether.
(ii) Definitions subject to a contrary context: When a word is defined to bear a number of
inclusive meanings, the sense in which the word is used in a particular provision must be
ascertained from the context of the scheme of the Act, the language of the provision and the
object intended to be served thereby.
4. (a) According to section 16 of the Companies Act, 2013 if a company is registered by a name
which,—
 in the opinion of the Central Government, is identical with the name by which a company
had been previously registered, it may direct the company to change its name. Then the
company shall by passing an ordinary resolution change its name within 3 months.
 is identical with a registered trade mark and owner of that trade mark apply to the Central
Government within three years of incorporation of registration of the company, it may direct
the company to change its name. Then the company shall change its name by passing an
ordinary resolution within 3 months.
Company shall give notice to ROC along with the order of Central Government within 15 days of
change. In case of default, company and defaulting officer are punishable.
In the given case, owner of registered trademark is filing objection after 5 years of registration
of company with identical name. While it should have filed the same within 3 years. Therefore,
the company cannot be compelled to change its name.
As per section 13, company can anytime change its name by passing a sp ecial resolution and
taking approval of Central Government. Therefore, if owner of registered trademark requests the
company for change of its name and the company accepts the same then it can change its name
voluntarily by following the provisions of section 13.
(b) According to section 80 of the Companies Act, 2013, where any charge on any property or
assets of a company or any of its undertakings is registered under section 77 of the Companies
Act, 2013, any person acquiring such property, assets, undertakings or pa rt thereof or any share
or interest therein shall be deemed to have notice of the charge from the date of such
registration.
5

Thus, section 80 clarifies that if any person acquires a property, assets or undertaking in respect
of which a charge is already registered, it would be deemed that he has complete knowledge of
charge from the date of its registration. Mr. Parth, therefore, ought to have been careful while
purchasing property and should have verified beforehand that PQR Limited had already created a
charge on the property.
In view of above, the contention of PQR Limited is correct.
(c) As per the provisions of section 16 of the General Clauses Act, 1897, the authority having for the
time being power to make the appointment shall also have power to suspend or dismiss any
person appointed whether by itself or any other authority in exercise of that power.
Mr. Munim was appointed in board meeting of Sabarwal Construction Private Limited to appoint
five employees for accounts department of company. Mr. Munim appointed five employees. After
one month, he issued the order of dismissal to one of those five employees. Th at employee filed
an application in the court challenging the validity of dismissal order with the words that Mr.
Munim was authorised only for appointment of employees not for dismissal.
On the basis of above provisions and facts of the case, Mr. Rupal was not correct with his words
because as per the General Clauses Act, 1897, power to appoint includes power to suspend or
dismiss. Hence, Mr. Munim has power to dismiss Mr. Rupal.
(d) The rules regarding interpretation of deeds and documents are as follo ws:
First and the foremost point that has to be borne in mind is that one has to find out what
reasonable man, who has taken care to inform himself of the surrounding circumstances of a
deed or a document, and of its scope and intendments, would understand by the words used in
that deed or document.
It is inexpedient to construe the terms of one deed by reference to the terms of another. Further,
it is well established that the same word cannot have two different meanings in the same
documents, unless the context compels the adoption of such a rule.
The Golden Rule is to ascertain the intention of the parties of the instrument after considering all
the words in the documents/deed concerned in their ordinary, natural sense. For this purpose,
the relevant portions of the document have to be considered as a whole. The circumstances in
which the particular words have been used have also to be taken into account. Very often, the
status and training of the parties using the words have also to be taken into account as the same
words maybe used by an ordinary person in one sense and by a trained person or a specialist in
quite another sense and a special sense. It has also to be considered that very many words are
used in more than one sense. It may happen that the same word understood in one sense will
give effect to all the clauses in the deed while taken in another sense might render one or more
of the clauses ineffective. In such a case the word should be understood in the former and not in
the latter sense.
It may also happen that there is a conflict between two or more clauses of the same documents.
An effect must be made to resolve the conflict by interpreting the clauses so that all the clauses
are given effect. If, however, it is not possible to give effect of all of them, then it is the earlier
clause that will override the latter one.
5. (a) According to section 20(2) of the Companies Act, 2013, a document may be served on Registrar
or any member by sending it to him by post or by registered post or by speed post or by courier
or by delivering at his office or address, or by such electronic or other mode as may be
prescribed.

Provided that a member may request for delivery of any document through a particular mode , for
which he shall pay such fees as may be determined by the company in its annual general
meeting.
Thus, if a member wants the notice to be served on him only by registered post at his residential
address at Kanpur for which he has deposited sufficient money, the notice must be served
accordingly, otherwise service will not be deemed to have been effected.
Accordingly, the questions as asked may be answered as under:
(i) The contention of Amar shall be tenable, for the reason that the notice was not properly
served.
(ii) In the given circumstances, the company is bound to serve a valid notice to Amar by
registered post at his residential address at Kanpur and not outside India.
(b) According to section 103(1) of the Companies Act, 2013, unless the articles of the company
provide for a larger number, in case of a public company:
(1) five members personally present if the number of members as on the date of meeting is not
more than one thousand,
(2) fifteen members personally present if the number of members as on the date of meeting is
more than one thousand but up to five thousand,
(3) thirty members personally present if the number of members as on the date of the meeting
exceeds five thousand.
The term ‘members personally present’ as mentioned above refers to the members entitled to
vote in respect of the items of business on the agenda of the meeting.
Thus,
(a) If the company has 800 members, quorum shall be 5 members personally present.
(b) If the company has 6500 members, quorum shall be 30 members personally present.
(c) If the company has 5500 members, quorum shall be 30 members personally present.
However, since the articles of association has prescribed the quorum for the meeting to be
50, the quorum shall be 50 (higher of 30 and 50).
(c) (i) Agent: means a person employed to do any act for another or to represent another in
dealing with the third persons and
The principal: means a person for whom such act is done or who is so represented.
(ii) Who may employ an agent: According to section 183 of the Indian Contract Act, 1872,
“any person who has attained majority according to the law to which he is subject, and who
is of sound mind, may employ an agent.” Thus, a minor or a person of unsound mind cannot
appoint an agent.
(d) (i) Movable Property: According to section 3(36) of the General Clauses Act, 1897, ‘Movable
Property’ shall mean property of every description, except immovable property.
Thus, any property which is not immovable property is movable property. Debts, share,
electricity are moveable property.
(ii) Person: According to section 3(42) of the General Clauses Act, 1897, ‘Person’ shall include
any company or association or body of individuals, whether incorporated or not.

Test Series: March, 2022
MOCK TEST PAPER 1
I. Sourabh Publishers Ltd., a listed entity, passed a resolution in its Board meeting for appointment of Jain
& Jain, a Chartered Accountants firm, as Statutory Auditor of the company. The company obtained t he
consent in writing from Jain & Jain and also placed this recommendation before the general meeting of
the shareholder and got it approved.
The company thereafter informed the CA Firm about their appointment and also filed a notice of
appointment with the Registrar of Companies within the prescribed time.
Jain & Jain, Chartered Accountants firm is having 3 partners namely, Mridula Jain, Shyamla Jain, Parul
Jain. In this firm Mayank Jain and Shashank Jain were associates and were being paid on case-to-case
basis and not on fixed salary.
Prior to the appointment of Jain & Jain, the previous auditor was Agrawal Jain & Associates. In this CA
firm there were 6 partners namely, Prashant Agrawal, Vikas Agrawal, Vishal Agrawal, Vyom Agrawal,
Mayank Jain and Shashank Jain.
Mayank Jain and Shashank Jain were common persons in both the firms.
While working with Sourabh Publishers Ltd., Jain & Jain started facing a lot of issues with the
management of the company. After sometime, due to these disputes with the management, Jain & Jain
resigned from the company.
1. The newly appointed CA Firm (Jain & Jain) and retiring CA Firm (Agrawal Jain & Associates) have
common persons i.e., Mayank Jain and Shashank Jain. Whether the appointment of Jain & Jain in
Sourabh Publishers Ltd. is valid as per the provisions of the Companies Act, 2013:
(a) It not valid since both the CA Firms (New and Old) have common persons
(b) Mayank Jain and Shashank Jain are the associates in Jain & Jain and not the partners, hence
appointment of Jain & Jain, is valid
(c) Jain & Jain should expel Mayank Jain and Shashank Jain in order to retain its appointment
(d) Agrawal Jain & Associates should expel Mayank Jain and Shashank Jain
2. What would have been the position if, Mayank Jain and Shashank Jain are partners in Jain & Jain:
(a) The position will remain same as MCQ 1 above
(b) There shall be no change and the Jain & Jain may continue as audit firm
(c) The appointment of Jain & Jain would not have been in terms of the provisions of the
Companies Act, 2013
(d) The company may obtain permission from the shareholders in the general meeting by way of
Special Resolution for continuation of appointment of Jain & Jain
1

3. In the given case, Jain & Jain due to some dispute with the management on some issues resigned
from the company. Choose the correct option in respect to filling of this vacancy:
(a) Jain & Jain cannot resign and has to hold the office till the conclusion of the next annual
general meeting
(b) The resignation is tendered by the auditor, the Board of Directors shall appoint new auditor
within 30 days and such appointment shall also be approved by the shareholders in the
general meeting within 3 months of the recommendation of the Board
(c) This vacancy of auditor can be filled by the shareholders in consultation of the Central
Government
(d) This vacancy of auditor can be filled by the Board of Directors in consultation of the
Comptroller and Auditor-General of India
II. Rupesh took a house loan of ` 80 lakhs from Best Bank Ltd. While granting the house loan, the bank
insisted to provide a guarantee. Rupesh’s neighbour, Mithun gave the guarantee for such housing loan.
Rupesh also purchased a life insurance policy on his life from A-One Life Insurance Company Ltd., for
a sum assured of ` 1 crore for a policy term of 20 years. He paid the first premium to the insurance
company. This policy was purchased by Rupesh in order to protect his family, in case of untimely death
of Rupesh. Rupesh made nomination of the policy in favour of Archana, his wife.
After some time Rupesh’s business started running into losses and he was not able to pay the
instalments of housing loan to the bank. As a result, his loan account was classified by the bank as Non -
Performing Asset (NPA) and the bank initiated to recover its pending dues. The Bank first sent the
reminder letters/ mails to both the borrower and his guarantor and thereafter a legal notice was served.
Even after notices, when the loan account was not regularised, the bank filed a suit in Debt Recovery
Tribunal (DRT) against the guarantor. The guarantor objected and asked the bank to first get it recover ed
from the borrower and if the borrower does not pay, then only the guarantor will be liable to pay. But the
bank continued to follow up the matter in DRT and ultimately the decree was passed in favour of the
Bank to recover the dues from the guarantor.
Bank recovered entire outstanding loan from the guarantor as per the decree. Now the guarantor filed
a suit against Rupesh to pay the amount, which he paid to the bank. Mithun also requested to the court
to provide the possession and ownership of the house, if Rupesh is not able pay such amount.
Meanwhile, Rupesh met with an accident and died on the spot. Claim was lodged by his wife and the
insurance company paid the sum assured along with bonus amount to Archana (nominee of the
deceased). Archana paid the amount to Mithun, which had been paid by Mithun to the bank in discharge
of his guarantee and settled down all the issues.
4. In the given case, who is discharging the liability of a third person in case of his default in relation
to the contract of guarantee?
(a) Mithun
(b) Rupesh
(c) Archana
(d) The Bank

5. What is the consideration in case of contract between Mithun and the Bank?
(a) Promise made for the benefit of the principal debtor to avail loan on the guarantee of the
surety
(b) In contract of guarantee, there is no consideration involved between surety and the creditor
(c) Mithun can freely utilise the house
(d) Any past consideration
6. Kamya Ltd. is incorporated on 3 rd January, 2021. As per the Companies Act, 2013, what will be the
financial year for the company:
(a) 31st March, 2021
(b) 31st December, 2021
(c) 31st March, 2022
(d) 30th September, 2022 (2 Marks)
7. As per the provisions of the Companies Act, 2013, which of the following statement is correct with
respect to the surplus arising out of the CSR activities:
(a) The surplus cannot exceed five percent of total CSR expenditure of the company for the
financial year.
(b) The surplus shall not form part of the business profit of a company
(c) The surplus cannot exceed 10 percent of total CSR expenditure of the company for the
financial year.
(d) The surplus shall form part of the business profit of a company (1 Mark)
8. Birthday Card Limited, a listed company can appoint or re-appoint, Mishra & Associates (a firm of
Chartered Accountants), as their statutory auditors for:
(a) One year only
(b) One term of 3 consecutive years only
(c) One term of 4 consecutive years only
(d) Two terms of 5 consecutive years (1 Mark)
9. Vinod is a director of Prem Limited. He intends to participate in the board meeting through video
conferencing and has intimated the same to the chairperson at the beginning of calendar year.
Advise, Vinod for how long such declaration shall be valid.
(a) 1 month
(b) 6 month
(c) 1 year
(d) She has to furnish declaration for each meeting separately (1 Mark)
10. An interest or lien created on the property or assets of a company or any of its undertakings or
both as security is known as:
(a) Debt
3

(b) Charge
(c) Liability
(d) Hypothecation (1 Mark)
11. Awareness Limited’s General Meetings are held at its registered office situated in Delhi. The minute
book of General meetings of Awareness Limited will be kept at:
(a) That place where members of Awareness Limited will decide.
(b) That place where all employees of Awareness Limited will decide.
(c) Registered office of Awareness Limited.
(d) That place where senior officials of Awareness Limited will decide. (1 Mark)
12. Shares issued by a company to its directors or employees at a discount or for a consideration other
than cash for their providing know-how or making available rights in the nature of intellectual
property rights or value additions, by whatever name called are known as:
(a) Equity Shares
(b) Preference Shares
(c) Sweat Equity Shares
(d) Redeemable preference shares (1 Mark)
13. The time limit within which a copy of the contract for the payment of underwriting commission is
required to be delivered to the Registrar is:
(a) Three days before the delivery of the prospectus for registration
(b) At the time of delivery of the prospectus for registration
(c) Three days after the delivery of the prospectus for registration
(d) Five days after the delivery of the prospectus for registration (1 Mark)
14. Goals Limited, a listed company has authorised share capital of ` 25,00,000 (issued, subscribed
and paid up capital of ` 20,00,000). The company has planned to buy back shares worth
` 10,00,000. What is the maximum amount of equity shares that the company is allowed to buy
back based on the total amount of equity shares?
(a) ` 2,00,000
(b) ` 5,00,000
(c) ` 6,25,000
(d) ` 8,00,000 (2 Marks)
15. Fin Limited is accepting deposits of various tenures from its members from time to time. The current
Register of Deposits, maintained at its registered office is complete. State the minimum period for
which it should mandatorily be preserved in good order.
4

(d) Ten years from the latest date of entry. (1 Mark)
16. According to the ___________, the words of the statute are to be given their plain and ordinary
meaning. —
(a) Literal rule
(b) golden rule
(c) natural rule
(d) mischief rule (1 Mark)
17. When there is a conflict between two or more statues or two or more parts of a statute then which
rule is applicable:
18. As per the provisions of the General Clauses Act, 1897, where an act or omission constitutes an
offence under two or more enactments, then the offender shall be liable to be prosecuted and
punished under:
19. Where an act of parliament does not expressly specify any particular day as to the day of coming
into operation of such Act, then it shall come into operation on the day on which :
(c) It receives assent of both the houses of Parliament
(d) It receives assent of the Prime Minister (1 Mark)
20. The date of maturity of a bill payable hundred days after sight and which is presented for sight on
4th May, 2021, is:
(a) 13 August, 2021
(b) 14 August, 2021
(c) 15 August, 2021
(d) 16 August, 2021 (2 Marks)
21. The Rule in Heydon’s case is also known as—
(a) Purposive construction
(b) Mischief Rule
5

(c) Golden Rule
(d) None of the Above (1 Mark)
22. Pick the odd one out of the following aids to interpretation—
(a) Preamble
(b) Marginal Notes
(c) Proviso
(d) Usage (1 Mark)
1. (a) Kapila Limited issued equity shares of ` 1,00,000 (10,000 shares of ` 10 each) on 01.04.2021
which have been fully subscribed, whereby Kusha Limited holds 4000 shares and Prem Limited
holds 2000 shares in Kapila Limited. Kapila Limited is also holding 20% equity shares of Red
Limited before the date of issue of equity shares stated above. Red Limited controls the
composition of Board of Directors of Kusha Limited and Prem Limited from 01.08.2021. Examine
with relevant provisions of the Companies Act, 2013:
(i) Whether Kapila Limited is a subsidiary of Red Limited?
(ii) Whether Kapila Limited can hold shares of Red Limited? (6 Marks)
(b) Advise as per the provisions of the Companies Act, 2013, with regard to appointment of auditor:
(i) Mr. Shepra is a practising Chartered Accountant. He holds shares in X Limited. The nominal
value of these shares is ` 50,000. Whether X Limited can appoint Mr. Shepra as auditor?
(ii) Mr. Showik, a practising Chartered Accountant has business relationship with Primus Hotels
Limited. The hotel used to provide services to Mr. Showik frequently, on the same price as
charged from other customers. Whether Primus Hotels Limited can appoint Mr. Showik as its
auditor? (6 Marks)
(c) Anay bailed 100 kg of high quality sugar to Saksham, who owned a kirana shop, promising to give
` 800 at the time of taking back the bailed goods. Saksham’s employee, unaware of this, mixed
the 100 kg of sugar belonging to Anay with the sugar in the shop and packaged it for sale when
Saksham was away. This came to light only when Anay came asking for the sugar he had bailed
with Saksham, as the price of the specific quality of sugar had trebled. What is the remedy available
to Anay, as per the provisions of the Indian Contract Act, 1872? (4 Marks)
(i) Madan was going to office through metro rail. He found a cheque payable to bearer, on the
floor of coach number 6 and retains it.
(ii) Preeti, the agent of Mr. Rajesh, is entrusted with an instrument without indorsement by
Mr. Rajesh, who is the payee. (3 Marks)
2. (a) Examine the validity of the following statements in respect of Annual General Meeting (AGM) as
per the provisions of the Companies Act, 2013:
(i) The first AGM of a company shall be held within a period of six months from the date of closing
of the first financial year.

(ii) The Registrar may, for any special reason, extend the time within which the first AGM shall
be held. (4 Marks)
(b) Aura Ltd. is a listed company having a paid-up share capital of ` 25 crore as at
31st March, 2021 and turnover of ` 100 crore during the financial year 2020-21. The Company
Secretary has advised the Board of Directors that Aura Ltd. is not required to appoint 'Internal
Auditor' as the company's paid up share capital and turnover are less than the threshold limit
prescribed under the Companies Act, 2013. Do you agree with the advice of the Company
Secretary? Explain your view referring to the provisions of the Companies Act, 2013. (6 Marks)
(c) Shiva appoints Ganesh as Shiva's agent to sell Shiva's land. Ganesh, under the authority of Shiva,
appoints Gauri as agent of Ganesh. Afterwards, Shiva revokes the authority of Ganesh but not of
Gauri. What is the status of agency of Gauri? Advise whether the said agency shall be terminated
as per the provisions of the Indian Contract Act, 1872. (4 Marks)
(d) What are the essential characteristics of Negotiable Instruments. (Write any five) (3 Marks)
3. (a) Swati Limited is intending to issue its securities on private placement basis. Explain to the directors
of the company, the provisions of the Companies Act, 2013, on the following matters:
(i) Meaning of Private Placement
(ii) ‘Time Limit for Allotment of Securities’ and ‘repayment of application money in case of default
in allotment.’ (5 Marks)
(b) The Board of Directors of Mines Limited, a listed company appointed Mr. Guru, Chartered
Accountant as its first auditor within 30 days of the date of registration of the company to hold office
from the date of incorporation to conclusion of the first Annual General Meeting (AGM). At the first
AGM, Mr. Guru was re-appointed to hold office from the conclusion of its first AGM till the
conclusion of 6th AGM. In the light of the provisions of the Companies Act, 2013, examine the
validity of appointment/ reappointment in the following cases:
(i) Appointment of Mr. Guru by the Board of Directors.
(ii) Re-appointment of Mr. Guru at the first AGM in the above situation. (5 Marks)
(c) A bill of exchange is drawn by ‘A’ in Berkley where the rate of interest is 15% and accepted by ‘B’
payable in Washington where the rate of interest is 6%. The bill is indorsed in India and is
dishonoured. An action on the bill is brought against ‘B’ in India.
Advise as per the provisions of the Negotiable Instruments Act, 1881, what rate of interest ‘B’ is
liable to pay? (4 Marks)
(d) Write short note on:
(i) Proviso
(ii) Explanation,
with reference to interpretation of Statutes, Deeds and Documents. (3 Marks)
4. (a) (i) "The offer of buy-back of its own shares by a company shall not be made within a period of
six months from the date of the closure of the preceding offer of buy-back, if any and cooling
period to make further issue of same kind of shares including allotment of further shares shall
be a period of one year from the completion of buy back subject to certain exceptions."
Examine the validity of this statement by explaining the provisions of the Companies Act,
2013 in this regard. (3 Marks)

(ii) ABC Limited proposes to issue series of debentures frequently within a period of one year to
raise the funds without undergoing the complicated exercise of issuing the prospectus every
time of issuing a new series of debentures. Examine the feasibility of the proposal of ABC
Limited having taken into account the concept of deemed prospectus dealt with under the
(b) The Promoters of Green Limited contributed in the form of unsecured loan to the company in
fulfilment of the margin money requirements stipulated by State Industries Development
Corporation Ltd. (SIDCL) for granting loan. In the light of the provisions of the Companies Act,
2013 and Rules made thereunder whether the unsecured loan will be regarded as Deposit or not ?
(4 Marks)
(c) Examine the validity of the following statements with reference to the General Clauses Act, 1897:
(i) ‘Things attached to the earth’ have been held to be immovable property.
(ii) The word "bullocks" could be interpreted to include "cows". (4 Marks)
(d) “Associate words to be understood in common sense manner.” Explain this statement with
reference to rules of interpretation of statutes. (3 Marks)
5. (a) Gully Gilli Danda Club was formed as a Limited Liability Company under section 8 of the
Companies Act, 2013 with the object of promoting Gilli Danda by arranging introductory courses at
district level and friendly matches. The club has been earning surplus. Of late, the affairs of the
company are conducted fraudulently and dividend was paid to its members. Mr. A, a member
decided to make a complaint with Regulatory Authority to curb the fraudulent activities by cancelling
the licence given to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the licence? If so, state the
provisions.
(ii) Whether the company may be wound up?
(iii) Whether the Gully Gilli Danda Club can be merged with Stick Private Limited, a company
engaged in the business of networking? (5 Marks)
(b) A Ltd. held its Annual General Meeting on September 15, 2021. The meeting was presided over
by Mr. B, the Chairman of the Company's Board of Directors. On September 17, 2021, Mr. B, the
Chairman, without signing the minutes of the meeting, left India to look after his father who fell sick
in London. Referring to the provisions of the Companies Act, 2013, state the manner in which the
minutes of the above meeting are to be signed in the absence of Mr. B and by whom? (5 Marks)
(c) Enumerate the following as per the provisions of the Indian Contract Act, 1872:
(i) Meaning of contract of guarantee
(ii) Parties to a contract of guarantee. (4 Marks)
(d) "The act done negligently shall be deemed to be done in good faith."
Comment with the help of the provisions of the General Clauses Act, 1897. (3 Marks)

Test Series: March, 2022
MOCK TEST PAPER 1
INTERMEDIATE : GROUP – I
ANSWERS
Division A
I. 1. (b)
2. (c)
3. (b)
II. 4. (a)
5. (a)
6. (c)
7. (b)
8. (d)
9. (c)
10. (b)
11. (c)
12. (c)
13. (b)
14. (b)
15. (c)
16. (a)
17. (c)
18. (a)
19. (a)
20. (b)
21. (b)
22. (d)
Division B
1. (a) This given problem is based on sub-clause (87) of Clause 2 read with section 19 of the
Companies Act, 2013.
As per sub-clause (87) of Clause 2 of the Companies Act, 2013 "subsidiary company" or
"subsidiary", in relation to any other company (i.e., the holding company), means a company in
which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies.
For the purposes of this clause, Explanation is given providing that a company shall be deemed
to be a subsidiary company of the holding company even if the control referred to in point (i) or
1

point (ii) above, is of another subsidiary company of the holding company.
Whereas section 19 provides that, no company shall, hold any shares in its holding company and
no holding company shall allot or transfer its shares to any of its subsidiary companies and any
such allotment or transfer of shares of a company to its subsidiary company shall be void.
Provided that nothing in this sub-section shall apply to a case where the subsidiary company is a
shareholder even before it became a subsidiary company of the holding company.
Here in the instant case, Kapila Limited issued 10,000 equity shares on 1.4.2021 whereby Kusha
Limited & Prem Limited holds 4000 & 2000 shares respectively in Kapila Ltd., Considering 1
share = 1 vote, Kusha Limited and Prem Limited together holds more than one-half (50%) of
the total voting power. Therefore, Kapila Limited will be subsidiary to Kusha Limited & Prem
Limited from 1.4.2021.
Whereas Kapila Limited is already holding 20% equity shares of Red Limited before the date of
issue of equity shares i.e. 1.4.2021.
Further, Red Limited controls the composition of Board of Directors of Kusha Limited and Prem
Limited from 01.08.2021. In the light of sub-clause (87) of Clause 2, Red Limited is a holding
company of Kusha Limited and Prem Limited (Subsidiary companies).
Following are the answers to the questions:
(i) Yes, Kapila Limited is a subsidiary of Red Limited. In this case Kapila Limited shall be
deemed to be a subsidiary company of the holding company (Red Limited) as Red Limited
controls the composition of subsidiary companies Kusha Limited & Prem Limited as per
explanation to sub-clause (87) of Clause 2.
(ii) Yes, Kapila Limited can hold shares of Red Limited. In this case Kapila Limited is a
subsidiary of Red Limited as Kapila Limited was holding 20% of equity shares of Red
Limited even before it became a subsidiary company of the Red Limited (i.e. on
01.08.2021), according to the exception to section 19.
(b) (i) As per section 141 (3)(d)(i) an auditor is disqualified to be appointed as an auditor if he, or
his relative or partner holding any security of or interest in the company or its subsidiary, or
of its holding or associate company or a subsidiary of such holding company.
In this case Mr. Shepra, a practicing Chartered Accountant holding shares in X Limited
cannot be appointed as auditor of X Limited.
(ii) Section 141(3) of the Companies Act, 2013 read with Rule 10 of the Companies (Audit and
Auditors) Rules, 2014 provides that a person or a firm who, whether directly or indirectly,
has business relationship with the company, or its subsidiary, or its holdin g or associate
company or subsidiary of such holding company or associate company, shall not be eligible
for appointment as an auditor of a company.
The term business relationship shall be construed as any transaction entered into for a
commercial purpose except –
- commercial transactions which are in the nature of professional services permitted to
be rendered by an auditor or audit firm under the Act and the Chartered Accountant
Act, 1949 and the rules or the regulations made under those Act;
- commercial transactions which are in the ordinary course of business of the company
at arm's length price – like sale of products or services to the auditors, as customer, in
the ordinary course of business, by companies engaged in the business of
telecommunications, airlines, hospitals, hotels and such other similar businesses.

In the given question, since the transaction is at arm’s length price so Mr. Showik can be
appointed as an auditor of Primus Hotels Limited.
(c) According to section 157 of the Contract Act, 1872, if the bailee, without the consent of the bailor,
mixes the goods of the bailor with his own goods, in such a manner that it is impossible to
separate the goods bailed from the other goods and deliver them back, the bailor is entitled to be
compensated by the bailee for the loss of the goods.
In the given question, Saksham’s employee mixed high quality sugar bailed by Anay and then
packaged it for sale. The sugars when mixed cannot be separated. As Saksham’s employee has
mixed the two kinds of sugar, he (Saksham) must compensate Anay for the loss of his sugar.
(d) Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881,
(i) In the given question, though Madan is in possession of the cheque but is not entitled to the
possession of it in his own name (he got the cheque on the floor of metro coach). Hence,
Madan is not a holder of the Instrument.
(ii) In the given question though the agent (i.e. Preeti) may receive payment of the amount
mentioned in the cheque, yet she cannot be called the holder thereof because she has no
right to sue on the instrument in her own name. Hence, Preeti is not a holder.
2. (a) (i) According to section 96 of the Companies Act, 2013, first annual general meeting of the
company should be held within nine months from the closing of the first financial year.
Hence, the statement that the first Annual General Meeting (AGM) of a company shall be
held within a period of six months from the date of closing of the first financial year is
incorrect.
(ii) According to proviso to section 96(1), the Registrar may, for any special reason, extend the
time within which any annual general meeting, other than the first annual general meeting,
shall be held, by a period not exceeding three months.
Thus, the Registrar cannot extend (for any reason) the time period within which the first
AGM shall be held. Given statement is incorrect.
(b) According to the provisions of section 138 of the Companies Act, 2013, read with Rule 13 of the
Companies (Accounts) Rules, 2014, the following class of companies shall be required to appoint
an internal auditor which may be either an individual or a partnership firm or a body corporate,
namely:
(A) paid up share capital of 50 crore rupees or more during the preceding financial year; or
(B) turnover of 200 crore rupees or more during the preceding financial year;
(C) outstanding loans or borrowings from banks or financial institutions exceeding one
hundred crore rupees or more at any point of time during the preceding financial year;
or
(D) outstanding deposits of twenty five crore rupees or more at any point of time during the
preceding financial year.
Besides, some private companies are also required to appoint an internal auditor which may
be either an individual or a partnership firm or a body corporate.
3

Thus, Aura limited (which is a listed company) is required to appoint an internal auditor,
irrespective of its paid-up share capital or turnover (as the limit of paid- up share capital or
turnover is applicable for unlisted public company).
Hence, the advice of the Company Secretary is not correct.
(c) According to section 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person employed
by, and acting under the control of, the original agent in the business of the agency.
Section 210 provides that, the termination of the authority of an agent causes the termination
(subject to the rules regarding the termination of an agent’s authority) of the authority of all sub-
agents appointed by him.
In the given question, Ganesh is the agent of Shiva, and Gauri is the agent of Ganesh. Hence,
Gauri becomes a sub- agent.
Thus, when Shiva revokes the authority of Ganesh (agent), it results in termination of authority of
sub-agent appointed by Ganesh i.e. Gauri (sub-agent).
(d) Essential Characteristics of Negotiable Instruments
1. It is necessarily in writing.
2. It should be signed.
3. It is freely transferable from one person to another.
4. Holder’s title is free from defects.
5. It can be transferred any number of times till its satisfaction.
6. Every negotiable instrument must contain an unconditional promise or order to pay money.
The promise or order to pay must consist of money only.
7. The sum payable, the time of payment, the payee, must be certain.
8. The instrument should be delivered. Mere drawing of instrument does not create liability.
3. (a) (i) Meaning of ‘Private Placement’: As per Explanation I to section 42(3), the term "private
placement" means any offer or invitation to subscribe or issue of securities to a select group
of persons by a company (other than by way of public offer) through private placement offer -
cum-application, which satisfies the conditions specified in section 42.
(ii) ‘Time Limit for Allotment of Securities’ and ‘repayment of application money in case
of default in allotment’: A company making an offer or invitation under section 42 shall
allot its securities within sixty days from the date of receipt of the application money for such
securities and if the company is not able to allot the securities within that period, it shall
repay the application money to the subscribers within fifteen days from the expiry of sixty
days and if the company fails to repay the application money within the aforesaid period, it
shall be liable to repay that money with interest at the rate of twelve per cent per annum
from the expiry of the sixtieth day.
(b) As per section 139(6) of the Companies Act, 2013, the first auditor of a company, other th an a
Government company, shall be appointed by the Board of Directors within thirty days from the
date of registration of the company and such auditor shall hold office till the conclusion of the first
annual general meeting.
Whereas Section 139(1) of the Companies Act, 2013 states that every company shall, at the first
annual general meeting (AGM), appoint an individual or a firm as an auditor of the company who
shall hold office from the conclusion of 1 st AGM till the conclusion of its 6 th AGM and thereafter till
the conclusion of every sixth AGM.

As per section 139(2), no listed company or a company belonging to such class or classes of
companies as may be prescribed, shall appoint or re-appoint an individual as auditor for more
than one term of five consecutive years.
(i) Appointment of Mr. Guru (as first auditor) by the Board of Directors is valid as per the
provisions of section 139(6).
(ii) Appointment of Mr. Guru at the first Annual General Meeting is valid due to the fact that the
appointment of the first auditor made by the Board of Directors is a separate appointment
and the period of such appointment is not to be considered, while Mr. Guru is appointed in
the first Annual General Meeting, which is for the period from the conclusion of the first
Annual General Meeting to the conclusion of the sixth Annual General Meeting.
(c) According to section 134 of the Negotiable Instruments Act, 1881, in the absence of a contract to
the country, the liability of the maker or drawer of a foreign promissory note or bill of exchange or
cheque is regulated in all essential matters by the law of the place where he made the
instrument, and the respective liabilities of the acceptor and indorser by the law of the place
where the instrument is made payable.
In the given case, since action on the bill is brought against B in India, he is liable to pay interest
at the rate of 6% only.
(d) (i) Proviso: The normal function of a proviso is to except something out of the enactment or to
qualify something stated in the enactment which would be within its purview if the proviso
were not there. The effect of the proviso is to qualify the preceding enactment wh ich is
expressed in terms which are too general. As a general rule, a proviso is added to an
enactment to qualify or create an exception to what is in the enactment. Ordinarily a proviso
is not interpreted as stating a general rule.
It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only
embraces the field which is covered by the main provision.
(ii) Explanation: An Explanation is at times appended to a section to explain the meaning of
the text of the section. An Explanation may be added to include something within the
section or to exclude something from it. An Explanation should normally be so read as to
harmonise with and clear up any ambiguity in the main section. It should not be so
construed as to widen the ambit of the section.
The meaning to be given to an explanation will really depend upon its terms and not on any
theory of its purpose.
4. (a) (i) According to proviso to section 68(2) of the Companies Act, 2013, no offer of buy-back,
shall be made within a period of one year from the date of the closure of the preceding offer
of buy-back, if any.
Section 68 (8) casts an obligation that where a company completes a buy -back of its shares
or other specified securities under this section, it shall not make further issue of same kind
of shares including allotment of further shares under section 62 (1) (a) or other specified
securities within a period of six months except by way of bonus issue or in the discharge of
subsisting obligations such as conversion of warrants, stock option schemes, sweat equity
or conversion of preference shares or debentures into equity shares.
Keeping in view of the above provisions, the statement “the offer of buy -back of its own
shares by a company shall not be made within a period of six months from the date of the
closure of the preceding offer of buy back, if any and cooling period to make further issue of
same kind of shares including allotment of further shares shall be a period of one year from
the completion of buy back subject to certain exceptions” is not valid.
5

(ii) Information Memorandum together with Shelf Prospectus is deemed Prospectus . The
expression “shelf prospectus” means a prospectus in respect of which the securities or class
of securities included therein are issued for subscription in one or more issues over a
certain period without the issue of a further prospectus. [Explanation to Section 31]
Any class or classes of companies, as the Securities and Exchange Board may provide by
regulations in this behalf, may file a shelf prospectus with the Registrar at the stage-
(i) of the first offer of securities included therein which shall indicate a period not
exceeding one year as the period of validity of such prospectus which shall commence
from the date of opening of the first offer of securities under that prospectus, and
(ii) in respect of a second or subsequent offer of such securities issued during the period
of validity of that prospectus,
No further prospectus is required for issue of securities. [Sub-section (1)]
Hence, the proposal of ABC Limited to take into account the concept of deemed prospectus
is correct.
(b) According to Rule 2 (1) (c) of the Companies (Acceptance of Deposits) Rules, 2014, the following
amount is not considered as deposit:
Any amount brought in by the promoters of the company by way of unsecured loan in pursuance
of the stipulation of any lending financial institution or a bank subject to the fulfillment of following
conditions:
(a) the loan is brought because of the stipulation imposed by the lending institutions on the
promoters to contribute such finance;
(b) the loan is provided by the promoters themselves or by their relatives or by both; and
(c) such exemption shall be available only till the loans of financial institution or bank are repaid
and not thereafter.
Hence, in the instant case, the unsecured loan contributed by promoters of Green Limited will not
be regarded as deposit as the unsecured loan is brought because of the stipulation imposed by
the SIDCL and the loan is provided by the promoters themselves.
(c) (i) ‘Things attached to the earth’ have been held to be immovable property : This
statement is valid.
As per section 3(26) of the General Clauses Act, 1897, ‘Immovable Property’ shall include:
(1) Land,
(2) Benefits to arise out of land, and
(3) Things attached to the earth, or
(4) Permanently fastened to anything attached to the earth.
It is an inclusive definition. The four elements to the definition includes ‘things permanently
fastened to anything attached to the earth’. Hence, the given statement is correct.
(ii) The word ‘bullocks’ could be interpreted to include ‘cows’: This statement is not valid.
Where a word connoting a common gender is available but the word used conveys a specif ic
gender, there is a presumption that the provisions of General Clauses Act, 1897 do not apply.
Thus, the word ‘bullocks’ could not be interpreted to include ‘cows’.

Hence, in the instant case, the Central Government can revoke the license given to Gully
Gilli Danda Club as section 8 company, as the affairs of the company are conducted
opportunity of being heard. [Section 8(7)].
Hence, the stated company may be wound up.
In the instant case, Gully Gilli Danda Club cannot be merged with Stick Private Limited as
the objects of both the companies are different and not similar.
(b) Section 118 of the Companies Act, 2013 provides that every company shall prepare, sign and
keep minutes of proceedings of every general meeting, including the meeting called by the
requisitionists and all proceedings of meeting of any class of shareholders or creditors or Board
of Directors or committee of the Board and also resolution passed by postal ballot within thirty
days of the conclusion of every such meeting concerned. Minutes kept shall be evidence of the
proceedings recorded in a meeting.
By virtue of Rule 25 of the Companies (Management and Administration) Rules, 2014 read with
section 118 of the Companies Act, 2013, each page of every such book shall be in itialled or
signed and the last page of the record of proceedings of each meeting or each report in such
books shall be dated and signed by, in the case of minutes of proceedings of a general meeting,
by the chairman of the same meeting within the aforesaid period of thirty days or in the event of
the death or inability of that chairman within that period, by a director duly authorized by the
Board for the purpose.
7

Therefore, the minutes of the meeting referred to in the case of A Ltd. can be signed in the
absence of Mr. B, by any director, authorized by the Board in this respect.
(c) (i) Contract of guarantee: As per the provisions of section 126 of the Indian Contract Act,
1872, a contract of guarantee is a contract to perform the promise made or dischar ge the
liability, of a third person in case of his default.
(ii) Three parties are involved in a contract of guarantee:
Surety- person who gives the guarantee,
Principal debtor- person in respect of whose default the guarantee is given,
Creditor- person to whom the guarantee is given
(d) Good Faith
In general, anything done with due care and attention, which is not malafide is presumed to have
been done in good faith.
But, according to section 3(22) of the General Clauses Act, 1897, a thing shall be deemed to be
done in “good faith” where it is in fact done honestly, whether it is done negligently or not.
The question of good faith under the General Clauses Act is one of fact. It is to determine with
reference to the circumstances of each case.
It is therefore understood that the General Clauses Act, 1897 considers the honesty in doing the
Act as a primary test to constitute the thing done in good faith and therefore the act done
honestly but with negligence may also be termed as done in good faith as per the General
Clauses Act, 1897.

Test Series: November, 2021
MOCK TEST PAPER 1
1. Mr. Hari Dutta is an Operation head of North India region of Hilton Ltd. He was a full- time employee of
the company. Mr. Hari draws a monthly salary of Rs. 1,00,000. On 14th May 2020, Mr. Hari applied for
a loan of Rs. 10,00,000, to buy 1000 fully paid-up equity shares of Rs. 1000 each in Mohan Limited
(holding company of Hilton Ltd). The company refused to grant loan to Mr. Hari saying he is not
eligible for the loan for the said amount of Rs. 10,00,000.
Hilton Ltd. is a listed company, authorized by its articles to purchase its own securities. According to
the balance sheet and Annual statements of the company for the year 2020-21:
• Issued, subscribed and paid-up Share Capital (20,00,000 equity shares of Rs. 100 each, fully paid-up)
• Free Reserves Rs. 30,00,00,000
• The security premium account Rs. 20,00,00,000
• The secured and unsecured Debt Rs. 50,00,00,000
• Accumulated losses Rs. 50,00,000
The company issued a circular as it wanted to buy back shares worth Rs. 10,00,00,000 from the funds
it has in its free reserve and security premium account. The board of directors passed a resolution for
the same on 28th April, 2021.
The company has filed with the Registrar of Companies a Letter of Offer in e-form SH-8 on 1st May
2021. The company had also filed with the Registrar of Companies, along with the letter of offer, a
declaration of solvency.
The Letter of Offer was dispatched to all the shareholders on 3rd May, 2021. The company announced
to avail the buy back offer latest by 10th May, 2021. Many shareholders who approached the company
after the due date were not considered applicable for this buy back scheme. The shareholders raised
strong objection on giving just 7 days time to avail the offer by the company.
A special resolution has been passed at a general meeting of the company authorizing the buy-back of
shares, which was accompanied by an explanatory statement containing the particulars required to be
mentioned as per the provisions of the Companies Act, 2013.
(i) The company has planned to buy back shares worth rupees 10,00,00,000. What is the maximum
amount of equity shares that the company is allowed to buy back based on the total amount of
equity shares?
(a) Rs. 2,00,00,000
(b) Rs. 5,00,00,000

(c) Rs. 7,00,00,000
(d) Rs. 8,00,00 000
(ii) Suppose the company intends to buy back some partly paid equity shares. Which of the following
statement is correct?
(a) The company is allowed to buy back partly paid equity shares
(b) The company is allowed to buy back partly paid equity shares if the total amount of such
partly paid equity shares does not exceed 2% of the total buy back.
(c) The company is allowed to buy back partly paid equity shares but it cannot buy back partly
paid other specified securities.
(d) All the shares or other specified securities for buy back must be fully paid up.
(iii) Some shareholders and officers of the company are of the opinion that it was not necessary for
the company to pass a special resolution in general meeting with respect to buy back. Choose
the correct reasoning:
(a) It was not necessary to pass the special resolution as the approval of Board had already
been granted for such buy back of shares
(b) It was necessary to pass special resolution as the amount of buy back exceeds ten percent
of the total paid up equity share capital and free reserves
(c) It was not necessary to pass the special resolution as the buy back was authorized by the
articles of the company
(d) It was necessary to pass special resolution as the amount of buy back exceeds fifteen
percent of the total paid up equity share capital and free reserves
2. Kirtee Agarwal and Kishan Shaw are two friends studying in the Mumbai City College. They both are
pursuing Bachelor of Commerce (Hons) and are in their Semester V. Kirtee Agarwal is also pursing
Chartered Accountancy Course. She has completed her Foundation Level and is presently preparing
for the Intermediate Level. On the other hand, Kishan Shaw is interested in Fashion Designing and is
preparing to become a fashion designer after completing B.COM (Hons).
One fine morning over a cup of tea both Kirtee and Kishan heard two persons promising to financially
help each other. One person named Mr. P promised the other Mr. Q, that he will pay him a certain sum
of money on the 76th Independence Day of India. To this Mr. Q asked Mr. P to pay this sum to Mr. R
(friend of Mr. Q). After a moment’s thought Mr. P changed his mind and promised to pay a reduced
sum of money to Mr. R along with an I-Pad.
Over hearing this conversation both Kirtee and Kishan started discussing over Promissory Notes.
Since Kirtee is a CA Student she shared her knowledge about Promissory notes and explained Kishan
about Section 4 of the Negotiable Instrument Act, 1881.
Having heard the details Kishan was curious in his mind regarding Promissory Notes. He had the
following questions for which he needed answers. Considering the above data and assuming you are
Kirtee, answer the following questions of Kishan:
(i) Kishan asks, ‘If Mr. P promises Mr. Q that he will pay Rs. 4,00,000. However, he will pay the sum
to Mr. Q on the 76th Independence day of India’. Will this promise constitute a valid Promissory
Note?

(a) No. This is not a valid promissory note as it is conditional and promissory note should be
unconditional.
(b) No. This is not a valid promissory note as there is no express of promise. It is a mere
statement.
(c) Yes. This is a valid promissory note as the event stated in the promise is bound to happen.
(d) Yes. This is a valid promissory note as there is a promise to pay irrespective of the promise
being conditional or unconditional.
(ii) Kishan asked, ‘when Mr. P promises to pay a friend of Mr. Q, Rs 2,00,000 along with an I-Pad,
on his birthday’. Will that be a valid Promissory Note?
(a) No. It is not a valid Promissory note as the order to pay must consist of money only.
(b) No. It is not a valid promissory note as there is no clarity on which birthday the payment will
be made. It is a promise for an indefinite period.
(c) Yes. It is a valid promissory note as the maker and payee are certain, definite and different
person.
(d) Yes. It is a valid promissory note as there is an express promise to pay Rs 2,00,000 along
with I Pad on friend’s birthday.
3. A bill of exchange is due on 2nd January, 2021. How many days of grace shall be provided to this bill
of exchange due at maturity:
(a) 1 day
(b) 2 days
(c) 3 days
(d) 5 days (1 Mark)
4. Vinod, a transporter was transporting tomatoes of Avinash from his (Avinash’s) farm to the market.
However, due to heavy rains, Vinod was stuck for three days and thus he sold the tomatoes below the
market rate in the nearby market where he was stranded fearing that the tomatoes may perish.
Choose the correct option in the light of the provisions of the Indian Contract Act, 1872.
(a) Avinash will succeed in recovering losses of tomatoes from Vinod
(b) Avinash will not succeed in recovering losses of tomatoes from Vinod
(c) Vinod can sell the tomatoes only at a price higher than the market rate
(d) Avinash is liable to compensate Vinod as his truck was stuck for three days and hence, he
(Vinod) could not complete the deliveries of other clients and thus he (Vinod) suffered loss.
(2 Marks)
5. Mr. Vishal parks his car at a parking lot, locks it, and keeps the keys with himself. Which of the
following statement is correct in this regard:
(a) This is a case of bailment
(b) The parking people has possession of the car of Mr. Vishal
(c) The parking people has custody of car of Mr. Vishal
(d) This is the case of mortgage

(2 Marks)
6. ________________________ is the cardinal rule of construction that words, sentences and phrases of
a statute should be read in their ordinary, natural and grammatical meaning so that they may have
effect in their widest amplitude.
7. What among the following could be considered in the term ‘Immovable Property’ as defined under
section 3(26) of the General Clauses Act, 1897?
(i) The soil for making bricks
(ii) Right to catch fish
(iii) Right to drain water
(iv) Doors and Windows of the house
(a) Only (i) and (iv)
(b) Only (i), (ii) and (iv)
(c) Only (i) and (ii)
(d) Only (ii), (iii) and (iv) (2 Marks)
8. The Annual General Meeting (AGM) of ALL- WELL Limited was held on 31.8.2021. Suppose the
Chairman of the company after two days of AGM went abroad for next 31 days. Due to the
unavailability of the Chairman, within time period prescribed for submission of copy of report of AGM
with the registrar, the report as required was signed by two Directors of the company, of which one
was additional Director of the company. Comment on the signing of this report of AGM.
Chairman.
(c) Yes, the signing is in order, as in the absence of Chairman at least two directors should sign the
report.
(d) No, the signing is not in order, since in case the Chairman is unable to sign, the report shall be
signed by any two directors of the company, one of whom shall be the Managing director, if there
is one and company secretary of the company. (2 Marks)
9. The Annual General Meeting of Brother Limited was held on 25 th May 2021. According to the
provisions of Companies Act, 2013, till what date the company should submit report of AGM to the
registrar?
(a) 04.06.2021
(b) 09.06.2021
(c) 24.06.2021
(d) 25.06.2021 (2 Marks)

10. Gama Limited’s General Meetings are held at its registered office situated in Delhi. The minute book of
General meetings of Gama Limited will be kept at:
(a) That place where members of Gama Limited will decide.
(b) That place where all employees of Gama Limited will decide.
(c) Registered office of the company Gama Limited.
(d) That place where senior officials of Gama Limited will decide. (1 Mark)
11. Amit Limited is accepting deposits of various tenures from its members from time to time. The current
Register of Deposits, maintained at its registered office is complete. State the minimum period for
which it should mandatorily be preserved in good order.
(d) Ten years from the latest date of entry.
(1 Mark)
12. Shri Limited (a company having CSR Committee as per the provision of Section 135 of the Companies
Act, 2013) decides to spend and utilize the amount of Corporate Social Responsibility on the activities
for the benefit of all the employees of Shri Limited. As per the provision of Companies Act, 2013 this
would mean that:-
(a) This is the total amount spent on Corporate Social Responsibility activities by Shri Limited for
that financial year
(b) No amount spent on Corporate Social Responsibility activities by Shri Limited for that financial
year
(c) Only Half of the total amount spent, shall be considered to be spent on Corporate Social
Responsibility activities by Shri Limited for that financial year
(d) Only the amount that has been spent on the employees having salary of Rs. 20,000 per month or
less, shall be considered be considered to be spent on Corporate Social Responsibility activities
by Shri Limited for that financial year. (2 Marks)
13. Mr. Guru bought 40,000 shares of Real Consultancy Services (RCS) of face value 10 each out of his
savings. On such shares, the final call of Rs. 2 is due but unpaid by Mr. Guru. In the meantime, RCS
declared dividend at a rate of 15%. Regarding un-paid call money by Mr. Guru, in light of dividend due
to him from RCS, state which of following the statements is correct?
(a) Dividend cannot be adjusted against the unpaid call money
(b) The dividend of Rs. 48,000 can be adjusted against unpaid call money
(c) The dividend of Rs. 48,000 can be adjusted against unpaid call money, only if consent is given by
Mr. Guru.
(d) The dividend of Rs. 64,000 can be adjusted against unpaid call money, even if consent is not
given by Mr. Guru. (2 Marks)
14. The word ‘firm’ for the purpose of Section 139 shall include-
(a) An individual auditor
(b) LLP
5

(c) An individual auditor and LLP both
(d) A company (1 Mark)
15. When the dividend is declared at the Annual General Meeting of the company, it is known as ….
(a) Final Dividend
(b) Interim Dividend
(c) Dividend on preference shares
(d) Scrip Divided (1 Mark)
1. (a) Kat Pvt. Ltd., is an unlisted company incorporated on 2.6.2012. The company have a share
capital of rupees fifty crores. The company has decided to issue sweat equity shares to its
directors and employees on 5.7.2021. The company decided to issue 10% sweat equity shares
(which in total will add up to 30% of its paid up equity shares), with a locking period of five years,
as it is a start-up company. How would you justify these facts in relation to the provisions for
issue of sweat equity shares by a start-up company, with reference to the provisions of the
Companies Act, 2013? Explain. (6 Marks)
(b) The Board of Directors of Dew Fashions Limited at its meeting recommended a dividend on its
paid-up equity share capital which was later on approved by the shareholders at the Annual
General Meeting. Thereafter, the directors at another meeting of the Board passed a board
resolution for diverting the total dividend to be paid to the shareholders for purchase of certain
short-term investments in the name of the company. As a result, dividend was paid to
shareholders after 45 days.
Examining the provisions of the Companies Act, 2013, state whether the act of directors is in
violation of the provisions of the Act and if so, state the consequences that shall follow for the
above violative act. (6 Marks)
(c) Alia appoints Monu, a minor, as his agent to sell her watch for cash at a price not less than
Rs. 700. Monu sells it to David for Rs. 350. Is the sale valid? Explain the legal position of Monu
and David, referring to the provisions of the Indian Contract Act, 1872. (4 Marks)
(d) Mr. Amna draws a cheque of Rs. 11,000 and gives to Mr. Babita by way of gift. State with reason
whether -
(1) Mr. Babita is a holder in due course as per the Negotiable Instrument Act, 1881?
(2) Mr. Babita is entitled to receive the amount of Rs. 11,000 from the bank? (3 Marks)
2. (a) Mr. Pam purchased a commercial property in Delhi belonging to ABC Limited after entering into
an agreement with the company. At the time of registration,
Mr. Pam comes to know that the title deed of the company is not free and the company
expresses its inability to get the title deed transferred in his name contending that he ought to
have the knowledge of charge created on the property of the company. Explain, whether the
contention of ABC Limited is correct? (4 Marks)
(b) The Income Tax Authorities in the current financial year 2020-21 observed, during the
assessment proceedings, a need to re-open the accounts of Shrey Ltd. for the financial year
2009-10 and, therefore, filed an application before the National Company Law Tribunal (NCLT) to
issue the order to Shrey Ltd. for re-opening of its accounts and recasting the financial statements
for the financial year 2009-10. Examine the validity of the application filed by the Income Tax
Authorities to NCLT. (6 Marks)

(c) Mrs. Shriya delivered her old silver jewellery to Mr. Yash a Goldsmith, for the purpose of making
new a silver bowl out of it. Every evening she used to receive the unfinished good (silver bowl) to
put it into box kept at Mr. Yash’s shop. She kept the key of that box with herself. One night, the
silver bowl was stolen from that box. Was there a contract of bailment? Whether the possession
of the goods (actual or constructive) delivered, constitute contract of bailment or not? (4 Marks)
(d) What are the parties to a bill of exchange. (3 Marks)
3. (a) Explain the provisions of the Companies Act, 2013 relating to the ‘Service of Documents’ on a
company and the members of the company. (5 Marks)
(b) Examine whether the following persons are eligible for being appointed as auditor under the
provisions of the Companies Act, 2013:
(i) Mr. Ray is a practicing Chartered Accountant indebted to ABC Ltd. for rupees 6 lakh.
Directors of ABC Ltd. want to appoint Mr. Ray as an auditor of the company. Can ABC Ltd.
do so?
(ii) Mrs. Kavita spouse of Mr. Kumar, a Chartered Accountant, is the store- keeper of PRC Ltd.
Directors of PRC Ltd. want to appoint Mr. Kumar as an auditor of the company. (5 Marks)
(c) Discuss with reasons, whether the following persons can be called as a ‘holder’ under the
(1) Megha, who finds a cheque payable to bearer, on the road and retains it.
(2) Bob, who steals a blank cheque of Alpa and forges Alpa’s signature. (4 Marks)
(d) Does an explanation added to a section widen the ambit of a section? (3 Marks)
4. (a) What is the minimum number of persons required to form a Private company and a Public
company.
Explain the consequences when the number of members falls below the minimum prescribed
limit. (6 Marks)
(b) Kavita Ltd. scheduled its Annual General Meeting to be held on 11th March, 2020 at 11:00 A.M.
The company has 900 members. On 11th March, 2020 following persons were present by 11:30
A.M.
1. P1, P2 & P3 shareholders
2. P4 representing ABC Ltd.
3. P5 representing DEF Ltd.
4. P6 & P7 as proxies of the shareholders
(i) Examine with reference to relevant provisions of the Companies Act, 2013, whether quorum
was present in the meeting.
(ii) What will be your answer if P4 representing ABC Ltd., reached in the meeting after 11:30
A.M.? (4 Marks)
(c) The Companies Act, 2013 provides that the amount of dividend remained unpaid/unclaimed on
expiry of 30 days from the date of declaration of dividend shall be transferred to unpaid dividend
account within 7 days from the date of expiry of such period of 30 days. If the expiry date of such
30 days is 30.10.2021, decide the last date on or before which the unpaid/unclaimed dividend
amount shall be required to be transferred to a separate bank account in the light of the relevant
provisions of the General Clauses Act, 1897? (3 Marks)
(d) Explain the rule in ‘Heydon’s Case’ while interpreting the statutes quoting an example. (4 Marks)
7

5. (a) Mr. Nirmal has transferred 1000 equity shares of Perfect Private Limited to his sister Ms. Mana.
The company did not register the transfer of shares and also did not send a notice of refusal to
Mr. Nirmal or Ms. Mana within the prescribed period. Discuss as per the provisions of the
Companies Act, 2013, whether aggrieved party has any right(s) against the company? (5 Marks)
(b) Define Charge.
Who has the authority to verify the instrument of charge created for property situated outside
India? Give your answer as per the provisions of the Companies Act, 2013. (5 Marks)
(c) Define contract of indemnity and contract of guarantee and state the conditions when guarantee
is considered invalid? (4 Marks)
(d) What is the meaning of service by post as per provisions of the General Clauses Act, 1897?
(3 Marks)

Test Series: November, 2021
MOCK TEST PAPER 1
INTERMEDIATE (NEW): GROUP – I
ANSWERS
Division A
1. (i) (b)
(ii) (d)
(iii) (b)
2. (i) (c)
(ii) (a)
3. (c)
4. (b)
5. (c)
6. (a)
7. (b)
8. (d)
9. (c)
10. (c)
11. (c)
12. (b)
13. (b)
14. (b)
15. (a)
Division B
1. (a) Sweat Equity Shares are governed by section 54 of the Companies Act, 2013 and Rule 8
of Companies (Share capital and debentures) Rules, 2014. According to section 54, the
company can issue sweat equity shares to its director and permanent employees of the
company.
According to proviso to rule 8 (4), a start up company, [as defined in notification number
G.S.R.127(E), dated 19th February 2019 issued by the Department for Promotion of Industry and
Internal Trade, Ministry of Commerce and Industry, Government of lndia], may issue sweat equity
share not exceeding 50% of its paid up share capital up to 10 years from the date of its in
incorporation or registration.
According to Rule 8(5), the sweat equity shares issued to directors or employees shall be locked
in/ non- transferable for a period of three years from the date of allotment.
Hence in the above case, the company can issue sweat equity shares by passing special
resolution at its general meeting. The company as a startup company is right in issue of 10%
sweat equity share as it is overall within the limit of 50% of its paid up share capital. But the lock
1

in period of the shares is limited to maximum three years period from the date of allotment (as
not five years, as given in the question).
(b) According to section 124 of the Companies Act, 2013, where a dividend has been declared by a
company but has not been paid or claimed within 30 days from the date of the declaration, the
company shall, within 7 days from the date of expiry of the said period of 30 days, transfer the
total amount of dividend which remains unpaid or unclaimed to a special account to be opened
by the company in any scheduled bank to be called the Unpaid Dividend Account.
Further, according to section 127 of the Companies Act, 2013, where a dividend has been
declared by a company but has not been paid or the warrant in respect thereof has not been
posted within 30 days from the date of declaration to any entitled shareholder, every director of
the company shall, if he is knowingly a party to the default, be liable for punishment.
In the present case, the Board of Directors of Dew Fashions Limited at its meeting recommended
a dividend on its paid-up equity share capital which was later on approved by the shareholders at
the Annual General Meeting. Thereafter, the directors at another meeting of the Board decided
by passing a board resolution for diverting the total dividend to be paid to the shareholders for
purchase of certain short-term investments in the name of the company. As a result, dividend
was paid to shareholders after 45 days.
1. Since, declared dividend has not been paid within 30 days from the date of the declaration
to any shareholder entitled to the payment of dividend, the company shall, within 7 days
from the date of expiry of the said period of 30 days, transfer the total amount of dividend
which remains unpaid or unclaimed to a special account to be opened by the company in
any scheduled bank to be called the Unpaid Dividend Account.
2. The Board of Directors of Dew Fashions Limited has violated section 127 of the Companies
Act, 2013 as it failed to pay dividend to shareholders within 30 days due to its decision to
divert the total dividend to be paid to shareholders for purchase of certain short-term
investments in the name of the company.
Consequences: The following are the consequences for violation of the above provisions:
(i) Every director of the company shall, if he is knowingly a party to the default, be punishable
with maximum imprisonment of two years and shall also be liable for a minimum fine rupees
one thousand for every day during which such default continues.
(ii) The company shall also be liable to pay simple interest at the rate of 18% p.a. during the
period for which such default continues.
(c) According to the provisions of Section 184 of the Indian Contract Act, 1872, as between the
principal and a third person, any person, even a minor may become an agent. But no person who
is not of the age of majority and of sound mind can become an agent, so as to be responsible to
his principal.
Thus, if a person who is not competent to contract is appointed as an agent, the principal is liable
to the third party for the acts of the agent. Thus, in the given case, David gets a good title to the
watch. Monu is not liable to Alia for his negligence in the performance of his duties.
(d) According to section 9 of the Negotiable Instrument Act, 1881, "Holder in due course" means-
• any person
• who for consideration
• becomes the possessor of a promissory note, bill of exchange or cheque (if payable to
bearer), or the payee or indorsee thereof, (if payable to order),
• before the amount mentioned in it became payable, and
2

• without having sufficient cause to believe that any defect existed in the title of the person
from whom he derived his title.
In the instant case, Mr. Amna draws a cheque of Rs. 11,000 and gives to Mr. Babita by way of
gift.
Hence,
(1) Mr. Babita is holder but not a holder in due course since he did not get the cheque for value
and consideration.
(2) Mr. Babita’s title is good and bonafide. As a holder he is entitled to receive Rs. 11,000 from
the bank on whom the cheque is drawn.
2. (a) According to section 80 of the Companies Act, 2013, where any charge on any property or assets
of a company or any of its undertakings is registered under section 77 of the Companies Act,
2013, any person acquiring such property, assets, undertakings or part thereof or any share or
interest therein shall be deemed to have notice of the charge from the date of such registration.
Thus, Section 80 clarifies that if any person acquires a property, assets or undertaking in respect
of which a charge is already registered, it would be deemed that he has complete knowledge of
charge from the date of its registration. Mr. Pam, therefore, ought to have been careful while
purchasing property and should have verified beforehand that ABC Limited had already created a
charge on the property.
In view of above, the contention of ABC Limited is correct.
(b) As per section 130 of the Companies Act, 2013, a company shall not re-open its books of
account and not recast its financial statements, unless an application in this regard is made by
the Central Government, the Income-tax authorities, the Securities and Exchange Board, any
other statutory body or authority or any person concerned and an order is made by a court of
competent jurisdiction or the Tribunal to the effect that—
(ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on
the reliability of financial statements:
However, no order shall be made in respect of re-opening of books of account relating to a period
earlier than eight financial years immediately preceding the current financial year.
In the given instance, an application was filed for re-opening and re-casting of the financial
statements of Shrey Ltd. for the financial year 2009-2010 which is beyond 8 financial years
immediately preceding the current financial year.
Though application filed by the Income Tax Authorities to NCLT is valid, its recommendation for
reopening and recasting of financial statements for the period earlier than eight financial years
immediately preceding the current financial year i.e. 2020-2019, is invalid.
(c) Section 148 of Indian Contract Act 1872 defines 'Bailment' as the delivery of goods by one
person to another for some purpose, upon a contract that they shall, when the purpose is
accomplished, be returned or otherwise disposed of according to the direction of the person
delivering them.
According to Section 149 of the Indian Contract Act, 1872, the delivery to the bailee may be
made by doing anything which has the effect of putting the goods in the possession of the
intended bailee or of any person authorised to hold them on his behalf. Thus, delivery is
necessary to constitute bailment.

Thus, the mere keeping of the box at Yash’s shop, when Mrs. Shriya herself took away the key
cannot amount to delivery as per the meaning of delivery given in the provision in section 149.
Therefore, in this case there is no contract of bailment as Mrs. Shriya did not deliver the
complete possession of the good by keeping the keys with herself.
(d) The parties to a bill of exchange are:
1. Drawer: The maker of a bill of exchange.
2. Drawee: The person directed by the drawer to pay is called the 'drawee'. He is the person
on whom the bill is drawn. On acceptance of the bill, he is called an acceptor and is liable
for the payment of the bill. His liability is primary and unconditional.
3. Payee: The person named in the instrument, to whom or to whose order the money is, by
the instrument, directed to be paid.
3. (a) Under section 20 of the Companies Act, 2013 a document may be served on a company or an
officer thereof by sending it to the company or the officer at the registered office of the company
by registered post or by speed post or by courier service or by leaving it at its registered office or
by means of such electronic or other mode as may be prescribed. However, in case where
securities are held with a depository, the records of the beneficial ownership may be served by
such depository on the company by means of electronic or other mode.
Under section 20 (2), save as provided in the Act or the rule thereunder for filing of documents
with the registrar in electronic mode, a document may be served on Registrar or any member by
sending it to him by post or by registered post or by speed post or by courier or by delivering at
his office or address, or by such electronic or other mode as may be prescribed. However, a
member may request for delivery of any document through a particular mode, for which he shall
pay such fees as may be determined by the company in its annual general meeting.
(b) (i) As per section 141(3)(d)(ii), an auditor is disqualified to be appointed as an auditor if he or
his relative or partner is indebted to the company, or its subsidiary, or its holding or
associate company or a subsidiary of such holding company, in excess of rupees 5 Lacs. In
the instant case, Mr. Ray will be disqualified to be appointed as an auditor of ABC Ltd. as he
indebted to ABC Ltd. for rupees 6 lacs.
(ii) As per section 141(3)(f), an auditor is disqualified to be appointed as an auditor if a person
whose relative is a director or is in the employment of the company as a director or a key
managerial personnel. In the instant case, since Mrs. Kavita, spouse of Mr. Kumar
(Chartered Accountant) is the store keeper (not a director or Key Managerial Personnel) of
PRC Ltd., hence Mr. Kumar will not be disqualified to be appointed as an auditor in the said
company.
(c) Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881,
On applying the above provision in the given cases-
(1) No, Megha is not a holder of the Instrument though she is in possession of the cheque, so is
not entitled to the possession of it in his own name.
(2) No, Bob is not a holder because he is in wrongful possession of the instrument.
(d) Sometimes an explanation is added to a section of an Act for the purpose of explaining the main
provisions contained in that section. If there is some ambiguity in the provisions of the main
section, the explanation is inserted to harmonise and clear up and ambiguity in the main section.
Something may added be to or something may be excluded from the main provision by insertion
of an explanation. But the explanation should not be construed to widen the ambit of the section.

4. (a) (1) According to section 3 of the Companies Act, 2013, a company may be formed for any
lawful purpose by—
(a) 7 or more persons, where the company to be formed is to be a public company;
(b) 2 or more persons, where the company to be formed is to be a private company; or
by subscribing their names or his name to a memorandum and complying with the
requirements of this Act in respect of registration.
According to section 3A,
• If at any time the number of members of a company is reduced,
 in the case of a public company, below 7,
 in the case of a private company, below 2,
and the company carries on business for more than six months while the number of
members is so reduced, then
• every person who is a member of the company during the time that it so carries on
business after those six months and is cognizant (aware) of the fact that it is carrying on
business with less than seven members or two members, as the case may be,
• shall be severally liable for the payment of the whole debts of the company contracted
during that time (after six months) and may be severally sued therefore.
(b) According to section 103 of the Companies Act, 2013, unless the articles of the company provide
for a larger number, the quorum for the meeting of a Public Limited Company shall be 5 members
personally present, if number of members is not more than 1000.
(i) (1) P1, P2 and P3 will be counted as three members.
(2) If a company is a member of another company, it may authorize a person by resolution
to act as its representative at a meeting of the latter company, then such a person shall
be deemed to be a member present in person and counted for the purpose of quorum.
Hence, P4 and P5 representing ABC Ltd. and DEF Ltd. respectively will be counted as
two members.
(3) Only members present in person and not by proxy are to be counted. Hence, proxies
Thus, P6 and P7 shall not be counted in quorum.
In the light of the provision of the Act and the facts of the question, it can be concluded that
the quorum for Annual General Meeting of Kavita Ltd. is 5 members personally present.
Total 5 members (P1, P2, P3, P4 and P5) were present. Hence, the requirement of quorum
is fulfilled.
(ii) The section further states that, if the required quorum is not present within half an hour, the
meeting shall stand adjourned for the next week at the same time and place or such other
time and place as decided by the Board of Directors.
Since, P4 is an essential part for meeting the quorum requirement, and he reaches after
11:30 AM (i.e. half an hour after the starting of the meeting), the meeting will be adjourned
as provided above.
(c) Section 9 of the General Clauses Act, 1897 provides that, for computation of time, in any
legislation or regulation, it shall be sufficient, for the purpose of excluding the first in a series of
days or any other period of time to use the word “from” and for the purpose of including the last in
a series of days or any other period of time, to use the word “to”.
5

As per the facts of the question the company shall transfer the unpaid/unclaimed dividend to
unpaid dividend account within the period of 7 days. 30th October 2021 will be excluded and 6th
November 2021 shall be included, i.e. 31st October, 2021 to 6th November, 2021 (both days
inclusive).
(d) Where the language used in a statute is capable of more than one interpretation, the most firmly
established rule for construction is the principle laid down in the Heydon’s case. This rule
enables, consideration of four matters in constituting an act:
(1) what was the law before making of the Act,
(2) what was the mischief or defect for which the law did not provide,
(3) what is the remedy that the Act has provided, and
(4) what is the reason for the remedy.
The rule then directs that the courts must adopt that construction which ‘shall suppress the
mischief and advance the remedy’. Therefore, even in a case where the usual meaning of the
language used falls short of the whole object of the legislature, a more extended meaning may be
attributed to the words, provided they are fairly susceptible of it. If the object of any enactment is
public safety, then its working must be interpreted widely to give effect to that object. Thus in the
case of Workmen’s Compensation Act, 1923 the main object being provision of compensation to
workmen, it was held that the Act ought to be so construed, as far as possible, so as to give
effect to its primary provisions.
However, it has been emphasized by the Supreme Court that the rule in Heydon’s case is
applicable only when the words used are ambiguous and are reasonably capable of more than
one meaning [CIT v. Sodra Devi (1957) 32 ITR 615 (SC)].
5. (a) The problem given in the question is governed by Section 58 of the Companies Act, 2013 dealing
with the refusal to register transfer and appeal against such refusal.
In the present case, the company has committed the wrongful act of not sending the notice of
refusal to register the transfer of shares.
Under section 58 (1), if a private company limited by shares refuses to register the transfer of, or
the transmission by operation of law of the right to any securities or interest of a member in the
company, then the company shall send notice of refusal to the transferor and the transferee or to
the person giving intimation of such transmission, within a period of thirty days from the date on
which the instrument of transfer, or the intimation of such transmission, was delivered to the
company.
According to Section 58 (3), the transferee may appeal to the Tribunal against the refusal within
a period of thirty days from the date of receipt of the notice or in case no notice has been sent by
the company, within a period of sixty days from the date on which the instrument of transfer or
the intimation of transmission, was delivered to the company.
In this case, as the company has not sent even a notice of refusal, Ms. Mana being transferee
can file an appeal before the Tribunal within a period of sixty days from the date on which the
instrument of transfer was delivered to the company.
(b) Section 2(16) of the Companies Act, 2013 defines “charge” as an interest or lien created on the
property or assets of a company or any of its undertakings or both as security and includes a
mortgage.
Where the instrument or deed relates solely to the property situated outside India, the copy
of every instrument creating (or modifying) any charge and required to be filed with the Registrar
6

shall be verified by a certificate issued either-
♦ under the seal, if any, of the company, or
♦ under the hand of any director or company secretary of the company, or an authorised
officer of the charge holder, or
♦ under the hand of some person other than the company who is interested in the mortgage or
charge.
(c) Section 124 of the Indian Contract Act, 1872 states that “A contract by which one party promises
to save the other from loss caused to him by the conduct of the promisor himself, or the conduct
of any person”, is called a “contract of indemnity”.
Section 126 of the Indian Contract Act, 1872 states that “A contract to perform the promise made
or discharge liability incurred by a third person in case of his default” is called a “contract of
guarantee”.
The conditions under which the guarantee is invalid or void is provided in section 142, 143 and
144 of the Indian Contract Act. These include:
(i) Guarantee obtained by means of misrepresentation.
(ii) Guarantee obtained by means of keeping silence as to material circumstances.
(iii) When contract of guarantee is entered into on the condition that the creditor shall not act
upon it until another person has joined in it as co-surety and that other party fails to join as
such.
(d) “Meaning of Service by post”: According to section 27 of the General Clauses Act, 1897,
where any legislation or regulation requires any document to be served by post, then unless a
different intention appears, the service shall be deemed to be effected by:
A letter containing the document to have been effected at the time at which the letter would be
delivered in the ordinary course of post.

MOCK TEST PAPER 1
1. Ramola Textiles is a listed public company with the share capital of ten crores. The share value of the
share is ₹ 100/share. The company has maintained the following registers:
(a) Register of Members indicating separately for each class of equity and preference shares held by
each member residing in or outside India
(b) Register of Debenture-holder
The company has a registered office in Ahemdabad (Gujarat) and its Corporate office is situated in
Mumbai. Around 17% of members who are equity share holders and 10% of the members who are
preferential shareholders resides in Jaipur (Rajasthan). So out of these members 9% equity share
holders and 5% preferential share holder made an application addressed to the company to shift its
register of members to its liaison office in Jaipur. The company refused the request of the members by
quoting that the register can only be maintained at registered office of the company.
Mr. Raheem, a shareholder of the company, wants to sell all his shares in the company and wants to
settle abroad. Mr. Raheem sold his equity shares to Mr. Ram on 7 th May 2021. After completing all the
formalities of transfer of shares Mr. Raheem left India on 10 th May 2021. After three days span Mr. Ram
figured out that his name was still not registered in company Register of Members (ROM). The Annual
General Meeting was scheduled to be held on 25 th May 2021. So, Mr. Ram wrote an e-mail to the
company regarding addition of his name in ROM. But finally, after no response from the company, Mr.
Ram approached the Tribunal to get his name registered in ROM. The Tribunal passed the order on
20th May 2021 to enter Mr. Ram’s name in register of members of the company.
In the Annual General Meeting (AGM) the company declared to pay 10% dividend to all its shareholders
out of the profits which it earned in previous financial year. Mr. Krish, a member of the company is
holding 1000 equity shares in the company. Two years back Mr. Krish jointly bought fully paid 1000
equity shares of the company, with Mr. Azim, who is also a member of the company holding 1000 equity
shares. Mr Krish needs to pay final call of ₹ 20 per share.
After the Annual General Meeting a report on the meeting including the confirmation to the effect that
the meeting was convened, held and conducted as per the provisions of the Act and the rules made
thereunder is required to be filed. A copy of the report was filed with the Registrar in Form No. MGT-15
with prescribed fees.
(i) The Tribunal passed an order dated 20.05.2021. Latest by what date should the entry of Mr. Ram ’s
name be made in the register of members?
(a) 25.05.2021
(b) 27.05.2021
(c) 30.05.2021

(d) 31.05.2021
(ii) Suppose the Chairman of the company after two days of AGM went abroad for next 31 days. Due
to the unavailability of the Chairman, within time period prescribed for submission of copy of report
of AGM with the registrar, the report as required was signed by two Directors of the company, of
which one was additional Director of the company. Comment on the signing of this report of AGM.
Chairman.
(c) Yes, the signing is in order, as in the absence of Chairman at least two directors should sign
the report.
(d) No, the signing is not in order, since in case the Chairman is unable to sign, the report shall
be signed by any two directors of the company, one of whom shall be the Managing director,
if there is one and company secretary of the company.
(iii) According to the provision of Companies Act, 2013, till what date the company should submit report
of AGM to the registrar?
(a) 04.06.2021
(b) 09.06.2021
(c) 24.06.2021
(d) 25.06.2021
2. Atul want to wear a new coat for his seminar which is to be held (after 15 days). He bought cloth material
from the market to make a new coat. Atul gives material to Babu, a tailor, to make the coat. Babu
promised Atul to deliver the coat within the stipulated time of one week. Atul paid 10% advance so that
he stitches his coat on priority basis. After one week when Atul went to the tailor he was shocked to see
that the coat is still unstitched. The tailor demanded two more days time from Atul to stitch the coat, but
Atul refused and asked the tailor to return his piece of cloth. Tailor retained the cloth and asked Atul to
pay the price, as he already did the cutting of the cloth.
Yash, Atul's friend left his car at the company’s authorised showroom for servicing. As Yash house is
located in the remote area of the city, so he instructed the manager of the showroom to park the vehicle
at Atul’s residence. So as per Yash’s instructions the car was sent to Atul house after servicing. The
worker of the showroom parked the car outside Atul’s residence and handed over the key to Atul's
servant. Next day when Yash went to pick up his car he found that somebody has hit the car while it
was parked there.
Yash found a mobile phone and a branded pen lying on the road outside Atul’s residence. Yash tried to
enquire about the real owner. He took the phone and pen with him and kept it in the drawer of his study
table. Next day, Yash’s wife came to the room searching for a pen, she saw the pen and took the pen
and went out. Unfortunately, Yash’s wife lost the pen. After two days the real owner, approached him
(Yash), Yash humbly delivered his phone and apologized for the loss of pen.
(i) According to the provisions of the Indian Contract Act, 1872, do you think the tailor has a right of
lien over the cloth?
(a) Yes, he is entitled to retain the coat until he is paid.
(b) No, he has not completed the work within the agreed time
2

(c) Yes, in case of particular lien he can retain the cloth.
(d) No, but he is not required to return the advance amount
(ii) Referring to the provision of the Indian Contract Act, 1872, what are the repercussions, when Yash
found goods belonging to another and takes them into his custody? Choose the corr ect statement.
(a) He becomes subjected to the same responsibility as of a bailee.
(b) merely possession of the goods does not make him a bailee
(c) No act is done by owner for placing the goods in the possession of Yash, so he cannot be
treated as bailee.
(d) In the absence of any express or implied contract, absolves Yash’s liabilities as bailee
3. A prospectus which does not include complete particulars of the quantum or price of the securities
included therein is called:
(a) A deemed Prospectus
(b) A Shelf Prospectus
(c) An Abridged Prospectus
(d) A Red Herring Prospectus (1 Mark)
4. The minimum amount of subscription in a public issue shall be received within ____ days from the date
of issue of prospectus.
(a) 30
(b) 60
(c) 90
(d) 120 (1 Mark)
5. During the half year ended September 2020, the board of directors (BOD) of Gold Leaf Limited has
made an application to the Tribunal for revision in the accounts of the company for the financial year
ended on March 2018. Further during the year ended March 2021, the BOD has again made an
application to the Tribunal for revision in the board’s report pertaining to the year ended March 2020.
You are required to state the validity of the acts of the Board of directors.
(a) The act of the BOD is valid only to the extent of application made for revisions in accounts as
board’s report are not eligible for revision.
(b) The act of the BOD is valid as application made for revision in the accounts and board’s report
pertains to two different financial year.
(c) The act of the BOD is invalid as the law provides for only one time application t o be made in a
financial year for revision of accounts and boards report.
(d) The act of the BOD is invalid as to the application made for revision in accounts pertains to a period
beyond 2 years immediately preceding the year 2021. The application made for revision in the
Board report is however valid in law. (2 Marks)
6. One Person Company shall file a copy of the duly adopted financial statements to the Registrar in:
(a) 30 days of the date of meeting in which it was adopted.
(b) 90 days of the date of meeting in which it was adopted.

(c) 90 days from the closure of the financial year.
(d) 180 days from the closure of the financial year. (2 Marks)
7. The Board of Directors of Vidyut Limited are contemplating to declare interim dividend in the last week
of July, 2021 but the company has incurred loss during the current financial year up to the end of June,
2021. However, it is noted that during the previous five financial years i.e., 2016-17, 2017-18, 2018-19,
2019-20 and 2020-21, the company had declared dividend at the rate of 8%, 9%, 12%, 11% and 10%
respectively. Advise the Board as to the maximum rate at which they can declare interim dividend despite
incurring loss during the current financial year.
(a) Maximum at the rate of 10%.
(b) Maximum at the rate of 11%.
(c) Maximum at the rate of 10.5%.
(d) Maximum at the rate of 11.5%. (2 Marks)
8. Amount to be transferred to reserves out of profits before any declaration of divid end is ___________
(a) 5%
(b) 7.5%
(c) 10%
(d) at the discretion of the company. (1 Mark)
9. For appointing an auditor other than the retiring auditor,
(a) Special notice is required.
(b) Ordinary notice is required.
(c) Neither ordinary nor special notice is required
(d) Approval of Central Government is required. (1 Mark)
10. Which of the following is a prohibited service to be rendered by the auditor of the Company?
(a) Design and implementation of any financial information system
(b) Making report to the members of the company on the accounts examined by him
(c) Compliance with the auditing standards
(d) Reporting of fraud against the company by officers or employees to the Central Government
(1 Mark)
11. Which of the following statements is not true?
(a) in case of shares, the rate of underwriting commission to be paid shall not exceed five percent of
the issue price of the share.
(b) underwriting commission should not be more than the rate specified by the Article o f Association.
(c) in case of debentures, the rate of underwriting commission shall not exceed five percent of the
issue price of the debentures.
(d) amount of commission may be paid out of profits of the company. (2 Marks)

12. A negotiable instrument drawn in favour of a minor is
(a) Void ab initio
(b) Void but enforceable
(c) Valid
(d) Quasi contract (1 Mark)
13. According to the ___________ rule, the words of the statute are to be given their plain and ordinary
meaning. —
(a) Literal rule
(b) Golden rule
(c) Natural rule
(d) Mischief rule (1 Mark)
14. When there is a conflict between two or more statues or two or more parts of a statute then which rule
is applicable:
15. As per the provisions of the General Clauses Act, 1897, where an act or omission constitutes an offence
under two or more enactments, then the offender shall be liable to be prosecuted and punished u nder:
16. Where an act of parliament does not expressly specify any particular day as to the day of coming into
operation of such Act, then it shall come into operation on the day on which :
(c) It receives assent of both the houses of Parliament
(d) It receives assent of the Prime Minister (1 Mark)
17. The date of maturity of a bill payable hundred days after sight and which is presented for sight on
4th May, 2021, is:
(a) 13 August, 2021
(b) 14 August, 2021
(c) 15 August, 2021
(d) 16 August, 2021 (2 Marks)

1. (a) Silver Oak Ltd. has following balances in their Balance Sheet as on 31st March, 2021:
`
(1) Equity shares capital (3.00 lakhs equity shares of ` 10 each) 30.00 lacs
(2) Free reserves 5.00 lacs
(3) Securities Premium Account 3.00 lacs
(4) Capital redemption reserve account 4.00 lacs
(5) Revaluation Reserve 3.00 lacs
Directors of the company seeks your advice in following cases:
(i) Whether company can give bonus shares in the ratio of 1:3?
(ii) What if company decide to give bonus shares in the ratio of 1:2? ? (6 Marks)
(b) The Director of Lion Limited proposed dividend at 12% on equity shares for the financial year
2019-20. The same was approved in the annual general meeting of the company held on
20th September, 2020. Mr. A, holding equity shares of face value of ` 10 lakhs has not paid an
amount of ` 1 lakh towards call money on shares. Can the same be adjusted against the dividend
amount payable to him? (3 Marks)
(c) Mr. R brother of CA. Sana, a practicing chartered accountant, acquired securities of Hot Ltd. having
market value of `1,20,000 (face value ` 95,000). State whether CA. Sana is qualified to be
appointed as a statutory auditor of Hot Ltd. (3 Marks)
(d) Y advances Z a loan of ` 10,000 on the guarantee of X, at an interest of 10%. Subsequently, as Z
was having some financial problems, Y reduced the rate of interest to 7% and also extended time
for repayment of loan without the consent of X. Z becomes insolvent. Can Y sue X for re covery of
amount? (4 Marks)
(e) Rama executes a promissory note in the following form, 'I promise to pay a sum of `10,000 after
three months'. Decide whether the promissory note is a valid promissory note. (3 Marks)
2. (a) Best Limited has decided to conduct its Annual General Meeting on 28 th September 2021. They
have sent the notice of the meeting on 9 th September 2021 (for which they have taken consent
from 90% of the members entitled to vote thereat). Comment on the validity of notice of the Annual
General Meeting, as per the provisions of the Companies Act, 2013. (4 Marks)
(b) (i) The Auditor of the company (other than government company) has resigned on
31st December, 2020, while the Financial year of the company ends on 31st March, 2021.
Discuss as per the provisions of the Companies Act, 2013, how the auditor will be appointed
in this case. (3 Marks)
(ii) State the persons responsible for complying with the provisions regarding maintenance of
Books of Accounts of a Company. Support with the help of relevant provisions of the
(c) Mr. D was in urgent need of money amounting to ` 5,00,000. He asked Mr. K for the money. Mr. K
lent the money on the sureties of A, B and N without any contract 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? (4 Marks)
(d) What are the essential characteristics of Negotiable Instruments. (3 Marks)

3. (a) What is meant by “Abridged Prospectus”? Under what circumstances an abridged prospectus need
not accompany the detailed information regarding prospectus along with the application form?
(5 Marks)
(b) Mr. Yash is a partner and in charge of PQR firm. The firm is appointed as an auditor firm of A. K.
Company limited (listed company). Mr. Yash retires from PQR firm and after some time join Gupta
& Gupta firm as a partner, on 20/05/21. In the general meeting of the company held on 15/06/21,
the company appointed Gupta & Gupta firm as next auditor of the company. Do you think the
company has adhered to the provision of appointing Gupta & Gupta as auditor for the company,
under the Company Act 2013. Explain? (5 Marks)
(c) Discuss with reasons, in the following given conditions, whether ‘M’ can be called as a “holder”
under the Negotiable Instruments Act, 1881:
(1) ‘M’ the payee of the cheque, who is prohibited by a court order from receiving the amount of
the cheque.
(2) ‘M’ the agent of ‘Q’ is entrusted with an instrument without endorsement by ‘Q’ who is the
payee. (4 Marks)
(d) Explain how 'Dictionary Definitions' can be of great help in interpreting/ constructing an Act when
the statute is ambiguous. (3 Marks)
4. (a) The persons (not being members) dealing with the company are always protected by the doctrine
of indoor management. Explain. (6 Marks)
(b) Comment quoting relevant provisions whether the following amounts received by a company will
be considered as deposits or not:
(i) ` 5,00,000 raised by Rohit Limited through issue of non-convertible debentures not
constituting a charge on the assets of the company and listed on a recognised stock exchange
as per the applicable regulations made by the Securities and Exchange Board of Ind ia.
(ii) ` 2,00,000 received by Rishi Limited from its employee Mr. Tarun, who draws an annual
salary of ` 1,50,000, as a non-interest bearing security deposit under a contract of
employment. (4 Marks)
(c) SEBI (Issue of Capital and Disclosure Requirements) (Fifth Amendment) Regulations, 2015 was
issued by SEBI vide Notification dated 14 th August, 2015 with effect from 1 January, 2016.
Referring to the provisions of the General Clauses Act, 1897, examine the date of enforcement of
these Regulations? (3 Marks)
(d) Define Grammatical Interpretation. What are the exceptions to grammatical interpretation?
(4 Marks)
5. (a) New Private Ltd. is a company registered under the Companies Act, 2013 with a paid -up share
capital of ` 70 lakh and turnover of ` 30 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 New Private Ltd. can avail the status of small company?
(ii) What will be your answer if the turnover of the company is ` 15 crore and the capital is same
as ` 70 lakh? (5 Marks)
(b) Who all cannot be appointed as a trustee for the depositors. Enumerate with reference provisions
to the Companies Act, 2013 read with the ‘Acceptance of Deposits’ Rules, 2014. (5 Marks)
(c) On the basis of reward, what are various categories of bailment? (4 Marks)
(d) Explain the meaning of ‘calculation of duty to be taken on pro rata basis’ as per the provisions of
the General Clauses Act, 1897. Give an example. (3 Marks)

MOCK TEST PAPER 1
INTERMEDIATE (NEW): GROUP – I
ANSWERS
Division A
1. (i) (c)
(ii) (d)
(iii) (c)
2. (i) (b)
(ii) (a)
3. (d)
4. (a)
5. (b)
6. (d)
7. (b)
8. (d)
9. (a)
10. (a)
11. (c)
12. (c)
13. (a)
14. (c)
15. (a)
16. (a)
17. (b)
Division B
1. (a) Issue of bonus shares: As per Section 63 of the Companies Act, 2013, a company may issue
fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(iii) the capital redemption reserve account:
Provided that no issue of bonus shares shall be made by capitalising reserves created by the
revaluation of assets.
As per the given facts, ABC Ltd. has total eligible amount of `12 lakhs (i.e. 5.00+3.00+4.00) out of
which bonus shares can be issued and the total share capital is ` 30.00 lakhs.

Accordingly:
(i) For issue of 1:3 bonus shares, there will be a requirement of ` 10 lakhs (i.e., 1/3 x 30.00 lakh)
which is well within the limit of available amount of ` 12 lakhs. So, Silver Oak Limited can go
ahead with the bonus issue in the ratio of 1:3.
(ii) In case Silver Oak Limited intends to issue bonus shares in the ratio of 1:2, there will be a
requirement of ` 15 lakhs (i.e., ½ x 30.00 lakh). Here in this case, the company cannot go
ahead with the issue of bonus shares in the ratio of 1:2, since the requirement of ` 15 Lakhs
is exceeding the available eligible amount of ` 12 lakhs.
(b) The given problem is based on the proviso provided in the section 127 (d) of the Companies Act,
2013. As per the law where the dividend is declared by a company and there remain s calls in
arrears and any other sum due from a member, in such case no offence shall be deemed to have
been committed where the dividend has been lawfully adjusted by the company against any sum
due to it from the shareholder.
As per the facts given in the question, Mr. A is holding equity shares of face value of ` 10 Lakhs
and has not paid an amount of ` 1 lakh towards call money on shares. Referring to the above
provision, Mr. A is eligible to get ` 1.20 lakh towards dividend, out of which an amount of ` 1 lakh
can be adjusted towards call money due on his shares. ` 20,000 can be paid to him in cash or by
cheque or in any electronic mode.
According to the above mentioned provision, company can adjust sum of ` 1 lakh due towards call
money on shares against the dividend amount payable to Mr. A.
(c) As per the provisions of Section 141(3)(d) of the Companies Act, 2013, a person who, or his relative
or partner is holding any security of or interest in the company or its subsidiary, or of its holding or
associate company or a subsidiary of such holding company shall not be appointed as an auditor
of the Company.
However, the proviso to the said section states that the above restriction will not apply where such
relative holds security or interest in any of the above companies of face value not exceeding
` 1,00,000 [as prescribed under the Company (Audit and Auditors) Rules, 2014].
In the given instance, CA. Sana is not disqualified to be appointed as a statutory auditor in Hot Ltd.
due to the fact that the value of securities held by his brother (relative) is of face value of
` 95,000 in the said company, which is within the prescribed limit.
(d) According to section 133 of the Indian Contract Act, 1872, where there is any variance in the terms
of contract between the principal debtor and creditor without surety’s consent, it would discharge
the surety in respect of all transactions taking place subsequent to such variance.
Accordingly, Y cannot sue X, because a surety (X) is discharged from liability when, without his
consent, the creditor makes any change in the terms of his contract with the principal debtor (Z),
no matter whether the variation is beneficial to the surety or does not materially affect the position
of the surety.
(e) The promissory note is an unconditional promise in writing. In the above question the amount is
certain but the date and name of payee is missing, thus making it a bearer instrument. As per
Reserve Bank of India Act, 1934, a promissory note cannot be made payable to bearer - whether
on demand or after certain days. Hence, the instrument is illegal as per Reserve Bank of Indi a Act,
1934 and cannot be legally enforced.
2. (a) Section 101 of the Companies Act, 2013 states that to properly call a general meeting notice of at
least 21 clear days’, before the meeting, should be given to all the members, legal representative
of any deceased member or the assignee of insolvent members, the auditors and directors, in
writing or electronic mode or other prescribed mode.
Generally, general meetings need to be called by giving at least a notice of 21 clear days.
2

However, a general meeting may be called after giving shorter notice than that specified in this
sub-section if consent, in writing or by electronic mode, is accorded thereto in the case of an
annual general meeting, by not less than ninety-five per cent. of the members entitled to vote
thereat
In the given question, the Annual General Meeting (AGM) was called by giving less than 21 days
clear days notice. Also, consent for calling the meeting at a shorter notice period was given by
only 90% members (i.e. less than 95% members). Hence, such meeting can not be said to be
validity called.
(b) (i) The situation as stated in the question relates to the creation of a casual vacancy in the office
of an auditor due to resignation of the auditor before the Annual General Meeting in case of
a company other government company. Under section 139 (8)(i) of the Companies Act, 2013,
any casual vacancy in the office of an auditor arising as a result of his resignation, such
vacancy can be filled by the Board of Directors within 30 days thereof and in addition the
appointment of the new auditor shall also be approved by the company at a general meeting
convened within 3 months of the recommendation of the Board and he shall hold the office till
the conclusion of the next annual general meeting.
(ii) Persons responsible to maintain books: As per Section 128 (6) of the Companies Act,
2013, the person responsible to take all reasonable steps to secure compliance by the
company with the requirement of maintenance of books of account etc. shall be:
(d) Any other person of a company charged by the Board with duty of complying with
provisions of section 128.
(c) Co-sureties liable to contribute equally (Section 146 of the Indian Contract act, 1872): Equality
of burden is the basis of Co-suretyship. This is contained in section 146 which states that “when
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 in the absence of any contract to the contrary, are liable, as between
themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid
by the principal debtor”.
Accordingly, on the default of D in payment, B cannot escape from his liability. All the three sureties
A, B and N are liable to pay equally, in absence of any contract between them.
(d) Essential Characteristics of Negotiable Instruments
1. It is necessarily in writing.
2. It should be signed.
3. It is freely transferable from one person to another.
4. Holder’s title is free from defects.
5. It can be transferred any number of times till its satisfaction.
6. Every negotiable instrument must contain an unconditional promise or order to pay money.
The promise or order to pay must consist of money only.
7. The sum payable, the time of payment, the payee, must be certain.
8. The instrument should be delivered. Mere drawing of instrument does not create liability.

3. (a) (1) Meaning of Abridged Prospectus: - According to Section 2(1) of the Companies Act, 2018,
an abridged prospectus means a memorandum containing such salient features of a
prospectus as may be specified by the Securities and Exchange Board by making regulations
in this behalf.
(2) Circumstances under which the abridged prospectus need not accompany the
application forms: Section 33 (1) of the Companies Act, 2013 states that no application form
for the purchase of any of the securities of a company can be issued unless such form is
accompanied by an abridged prospectus.
In terms of the Proviso to section 33 (1) an abridged prospectus need not accompany the
application form if it is shown that the form of application was issued:
(i) In connection with a bona fide invitation to a person to enter into an underwriting
agreement with respect to such securities; or
(ii) Where the securities are not offered to the public.
(b) According to Section 139(2) of the Companies Act, 2013, no listed company or a company
belonging to such class or classes of companies as may be prescribed, shall appoint or re -
appoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
Provided that –
(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-
appointment as auditor in the same company for five years from the completion of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re -
appointment as auditor in the same company for five years from the completion of such term.
Provided further that as on the date of appointment no audit firm having a common partner or
partners to the other audit firm, whose tenure has expired in a company immediately preceding the
financial year, shall be appointed as auditor of the same company for a period of five years.
Under Rule 6(3)(ii)(b) of The Companies (Audit and Auditors) Rules, 2014. if a partner, who is in
charge of an audit firm and also certifies the financial statements of the company, retires from the
said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to
be appointed for a period of five years.
Here Mr. Yash has retired from PQR Firm and joined Gupta & Gupta Firm. Mr. Yash was a partner
in PQR firm, where he certifies the financial statement of the company, and retires from the said
firm and joins Gupta & Gupta firm. Hence Gupta & Gupta Firm will also be ineligible, to be appointed
as auditor firm for a period of 5 years.
(c) Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881, ‘holder’
of a Negotiable Instrument means any person entitled in his own name to the possession of it and
to receive or recover the amount due thereon from the parties thereto.
On applying the above provision in the given cases-
(1) ‘M’ is not a ‘holder’ because to be called as a ‘holder’ he must be entitled not only to the
possession of the instrument but also to receive the amount mentioned therein.
(2) No, ‘M’ is not a holder. While the agent may receive payment of the amount mentioned in the
cheque, yet he cannot be called the holder thereof because he has no right to sue on the
instrument in his own name.
(d) Dictionary Definitions: First we refer the Act in question to find out if any particular word or
expression is defined in it. Where we find that a word is not defined in the Act itself, we may refer
4

to dictionaries to find out the general sense in which that word is commonly unde rstood. However,
in selecting one out of the several meanings of a word, we must always take into consideration the
context in which it is used in the Act. It is the fundamental rule that the meanings of words and
expressions used in an Act must take their colour from the context in which they appear. Further,
judicial decisions laying down the meaning of words in construing statutes in pari materia will have
greater weight than the meaning furnished by dictionaries. However, for technical terms, reference
may be made to technical dictionaries.
4. (a) Doctrine of Indoor Management
According to this doctrine, persons dealing with the company need not inquire whether internal
proceedings relating to the contract are followed correctly, once they are satisfied that the
transaction is in accordance with the memorandum and articles of association.
Stakeholders need not enquire whether the necessary meeting was convened and held properly
or whether necessary resolution was passed properly. They are entitled to take it for granted that
the company had gone through all these proceedings in a regular manner.
The doctrine helps to protect external members from the company and states that the people are
entitled to presume that internal proceedings are as per documents submitted with the Registrar of
Companies.
The doctrine of indoor management is opposite to the doctrine of constructive notice. Whereas
the doctrine of constructive notice protects a company against outsiders, the doctrine of indoor
management protects outsiders against the actions of a company. This doctrine also is a safeguard
against the possibility of abusing the doctrine of constructive notice.
(b) Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 states various amounts
received by a company which will not be considered as deposits. In terms of this Rule the answers
to the given situations shall be as under:
(i) ` 5,00,000 raised by Rohit Limited through issue of non-convertible debentures not
constituting a charge on the assets of the company and listed on recognised stock exchange
as per the applicable regulations made by the SEBI, will not be considered as deposit in terms
of sub-clause (ixa) of Rule 2 (1) (c).
(ii) ` 2,00,000 received by Rishi Limited from its employee Mr. Tarun, who draws an annual
salary of ` 1,50,000, as a non-interest bearing security deposit under a contract of
employment will be considered as deposit in terms of sub-clause (x) of Rule 2 (1) (c), for the
amount received is more than his annual salary of ` 1,50,000.
(c) According to section 5 of the General Clauses Act, 1897, where any Central Act has not specifically
mentioned a particular date to come into force, it shall be implemented on the day on which it
receives the assent of the Governor General in case of a Central Acts made before the
commencement of the Indian Constitution and/or, of the President in case of an Act of Parliament.
Hence, in the given question, SEBI (Issue of Capital and Disclosure Requirements) (Fifth
Amendment) Regulations, 2015 shall come into enforcement on 1st January, 2016 rather than the
date of its notification in the gazette.
(d) Grammatical Interpretation and its exceptions: ‘Grammatical interpretation’ concerns itself
exclusively with the verbal expression of the law, it does not go beyond the letter of the law. In all
ordinary cases, ‘grammatical interpretation’ is the sole form allowable. The Court cannot take from
or add to modify the letter of the law.
This rule, however, is subject to some exceptions:
(i) Where the letter of the law is logically defective on account of ambiguity, inconsistency or
incompleteness. As regard the defect to ambiguity, the Court is under a duty to travel beyond
the letter of the law so as to determine from the other sources the true intention of the
5

legislature. In the case of the statutory expression being defective on account of
inconsistency, the court must ascertain the spirit of the law.
(ii) If the text leads to a result which is so unreasonable that it is self-evident that the legislature
could not mean what it says, the court may resolve such impasse by inferring logically the
intention of the legislature.
5. (a) Small Company: According to Section 2(85) of the Companies Act, 2013, Small Company means
a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or
such higher amount as may be prescribed which shall not be more than one hundred crore
rupees.
Nothing in this clause shall apply to—
(C) a company or body corporate governed by any special Act.
As per the Companies (Specification of Definitions Details) Rules, 2014, for the purposes of sub -
clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of
the small company shall not exceed rupees two crores and rupees twenty crores respectively.
(1) In the present case, New Private Ltd., a company registered under the Companies Act, 2013
with a paid up share capital of ` 70 lakh and having turnover of ` 30 crore. Since, only one
criteria of share capital not exceeding ` 2 crores is met, but the second criteria of turnover
not exceeding ` 20 crores is not met and the provisions require both the criteria to be met in
order to avail the status of a small company, New Private Ltd. cannot avail the status of small
company.
(2) If the turnover of the company is ` 15 crore, then both the criteria will be fulfilled and New
Private Ltd. can avail the status of small company.
(b) In this respect following provisions are required to be observed as mentioned in Rule 7 of the
Companies (Acceptance of Deposits) Rules, 2014:
No person including a company that is in the business of providing trusteeship services shall be
appointed as a trustee for the depositors, if the proposed trustee:
(a) is a director, key managerial personnel or any other officer or an employee of the company
or of its holding, subsidiary or associate company or a depositor in the company;
(b) is indebted to the company, or its subsidiary or its holding or associate company or a
subsidiary of such holding company;
(c) has any material pecuniary relationship with the company;
(d) has entered into any guarantee arrangement in respect of principal debts secured by the
deposits or interest thereon;
(e) is related to any person specified in clause (a) above.
(c) On the basis of reward, bailment can be classified into two types:
(i) Gratuitous Bailment: The word gratuitous means free of charge. So, a gratuitous bailment
is one when the provider of service does it gratuitously i.e. free of charge. Such bailment
would be either for the exclusive benefits of bailor or bailee.

(ii) Non-Gratuitous Bailment: Non gratuitous bailment means where both the parties get some
benefit i.e. bailment for the benefit of both bailor & bailee
(d) “Duty to be taken pro rata in enactments”: According to section 12 of the General Clauses Act,
1897, where, by any enactment now in force or hereafter to be in force, any duty of customs or
excise or in the nature thereof, is leviable on any given quantity, by weight, measure or value of
any goods or merchandise, then a like duty is leviable according to the same rate on any greater
or less quantity.
Pro rata is a Latin term used to describe a proportionate allocation.
Example: Where several debtors are liable for the whole debt and each is liable for his own share
or proportion only, they are said to be bound pro rata.

PART – I: ANNOUNCEMENTS STATING APPLICABILITY FOR NOVEMBER, 2022
EXAMINATIONS
Applicability for November, 2022 examinations
The Study Material (September 2021 edition) is applicable for November, 2022 examinations.
This study material is updated for all amendments till 30 th April, 2021.
Further, all relevant amendments/ circulars/ notifications etc. in the Company law part for the
period 1st May, 2021 to 30th April, 2022 are mentioned below:
THE COMPANIES ACT, 2013
I. Chapter 2: Incorporation of company and matters incidental thereto
Amendments related to - Notification S.O. 2904(E) dated 22 nd July, 2021
The Central Government has amended section 16 of the Companies Act, 2013, through the
Companies (Amendment) Act, 2020.
Amendment:
In section 16 of the Companies Act, 2013:
(i) in sub-section (1), in clause (b), for the words "period of six months", the words "period of
three months" shall be substituted;
(ii) for sub-section (3), the following sub-section shall be substituted, namely:—
"(3) If a company is in default in complying with any direction given under sub-section (1), the
Central Government shall allot a new name to the company in such manner as may be
prescribed and the Registrar shall enter the new name in the register of companies in place of
the old name and issue a fresh certificate of incorporation with the new name, which the
company shall use thereafter:
Provided that nothing in this sub-section shall prevent a company from subsequently changing
its name in accordance with the provisions of section 13."
[Enforcement Date: 1st September, 2021]
For point (i)- Old Law (Pg 2.39)
(b) on an application by a registered proprietor of a trade mark that the name is identical with
or too nearly resembles to a registered trade mark of such proprietor under the ……….. it
may direct the company to change its name and the company shall change its name or new
name, as the case may be, within a period of 6 months from the issue of such direction, after
adopting an ordinary resolution for the purpose.

2 INTERMEDIATE EXAMINATION: NOVEMBER, 2022
For point (ii)- Old Law (Pg 2.39)

If a company makes default in complying with any direction—
Liable person Penalty/punishment
Company Fine of 1,000 rupees for every day during which the
default continues
Every Officer who is in default Fine varying from 5,000 rupees to 1 lakh rupees.
II. Chapter 6: Registration of Charges

Amendments related to - Notification S.O. G.S.R. 320 (E) dated 27th April, 2022
The Central Government has amended the Companies (Registration of Charges) Rules, 2014,
through the Companies (Registration of Charges) Amendment Rules, 2022.
Amendment:
In rule 3, after sub-rule (4), the following sub-rule shall be inserted, namely:—
"(5) Nothing contained in this rule shall apply to any charge required to be created or modified
by a banking company under section 77 in favour of the Reserve Bank of India when any loan
or advance has been made to it under sub-clause (d) of clause (4) of section 17 of the Reserve
Bank of India Act, 1934 (2 of 1934).”
Old Law (Pg 6.6)
Sub- rule (5) is Newly inserted
III. Chapter 7: Management and Administration
Amendments related to - Notification S.O. G.S.R. 279(E) dated 6th April, 2022
The Central Government has amended the Companies (Management and Administration)
Rules, 2014, through the Companies (Management and Administration) Amendment Rules,
2022.
Amendment:
in rule 14, after sub-rule (2), the following sub-rule shall be inserted, namely: —
"(3) Notwithstanding anything contained in sub-rules (1) and (2), the following particulars of the
register or index or return in respect of the members of a company shall not be made available
for any inspection under sub-section (2) or for taking extracts or copies under sub-section (3) of
section 94, namely: —
(i) address or registered address (in case of a body corporate);
(ii) e-mail ID

PAPER – 2: CORPORATE AND OTHER LAWS 3
(iii) Unique Identification Number

(iv) PAN Number
Old Law (Pg 7.21)
Sub- rule (3) of Rule 14 is Newly inserted
IV. Chapter 8: Declaration and Payment of Dividend
Amendments related to - Notification No. G.S.R. 396(E) dated 9 th June, 2021
The Central Government has amended the Investor Education and Protection Fund Authority
(Accounting, Audit, Transfer and Refund) Rules, 2016, through the Investor Education and
Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2021.
Amendment:
In rule 3, in sub-rule (2), after clause (f), the following shall be inserted, namely:-
“(fa) all shares held by the Authority in accordance with proviso of sub-section (9) of section 90
of the Act and all the resultant benefits arising out of such shares, without any restrictions;”
Old Law (Pg 8.21)
Clause (fa) is Newly inserted
V. Chapter 9: Accounts of companies
A. The Ministry of Corporate Affairs has made clarifications with respect to CSR:
General Circular No. 09/2021 Dated 5 th May, 2021
1. In continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020, wherein
it was clarified that spending of CSR funds for COVID-19 is an eligible CSR activity, it is further
clarified that spending of CSR funds for ‘creating health infrastructure for COVID care’,
‘establishment of medical oxygen generation and storage plants’, ‘manufacturing and supply of
Oxygen concentrators, ventilators, cylinders and other medical equipment for countering
COVID-19’ or similar such activities are eligible CSR activities under item nos. (i) and (xii) of
Schedule VII of the Companies Act, 2013 relating to promotion of health care, including
preventive health care, and, disaster management respectively.
2. Reference is also drawn to item no. (ix) of Schedule VII of the Companies Act, 2013 which
permits contribution to specified research and development projects as well as contribution to
public funded universities and certain Organisations engaged in conducting research in science,
technology, engineering, and medicine as eligible CSR activities.

3. The companies including Government companies may undertake the activities or projects
or programmes using CSR funds, directly by themselves or in collaboration as shared
responsibility with other companies, subject to fulfillment of Companies (CSR Policy) Rules,
2014 and the guidelines issued by this Ministry from time to time.
General Circular 13/2021 dated 30 th July, 2021
The Ministry of Corporate Affairs vide General Circular 10/2020 dated 23.03.2020 clarifie d that
spending of CSR funds for COVID- 19 is an eligible CSR activity. In continuation to the said
circular, it is further clarified that spending of CSR funds of COVID- 19 vaccination for persons
other than the employees and their families, is an eligible CSR activity under item no. (i) of
Schedule VII of the Companies Act, 2013 relating to promotion of health care including
preventive health care and item no. (xii) relating to disaster management.
Old Law (Pg 9.47)

The clarifications are newly inserted
B. Amendments related to – Notification No. G.S.R. 107(E) dated 11th February 2022
The Central Government has amended the Companies (Accounts) Rules, 2014, through the
Companies (Accounts) Amendment Rules, 2022.
Amendment:
in rule 12, after sub-rule (1A), the following sub-rule shall be inserted, namely: —
"(1B) Every company covered under the provisions of sub-section (1) to section 135 shall furnish
a report on Corporate Social Responsibility in Form CSR-2 to the Registrar for the preceding
financial year (2020-2021) and onwards as an addendum to Form AOC-4 or AOC-4 XBRL or
AOC-4 NBFC (Ind AS), as the case may be:
Provided that for the preceding financial year (2020-2021), Form CSR-2 shall be filed separately
on or before 31st March 2022, after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind
AS), as the case may be."
Old Law (Pg 9.54)

Rule (1B) is newly inserted

PART – II : QUESTIONS AND ANSWERS
QUESTIONS
DIVISION A: CASE SCENARIO/ MULTIPLE CHOICE QUESTIONS

1. Shree Tyres Ltd. is an unlisted public limited company. The company’s accounts for the
financial year ending on 31st March, 2022 were finalised and audited by the Statutory
Auditor. The meeting of the Board of Directors was convened and approved the financial
accounts of the company and proposed to convene the Annual General Meeting of the
shareholders on Thursday, the 25 th August, 2022 at 10 am.
The total number of members is 3500. The Article of the company provides that the quorum
for the general meeting of the shareholders shall be at least fifty members. On the day of
the meeting only 10 members were physically present. Even after waiting of 30 minutes,
the quorum was not present. Accordingly, the meeting was adjourned. According to the
provisions of the Companies Act, 2013, the meeting shall adjourn to the same day in the
next week at the same time and place.
However, on the same day in the next week i.e., on Thursday, the 1st September, 2022,
the same venue (which is a Hotel’s Conference Hall) was available from 3 pm only. The
Board agreed to conduct the meeting from 3 pm and the all the members were informed
individually via mail and also published it in the newspapers (one in English and another
in vernacular language)
The adjourned meeting started at 3 pm on 1 st September, 2022, the quorum required as
per the Articles was 50, however 75 members were present. Out of the 75 members
attending the meeting 25 persons were having the residence near the venue of Annual
General Meeting and rest of the members were staying far away. Due to heavy rainfall and
scarce availability of public transportation, 40 persons left the meeting so that they can
reach home on time. By that time only the ordinary business resolutions were approved
and two special business agendas were pending for approval by the members.
Based on the above facts, answer the following MCQs:
1.1 In the light of the given facts, the General Meeting of the shareholders was decided
to be scheduled . Determine by which date the notices to the shareholder should have
been given to the members:
(a) 1st August, 2022
(b) 2nd August, 2022
(c) 3rd August, 2022
(d) 4th August, 2022

1.2 Whether adjournment of the general meeting of shareholders of Shree Tyres Ltd. for
want of quorum, was justified as per the requirement of the Companies Act, 2013:
(a) Yes, it was justified, since the quorum was not present within 30 minutes from
the time appointed for holding the meeting
(b) No, it was not justified since the waiting time for the arrival of the requisite
quorum is 30 minutes as per the provisions of the Companies Act, 2013,
whereas the decision of the adjournment of the meeting was just taken after 15
minutes.
(c) Yes, if the quorum is not present at the given time (sharp) of meeting, the
meeting stands to be adjourned, and there is no requirement of waiting time.
(d) Yes, it was justified, since the quorum was not present within 45 minutes (as per
statutory requirement) from the time appointed for holding the meeting.
1.3 What shall be the quorum for the General Meeting of the Shareholders, where the
number of members is 3500:
(a) Five
(b) Fifteen
(c) Thirty
(d) Fifty
1.4 As some members left the meeting, the quorum was not present all the time during
the Annual General Meeting. The agendas for special business transactions remained
un-approved. What is your opinion:
(a) The quorum once present in the beginning of the meeting is enough.
(b) The quorum should be present all the time when the meeting is in progress. Any
items which could not approved by members for want of quorum, shall be treated
as NIL.
(c) When the quorum is present in the beginning of the meeting, it may be assumed
that all the resolutions have been approved, until and unless objected later on
by the members present therein.
(d) The Board may seek special written consent from the all the members later on.
2. Yukti has opened a showroom of electronic goods, viz: Air-Conditioner, Colour TV,
Refrigerator, Washing Machines etc. which are commonly used for house- hold purposes.
She also has a godown, in which the white goods are stored.
Since the electric items are costly and require heavy investment, so she availed a working
capital finance from OKEY Bank Ltd. (the Bank), by pledging the white goods lying in her
godown, with the Bank. The Bank put its lock, on the godown and whole of white goods

were now in possession of the Bank. The Bank granted a working capital finance of ` 100
lakhs to Yukti by keeping the pledged goods. The drawing power limit (DP Limit) was kept
as 60% of the value of the goods pledged.
As and when, Yukti needs to withdraw some white goods from the godown, she requests
the Bank, deposits the value of goods to be withdrawn. A godown keeper of the Bank
comes with her, opens the lock of the godown and allows Yukti to draw the specified goods,
of which she has made payment to the Bank.
The Bank got the comprehensive insurance policy on the value of the goods pledged to
cover it from theft, fire, flood and earthquake etc.
Yukti, after some time, availed another loan of ` 20 lakh from the same Bank for her sister’s
marriage. This was a personal loan and no security was insisted by the Bank.
Yukti hired a locker from the Bank, in which she kept some jewellery, which was to be
given to her sister on her marriage.
After a year, Yukti decided to transfer its running business to Shekhar, for which Shekhar
paid the amount to Yukti as agreed between them. Yukti thereafter repaid al l the
outstanding loan amount given by the Bank towards the working capital finance and asked
the Bank to open the lock of the godown, to get goods, in order to hand over the same to
Shekhar. However, there was some dispute over the insurance charges paid by the Bank.
The Bank insisted to first pay the interest amount then only it will allow her to remove the
goods.
The Bank also asked Yukti to settle her personal loan account and only thereafter the Bank
will allow to take the goods lying in the godown.
2.1. In the light of the given facts, state which statement is correct as regards the right of
the Bank on retaining of the goods lying in the godown:
(a) When the outstanding amount taken for working capital, has been paid, the Bank
cannot retain the goods
(b) The Bank can retain the goods till all the charges, including the interest,
insurance and other charges are paid by Yukti
(c) The Bank can retain only a portion of the goods to cover its dues and may
release the rest of the goods.
(d) The Bank may first release the goods and then for recovery of its dues file suit
against Yukti.
2.2. If in the given case, Yukti pays all the expenses (including the disputed insurance
premium) but the Bank insist to clear the personal loan account also, then only it will
release the goods. Determine whether the Bank is entitled to do so:

(a) Yes, the Bank can do so

(b) The Bank can sale the part amount of the goods lying in the godown in order to
liquidate the personal loan account of Yukti
(c) The Bank can ask the Shekhar to give guarantee for the personal loan taken by
the Yukti
(d) No, the Bank has no right to retain the goods pledged with it, since t he personal
loan was not taken on the security of such goods
2.3. Yukti disputed the amount demanded by the Bank towards the insurance premium
paid by the Bank. Yukti emphasised that there was no need to take the insurance
policy on the goods pledged, because it is an extra burden on the part of the borrower.
Identify the correct statement:
(a) Yes, it is an extra financial burden on the part of the borrower and is dependent
on the will of the borrower.
(b) Every bank has a policy to get the security insured on which it grants loan, so in
this case also, the Bank for the purpose of protection of the goods took the
insurance policy and paid the premium, so demand of the Bank is justified.
(c) The godown is just near by the Police Station, hence there should not be the
fear of theft. No need of taking insurance policy.
(d) Happening of the Earthquake and Flood are the remote possibility, so the
expenses on the insurance premium could have been avoided as it is not a
mandatory requirement.
2.4. When Yukti is availing the working capital finance from the Bank on the security of
the white goods, by submitting these goods in the custody of the Bank, said course
of transaction can be termed as:
(a) Bailment of goods
(b) Pledge of goods
(c) Safe keeping of goods
(d) Lessor and Lessee relationship
3. A clause that begins with the words ‘Notwithstanding anything contained’ is called:
(a) An obstacle clause
(b) A non- obstante clause
(c) An objectionable clause
(d) A superior clause

4. Where a share capital of the company is divided into different classes of shares, the rights
attached to the shares of any class may be varied with the consent in writing of the holders
of not less than ------------ of the issued shares of that class or by means of a special
resolution passed at a separate meeting of the holders of the issued shares of that class:
(a) One-fourth
(b) 50%
(c) Three-fourths
(d) 75%
5. A Public company may be formed by:
(a) Only two persons
(b) Not more than three persons
(c) Not more than Seven Persons
(d) Seven or more Persons
DIVISION B: DESCRIPTIVE QUESTIONS
PART I: COMPANY LAW
The Companies Act, 2013
1. Geeta Private Limited is a start-up company. Mr. Prabodh has been appointed as Accounts
Manager of Geeta Private Limited. The Board meeting for approval of accounts is to be
held on 01.08.2022 and he has to prepare the financial statements for approval by the
Board. Referring to section 2(40) of the Companies Act, 2013, advise Mr. Prabodh about
the statements that are required to be prepared.
2. Mr. Aditya had incorporated a one person company on 07.07.2021. Mr. Yash was named
as a nominee in the memorandum of the said one person company. Now, Mr. Aditya,
considering the perpetual nature of company form of business, desires to appoint ABC
Private Limited as a nominee instead of Mr. Yash. Examine with reference to the
Companies Act, 2013, whether the proposal of Mr. Aditya to appoint ABC Private Limited
as a nominee is valid?
3. ‘A’ and his wife ‘B’ has joint Demat Account in Vrinda Limited. The company’s Annual General
Meeting is to be held on 28.08.2022. In such a case, who will cast the vote in the Annual
General Meeting? Give your answer as per the provisions of the Companies Act, 2013.
4. Prabhas Limited is a company having its shares listed on a recognised stock exchange.
The company has 5,000 members. The Annual General Meeting of the company is to be
held on 07-09-2022. As per the provisions of the Companies Act, 2013, advise the
company, the remote e- voting period and the time of closing of remote e-voting.

5. Dhiman Limited, is a company incorporated in India. Dhiman Limited is a leading

manufacturer of sports shoes. It has many subsidiaries, one of them being Best Shoes
Limited which is based in Morocco. Dhiman Limited is in the process of finalization of the
consolidated financial statements of the company for the year ended 31 March 2022. The
accounts section of Dhiman Limited has requested the management of Best Shoes Limited
to provide its standalone financial statements to Dhiman Limited. The subsidiary company
prepares its financial statements in the local language of the country and the same is
provided to the Indian parent company. Further, audit of financial statement is not required
by the Best Shoes Limited under the Moroccan laws.
Advise, how would Dhiman Limited deal with the consolidation of such financial
statements.
6. What are provisions of the Companies Act, 2013, relating to the appointment of ‘Debenture
Trustee’ by a company? Whether the following can be appointed as ‘Debenture Trustee’?
(i) A shareholder of the company who has shares of ` 10,000.
(ii) A creditor whom the company owes ` 999 only.
(iii) A person who has given a guarantee for repayment of amount of debentures issued
by the company.
7. State the persons responsible for complying with the provisions regarding maintenance of
Books of Accounts of a company. Support with the help of relevant provisions of the
8. Mr. Govind Ram is a partner and in- charge (and certifies financial statements) of P &
Associates. The firm is appointed as an auditor firm of Kanha Limited (listed company).
Mr. Govind Ram retires from P & Associates and after some time join Gupta & Gupta firm
as a partner, on 20/05/22. In the general meeting of Kanha Limited held on 15/06/22, the
company appointed Gupta & Gupta firm as next auditor of the company. Advise Kanha
Limited, whether the company has adhered to the provision of the Company Act, 2013, by
appointing Gupta & Gupta as auditor for the company?
PART II: OTHER LAWS
The Indian Contract Act, 1872
9. Vishal bailed 50 kg of high quality sugar to Naresh, who owned a kirana shop, promising
to give ` 200 at the time of taking back the bailed goods. When Naresh was not at shop,
his employee, unaware of bailed sugar of Vishal, mixed the 50 kg of sugar belonging to
Vishal with the sugar in the shop and packaged it for sale. This came to light only when
Vishal came asking for the sugar he had bailed with Naresh, as the price of the specific
quality of sugar had trebled. What is the remedy available to Vishal as per the provisions
of the Indian Contract Act, 1872?

The Negotiable Instruments Act, 1881

10. Mr. Zahid accepted a bill of exchange and gave it to Mr. Kamil for the purpose of getting it
discounted and handing over the proceeds to Mr. Zahid. Mr. Kamil couldn’t get the bill
discounted and returned the bill to Mr. Zahid. Mr. Zahid cut the bill in two pieces for the
purpose to cancel it and he threw the pieces on the street. Mr. Kamil picked up the pieces
and joined those pieces in such manner that the bill seemed to have been folded for safe
custody, rather than cancelled. Mr. Kamil put it into circulation and it finally reached to
Mr. Salim, who took it in good faith and for value. Explain in the light of the provisions of
the Negotiable Instruments Act, 1881, whether Mr. Zahid is liable to pay the bill to
Mr. Salim?
The General Clauses Act, 1897
11. Section 2(18)(aa) of the Income Tax Act, 1961, provides that a company is said to be a
company in which the public are substantially interested, if it is a company which is
registered under section 25 of the Companies Act, 1956. After the advent of Companies
Act, 2013, the corresponding change has not been made in section 2(18) of the Income
tax Act, 1961. Explain, with reference to the provisions of the General Clauses Act 1897,
how will the provisions of section 2(18)(aa) of the Income Tax Act, 1961, will be considered
after the enactment of the Companies Act 2013?
Interpretation of Statutes
12. How will you interpret the definitions in a statute, if the following words are used in a
statute?
(i) Means
(ii) Includes
Give one illustration for each of the above from statutes you are familiar with.
SUGGESTED ANSWERS
ANSWER TO CASE SCENARIO / MULTIPULE CHOICE QUESTIONS

1.1 (c)
1.2 (a)
1.3 (d)
1.4 (b)
2.1 (b)

2.2 (d)
2.3 (b)
2.4 (b)
3. (b)
4. (c)
5. (d)
ANSWER TO DESCRIPTIVE QUESTIONS
1. As per section 2(40) of the Companies Act, 2013, Financial Statement in relation to a
company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not for
profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-
clause (i) to sub-clause (iv):
Exemption: As per the proviso to section 2(40), the financial statement, with respect to one
person company, small company, dormant company and private company (if such private
company is a start-up) may not include the cash flow statement.
In the instant case, Mr. Prabodh has to prepare the above financial statements except
Cash Flow Statement; since Geeta Private Limited is a start-up private company
2. As per the provisions of Rule 3(1) of the Companies (Incorporation) Rules, 2014, only a
natural person who is an Indian citizen whether resident in India or otherwise -
(a) shall be eligible to incorporate a One Person Company (OPC);
(b) shall be a nominee for the sole member of a One Person Company (OPC).
By taking into account the above provisions, ABC Private Ltd. cannot be appointed as
nominee in one person company as only natural persons can be appointed as a nominee.
Hence, the proposal of Mr. Aditya to appoint ABC Private Ltd. as a nominee is not valid.

3. The voting in case of joint shareholders is done in the order of seniority, which is
determined on the basis of the order in which their names appear in the register of
members/ shareholders. The joint- holders have a right to instruct the company as to the
order in which their names are to appear in the register.
As per Rule 21 of the Companies (Management and Administration) Rules, 2014, the
Scrutinizers shall arrange for Polling papers and distribute them to the members and
proxies present at the meeting; in case of joint shareholders, the polling paper shall be
given to the first named holder or in his absence to the joint holder attending the meeting
as appearing in the chronological order in the folio.
Thus, in the given case, ‘A’ or his wife ‘B’, whosoever names appears first in chronological
order in the register of members/ shareholders shall be entitled to vote.
4. Rule 20 of the Companies (Management & Administration) Rules, 2014, provides that:
1. Every company which has listed its equity shares on a recognised stock exchange
and company having not less than one thousand members shall provide to its
members facility to exercise their right to vote on resolutions proposed to be
considered at a general meeting by electronic means.
2. The facility for remote e-voting shall remain open for not less than three days and
shall close at 5.00 p.m. on the date preceding the date of the general meeting.
In the question, Prabhas Limited has its shares listed on recognised stock exchange and
has 5,000 members, hence, it has to provide to its members facility to exercise their right
to vote on resolutions proposed to be considered at a general meeting by electronic means .
Thus, if the Annual General Meeting of Prabhas Limited is going to be held on 7.9.2022,
the facility for remote e- voting shall open on 4.9.2022 and close at 5.00 p.m. on 6.9.2022.
5. According to fourth proviso to section 137(1) of the Companies Act, 2013, a company shall,
along with its financial statements to be filed with the Registrar, attach the accounts of its
subsidiary or subsidiaries which have been incorporated outside India and which have not
established their place of business in India.
Provided also that in the case of a subsidiary which has been incorporated outside India
(herein referred to as "foreign subsidiary"), which is not required to get its financial
statement audited under any law of the country of its incorporation and which does not get
such financial statement audited, the requirements of the fourth proviso shall be met if the
holding Indian company files such unaudited financial statement along with a declaration
to this effect and where such financial statement is in a language other than English, along
with a translated copy of the financial statement in English.

It has also been clarified vide General Circular no. 11/2015 dated 21 July 2015 that in case
of foreign company which is not required to get its accounts audited as per the legal
requirements prevalent in the country of its incorporation and which does not get such
accounts audited, the holding or parent Indian company may place or file such unaudited
accounts to comply with requirements of section 136(1) and 137(1) as applicable. These,
however, would need to be translated in English, if the original accounts are not in English.
Further, the format of accounts of foreign subsidiaries should be, as far as possible, in
accordance with requirements under the Companies Act, 2013. In case this is not possible,
a statement indicating the reasons for deviation may be placed/ filed along with such
accounts.
Hence, Dhiman Limited. would have to get the standalone financial statements of Best
Shoes Limited translated in English language and also get those aligned as per the its
accounting policies for the purpose of consolidation.
Further Dhiman Limited would need to file such unaudited financial statement of Best
Shoes Limited along with a declaration to this effect along with a translated copy of the
financial statement in English.
Further the format of accounts of Moroccan subsidiary company should be, as far as
possible, in accordance with requirements under the Companies Act, 2013. In case this is
not possible, a statement indicating the reasons for deviation may be placed/ filed along
with such accounts.
6. Appointment of Debenture Trustee: Under section 71 (5) of the Companies Act, 2013,
no company shall issue a prospectus or make an offer or invitation to the public or to its
members exceeding five hundred for the subscription of its debentures, unless the
company has, before such issue or offer, appointed one or more debenture trustees a nd
the conditions governing the appointment of such trustees shall be such as may be
prescribed.
Rule 18 (2) of the Companies (Share Capital and Debentures) Rules, 2014, framed under
the Companies Act for the issue of secured debentures provide that before the appointment
of debenture trustee or trustees, a written consent shall be obtained from such debenture
trustee or trustees proposed to be appointed and a statement to that effect shall appear in
the letter of offer issued for inviting the subscription of the debentures.
Further according to the provided rules inter-alia, no person shall be appointed as a
debenture trustee, if he-
(1) beneficially holds shares in the company;
(2) is beneficially entitled to moneys which are to be paid by the company otherwise than
as remuneration payable to the debenture trustee;
(3) has furnished any guarantee in respect of the principal debts secured by the
debentures or interest thereon;

Thus, based on the above provisions answers to the given questions are as follows:
(i) A shareholder who has holds shares of ` 10,000, cannot be appointed as a debenture
trustee.
(ii) A creditor whom company owes ` 999 cannot be appointed as a debenture trustee.
The amount owed is immaterial.
(iii) A person who has given guarantee for repayment of principal and interest thereon in
respect of debentures, cannot be appointed as a debenture trustee.
7. Persons responsible to maintain books: As per Section 128 (6) of the Companies Act,
2013, the person responsible to take all reasonable steps to secure compliance by the
company with the requirement of maintenance of books of account etc. shall be:
(d) Any other person of a company charged by the Board with duty of complying with
provisions of section 128.
8. According to Section 139(2) of the Companies Act, 2013, no listed company or a company
belonging to such class or classes of companies as may be prescribed, shall appoint or
re-appoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
Provided that –
(i) an individual auditor who has completed his term under clause (a) shall not be eligible
for re-appointment as auditor in the same company for five years from the completion
of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be eligible for
re-appointment as auditor in the same company for five years from the completion of
such term.
Provided further that as on the date of appointment no audit firm having a common partner
or partners to the other audit firm, whose tenure has expired in a company immediately
preceding the financial year, shall be appointed as auditor of the same company for a
period of five years.
As per Explanation II in Rule 6(3) of the Companies (Audit and Auditors) Rules, 2014, if a
partner, who is in charge of an audit firm and also certifies the financial statements of the
company, retires from the said firm and joins another firm of chartered accountants, such
other firm shall also be ineligible to be appointed for a period of five years.

Here, Mr. Govind Ram has retired from P & Associates and joined Gupta & Gupta Firm.
Mr. Govind Ram was a partner, in- charge Associates (and certifies the financial statement
of the company) in P & Associates. He retires from P & Associates and joins Gupta &
Gupta firm.
As per the facts of the question and provisions of law, Gupta & Gupta Firm will also be
ineligible, to be appointed as auditor of Kanha Limited (listed company) for a period of 5
years.
9. According to section 157 of the Indian Contract Act, 1872, if the bailee, without the consent
of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it is
impossible to separate the goods bailed from the other goods and deliver them back, the
bailor is entitled to be compensated by the bailee for the loss of the goods.
In the given question, Naresh’s employee mixed high quality sugar bailed by Vishal and
then packaged it for sale. The sugars when mixed cannot be separated. As Naresh’s
employee has mixed the two kinds of sugar, he (Naresh) must compensate Vishal for the
loss of his sugar.
10. According to the section 9 of the Negotiable Instrument Act 1881, “Holder in due course”
means any person who for consideration became the possessor of a negotiable instrument
in good faith and without having sufficient cause to believe that any defect existed in the
title of the person from whom he derived his title. Further, section 120 says that no maker
of a promissory note and no drawer of a bill or cheque and no acceptor of a bill for the
honour of the drawer shall, in a suit thereon by a holder in due course be permitted to deny
the validity of the instrument as originally made or drawn. Thus, a holder in due course
gets a good title to the bill.
In the given question, since Mr. Salim acquired the bill in good faith and for value, he
becomes the holder in due course. Mr. Zahid cannot deny the original validity of the bill
towards Mr. Salim (he being holder in due course). Hence, Mr. Salim has right to recover
the amount of bill from Mr. Zahid.
11. According to section 8 of the General Clauses Act, 1897, where this Act or Central Act or
Regulation made after the commencement of this Act, repeals and re-enacts, with or
without modification, any provision of a former enactment, then references in any other
enactment or in any instrument to the provision so repealed shall, unless a different
intention appears, be construed as references to the provision so re-enacted.
Also, in Gauri Shankar Gaur v. State of U.P., AIR 1994 SC 169, it was held that every Act
has its own distinction. If a later Act merely makes a reference to a former Act or existing
law, it is only by reference and all amendments, repeals new law subsequently made will
have effect unless its operation is saved by the relevant provision of the section of the Act.

As per the facts of the question, even after the advent of the Companies Act 2013, no
corresponding amendment was done in section 2(18)(aa) of the Income Tax Act, 1961,
which provides that a company is said to be a company in which the public are substantially
interested, if it is a company which is registered under section 25 of the Companies Act,
1956.
In the given situation, as per section 8 of the General Clauses Act, 1897 and the decision
of case of Gauri Shankar Gaur v. State of U.P., for section 2(18)(aa) of the Income Tax
Act, 1961, provisions of the Companies Act, 2013 will be applicable in place of the
12. Interpretation of the words “Means” and “Includes” in the definitions- The definition
of a word or expression in the definition section may either be restricting of its ordinary
meaning or may be extensive of the same.
section.
extensive, here the word defined is not restricted to the meaning assigned to it but has
extensive meaning which also includes the meaning assigned to it in the definition section.
Example—
Definition of Director [Section 2(34) of the Companies Act, 2013] — Director means a
director appointed to the board of a company. The word “means” suggests exhaustive
definition.
Definition of Whole time director [Section 2(94) of the Companies Act, 2013] — Whole
time director includes a director in the whole time employment of the company. The word
“includes” suggests extensive definition. Other directors may be included in the category
of the whole time director.

PART – I: ANNOUNCEMENTS STATING APPLICABILITY FOR MAY, 2022 EXAMINATIONS
Applicability for May, 2022 examinations
The Study Material (September 2021 edition) is applicable for May, 2022 examinations. This
study material is updated for all amendments till 30 th April, 2021.
Further, all relevant amendments/ circulars/ notifications etc. in the Company law part for the
period 1st May, 2021 to 31 st October, 2021 are mentioned below:
I. Chapter 2: Incorporation of company and matters incidental thereto
Amendments related to - Notification S.O. 2904(E) dated 22 nd July, 2021
The Central Government has amended Section 16 of the Companies Act, 2013, through the
Amendment:
In section 16 of the Companies Act, 2013:
(i) in sub-section (1), in clause (b), for the words "period of six months", the words "period of
three months" shall be substituted;
(ii) for sub-section (3), the following sub-section shall be substituted, namely:—
"(3) If a company is in default in complying with any direction given under sub-section (1),
the Central Government shall allot a new name to the company in such manner as may be
prescribed and the Registrar shall enter the new name in the register of companies in place
of the old name and issue a fresh certificate of incorporation with the new name, which the
company shall use thereafter:
Provided that nothing in this sub-section shall prevent a company from subsequently
changing its name in accordance with the provisions of section 13."
[Enforcement Date: 1st September, 2021]
For point (i)- Old Law (Pg 2.39)
(b) on an application by a registered proprietor of a trade mark that the name is identical with
or too nearly resembles to a registered trade mark of such proprietor under the ……….. it
may direct the company to change its name and the company shall change its name or new
name, as the case may be, within a period of 6 months from the issue of such direction,
after adopting an ordinary resolution for the purpose.

For point (ii)- Old Law (Pg 2.39)

If a company makes default in complying with any direction—
Liable person Penalty/punishment
Company Fine of 1,000 rupees for every day during which the
default continues
Every Officer who is in Fine varying from 5,000 rupees to 1 lakh rupees.
default
II. Chapter 8: Declaration and Payment of Dividend
Amendments related to - Notification G.S.R. 396(E) dated 9 th June, 2021
The Central Government has amended the Investor Education and Protection Fund Authority
(Accounting, Audit, Transfer and Refund) Rules, 2016, through the Investor Education and
Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Ru les, 2021.
Amendment:
In rule 3, in sub-rule (2), after clause (f), the following shall be inserted, namely:-
“(fa) all shares held by the Authority in accordance with proviso of sub -section (9) of section 90
of the Act and all the resultant benefits arising out of such shares, without any restrictions;”
Old Law (Pg 8.21)
Clause (fa) is Newly inserted
III. Chapter 9: Accounts of companies
The Ministry of Corporate Affairs have made a clarification with respect to CSR:
General Circular No. 09/2021 Dated 5th May, 2021
1. In continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020, wherein
it was clarified that spending of CSR funds for COVID-19 is an eligible CSR activity, it is further
clarified that spending of CSR funds for ‘creating health infrastructure for COVID care’,
‘establishment of medical oxygen generation and storage plants’, ‘manufacturing and supply of
Oxygen concentrators, ventilators, cylinders and other medical equipment for counteri ng
COVID-19’ or similar such activities are eligible CSR activities under item nos. (i) and (xii) of
2. Reference is also drawn to item no. (ix) of Schedule VII of the Companies Act, 2013 which
permits contribution to specified research and development projects as well as contribution to
public funded universities and certain Organisations engaged in conducting research in science,
technology, engineering, and medicine as eligible CSR activities.

3. The companies including Government companies may undertake the activities or projects
or programmes using CSR funds, directly by themselves or in collaboratio n as shared
responsibility with other companies, subject to fulfillment of Companies (CSR Policy) Rules,
2014 and the guidelines issued by this Ministry from time to time.
General Circular 13/2021 dated 30 th July, 2021
The Ministry of Corporate Affairs vide General Circular 10/2020 dated 23.03.2020 clarified that
spending of CSR funds for COVID- 19 is an eligible CSR activity. In continuation to the said
circular, it is further clarified that spending of CSR funds of COVID- 19 vaccination for persons
other than the employees and their families, is an eligible CSR activity under item no. (i) of
Schedule VII of the Companies Act, 2013 relating to promotion of health care including
preventive health care and item no. (xii) relating to disaster management.
Old Law (Pg 9.47)
The clarifications are newly inserted
QUESTIONS

1. Perfect Tyres and Rubbers Ltd. is a listed entity engaged in the business of manufacturing
of tyres and tubes for Light and Heavy Commercial Vehicles. During the financial year
2019-20, the company has declared interim dividend of 5% on the equity shares in its
Board meeting held on 17 th October, 2019, out of the profits earned during the first quarter
of FY 2019-20. Further, the Board of Directors of the company after reviewing results of
the fourth quarter of FY 2019-20 again recommended for second Interim Dividend @ 5%
on 25th April, 2020.
The Board of Directors of the company approved the financial result for the FY 2019-20 in
its meeting held on 5 th August, 2020, and recommended a final dividend of 15% (including
the interim dividends paid earlier) in this board meeting. The general meeting of the
shareholders was convened on 31st August, 2020. The shareholders of the company
demanded that since interim dividend @10% (5% + 5%) was declared by the company, so
the final dividend should not be less than 20% (including the interim dividends). When the
Company Secretary emphasised that final dividend cannot exceed, what the Board of
Directors have recommended in their board meeting, some of the shareholders boycotted
the meeting and moved out of the meeting hall, in protest of the company’s decision.
However, the agenda for declaration of the dividend was passed unanimously by rest of
the shareholders present in the meeting hall, fulfilling the criteria of requirement of quorum,
as per the provisions of the Companies Act, 2013.

After approval of the shareholders, the dividend amount was paid to the shareholders,
however dividend to some of the shareholders could not be paid within the prescribed
period for variety of reasons. The company transferred the unpaid dividend amount to a
separate bank account on 15 th October, 2020.
The details of the unpaid dividend amount for the previous year’s lying in the unpaid
dividend account is as under:
S. Dividend Date of Date when the Amount lying in
No. pertaining declaration amount was the Unpaid
to the FY of Dividend transferred to Unpaid Dividend Account
dividend Account (` in lakhs)
1 2019-20 31.08.2020 15.10.2020 92.50
2 2018-19 25.08.2019 28.09.2019 85.14
3 2017-18 20.08.2018 22.09.2018 80.00
4 2016-17 05.09.2017 07.10.2017 75.25
5 2015-16 01.09.2016 04.10.2016 45.15
6 2014-15 07.09.2015 09.10.2015 35.26
7 2013-14 05.05.2014 08.06.2014 15.10
8. 2012-13 06.06.2013 08.07.2013 07.25
Sustram, one of the investors who is holding 1000 shares in physical form, by visiting web -
site of the company, came to know that company had declared the dividends in some
previous years, but have not been paid to him. This happened due to the fact the company
was not having his current address and bank account details. Sustram approached the
company, along with all the supporting evidence to his claim and demanded the dividend
amount.
The company after being satisfied, paid all the dividend amount pertaining to the FY 2013-
14 to FY 2019-20. However, for FY 2012-13, the company informed that since the amount
of dividend has been transferred to Investor Education and Protection Fund, it cannot be
taken back now. Aggrieved from this, Sustram threatened the company officials to take
appropriate legal action.
1.1 When the shareholders demanded for increase in the rate of dividend, but since the
shareholders cannot increase the rate of dividend what the Board of Di rectors have
recommended, some of them walked out of the meeting hall. What shall be the
consequences of it:
(a) If, even after boycott, quorum is present, all the time during the course of general
meeting and they have approved with majority, the rate recommended by the
Board shall be treated as approved.

(b) Members present at the beginning of the meeting shall remain present all the
time during the general meeting, to approve any agenda, else it will be treated
as nullified.
(c) The approval of the dividend is an ordinary business resolution of the company,
so if some of the members have boycotted the meeting, it will have no effect ,
even if the quorum is not present.
(d) The recommendation of the Board of Directors of the company relating to the
rate of dividend shall stands withdrawn.
1.2 At which date, the unpaid dividend not claimed by the shareholders, shall be
transferred to a separate bank account, in the above case:
(a) On 5th August, 2020 (the date of Meeting of Board)
(b) On 31st August, 2020 (the date of Meeting of Shareholders)
(c) On 30 th September, 2020 (the date, after 30 days from the meeting of
shareholders)
(d) Latest by 7 th October, 2020 (within seven days from the date of expiry of 30
days)
1.3 The company transferred the amount of unpaid dividend to a separate bank accou nt
on 15th October, 2020.
What is the interest liability on the part of the company?
(a) No liability.
(b) Interest @ 10% p.a. on so much of the amount as has not been transferred to
the Unpaid Dividend Account.
(c) Interest @ 12% p.a. on so much of the amount as has not been transferred to
(d) Interest @ 15% p.a. on so much of the amount as has not been transferred to
1.4 In the given case, when and how much amount, the company shall transfer the funds
to the Investor Education and Protection Fund:
(a) Four years after 01.09.2016; Rs 45.15 lakh
(b) Five years after 07.09.2015; Rs 35.26 lakh
(c) Six years after 05.05.2014; ` 15.10 lakh
(d) Seven years after 08.07.2013: ` 07.25 lakh

2. Amber Limited is a manufacturer of glassware. Its paid up share capital is divided into
20,0000 shares of ` 100 each. The company is maintaining its register of members as per
the provisions of the Companies Act, 2013. The company wanted to close its register of
members for declaring dividend. It may do so by giving minimum …….. days’ notice.
(a) 7 days
(b) 10 days
(c) 15 days
(d) The register of members cannot be closed.
3. ………………. interpretation concerns itself with “what the law says” and ……….
interpretation, seeks to ascertain “what the law means”.
(a) Grammatical, Logical
(b) Legal, usual
(c) Usual, legal
(d) Logical, grammatical
4. Arvind lends money to Mamta against the security of jewellery deposited by Mamta with
Arvind. Arvind gave this jewellery to his friend Vinayak who had a safe locker at his home.
Who is the pawnor in the given case?
(a) Arvind
(b) Mamta
(c) Vinayak
(d) Both Arvind and Vinayak
5. Raman, the original allottee of 2000 equity shares in ABC Limited has transferred the same
to Ruchi. The instrument of transfer dated 21 st August, 2020, duly stamped and signed by
Raman was handed over to Ruchi. Advise Ruchi regarding the latest date by which the
instrument of transfer along with share certificates must be delivered to the company, to
register the transfer in its register of members.
(a) 21st August, 2020.
(b) 20th September, 2020
(c) 20th October, 2020.
(d) 19th November, 2020


PART I: COMPANY LAW
1. Following are some of the securities, issued by different companies related with each other,
as follows:-
Company Securities Issued Remarks
Kleshrahit Ltd. Listed non-convertible Has the power to appoint 2/3 rd
redeemable preference directors in Indriyadaman Ltd.
shares issued on private
placement basis in terms of
relevant SEBI Regulations.
Indriyadaman Ltd. Listed non-convertible debt Holding 60% voting power in
securities issued on private Sajagta (P) Ltd.
placement basis in terms of
relevant SEBI Regulations.
Sajagta (P) Ltd. Listed non-convertible debt The company holds 52% equity
securities issued on private shares in Pratibodh Ltd. as an
placement basis in terms of investment on behalf of another
relevant SEBI Regulations. company in a capacity of a trustee.
Equity shares issued by the Kleshrahit Ltd. and Indriyadaman Ltd. are not listed in any of
the recognized stock exchanges.
In the context of aforesaid facts, answer the following question(s):-
(a) Whether the aforesaid companies can be considered as listed company(ies)?
(b) Explain the relationship between the aforesaid companies?
2. Abhiyogic Ltd. having 1,000 members with paid-up capital of ` 1 crore, decided to hold its
Annual General Meeting (AGM) on 21st August, 2022, and it received a notice on 2 nd July,
2022, from its 60 members holding paid-up capital of ` 7 lakhs, in aggregate, for a
resolution to be passed at the AGM for appointing Vedya & Co., as its auditor from
F.Y. 2022-23 onwards, instead of its existing auditor, Chepal & Co. which was originally
appointed for 5 years term and had completed its 4 years term.
Such a notice for resolution was forthwith send by the company to Chepal & Co. which
gave its representation in writing to the company along with a request for its notification to
the members of the company, but it was received too late (3 days before the meeting) by
the company.

In the context of aforesaid facts, please answer to the following question(s):-

(a) Whether the said notice was given by adequate number of members within the
prescribed time limit to Abhiyogic Ltd.?
(b) Whether the company was bound to send to its members such representation made
by Chepal & Co. and if it could not have been send, then in such case, what was the
responsibility(ies) of the company?
3. Vrinda Limited is a company manufacturing orange and strawberry candies for kids. Now,
the company wants to expand its business and start the manufacturing of 10 more types
of candies. The company has raised ` 1 crore through the issue of non-convertible
debentures not constituting a charge on the assets of the company and listed on a
recognised stock exchange as per the applicable regulations made by the Securities and
Exchange Board of India. Advise, whether the above amount of ` 1 crore will be considered
as deposit?
4. The Board of Directors of Plum Limited proposes to issue a prospectus inviting offers from
the public for subscribing to the equity shares of the company. State the reports which
shall be included in the prospectus for the purposes of providing financial information under
the provisions of the Companies Act, 2013.
5. One of the matters contained in the articles of Dhimaan Foundation, incorporated as a
limited company under section 8 of the Companies Act, 2013, was altered by passing a
special resolution in its general meeting and thereafter, intimation for the same was given
to Registrar of Companies.
However, such alteration in the articles was opposed by Dhwaj & Co., a partnership firm
which is its member that there such alteration was not valid.
Advise, as per the provisions of the Companies Act, 2013, whether the contention of Dhwaj
& Co. was valid and whether it can be a member in such company?
6. Mr. Abhi is a Chartered Accountant and MBA by profession, has been appointed as an
Executive Director on the Board of XYZ Limited. His job profile includes advising the Board
of Directors of the company on various compliance matters, strategies, business plans,
and risk matters relating to the company. Keeping in view of above position whether
Mr. Abhi can be classified as the Promoter of XYZ Limited? Please examine the same
under the provisions of the Companies Act, 2013.
7. Krish Limited created a charge on its assets on 2 nd February, 2021. However, the company
did not register the charge with the Registrar of companies till 15th March, 2021.
(a) What procedure should the company follow to get the charge registered?
(b) Suppose the company realises its mistake of not registering the charge on 27 th May,
2021 (instead of 15 th March, 2021), can it still register the charge?
Advise with reference to the relevant provisions of the Companies Act, 2013.

8. Vishal Limited has paid dividend consistently every year at the rate of 10% on its equity
share capital in the last 5 years (2015-2016 to 2019-2020). The company has incurred loss
in the current financial year (FY 2020-2021). It still wants to declare dividend for the
FY 2020-2021. Whether the company can do so? Explain.
PART II: OTHER LAWS
9. ‘Surendra’ guarantees ‘Virendra’ for the transactions to be done between ‘Virendra’ &
‘Jitendra’ during the month of March, 2021. ‘Virendra’ supplied goods of ` 30,000 on
01.03.2021 and of ` 20,000 on 03.03.2021 to ‘Jitendra’. On 05.03.2021, ‘Surendra’ died
in a road accident. On 10.03.2021, being ignorant of the death of ‘Surendra’, ‘Virendra’
further supplied goods of ` 40,000. On default in payment by ‘Jitendra’ on due date,
‘Virendra’ sued on legal heirs of ‘Surendra’ for recovery of ` 90,000. Describe, whether
legal heirs of ‘Surendra’ are liable to pay ` 90,000 under the provisions of Indian Contract
Act 1872.
What would be your answer, if the estate of ‘Surendra’ is worth of ` 45,000 only?
10. ‘Anjum’ drew a cheque for ` 20,000 payable to ‘Babloo’ and delivered it to him. ‘Babloo’
indorsed the cheque in favour of ‘Rehansh’ but kept it in his table drawer. Subsequently,
‘Babloo’ died, and cheque was found by ‘Rehansh’ in ‘Babloo’s table drawer. ‘Rehansh’
filed the suit for the recovery of cheque. Whether ‘Rehansh’ can recover cheque under
the provisions of the Negotiable Instrument Act 1881?
11. Ayush and Vipul are good friends and pursuing CA course. While doing group studies
for the paper of “Corporate and Other Law”, they are confused about the provisions of
section 3 of the Companies Act 2013. Section 3 provides “A company may be formed for
any lawful purpose by…………….” Both Ayush and Vipul are in difficulty about the
meaning of word “may”. Whether it should be taken as mandatory or directory?
12. When can the Preamble be used as an aid to interpretation of a statute?

SUGGESTED ANSWERS

1.1 (a)
1.2 (d)
1.3 (c)
1.4 (d)
2. (a)
3. (a)
4. (b)
5. (c)
1. (a) According to section 2(52) of the Companies Act, 2013, listed company means a
company which has any of its securities listed on any recognised stock exchange;
Provided that such class of companies, which have listed or intend to list such class
of securities, as may be prescribed in consultation with the Securities and Exchange
Board, shall not be considered as listed companies.
According to rule 2A of the Companies (Specification of definitions details) Rules,
2014, the following classes of companies shall not be considered as listed companies,
namely:-
(a) Public companies which have not listed their equity shares on a recognized
stock exchange but have listed their –
(i) non-convertible debt securities issued on private placement basis in terms
of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on private
placement basis in terms of SEBI (Issue and Listing of Non-Convertible
Redeemable Preference Shares) Regulations, 2013; or
(iii) both categories of (i) and (ii) above.
(b) Private companies which have listed their non-convertible debt securities on
private placement basis on a recognized stock exchange in terms of SEBI (Issue
and Listing of Debt Securities) Regulations, 2008;
(c) Public companies which have not listed their equity shares on a recognized
stock exchange but whose equity shares are listed on a stock exchange in a
jurisdiction as specified in sub-section (3) of section 23 of the Act.

Company Name Analysis and Conclusion

Kleshrahit Ltd. Equity shares issued by the company are not listed.
However, the company has issued listed non-
convertible redeemable preference shares issued
on private placement basis in terms of relevant
SEBI Regulations which falls in the exceptions to
the listed company, given as per clause (a)(ii) to
Rule 2A, as aforesaid, and accordingly, Kleshrahit
Ltd. shall not be considered as a listed company.
Indriyadaman Ltd. Equity shares issued by the company are not listed.
However, the company has issued listed non-
convertible debt securities issued on private
placement basis in terms of relevant SEBI
Regulations which falls in the exceptions to the
listed company, given as per clause (a)(i) to Rule
2A, as aforesaid, and accordingly, Indriyadaman
Ltd. shall not be considered as a listed company.
Sajagta (P) Ltd. The company has issued listed non-convertible debt
securities issued on private placement basis on a
recognised Stock Exchange in terms of relevant
SEBI Regulations which falls in the exceptions to
the listed company given as per clause (b) to Rule
2A, as aforesaid, and accordingly, Sajagta (P) Ltd.
shall not be considered as a listed company.
(b) According to section 2(46) of the Companies Act, 2013, holding company in relation
to one or more other companies, means a company of which such companies are
subsidiary companies.
According to section 2(87) of the Companies Act, 2013, subsidiary company or
subsidiary, in relation to any other company (that is to say the holding company),
means a company in which the holding company—
(ii) exercises or controls more than one-half of the total voting power either at its
own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall
not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company
even if the control referred to in sub-clause (i) or sub-clause (ii) is of another
subsidiary company of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be

controlled by another company if that other company by exercise of some power
exercisable by it at its discretion can appoint or remove all or a majority of the
directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries; As
per the notification dated 27th December 2013, Ministry clarified that the shares
held by a company or power exercisable by it in another company in a fiduciary
capacity shall not be counted for the purpose of determining the holding –
subsidiary relationship in terms of the provision of section 2(87) of the
(i) Relationship between Kleshrahit Ltd. & Indriyadaman Ltd.
It is given that Kleshrahit Ltd. has the power to appoint 2/3 rd directors in
Indriyadaman Ltd. i.e. majority of the directors can be appointed by
Kleshrahit Ltd.
Accordingly, as per sub-clause (i) to section 2(87) read with the
Explanation given in point (b), it can be understood that Indriyadaman Ltd.
is the subsidiary company of Kleshrahit Ltd. while the latter is the holding
company of Indriyadaman Ltd.
(ii) Relationship between Indriyadaman Ltd. & Sajagta (P) Ltd.
It is given that Indriyadaman Ltd. is holding 60% voting power in Sajagta
(P) Ltd.
Accordingly, as per sub-clause (ii) to section 2(87), it can be understood
that Sajagta (P) Ltd. is the subsidiary company of Indriyadaman Ltd. while
the latter is the holding company of Sajagta (P) Ltd. as Indriyadaman Ltd.
controls more than one-half of the total voting power of Sajagta (P) Ltd.
(iii) Relationship between Kleshrahit Ltd. & Sajagta (P) Ltd.
It is given that Indriyadaman Ltd. is holding 60% voting power in Sajagta
(P) Ltd. and it has been derived that Indriyadaman Ltd. is the subsidiary
company of Kleshrahit Ltd. and Sajagta (P) Ltd. is the subsidiary company
of Indriyadaman Ltd., respectively.
Accordingly, as per sub-clause (ii) to section 2(87) read with the
Explanation given in point (a), that a company shall be deemed to be a
subsidiary company of the holding company even if the control is of another
subsidiary company of the holding company i.e. subsidiary of subsidiary
company will be deemed to be a subsidiary of the holding company.

Hence, it can be understood that Sajagta (P) Ltd. is deemed to be

subsidiary company of Kleshrahit Ltd. while the latter would be considered
as the holding company of Sajagta (P) Ltd.
(iv) Relationship between Sajagta (P) Ltd. & Pratibodh Ltd.
It is given that Sajagta (P) Ltd. holds 52% equity shares in Pratibodh Ltd.
as an investment on behalf of another company in a capacity of a trustee
i.e. in a fiduciary capacity.
As per the notification dated 27th December 2013, Ministry (MCA) clarified
that the shares held by a company or power exercisable by it in another
company in a fiduciary capacity shall not be counted for the purpose of
determining the holding–subsidiary relationship in terms of the provision of
section 2(87) of the Companies Act, 2013.
Accordingly, Sajagta (P) Ltd. & Pratibodh Ltd. do not share any holding–
subsidiary relationship as the former holds shares in latter just in a fiduciary
capacity on behalf of another company.
2. (a) As per section 140(4) of the Companies Act, 2013, resolution for appointment of an
auditor other than the retiring auditor at an Annual General Meeting requires special
notice. As per Section 115 of the Companies Act, 2013, read with rule 23 of
Companies (Management and Administration) Rules, 2014:-
Where, by any provision contained in this Act or in the Articles of Association of a
company, special notice is required for passing any resolution, then the notice of the
intention to move such resolution shall be given to the company by such number of
members holding not less than 1% of the total voting power, or holding shares on
which such aggregate sum not exceeding five lakh rupees, as may be prescribed, has
been paid-up.
The afore-mentioned notice shall be sent by members to the company not earlier than
3 months but at least 14 days before the date of meeting at which the resolution is to
be moved, exclusive of the day on which the notice is given and the day of the
meeting.
Here, Abhiyogic Ltd. is having 1,000 members with paid-up capital of ` 1 crore, and
it received a notice from its 60 members holding paid-up capital of ` 7 lakhs, in
aggregate, on 2 nd July, 2022 for a resolution to be passed at the AGM to be held on
21st August, 2022.
As the members who gave the notice hold more than ` 5 lakhs in the paid-up capital
of the company, they were eligible to give such notice.
Further, the notice should have been given not earlier than 3 months but at least
14 days before the date of meeting - 21st August, 2022, and the notice was given on
2nd July, 2022 i.e. within the prescribed time limit.

Thus, it can be said that the said notice was made by adequate number of members
within the prescribed time limit to Abhiyogic Ltd.
(b) As per Section 140(4) of the Companies Act, 2013: Where notice is given of a
resolution appointing as auditor a person other than a retiring auditor and the retiring
auditor makes with respect thereto representation in writing to the company (not
exceeding a reasonable length) and requests its notification to members of the
company, the company shall, unless the representation is received by it too late for it
to do so,—
(1) in any notice of the resolution given to members of the company, state the fact
of the representation having been made; and
(2) send a copy of the representation to every member of the company to whom
notice of the meeting is sent, whether before or after the receipt of the
representation by the company.
However, in the present case, Abhiyogic Ltd. received the representation made by
Chepal & Co. too late and accordingly it was not bound to send such representation
to its members even though it was requested by Chepal & Co. to do so.
Further, as per Section 140(4) of the Companies Act, 2013, if a copy of the
representation is not sent as aforesaid because it was received too late or because
of the company’s default, the auditor may (without prejudice to his right to be heard
orally) require that the representation shall be read out at the meeting such a copy of
representation thereof shall be filed with the Registrar.
Accordingly, Abhiyogic Ltd., apart from giving to right to be heard orally to Chepal &
Co. shall also made the representation read out at the AGM, if so required by Chepal
& Co., and shall also file such representation with the Registrar, respectively.
3. As per sub-clause (ixa) of Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules,
2014, any amount raised by issue of non-convertible debentures not constituting a charge
on the assets of the company and listed on recognised stock exchange as per the
applicable regulations made by the Securities and Exchange Board of India, are not
considered as deposit.
Hence, ` 1 crore raised by Vrinda Limited will not be considered as deposit in terms of
sub-clause (ixa) of Rule 2 (1) (c).
4. As per section 26(1) of the Companies Act, 2013, every prospectus issued by or on behalf
of a public company either with reference to its formation or subsequently, or by or on
behalf of any person who is or has been engaged or interested in the formation of a public
company, shall be dated and signed and shall state such information and set out such
reports on financial information as may be specified by the Securities and Exchange Board
in consultation with the Central Government.

Provided that until the Securities and Exchange Board specifies the information and reports
on financial information under this sub-section, the regulations made by the Securities and
Exchange Board under the Securities and Exchange Board of India Act, 1992, in respect
of such financial information or reports on financial information shall apply.
According to clause (c) of section 26 (1), the prospectus shall make a declaration about
the compliance of the provisions of the Companies Act, 2013 and a statement to the effect
that nothing in the prospectus is contrary to the provisions of this Act, the Securities
Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act,
1992 and the rules and regulations made thereunder.
Accordingly, the Board of Plum Limited which proposes to issue the prospectus shall
provide such reports on financial information as may be specified by the Securities and
Exchange Board in consultation with the Central Government to comply with the above
stated provisions and make a declaration about such compliance.
5. According to section 8 of the Companies Act, 2013, a company registered under this
section shall not alter the provisions of its memorandum or articles except with the previous
approval of the Central Government (the power has been delegated to Registrar of
Companies).
Also, a firm may be a member of the company registered under section.
Here, one of the matters of articles of Dhimaan Foundation was altered by passing a
special resolution in its general meeting and thereafter, intimation for the same was given
to Registrar of Companies.
As per the provisions of the Act, it is necessary to take previous approval of the Registrar
of Companies for the same which was not done in the present case and thus the contention
of Dhwaj & Co. was valid.
Also, section 8 allows a firm to be a member of such company and hence, Dhwaj & Co.
can be its member.
6. According to section 2(69) of the Companies Act, 2013, Promoter means a person: -
(a) Who has been named as such in a prospectus or is identified by the company in the
annual return; or
(b) Who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) In accordance with whose advice, directions or instructions the Board of Directors of
the company is accustomed to act.
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a
professional capacity.

As the job profile of Mr. Abhi is only limited to advise the Board of Directors on various
compliance matters, strategies, business plans and risk matters relating to busin ess of the
company and that too only in a professional capacity, he will not be classified as a Promoter
of XYZ Limited.
7. According to section 77(1) of the Companies Act, 2013 it shall be the duty of every
company creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise, and situated in or outside India, to register
the particulars of the charge signed by the company and the chargeholder together with
the instruments, if any, creating such charge in such form, on payment of such fees and in
such manner as may be prescribed, with the Registrar within 30 days of its creation .
However, under clause (b) of first proviso to section 77 (1) the Registrar is empowered to
extend the period of 30 days by another 30 days (i.e. sixty days from the date of creation)
on payment of prescribed additional fee.
(a) Krish Limited did not register the charge with the Registrar of companies till 15 th
March, 2021. In this case particulars of charge were not filed within the prescribed
period of 30 days (i.e. till 4 th March, 2021).
Taking advantage of clause (b) of first proviso to section 77 (1), Krish Limited should
immediately file the particulars of charge with the Registrar after satisfying him
through making an application that it had sufficient cause for not filing the particulars
of charge within 30 days of its creation.
(b) Clause (b) of second Proviso to Section 77 (1) provides another opportunity for
registration of charge by granting a further period of sixty days but the company is
required to pay ad valorem fees.
If the company realises its mistake of not registering the charge on 27 th May, 2021
instead of 15 th March, 2021, it shall be noted that a period of sixty days has already
expired from the date of creation of charge.
Since the first sixty days from creation of charge have expired on 3 rd April, 2021, Krish
Limited can still get the charge registered within a further period of sixty days from
3rd April, 2021 after paying the prescribed ad valorem fees. The company is required
to make an application to the Registrar in this respect giving sufficient cause for non -
registration of charge.
8. As per second proviso to Section 123(1) of the Companies Act, 2013 read with Rule 3 of
the Companies (Declaration and Payment of Dividend) Rules, 2014, where in any year
there is absence of profit or there are no adequate profits for declaring dividend, the
company may declare dividend out of the profits of any previous year transferred by it to
the free reserves, only in accordance with the procedure laid down.

However, such declaration shall be subject to the following conditions:

(a) The rate of dividend declared shall not exceed the average of the rates at which
dividend was declared by the company in the three years immediately preceding that
year.
Provided that this sub-rule shall not apply to a company, which has not declared any
dividend in each of the three preceding financial year.
(b) The total amount to be drawn from such accumulated profits shall not exceed 10% of
the sum of its paid-up share capital and free reserves as appearing in the latest
audited financial statement.
(c) The amount so drawn shall first be utilized to set off the losses incurred in the finan cial
year in which dividend is declared and only thereafter, any dividend in respect of
equity shares shall be declared.
(d) The balance of reserves after such withdrawal shall not fall below 15% of its paid -up
share capital as appearing in the latest audited financial statement.
Hence, if the company wants to pay dividend in the current financial year, it can do so if all
the above conditions have been fulfilled.
9. According to section 131 of Indian Contract Act 1872, in the absence of a contract to
contrary, a continuing guarantee is revoked by the death of the surety as to the future
transactions. The estate of deceased surety, however, liable for those transactions which
had already taken place during the lifetime of deceased. Surety’s estate will not be liable
for the transactions taken place after the death of surety even if the creditor had no
knowledge of surety’s death.
In this question, ‘Surendra’ was surety for the transactions to be done between ‘Virendra’
& ‘Jitendra’ during the month of March’2021. ‘Virendra’ supplied goods of ` 30,000,
` 20,000 and of ` 40,000 on 01.03.2021, 03.03.2021 and 10.03.02021 respectively.
‘Surendra’ died in a road accident but this was not in the knowledge of ‘Virendra’. When
‘Jitendra’ defaulted in payment, ‘Virendra’ filed suit against legal heirs of ‘Surendra’ for
recovery of full amount i.e. ` 90,000.
On the basis of above, it can be said in case of death of surety (‘Surendra’), his legal heirs
are liable only for those transactions which were entered before 05.03.2021 i.e. for
` 50,000. They are not liable for the transaction done on 10.03.2021 even though Virendra
had no knowledge of death of Surendra.
Further, if the worth of the estate of deceased is only ` 45,000, the legal heirs are liable
for this amount only.
10. According to section 48 of the Negotiable Instrument Act 1881, a promissory note, bill of
exchange or cheque payable to order, is negotiable by the holder by indorsement and
delivery thereof.

The contract on a negotiable instrument until delivery remains incomplete and revocable.
The delivery is essential not only at the time of negotiation but also at the time of making
or drawing of negotiable instrument. The rights in the instrument are not transferred to the
indorsee unless after the indorsement the same has been delivered. If a person makes the
indorsement of instrument but before the same could be delivered to the indorsee the
indorser dies, the legal representatives of the deceased person cannot negotiate the same
by mere delivery thereof. [Section 57]
In the given case, cheque was indorsed properly but not delivered to indorsee i.e.
‘Rehansh’, Therefore, ‘Rehansh’ is not eligible to claim the payment of cheque.
11. The word ‘shall’ is used to raise a presumption of something which is mandatory or
imperative while the word ‘may’ is used to connote something which is not mandatory but
is only directory or enabling. However, sometimes Word ‘may’ has a mandatory force if
directory force will defeat the object of the Act.
However, sometimes the words “may and shall” can be interpreted interchangeably
depending on the intention of the legislator.
Ayush and Vipul, two CA students, are confused with the language of the provisions of
section 3 of the Companies Act 2013 that whether the word “may” used in section should
be considered as mandatory or directory.
In the given case, it can be said that the word “may” should be taken as mandatory force,
because the law will never allow the formation of company with unlawful object.
Here the word used “may” shall be read as “shall”. Usage of word ‘may’ here makes it
mandatory for a company for the compliance of section 3 for its formation.
12. While the Preamble can be used to know the aims and objects of the legislation it cannot
be used to control or qualify the precise and unambiguous language of an enactment. The
preamble is the key to the mind of the maker of the law, but it cannot override in order to
enlarge or restrict the enacting provision of the Act. A provision contained in the Act cannot
be considered as invalid because they do not accord with the preamble, which is only a
brief summary of legislative objectives behind the Act, and if there is any conflict between
the preamble and any provision of an Act, the provision prevails.
The preamble merely affords help in the matter of construction if there is any ambiguity.
Where the language of the Act is clear, the court is bound to give it effect.
When will courts refer to the preamble as an aid to construction?
Situation 1: Where there is any ambiguity in the words of an enactment the assistance of
the preamble may be taken to resolve the conflict.
Situation 2: Where the words of an enactment appear to be too general in scope or
application then courts may resort to the preamble to determine the scope or limited
application for which the words are meant.

PART – I: ANNOUNCEMENTS STATING APPLICABILITY FOR NOVEMBER, 2021
EXAMINATIONS
The Study Material (October 2020 edition) is applicable for November, 2021 examinations. This
study material is updated for all amendments till 31st October, 2020.
Besides, refer booklet on MCQs and Case scenarios (December 2020 edition) containing
Independent MCQs and Case Scenarios on the topics covered under the study material for 30
marks segment of MCQs in the Examination.
Students should first read the study material and then go through the said booklet. It will help
them with better understanding and practising of the concepts.
Further, all relevant amendments/ circulars/ notifications etc. in the Company law part and the
Other Laws portion, for the period 1st November, 2020 to 30th April, 2021 are mentioned below:
I. Chapter 1: Preliminary
1. Amendments related to - Notification S.O. 325(E) dated 22 nd January, 2021
The Central Government has amended section 2(52) of the Companies Act, 2013, through the
Amendment:
In the Companies Act, 2013, in section 2, in clause (52), the following proviso shall be inserted,
namely:—
"Provided that such class of companies, which have listed or intend to list such class of
securities, as may be prescribed in consultation with the Securities and Exchange Board, shall
not be considered as listed companies.".
Old Law (Pg 1.13)
The amendment is newly inserted.
[Enforcement Date: 22 nd January, 2021]
2. Amendments related to – G.S.R. 92(E) dated 1 st February, 2021
The Central Government has amended the Companies (Specification of Definitions Details)
Rules, 2014, through the Companies (Specification of Definitions Details) Amendment Rules,
2021.
Amendment:
In the Companies (Specification of Definitions Details) Rules, 2014, in the rule 2, in sub-rule (1),
after clause (s), the following clause shall be inserted, namely:-
“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act,
paid up capital and turnover of the small company shall not exceed rupees two crores and
rupees twenty crores respectively.”.
Old Law (Pg 1.20)
[Enforcement Date: 1 st April, 2021]
3. Amendments related to – G.S.R. 123(E) dated 19th February, 2021
The Central Government has amended the Companies (Specification of definitions details)
Rules, 2014, through the Companies (Specification of definitions details) Second Amendment
Rules, 2021.
Amendment:
In the Companies (Specification of definitions details) Rules, 2014, after rule 2, the following
rule shall be inserted, namely:-
“2A. Companies not to be considered as listed companies.- For the purposes of the proviso
to clause (52) of section 2 of the Act, the following classes of companies shall not be cons idered
as listed companies, namely:-
(a) Public companies which have not listed their equity shares on a recognized stock exchange
but have listed their –
(i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue
and Listing of Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on private placement basis in terms
of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares)
Regulations, 2013; or
(iii) both categories of (i) and (ii) above.
(b) Private companies which have listed their non-convertible debt securities on private
placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt
Securities) Regulations, 2008;
(c) Public companies which have not listed their equity shares on a recognized stock exchange
but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub -
section (3) of section 23 of the Act.”.
Old Law (Pg 1.13)
II. Chapter 2: Incorporation of Company and Matters Incidental thereto
1. Amendments related to - S.O. 4646(E) dated 21 st December, 2020
The Central Government has amended Section 8 of the Companies Act, 2013, through the
Amendment:
In section 8 of the principal Act, in sub-section (11),—
(a) the words "with imprisonment for a term which may extend to three years or" shall be omitted;
(b) for the words "twenty-five lakh rupees, or with both", the words "twenty-five lakh rupees"
shall be substituted.
Old Law (Pg 2.14)
Penalty/ punishment in contravention: If a company makes any default in complying with any of
the requirements laid down in this section, ……. every officer of the company who is in default
shall be punishable with imprisonment for a term which may extend to three years or with
fine varying from twenty-five thousand rupees to twenty-five lakh rupees, or with both.
[Enforcement Date: 21 st December, 2020]
2. Amendments related to - Notification G.S.R. 91(E) dated 1 st February, 2021
The Central Government has amended the Companies (Incorporation) Rules, 2014, by the
Companies (Incorporation) Second Amendment Rules, 2021.
Amendment:
In rule 3,
(a) in sub-rule (1),-
(i) for the words, ―’and resident in India’ the words ―’whether resident in India or otherwise’
shall be substituted;
(ii) in Explanation I, for the words ―’one hundred and eighty two days’ the words ―’one
hundred and twenty days’ shall be substituted;
(b) sub-rule (7) shall be omitted.
Old Law (Pg 2.10) [for Rule 3(1)]
 Only a natural person who is an Indian citizen and resident in India-
(a) shall be eligible to incorporate One Person Company (OPC);
(b) shall be a nominee for the sole member of One Person Company (OPC).
Explanation I - For the purposes of this rule, the term "resident in India" means a person
who has stayed in India for a period of not less than 182 days during the immediately
Pg 2.11 [for Rule 3(7)]
 OPC can not convert voluntarily into any kind of company unless two years have
expired from the date of incorporation, except where the paid up share capital is
increased beyond fifty lakh rupees or its average annual turnover during the relevant
period exceeds two crore rupees.
III. Chapter 3: Prospectus and Allotment of Securities
Amendments related to - S.O. 4646(E) dated 21 st December, 2020
The Central Government has amended the following sections of the Companies Act, 20 13,
through the Companies (Amendment) Act, 2020, as follows:
Amendment:
(i) In section 26 of the Companies Act, 2013 in sub-section (9),—
(a) the words "with imprisonment for a term which may extend to three years or" shall be
omitted;
(b) for the words "three lakh rupees, or with both", the words "three lakh rupees'' shall be
substituted.
Old Law (Pg 3.9)
If a prospectus is issued in contravention of the provisions of section 26, the company ……..
prospectus shall be punishable with imprisonment for a term which may extend to three
years or with fine which shall not be less than fifty thousand rupees but which may extend to
three lakh rupees, or with both.
(ii) In section 40 of the Companies Act, 2013 in sub-section (5),—
(a) the words "with imprisonment for a term which may extend to one year or" shall be omitted;
(b) for the words "three lakh rupees, or with both", the words "three lakh rupees" shall be
substituted.
Old Law (Pg 3.23)
Company:
• with minimum fine of five lakh rupees and maximum of fifty lakh rupees
Defaulting officer:
• with imprisonment upto one year, or
• with minimum fine of fifty thousand rupees and maximum of three lakh rupees, or
• with both.

IV. Chapter 4: Share Capital and Debentures
The Central Government has amended the following sections of the Companies Act, 2013,
through the Companies (Amendment) Act, 2020.
Amendment:
(i) In section 48 of the Companies Act, 2013 sub-section (5) shall be omitted.
Old Law (Pg 4.14)
(6) Punishment for Default: According to Section 48 (5), where any default is made in
complying with the provisions of this section, the punishment shall be as under:
• company: It shall be punishable with fine which shall not be less than twenty -five
thousand rupees but which may extend to five lakh rupees;
• every officer of the company who is in default: He shall be punishable with
imprisonment for a term which may extend to six months or with fine which shall not
be less than twenty-five thousand rupees but which may extend to five lakh rupees,
or with both.
(ii) In section 56 of the Companies Act, 2013 for sub-section (6), the following sub-section
shall be substituted, namely:-
"(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the
company and every officer of the company who is in default shall be liable to a penalty of fifty
thousand rupees.".
Old Law (Pg 4.28)
Punishment for Default in compliance with the provisions: As per Section 56 (6), where any
default is made in complying with the provisions of sub-sections (1) to (5), the
punishment shall be as under:
• company: It shall be punishable with fine varying from 25,000 rupees to 5 lakh rupees
• every officer of the company who is in default: He shall be punishable with minimum
fine of 10,000 rupees and maximum of one lakh rupees.
(iii) In section 59 of the Companies Act, 2013 sub-section (5) shall be omitted.
Old Law (Pg 4.33)
(v) Default in complying with the Order of Tribunal: As per Section 59 (5), if any default
is made in complying with the order of the Tribunal under Section 59, the punishment
shall be as under:
• company: It shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees, and
• every officer of the company who is in default: He shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not
be less than one lakh rupees but which may extend to three lakh rupees, or with
both.
(iv) In section 64 of the Companies Act, 2013 in sub-section (2),—
(a) for the words "one thousand rupees", the words "five hundred rupees" shall be substituted;
(b) for the words "or five lakh rupees whichever is less", the words "subject to a maximum of
five lakh rupees in case of a company and one lakh rupees in case of an officer who is in default"
Old Law (Pg 4.43)
(2) Default in Filing of Notice: Section 64 (2) states that where any company fails to comply
with the provisions of sub-section (1), such company and every officer who is in default shall be
liable to a penalty of one thousand rupees for each day during which such default continues,
or five lakh rupees whichever is less.
(v) In section 66 of the Companies Act, 2013 sub-section (11) shall be omitted.
Old Law (Pg 4.47)
(11) Failure to Publish the Order of Confirmation of the Reduction of Share Capital:
Section 66 (11) states that if a company fails to comply with the provisions of sub-section
(4), it shall be punishable with fine which shall not be less than five lakh rupees but which
may extend to twenty-five lakh rupees.
(vi) In section 68 of the Companies Act, 2013 in sub-section (11),—

(a) the words "with imprisonment for a term which may extend to three years or" shall be
omitted;
(b) for the words "three lakh rupees, or with both", the words "three lakh rupees" shall be
substituted.
Old Law (Pg 4.52)
(11) Penalty for Default: Section 68 (11) states that if a company makes default in complying
with the provisions of this section ……………
• Every officer of the company who is in default: He shall be punishable with imprisonment
for a term which may extend to three years or with fine which shall not be less than one
lakh rupees but which may extend to three lakh rupees, or with both.
(vii) In section 71 of the Companies Act, 2013 sub-section (11) shall be omitted.
Old Law (Pg 4.63)
(11) Default in compliance with Order of the Tribunal: According to Section 71 (11), if any
default is made in complying with the order of the Tribunal under this section, every
officer of the company who is in default shall be punishable as under:
• with imprisonment for a term which may extend to three years or with fine which
shall not be less than two lakh rupees but which may extend to five lakh rupees, or
with both.
2. Amendments related to - S.O. 325(E) dated 22 nd January, 2021
Companies (Amendment) Act, 2020, as follows:
Amendment:
In section 62 of the Companies Act, 2013 in sub-section (1), in clause (a), in sub-clause (i),
after the words "less than fifteen days", the words "or such lesser number of days as may be
prescribed" shall be inserted.
Old Law (Pg 4.36)- [The words are newly inserted]
(i) the offer shall be made by notice specifying the number of shares offered and limiting a
time not being less than fifteen days and not exceeding thirty days from the date of the offer
within which the offer, if not accepted, shall be deemed to have been declined .
V. Chapter 6: Registration of Charges

Amendments related to - S.O. 4646(E) dated 21 st December, 2020
Amendment:
In section 86 of the Companies Act, 2013 for sub-section (1), the following sub-section shall be
substituted, namely:-
"(1) If any company is in default in complying with any of the provisions of this Chapter, the
company shall be liable to a penalty of five lakh rupees and every officer of the company who
is in default shall be liable to a penalty of fifty thousand rupees.".
Old Law (Pg 6.16)
if a company contravenes any of the provisions relating to the registration of charges or
modification or satisfaction of charges, the punishment shall be as under:
 the company shall be punishable with minimum fine of ` one lakh and maximum fine
of ` ten lakhs; and
 every defaulting officer of the company shall be punishable with imprisonment
maximum up to six months or with minimum fine of ` twenty-five thousand and
maximum of ` one lakh, or with both.
VI. Chapter 7: Management and Administration
Amendment:
(i) In section 88 of the Companies Act, 2013, for sub-section (5), the following sub-section
"(5) If a company does not maintain a register of members or debenture-holders or other security
holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-
section (2), the company shall be liable to a penalty of three lakh rupees and every officer of
the company who is in default shall be liable to a penalty of fifty thousand rupees.".
Old Law (Pg 7.7)

Section 88(5) of the Act provides that company and every officer of the company who is
in default shall be punishable with fine which shall not be less than ` 50,000 but which
may extend to ` 3,00,000 and where the failure is a continuing one, with a further fine
which may extend to ` 1,000 per day.
(ii) In section 89 of the Companies Act, 2013—
(a) for sub-section (5), the following sub-section shall be substituted, namely:—
"(5) If any person fails to make a declaration as required under sub-section (1) or sub-section
(2) or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of
continuing failure, with a further penalty of two hundred rupees for each day after the first during
which such failure continues, subject to a maximum of five lakh rupees.";
Old Law (Pg 7.10)
 Related to persons required to make a declaration [Section 89(5)]- If any person fails to
make a declaration as required under section 89, without any reasonable cause, he
shall be punishable with fine which may extend to fifty thousand rupees and where
the failure is a continuing one, with a further fine which may extend to one thousand
rupees for every day after the first during which the failure continues.
(b) for sub-section (7), the following sub-section shall be substituted, namely:—
"(7) If a company, required to file a return under sub-section (6), fails to do so before the expiry
of the time specified therein, the company and every officer of the company who is in default
shall be liable to a penalty of one thousand rupees for each day during which such failure
continues, subject to a maximum of five lakh rupees in the case of a company and two lakh
rupees in case of an officer who is in default.";
Old Law (Pg 7.10)
 Related to company [Section 89(7)]- If a company, required to file a return u/s 89(6),
fails to do so within 30 days of receipt of declaration by it, the company and every
officer of the company who is in default shall be punishable with fine which shall not
be less than five hundred rupees but which may extend to one thousand rupees and
where the failure is a continuing one, with a further fine which may extend to one
thousand rupees for every day after the first during which the failure continues.
(iii) In section 90 of the Companies Act, 2013—
(a) for sub-section (10), the following sub-section shall be substituted, namely:—
"(10) If any person fails to make a declaration as required under sub -section (1), he shall be
liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty
of one thousand rupees for each day after the first during which such failure continues, subject
to a maximum of two lakh rupees.";
Old Law (Pg 7.15)
Where any SBO fails to give required disclosure under the SBO Rules then such
individual(s) shall be liable for the following:
(i) Imprisonment for a term which may extend to one year or
(ii) With fine which shall not be less than one lakh rupees but which may extend to ten
lakh rupees or
(iii) With both
(iv) Where the failure is continuous, with a further fine which may extend to one
thousand rupees for every day after the first day during which the failure continues.
(b) for sub-section (11), the following sub-section shall be substituted, namely:—
"(11) If a company, required to maintain register under sub-section (2) and file the information
under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so
or denies inspection as provided therein, the company shall be liable to a penalty of one lakh
rupees and in case of continuing failure, with a further penalty of five hundred rupee s for each
day, after the first during which such failure continues, subject to a maximum of five lakh rupees
and every officer of the company who is in default shall be liable to a penalty of twenty -five
thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees
for each day, after the first during which such failure continues, subject to a maximum of one
lakh rupees.".
Old Law (Pg 7.15)
Where the Reporting Company fails to maintain register of SBO or file return of SBO with
ROC or denies inspection, then
(i) Company shall be liable for a fine which shall not be less than INR 10,00,000 but
which may extend to INR 50,00,000
(ii) Every officer in default shall be liable for a fine which shall not be less than
INR 10,00,000 but which may extend to INR 50,00,000
(iii) Where the failure is continuous, with a further fine which may extend to one
thousand rupees for every day after the first day during which the failure continues.
(iv) In section 92 of the Companies Act, 2013—
(a) in sub-section (5),—
(i) for the words "fifty thousand rupees", the words "ten thousand rupees" shall be substituted;
(ii) for the words "five lakh rupees", the words "two lakh rupees in case of a company and fifty
thousand rupees in case of an officer who is in default" shall be substituted;
Old Law (Pg 7.18)
Section 92(5) of the Act specifies that if any company fails to file its annual return under sub -
section (4), before the expiry of the period specified therein, such company and its every officer
who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing
failure, with further penalty of one hundred rupees for each day during which such failure
continues, subject to a maximum of five lakh rupees.
(b) in sub-section (6), for the words "punishable with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees", the words "liable to a penalty of two
lakh rupees" shall be substituted.
Old Law (Pg 7.19)
If a company secretary in practice, certifies the annual return otherwise than in acc ordance with
this section and the rules made thereunder, he shall be punishable with fine which shall not
be less than ` 50,000 but which may extend to ` 5,00,000
(v) In section 105 of the Companies Act, 2013 in sub-section (5),—
(a) for the words "who knowingly issues the invitations as aforesaid or wilfully authorises or
permits their issue shall be punishable with fine which may extend to one lakh rupees", the
words "who issues the invitation as aforesaid or authorises or permits their issue, shall be liable
to a penalty of fifty thousand rupees" shall be substituted;
(b) in the proviso, for the word "punishable", the word "liable" shall be substituted.
Old Law (Pg 7.32)
If for the purpose of any meeting of a company, invitations to appoint as proxy a person or one
of a number of persons specified in the invitations are issued at the company's expense to any
member entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every
officer of the company who knowingly issues the invitations as aforesaid or willfully
authorises or permits their issue shall be punishable with fine which may extend to one
lakh rupees.
Provided that an officer shall not be punishable under this sub-section by reason only of the
issue to a member at his request in writing of a form of appointment naming the proxy, or of a
list of persons willing to act as proxies, if the form or list is available on request in writing to
every member entitled to vote at the meeting by proxy.
(vi) In section 117 of the Companies Act, 2013—

for sub-section (2), the following sub-section shall be substituted, namely:-
"(2) If any company fails to file the resolution or the agreement under sub-section (1) before the
expiry of the period specified therein, such company shall be liable to a penalty of ten thousand
rupees and in case of continuing failure, with a further penalty of one hundred rupees for each
day after the first during which such failure continues, subject to a maximum of two lakh rupees
and every officer of the company who is in default including liquidator of the company, if any,
shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a furt her
penalty of one hundred rupees for each day after the first during which such failure continues,
subject to a maximum of fifty thousand rupees.";
Old Law (Pg 7.55)
If any company fails to file the resolution or the agreement under sub-section (1) before
the expiry of the period specified therein, such company shall be liable to a penalty of
one lakh rupees and in case of continuing failure, with further penalty of five hundred
rupees for each day after the first during which such failure continues, subje ct to a
maximum of twenty-five lakh rupees and every officer of the company who is in default
including liquidator of the company, if any, shall be liable to a penalty of fifty thousand
rupees and in case of continuing failure, with further penalty of five hundred rupees for
each day after the first during which such failure continues, subject to a maximum of five
lakh rupees.
2. Amendments related to - S.O. 325(E) dated 22 nd January, 2021
through the Companies (Amendment) Act, 2020, as follows:
Amendment:
(i) In section 89 of the Companies Act, 2013, after sub-section (10), the following sub-section
shall be inserted, namely:-
"(11) The Central Government may, by notification, exempt any class or classes of persons from
complying with any of the requirements of this section, except sub-section (10), if it is considered
necessary to grant such exemption in the public interest and any such exemption may be
granted either unconditionally or subject to such conditions as may be specified in the
notification.".
Old Law (Pg 7.10)

(ii) In section 117 of the Companies Act, 2013-
In sub-section (3), in clause (g), for the second proviso, the following proviso shall be
"Provided further that nothing contained in this clause shall apply in respect of a resolution
passed to grant loans, or give guarantee or provide security in respect of loans under clause (f)
of sub-section (3) of section 179 in the ordinary course of its business by,-
(a) a banking company;
(b) any class of non-banking financial company registered under Chapter IIIB of the Reserve
Bank of India Act, 1934, as may be prescribed in consultation with the Reserve Bank of India;
(c) any class of housing finance company registered under the National Housing Bank Act,
1987, as may be prescribed in consultation with the National Housing Bank; and".
Old Law (Pg 7.55)
Provided further that nothing contained in this clause shall apply to a banking company
in respect of a resolution passed to grant loans, or give guarantee or provide security in
respect of loans under clause (f) of sub-section (3) of section 179 in the ordinary course
of its business; and
3. Amendments related to - S.O. 1066(E) dated 5 th March, 2021
The Central Government has amended the section 92 of the Companies Act, 2013, through the
Amendment:
In section 92 of the Companies Act, 2013-
In sub-section (1),-
(a) clause (c) shall be omitted;
(b) in clause (j), the words "indicating their names, addresses, countries of incorporation,
registration and percentage of shareholding held by them" shall be omitted;
(c) after the proviso, the following proviso shall be inserted, namely:-
'Provided further that the Central Government may prescribe abridged form of annual return for
"One Person Company, small company and such other class or classes of companies as may
be prescribed".'.
Old Law for (a): Pg 7.17

3. its indebtedness [ in diagram]
Old Law for (b): Pg 7.17
10. Details in respect of shares held by or on behalf of the Foreign Institutional Investors
including their names, addresses, countries of incorporation, registration and percentage
of shareholding held by them. [in diagram]
Old Law for (c): The amendment is newly inserted.
[Enforcement Date: 5 th March, 2021]
4. Amendments related to – G.S.R. 159(E) dated 5 th March, 2021
The Central Government has amended the Companies (Management and Administration)
Rules, 2014 through the Companies (Management and Administration) Amendment Rules,
2021.
Amendment:
In the Companies (Management and Administration) Rules, 2014,
in rule 11, for sub-rule (1), the following sub-rule shall be substituted, namely:-
“(1) Every company shall file its annual return in Form No.MGT-7 except One Person Company
(OPC) and Small Company. One Person Company and Small Company shall file annual return
from the financial year 2020-2021 onwards in Form No.MGT-7A”;
Old Law (Pg 7.17)
Every company shall prepare an annual return in Form No. MGT 7 as prescribed in Rules.
VII. Chapter 8: Declaration and Payment of Dividend
Amendments related to - S.O. 1303(E) dated 24 th March, 2021
Amendment:
In section 124 of the Companies Act, 2013 for sub-section (7), the following sub-section shall
be substituted, namely:-
"(7) If a company fails to comply with any of the requirements of this section, such company
shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further
penalty of five hundred rupees for each day after the first during which such failure continues,
subject to a maximum of ten lakh rupees and every officer of the company who is in default shall
be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a
further penalty of one hundred rupees for each day after the first during which such failure
continues, subject to a maximum of two lakh rupees.".
Old Law (Pg 8.17)
(viii) Punishment for Contravention- If a company fails to comply with any of the
requirements relating to unpaid dividend account, it shall be punishable with minimum
fine of rupees five lakhs which may extend to rupees twenty-five lakhs.
Further, every officer of the company who is in default shall be punishable with minimum
fine of rupees one lakh which may extend to rupees five lakhs.
VIII. Chapter 9: Accounts of Companies
Amendment:
(i) In section 128 of the Companies Act, 2013, in sub-section (6),-
(a) the words "with imprisonment for a term which may extend to one year or" shall be omitted;
(b) the words "or with both" shall be omitted.
Old Law (Pg 9.7 and diagram on 9.3)
In case the aforementioned persons fail to take reasonable steps to secure compliance, they
shall in respect of each offence, be punishable with imprisonment for a term which may
extend to one year or with fine which shall not be less than fifty thousand rupees but which
may extend to five lakh rupees or both.
(ii) In section 134 of the principal Act, for sub-section (8), the following sub-section shall be
substituted, namely:—
"(8) If a company is in default in complying with the provisions of this section, the company shall
be liable to a penalty of three lakh rupees and every officer of the company who is in default
shall be liable to a penalty of fifty thousand rupees.".
Old Law (Pg 9.30)
Change the table
(iii) In section 137 of the principal Act, in sub-section (3),-

(a) for the words "one thousand rupees for every day during which the failure continues but
which shall not be more than ten lakh rupees", the words "ten thousand rupees and in case of
continuing failure, with a further penalty of one hundred rupees for each day during which such
failure continues, subject to a maximum of two lakh rupees," shall be substituted;
(b) for the words "one lakh rupees", the words "ten thousand rupees" shall be substituted;
(c) for the words "five lakh rupees", the words "fifty thousand rupees" shall be substituted.
Old Law (Pg 9.51)
(a) The company shall be liable to a penalty of ` 1,000 for every day during which the failure
continues but which shall not be more than ` 10 lacs; and
(1) liable to a penalty which shall not be less than ` 1 lac, and in case of continuing failure,
with further penalty of one hundred rupees for each day after the first during which such failure
continues, subject to a maximum of five lacs rupees.
And change the content in table also
The Central Government has amended section 135 of the Companies Act, 2013 through the
Companies (Amendment) Act, 2019, as follows:
Amendment:
In 1section 135 of the Companies Act, 2013-
(a) in sub-section (5), —
(i) after the words “three immediately preceding financial years,”, the words “or where the
company has not completed the period of three financial years since its incorporation, during
such immediately preceding financial years,” shall be inserted;
(ii) in the second proviso, after the words “reasons for not spending the amount” occurring at
the end, the words, brackets, figure and letters “and, unless the unspent amount relates to any
ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified
in Schedule VII, within a period of six months of the expiry of the financial year” shall be inserted;
1 For convenience of students, amended section 135 along with relevant Rules, is given as Annexure.
(b) after sub-section (5), the following sub-sections shall be inserted, namely:—
“(6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project,
fulfilling such conditions as may be prescribed, undertaken by a company in persuance of its
Corporate Social Responsibility Policy, shall be transferred by the company within a period of
thirty days from the end of the financial year to a special account to be opened by the company
in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate
Social Responsibility Account, and such amount shall be spent by the company in pursuance of
its obligation towards the Corporate Social Responsibility Policy within a period of three financial
years from the date of such transfer, failing which, the company shall transfer the same to a
Fund specified in Schedule VII, within a period of thirty days from the date o f completion of the
third financial year.
(7) If a company contravenes the provisions of sub-section (5) or sub-section (6), the company
shall be punishable with fine which shall not be less than fifty thousand rupees but which may
extend to twenty-five lakh rupees and every officer of such company who is in default shall be
punishable with imprisonment for a term which may extend to three years or with fine which
shall not be less than fifty thousand rupees but which may extend to five lakh r upees, or with
both.
(8) The Central Government may give such general or special directions to a company or class
of companies as it considers necessary to ensure compliance of provisions of this section and
such company or class of companies shall comply with such directions.”.
The Central Government has introduced section 129A and amended section 135 of the
Companies Act, 2013, through the Companies (Amendment) Act, 2020.
Amendment:
(i) After section 129 of the Companies Act, 2013 the following section shall be inserted,
namely:—
"129A. The Central Government may, require such class or classes of unlisted companies, as
may be prescribed,—
(a) to prepare the financial results of the company on such periodical basis and in such form
as may be prescribed;
(b) to obtain approval of the Board of Directors and complete audit or limited review of such
periodical financial results in such manner as may be prescribed; and
(c) file a copy with the Registrar within a period of thirty days of completion of the relevant
period with such fees as may be prescribed.".
Old Law- The section is newly introduced
(ii) In section 135 of the Companies Act, 2013-
(a) in sub-section (5), after the second proviso, the following proviso shall be inserted,
namely:—
"Provided also that if the company spends an amount in excess of the requirements provided
under this sub-section, such company may set off such excess amount against the requirement
to spend under this sub-section for such number of succeeding financial years and in such
manner, as may be prescribed.";
(b) for sub-section (7), the following sub-section shall be substituted, namely:-
"(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section
(6), the company shall be liable to a penalty of twice the amount required to be transferred by
the company to the Fund specified in Schedule VII or the Unspent Corporate Social
Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every
officer of the company who is in default shall be liable to a penalty of one -tenth of the amount
required to be transferred by the company to such Fund specified in Schedule VII, or the
Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees,
whichever is less.";
(c) after sub-section (8), the following sub-section shall be inserted, namely:—
"(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty
lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social
Responsibility Committee shall not be applicable and the functions of such Commi ttee provided
under this section shall, in such cases, be discharged by the Board of Directors of such
company.".
4. Amendments related to - General Circular No. 01/2021 dated 13th January, 2021
The Ministry of Corporate Affairs have made a clarification on spending of CSR funds for
Awareness and public outreach on COVID-19 Vaccination programme.
This Circular is in continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020
wherein it was clarified that spending of CSR funds for COVID19 is an eligible CSR activity , it
is further clarified that spending of CSR funds for carrying out awareness campaigns/
programmes or public outreach campaigns on COVID-19 Vaccination programme is an eligible
CSR activity under item no. (i),(ii) and (xii) of Schedule VII of the Companies Act, 2013 relating
to promotion of health care, including preventive health care and sanitization, promoting
education, and, disaster management respectively.
The companies may undertake the aforesaid activities subject to fulfillment of Companies (CSR
Policy) Rules, 2014 and the circulars related to CSR, issued by this ministry from time to time.
5. Amendments related to - Notification G.S.R. 40(E), dated 22nd January, 2021
The Ministry of Corporate Affairs Vide NOTIFICATION G.S.R. 40(E), dated 22nd January, 2021,
in exercise of the powers conferred by section 135 and sub-sections (1) and (2) of section 469
of the Companies Act, 2013, the Central Government hereby makes the follo wing rules further
to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014, namely: -
1. Short title and commencement. - (1) These rules may be called the Companies (Corporate
Social Responsibility Policy) Amendment Rules, 2021.
(2) They shall come into force on the date of their publication in the Official Gazette unless
explicitly provided elsewhere in this notification.
2. In the Companies (Corporate Social Responsibility Policy) Rules, 2014 (hereinafter
referred to as the said rules), for rule 2, the following rule shall be substituted, namely:-
“2. Definitions. - (1) In these rules, unless the context otherwise requires,-
(a) "Act" means the Companies Act, 2013 (18 of 2013);
(b) “Administrative overheads” means the expenses incurred by the company for ‘general
management and administration’ of Corporate Social Responsibility functions in the company
but shall not include the expenses directly incurred for the designing, implementation,
monitoring, and evaluation of a particular Corporate Social Responsibility project or programme;
(c) "Annexure" means the Annexure appended to these rules;
(d) “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in
pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the
provisions contained in these rules, but shall not include the following, namely: -
(i) activities undertaken in pursuance of normal course of business of the company:
Provided that any company engaged in research and development activity of new vaccine, drugs
and medical devices in their normal course of business may undertake research and
development activity of new vaccine, drugs and medical devices related to COVID -19 for
financial years 2020-21, 2021-22, 2022-23 subject to the conditions that
(a) such research and development activities shall be carried out in collaboration with any of
the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;
(b) details of such activity shall be disclosed separately in the Annual report on CSR included
in the Board’s Report;
(ii) any activity undertaken by the company outside India except for training of Indian sports
personnel representing any State or Union territory at national level or India at international
level;
(iii) contribution of any amount directly or indirectly to any political party under section 182 of
the Act;
(iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the
Code on Wages, 2019 (29 of 2019);
(v) activities supported by the companies on sponsorship basis for deriving marketing benefits
for its products or services;
(vi) activities carried out for fulfilment of any other statutory obligations under any law in force
in India;
(e) "CSR Committee" means the Corporate Social Responsibility Committee of the Board
referred to in section 135 of the Act;
(f) "CSR Policy" means a statement containing the approach and direction given by the board
of a company, taking into account the recommendations of its CSR Committee, and includes
guiding principles for selection, implementation and monitoring of activities as well as
formulation of the annual action plan;
(g) “International Organisation” means an organisation notified by the Central Government as
an international organisation under section 3 of the United Nations (Privileges and Immunities)
Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply;
(h) "Net profit" means the net profit of a company as per its financial statement prepared in
accordance with the applicable provisions of the Act, but shall not include the following, namely: -
(i) any profit arising from any overseas branch or branches of the company, whether operated
as a separate company or otherwise; and
(ii) any dividend received from other companies in India, which are covered under and
complying with the provisions of section 135 of the Act:
Provided that in case of a foreign company covered under these rules, net profit means t he net
profit of such company as per profit and loss account prepared in terms of clause (a) of sub -
section (1) of section 381, read with section 198 of the Act;
(i) “Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of its
CSR obligation having timelines not exceeding three years excluding the financial year in which
it was commenced, and shall include such project that was initially not approved as a multi -year
project but whose duration has been extended beyond one year by the board based on
reasonable justification;
(j) “Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the Right
to Information Act, 2005 (22 of 2005);
(k) “section” means a section of the Act.
(2) Words and expressions used and not defined in these rules but defined in the Act shall
have the same meanings respectively assigned to them in the Act. ”.
3. In the said rules, in rule 3, in sub-rule (2), in clause (b), for the words, brackets and figure
“sub-section (2) to (5)”, the words, brackets and figure “sub-section (2) to (6)” shall be
substituted.
4. In the said rules, for rule 4, the following rule shall be substituted, namely: -
“4. CSR Implementation. – (1) The Board shall ensure that the CSR activities are undertaken
by the company itself or through -
(a) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of
1961), established by the company, either singly or along with any other company, or
(b) a company established under section 8 of the Act or a registered trust or a registered
society, established by the Central Government or State Government; or
(c) any entity established under an Act of Parliament or a State legislature; or
(d) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and
having an established track record of at least three years in undertaking similar activities.
(2) (a) Every entity, covered under sub-rule (1), who intends to undertake any CSR activity, shall
register itself with the Central Government by filing the form CSR-1 electronically with the
Registrar, with effect from the 01 st day of April 2021:
Provided that the provisions of this sub-rule shall not affect the CSR projects or programmes
approved prior to the 01st day of April 2021.
(b) Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified
digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost
Accountant in practice.
(c) On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number
shall be generated by the system automatically.
(3) A company may engage international organisations for designing, monitoring and
evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity
building of their own personnel for CSR.
(4) A company may also collaborate with other companies for undertaking projects or
programmes or CSR activities in such a manner that the CSR committees of respective
companies are in a position to report separately on such projects or programmes in accordance
with these rules.
(5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised
for the purposes and in the manner as approved by it and the Chief Financial Officer or the
person responsible for financial management shall certify to the effect.
(6) In case of ongoing project, the Board of a Company shall monitor the implementation of
the project with reference to the approved timelines and year-wise allocation and shall be
competent to make modifications, if any, for smooth implementation of the project within the
overall permissible time period.”.
5. In the said rules, in rule 5, for sub-rule (2), the following sub-rule shall be substituted,
namely:-
“(2) The CSR Committee shall formulate and recommend to the Board, an annual action plan in
pursuance of its CSR policy, which shall include the following, namely:-
(a) the list of CSR projects or programmes that are approved to be undertaken in areas or
subjects specified in Schedule VII of the Act;
(b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule
4;
(c) the modalities of utilisation of funds and implementation schedules for the projects or
programmes;
(d) monitoring and reporting mechanism for the projects or programmes; and
(e) details of need and impact assessment, if any, for the projects undertaken by the company:
Provided that Board may alter such plan at any time during the financial year, as per the
recommendation of its CSR Committee, based on the reasonable justification to that effect. ”.
6. In the said rules, rule 6 shall be omitted.
“7.CSR Expenditure. - (1) The board shall ensure that the administrative overheads shall not
exceed five percent of total CSR expenditure of the company for the financial year.
(2) Any surplus arising out of the CSR activities shall not form part of the business profit of a
company and shall be ploughed back into the same project or shall be transferred to the Unspent
CSR Account and spent in pursuance of CSR policy and annual action plan of the company or
transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months
of the expiry of the financial year.
(3) Where a company spends an amount in excess of requirement provided under sub -section
(5) of section 135, such excess amount may be set off against the requirement to spend under
sub-section (5) of section 135 up to immediate succeeding three financial years subject to the
conditions that –
(i) the excess amount available for set off shall not include the surplus arising out of the CSR
activities, if any, in pursuance of sub-rule (2) of this rule.
(ii) the Board of the company shall pass a resolution to that effect.
(4) The CSR amount may be spent by a company for creation or acquisition of a capital asset,
which shall be held by -
(a) a company established under section 8 of the Act, or a Registered Public Trust or
Registered Society, having charitable objects and CSR Registration Number under sub-rule (2)
of rule 4; or
(b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities;
or
(c) a public authority:
Provided that any capital asset created by a company prior to the commencement of the
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, shall within a
period of one hundred and eighty days from such commencement comply with the requirement
of this rule, which may be extended by a further period of not more than ninety days with the
approval of the Board based on reasonable justification.”.
“8. CSR Reporting .- (1) The Board's Report of a company covered under these rules pertaining
to any financial year shall include an annual report on CSR containing particulars specified in
Annexure I or Annexure II, as applicable.
(2) In case of a foreign company, the balance sheet filed under clause (b) of sub-section (1)
of section 381 of the Act, shall contain an annual report on CSR containing particulars specified
in Annexure I or Annexure II, as applicable.
(3) (a) Every company having average CSR obligation of ten crore rupees or more in pu rsuance
of subsection (5) of section 135 of the Act, in the three immediately preceding financial years,
shall undertake impact assessment, through an independent agency, of their CSR projects
having outlays of one crore rupees or more, and which have been completed not less than one
year before undertaking the impact study.
(b) The impact assessment reports shall be placed before the Board and shall be annexed to
the annual report on CSR.
(c) A Company undertaking impact assessment may book the expenditure towards Corporate
Social Responsibility for that financial year, which shall not exceed five percent of the total CSR
expenditure for that financial year or fifty lakh rupees, whichever is less. ”.
9. In the said rules, for rule 9, the following rules shall be substituted, namely:-
“9. Display of CSR activities on its website. - The Board of Directors of the Company shall
mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects
approved by the Board on their website, if any, for public access.
10. Transfer of unspent CSR amount. - Until a fund is specified in Schedule VII for the purposes
of subsection (5) and (6) of section 135 of the Act, the unspent CSR amount, if any, shall be
transferred by the company to any fund included in schedule VII of the Act.”.
10. In the said rules,-
(i) The Annexure shall be numbered as “Annexure –I” and in the heading of Annexure I as so
numbered, after the words “BOARD’S REPORT”, the words and figures “FOR FINANCIAL YEAR
COMMENCED PRIOR TO 1ST DAY OF APRIL, 2020” shall be inserted;
6. Amendments related to: General Circular No. 05/2021, dated 22nd April, 2021
A clarification has been issued on spending of CSR funds for setting up makeshift hospitals and
temporary COVID Care facilities.
In continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020 wherein it was
clarified that spending of CSR funds for COVID-19 is an eligible CSR activity, it is further clarified
that spending of CSR funds for 'setting up makeshift hospitals and temporary COVID Care
facilities ' is an eligible CSR activity under item nos. (i) and (xii) of Schedule VII of the Companies
Act, 2013 relating to promotion of health care, including preventive health care, and, disaster
management respectively.
7. Amendments related to - Notification G.S.R 205 (E) dated 24 th March, 2021
The Central Government has amended Companies (Accounts) Rules, 2014 through the
Companies (Accounts) Amendment Rules, 2021.
Amendment:
In the Companies (Accounts) Rules, 2014,-
(1) in rule 3, in sub-rule (1), the following proviso shall be inserted, namely:-
“Provided that for the financial year commencing on or after the 1st day of April, 2021, every
company which uses accounting software for maintaining its books of account, shall use only
such accounting software which has a feature of recording audit trail of each and every
transaction, creating an edit log of each change made in books of account along with the date
when such changes were made and ensuring that the audit trail cannot be disabled.”
(2) in rule 8, in sub-rule (5), after clause (x), the following clauses shall be inserted namely: -
“(xi) the details of application made or any proceeding pending under the Insolvency and
Bankruptcy Code, 2016 (31 of 2016) during the year alongwith their status as at the end of the
financial year.
(xii) the details of difference between amount of the valuation done at the time of one time
settlement and the valuation done while taking loan from the Banks or Financial Institutions
along with the reasons thereof.”
Old Law for (1): Pg 9.5
Newly Inserted
Newly Inserted
8. Amendments related to – G.S.R. 247(E) dated 1st April, 2021
The Ministry of Corporate Affairs has further amended the Companies (Audit and Auditors)
Rules, 2014, through the enforcement of the Companies (Accounts) Second Amendment Rules,
2021
Amendment:
In the Companies (Accounts) Rules, 2014, in proviso to sub-rule (1) of rule 3, for the figures,
letters and words “1st day of April, 2021”, the figures, letters and words “1st day of April, 2022”
This amendment is in continuation with the above amendment
X. Chapter 10: Audit and Auditors
Amendment:
(i) In section 140 of the Companies Act, 2013, in sub-section (3), for the words "five lakh
rupees", the words "two lakh rupees" shall be substituted.
Old Law (Pg 10.19)
(d) Penalty for contravention: If the auditor does not comply with aforesaid provision, he or
it shall be liable to a penalty of `50,000 or an amount equal to the remuneration of the auditor,
whichever is less, and in case of continuing failure, with a further penalty of ` 500 for each day
after the first during which such failure continues, subject to a maximum of ` 5 lacs.
(ii) In section 143 of the Companies Act, 2013, for sub-section (15), the following sub-section
"(15) If any auditor, cost accountant, or company secretary in practice does not comply with the
provisions of sub-section (12), he shall-
(a) in case of a listed company, be liable to a penalty of five lakh rupees; and
(b) in case of any other company, be liable to a penalty of one lakh rupees.".
Old Law (Pg 10.37)
If any auditor, cost auditor or the Secretarial auditor, as mentioned above, do not comply
with the provisions of this section (i.e. section 143(12)), he shall be punishable with fine
which shall not be less than `1 lac but which may extend to `25 lacs.
(iii) In section 147 of the Companies Act, 2013—
(a) in sub-section (1),—
(i) the words "with imprisonment for a term which may extend to one year or" shall be omitted;
(ii) for the words "one lakh rupees, or with both", the words "one lakh rupees" shall be
substituted;
(b) in sub-section (2), the word and figures, "section 143" shall be omitted.
Old Law for (a): Pg 10.44
(ii) Penalty on officers [Section 147(1)]:
If any of the provisions of sections 139 to 146 (both inclusive) is contravened, every officer
of the company who is in default shall be punishable with
(1) imprisonment for a term which may extend to 1 year or
(2) with fine which shall not be less than `10,000 but which may extend to `1 lac; or
(3) both with imprisonment and fine.
Old Law for (b): Pg 10.44

If an auditor of a company contravenes any of the provisions of section 139, section 143,
section 144 or section 145, the auditor shall be punishable with fine which shall not be less than
` 25,000 but which may extend to ` 5 lacs or four times the remuneration of the auditor,
whichever is less.
2. Amendments related to - S.O. 206(E) dated 24 th March, 2021
The Ministry of Corporate Affairs has amended the Companies (Audit and Auditors) Rules, 2014,
through the Companies (Audit and Auditors) Amendment Rules, 2021.
Amendment:
In the Companies (Audit and Auditors) Rules, 2014, in rule 11,-
(1) clause (d) shall be omitted.
(2) after clause (d), the following clauses shall be inserted, namely:-
“(e) (i) Whether the management has represented that, to the best of it’s knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been advanced or loaned
or invested (either from borrowed funds or share premium or any other sources or kind of funds)
by the company to or in any other person(s) or entity(ies), including foreign entities
(“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the
Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities
identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”)
or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(ii) Whether the management has represented, that, to the best of it’s knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been received by the
company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with
the understanding, whether recorded in writing or otherwise, that the company shall, whether,
directly or indirectly, lend or invest in other persons or entities identified in any manner
whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any
guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(iii) Based on such audit procedures that the auditor has considered reasonable and
appropriate in the circumstances, nothing has come to their notice that has caused them to
believe that the representations under sub-clause (i) and (ii) contain any material mis-statement.
(f) Whether the dividend declared or paid during the year by the company is in compliance
with section 123 of the Companies Act, 2013.
(g) Whether the company has used such accounting software for maintaining its books of
account which has a feature of recording audit trail (edit log) facility and the same has been
operated throughout the year for all transactions recorded in the software and the audit trail
feature has not been tampered with and the audit trail has been preserved by the company as
per the statutory requirements for record retention.”.
Old Law for (1): (Pg 10.33)
(4) whether the company had provided requisite disclosures in its financial statements
as to holdings as well as dealings in Specified Bank Notes during the period from 8
November2016 to 30 December 2016 and if so, whether these are in accordance with the
books of accounts maintained by the company” (this provision is not relevant now,
however, till the time this requirement is not removed from the law, it will continue to be
reported as not applicable for any financial year post 31 March 2017).
Clauses (e), (f) and (g) are newly inserted.
3. Amendments related to – G.S.R. 248(E) dated 1st April, 2021
The Ministry of Corporate Affairs has further to amended the Companies (Audit and Auditors)
Rules, 2014, through the Companies (Audit and Auditors) Second Amendment Rules, 2021.
Amendment:
In the Companies (Audit and Auditors) Rules, 2014, in rule 11, in clause (g), for the words
“Whether the company”, the words, figures and letters “Whether the company, in respect of
financial years commencing on or after the 1st April, 2022,” shall be substituted.
[Enforcement Date: 1st April, 2021]
[This amendment is in continuation with the above amendment]
# Here, SM means Study Material (i.e. Page number of the Study material in reference to
relevant provisions)
QUESTIONS

1. Ramesh started a new venture of on-line business of supply of grocery items at the door-
step of consumers. Initially it was having the area of operations of Jaipur City only. He
employed some young boys having their own bikes and allocated the areas which they
were accustomed of it, for making delivery of the grocery items as per their orders. He also
got developed a website and Mobile App to receive the orders on-line. His friend
Sudhanshu who is a Chartered Accountant, suggested him to corporatize this business
form, from proprietorship business to a One Person Company (OPC). Ramesh agreed and
a OPC was incorporated in the name of “Ask Ramesh4Online Grocery (OPC) Pvt Ltd.” (for
short OPC-1). In this OPC Ramesh became the member and director and Sudha (the
mother of Ramesh) was made as nominee.
After a year Ramesh got married with Rachna. Since the business of on -line supply of
grocery was on rising trend, day by day, he thought to start a new business of supply of
Milk and Milk Products and another OPC in the name of “Rachna Milk Products (OPC) Pvt
Ltd” (for short OPC-2) was incorporated with the help of his professional friend Sudhanshu.
In this OPC-2, Rachna (his wife) became the member and director and Ramesh was named
as Nominee.
To summarise the position, the information is tabulated as under:
Name of OPC Ask Ramesh4Online Grocery Rachna Milk Products
(OPC) Pvt Ltd [OPC-1] (OPC) Pvt Ltd [OPC-2]
Member and Director Ramesh Rachna
Nominee Sudha (Mother of Ramesh) Ramesh (Husband of
Rachna)
After some time, Sudha (the mother of Ramesh) passed away. However, before the death,
Sudha had made a WILL, in which she mentioned that after her demise, her another son
Suresh be made nominee in the OPC-1. When Suresh came to know this fact, he argued
with Ramesh to fulfil the wish of Sudha as per her WILL (Mother of Ramesh and Suresh),
but Ramesh denied this and appointed Rachna (his wife) as nominee.
Aggrieved from the decision of Ramesh for not nominating him (Suresh), Suresh
threatened Ramesh to take appropriate legal action against him for not honouring the WILL
of mother Sudha and consulted his lawyer. Meanwhile due to continuous threatening and
hot talks between Suresh and Ramesh, Rachna became mentally upset and became
insane, as certified by the medical doctor, so lost her capacity to contract. In this situation,
Ramesh being the nominee in OPC-2 became member and director of this OPC-2.
One of the friends of Ramesh advised him to do some charitable work of providing free
education to the girl children of his native village near by Jaipur. Ra mesh thought about
this proposal and asked his professional friend Sudhanshu to convert this OPC -2 into
Section 8 company.
1.1 Since Rachna, being insane, lost the capacity to contract, Ramesh (who was
nominee) became the member of OPC-2. Now who will make nomination for this OPC:
(a) Ramesh in the capacity of husband of Rachna can nominate any person as
Nominee of OPC-2
(b) Ramesh (who was nominee) of OPC-2 has now become member of this OPC
and now as a member of this OPC he can nominate any person as per his choice
as Nominee for this OPC.
(c) When no person is nominated, the Central Govt. will make nomination of such
OPC-2.
(d) When no person is nominated the Registrar shall order the company to be wound
up.
1.2 Whether conversion of OPC-2 into a company governed by Section 8 is permissible?
(a) Yes, OPC can be converted into Section 8 company
(b) No, OPC cannot be converted into Section 8 company
(c) This OPC-2 can be converted into section 8 company, provided the Central Govt
give license
(d) Providing of free education to girl child do not come under the specified objects
mentioned for eligibility incorporation of section 8 company
1.3 Ramesh is a member in OPC-1 and became a member in another OPC-2 (on 2nd
April, 2020) by virtue of his being a nominee in that OPC-2. Ramesh shall, by what
date, meet the eligibility criteria that an individual can be a member in only one OPC:
(a) 17th May 2020
(b) 25th August 2020
(c) 26th August 2020
(d) 29th September 2020
1.4 After the demise of Sudha (the mother of Ramesh), Rachna was nominated by
Ramesh for OPC-1 as Nominee. But now Rachna has become insane, so what
recourse you will suggest to Ramesh:
(a) Ramesh is required to nominate another person as nominee
(b) Ramesh should wait till Rachna becomes good of her health and able to have
the capacity to contract
(c) Although Rachna has become insane, but if she is able to sign, her nomination
in OPC-1 may continue
(d) Sudhanshu (the Chartered Accountant) who helped in incorporation of OPC -1,
may act as legal consultant on behalf of Rachna
2. Ronak and Bhowmik are brothers and they are engaged in the business of dairy. Ronak
is having 10 cows. The monthly revenue and expenses of the cows is tabulated as under:
S. Particulars (`)
No.
1. Revenue: 3,00,000
(25 litres per cow per day) *(10 cows) * (Sale Price ` 40 per
litre) * (30 days in a month) = 3,00,000.
2. Expenses: (1,30,000)
i. For feeding: (300 per cow per day) *(10 cows) * (30 days
in a month) = 90,000
ii. Medical Expenses (Salary to a Veterinary Doctor per
month: 10,000
iii. Labour’s Salary: (2 person *10,000) = 20,000
iv. Petrol exp for milk delivery van: Lump sum = 10,000
Total Exp= 90,000+10,000+20,000+10,000 =1,30,000
3. Savings per month 1,70,000
4. Yearly savings = 1,70,000*12 months 20,40,000
5. Salary to Bhowmik for looking after Ronak’s Diary business: (1,20,000)
10,000*12 = 1,20,000
6. Less: Contingency Expenditure (20,000)
7. Net Revenue to be collected (after a year) 19,00,000
Ronak’s son Chirag is doing Engineering in Dairy Science from Denmark and is in Final
Year. He learnt a lot by his engineering education and want to invite his father to know the
technical aspects of dairy business. Chirag insisted his parents to come to Denmark and
stay for a year to learn the nitty gritty of the dairy business and also enjoy the life in
travelling nearby places.
Ronak, talked to his brother Bhowmik and explained his plan to visit to Denmark for a year
and requested to take care of his cows. The labourers are engaged for the maintenance
of cows and delivery of the milk, and Bhowmik is just to have a watch over it, collect the
revenues etc. and take care of the cows, till he returns back from Denmark. Rona k also
offered Bhowmik that for taking care of his dairy business, he will pay to him Rs 10000 per
month. Ronak also told Bhowmik that the cows are covered under the Insurance Policy,
for which he has already paid advance premium and also shared the Insurance Policy with
Bhowmik. However, Ronak did not disclosed that one cow is under sickness, it very often
falls sick and needs to be taken care. Bhowmik agreed and the cows were shifted to
Bhowmik’s Dairy Farm House.
Ronak and his wife went to Denmark to stay with their son and to understand the dairy
business there and to visit the near places.
Bhowmik was now looking after the dairy business of Ronak along with his dairy business.
During the year, 2 cows gave the birth to 2 calves. One cow, which often use d to fall ill,
had also influenced the other cows, as a result, one cow of Bhowmik, and one cow of
Ronak which remained in close contact with this sick cow, also fell sick. All the three cows
(2 of Ronak and 1 of Bhowmik) died.
When the insurance claim was lodged, the insurance company refused to pass on the
claim on the following reasons:
• One cow of Ronak which was running sick was not insured.
• Post mortem Report of another two cows (one of Ronak and another of Bhowmik)
revealed that these two cows were in close touch of the sick cow and due to infections,
these two cows also died.
When Ronak returned back to India, he demanded his cows back. Bhowmik returned 8
cows (10-2) but did not returned calves. Bhowmik informed Ronak that due to one sick cow
(of Ronak) his cow also became sick and died and no insurance claim was admitted.
2.1 What was the fault on the part of Ronak (bailor) in this case?
(a) Ronak has not taken the Insurance Policy of the sick cow.
(b) Ronak have not informed the continuous sickness of his cow, to Bhowmik
(c) Ronak has left the cows to his brothers and went to Denmark to enjoy the
travelling and tourism.
(d) Ronak, before going to Denmark, should have sold this sick cow.
2.2 Can Bhowmik claim damages for loss of his cow, which died, since this cow, remained
in the close contact of the sick cow of Ronak:
(a) Ronak is not liable for such loss.
(b) Bhowmik should himself take care of his cow.
(c) Ronak is liable to pay the price of the deceased cow of Bhowmik, since this cow
died on account close contact of sick cow of Ronak.
(d) Bhowmik should be vigilant in taking care of the cows.
2.3 Whether Bhowmik is responsible to give delivery of two calves which took birth during
the year, when Ronak was on his tour to Denmark:
(a) Bhowmik is not bound to give delivery of two calves, since he has already lost
his own cow due to mistake of not disclosing the sickness of Ronak’s cow by
him (Ronak).
(b) Bhowmik is duty bound to hand over the delivery of two calves.
(c) Ronak should not insist for delivery of the calves.
(d) Bhowmik can keep the calves with him as the calves were born when the cows
were in Bhowmik’s custody.
2.4 Bhowmik returns only 8 cows, since 2 cows of Ronak died. Whether Ronak is entitled
to claim damages for 2 cows:
(a) Ronak is not entitled to claim damages.
(b) Ronak is entitled to claim damages only, if he can prove that Bhowmik has not
taken care of the cows as a prudent person, not taken the medical help of the
doctor etc.
(c) Bhowmik should morally paid the loss of cows to his brother Ronak
(d) Bhowmik should not claim his salary, since Ronak has already suffered the loss
of two cows.
3. A Limited made a public issue of Debentures. The articles of the company auth orises the
payment of underwriting commission at 2 per cent of the issue price. The company has
negotiated with the proposed underwriters, Gama Brokers and has finalised the rate at
2.25 per cent. The amount that the company is eligible to pay as underwriting commission
is:
(a) 5%
(b) 2%
(c) 2.5%
(d) 2.25%
4. Krishna Religious Publishers Limited has received application money of ` 20,00,000
(2,00,000 equity shares of ` 10 each) on 10 th October, 2019 from the applicants who
applied for allotment of shares in response to a private placement offer of securities made
by the company to them. Select the latest date by which the company must allot the shares
against the application money so received.
(a) 9th November, 2019
(b) 24h November, 2019
(c) 9th December, 2019
(d) 8th January, 2020

5. Such shares which are issued by a company to its directors or employees at a discount or
for a consideration other than cash for working extraordinary hard and achieving desired
output is honoured with:
(a) Equity Shares
(b) Preference Shares
(c) Sweat Equity Shares
(d) Redeemable preference shares
PART I: COMPANY LAW
1. The Board of Directors of GEN X Fashions Limited at its meeting recommended a dividend
on its paid-up equity share capital which was later on approved by the shareholders at the
Annual General Meeting. Thereafter, the directors at another meeting of the Board passed
a board resolution for diverting the total dividend to be paid to the shareholders for
purchase of certain short-term investments in the name of the company. As a result,
dividend was paid to shareholders after 45 days.
Examining the provisions of the Companies Act, 2013, state whether the act of directors is
in violation of the provisions of the Act and if so, state the consequences that shall follow
for the above violative act.
2. The Board of Directors of Moon Light Limited, a listed company appointed Mr. Teja,
Chartered Accountant as its first auditor within 30 days of the date of registration of the
Company to hold office from the date of incorporation to conclusion of the first Annual
General Meeting (AGM). At the first AGM, Mr. Teja was re-appointed to hold office from
the conclusion of its first AGM till the conclusion of 6th AGM. In the light of the provisions
of the Companies Act, 2013, examine the validity of appointment/ reappointment in the
following cases:
(i) Appointment of Mr. Teja by the Board of Directors.
(ii) Re-appointment of Mr. Teja at the first AGM in the above situation.
3. Kim Private Limited was incorporated on 30th September 2016. It has a paid up share
capital of ` 45 crore. The company had a turnover of 250 crore for the financial year
2019-20. The accounts manager of the company has intimated to the company that they
are not required to appoint internal auditor for the financial year 2020-21. The management
of the company have approached you to advise them about the appointment of internal
auditor.
Advise them as per the provisions of the Companies Act, 2013.
4. Define the term “charge” and also explain what is the punishment for default with respect
to registration of charge as per the provisions of the Companies Act, 2013 .
5. Yellow Pvt Ltd. is an unlisted company incorporated in the year 2012. The company have
share capital of rupees fifty crores. The company has decided to issue sweat equity share s
to its directors and employees. The company decided to issue 10% sweat equity shares
(which in total will add up to 30% of its paid up equity shares), with a locking period of five
years, as it is a start-up company. How would you justify these facts in relation to the
provision for issue of sweat equity shares by a start-up company, with reference to the
provision of the Company Act, 2013. Explain?
6. AB Limited issued equity shares of ` 1,00,000 (10000 shares of ` 10 each) on 01.04.2020
which have been fully subscribed whereby XY Limited holds 4000 shares and PQ Limited
holds 2000 shares in AB Limited. AB Limited is also holding 20% equity shares of RS
Limited before the date of issue of equity shares stated above. RS Limited controls the
composition of Board of Directors of XY Limited and PQ Limited from 01.08.2020. Examine
with relevant provisions of the Companies Act, 2013:
(i) Whether AB Limited is a subsidiary of RS Limited?
(ii) Whether AB Limited can hold shares of RS Limited?
(iii) Whether AB Limited can vote at Annual General Meeting of RS Limited held on
30.09.2020?
7. Nutty Buddy Limited is manufacturing premium quality milk based ice cream in two flavors-
first chocolate and second butter scotch. The company called its Annual General Meeting
(AGM) in order to lay down the financial statements for Shareholders’ approval. However,
due to want of quorum, the meeting was cancelled. Also, the Directors of the company did
not file the Annual Return 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?
8. 500 equity shares of ABC Limited were acquired by Mr. Amit, but the signature of Mr.
Manoj, the transferor, on the transfer deed was forged. Mr. Amit, after getting the shares
registered by the company in his name, sold 250 equity shares to Mr. Abhi on the strength
of the share certificate issued by ABC Limited. Mr. Amit and Mr. Abhi were not aware of
the forgery. What are the liabilities/rights of Mr. Manoj, Amit and Abhi against the company
with reference to the aforesaid shares?
PART II: OTHER LAWS
9. Mr. Yadav, a cargo owner, chartered a vessel to carry a cargo of wheat from a foreign port
to Chennai. The vessel got stranded on a reef in the sea 300 miles from the destination.
The ship’s managing agents signed a salvage agreement for Mr. Yadav. The goods (wheat)
being perishable, the salvors stored it at their own expense. Salvors intimated the whole
incident to the cargo owner. Mr. Yadav refuse to reimburse the Salvor, as it is the Ship-
owner, being the bailee of the cargo, who was liable to reimburse the salvor until the
contract remained unterminated. Referring to the provision of The Indian Contract Act
1872, do you acknowledge or decline the act of Salvor, as an agent of necessity, for Mr.
Yadav. Explain?
10. Rahul is the owner of electronics shop. Priyanka reached the shop to purchase an air
conditioner whose compressor should be of copper. As Priyanka wanted to purchase the
air conditioner on credit, Rahul demand a guarantor for such transaction. Mr. Arvind (a
friend of Priyanka) came forward and gave the guarantee for payment of air conditioner.
Rahul sold the air conditioner of a particular brand, misrepresenting that it is made of
copper while it is made of aluminium. Neither Priyanka nor Mr. Arvind had the knowledge
of fact that it is made of aluminium. On being aware of the facts, Priyanka denied for
payment of price. Rahul filed the suit against Mr. Arvind. Explain with reference to the
Indian Contract Act 1872, whether Mr. Arvind is liable to pay the price of air conditioner ?
11. ‘Akhil’ made a promissory note for `4,500 payable to ‘Bhuvan’, and delivered the same to
‘Bhuvan’ on the condition that he (‘Bhuvan’) will demand payment only on the death of
‘Chaman’. Before the death of ‘Chaman’, ‘Bhuvan’ indorsed and delivered the promissory
note to ‘Deepak’, who receive the promissory note in good faith. On the date of maturity,
‘Deepak’ presented the promissory note for payment but ‘Akhil’ denied for payment by
stating that he issued this promissory note on the condition that it can be paid only on the
death of ‘Chaman’. Can ‘Deepak’ recover the amount due on the promissory note from
‘Akhil’ under the provisions of the Negotiable Instrument Act 1881?
12. Mr. Sohan has issued a promissory note of `1000 to Mr. Mohan on 17 th May 2021 payable
3 months after date. After that, a sudden holiday was declared on 20 th August 2021 due to
Moharram. As per the provisions of the General Clauses Act 1897, what should be the
date of presentment of promissory note for payment? Whether it should be 19 th August
2021 or 21st August 2021?
13. At the time of interpreting a statutes what will be the effect of 'Usage' or 'customs and
Practices'?
SUGGESTED ANSWERS

1.1 (b)
1.2 (b)
1.3 (d)
1.4 (a)
2.1 (b)
2.2 (c)
2.3 (b)
2.4 (b)
3. (b)
4. (c)
5. (c)
1. According to section 124 of the Companies Act, 2013, where a dividend has been declared
by a company but has not been paid or claimed within 30 days from the date of the
declaration, the company shall, within 7 days from the date of expiry of the said period of
30 days, transfer the total amount of dividend which remains unpaid or unclaimed to a
special account to be opened by the company in any scheduled bank to be called the
Unpaid Dividend Account.
Further, according to section 127 of the Companies Act, 2013, where a dividend has been
declared by a company but has not been paid or the warrant in respect thereof has not
been posted within 30 days from the date of declaration to any entitled shareholder, every
director of the company shall, if he is knowingly a party to the default, be liable for
punishment.
In the present case, the Board of Directors of GEN X Fashions Limited at its meeting
recommended a dividend on its paid-up equity share capital which was later on approved
by the shareholders at the Annual General Meeting. Thereafter, the directors at another
meeting of the Board decided by passing a board resolution for diverting the total dividend
to be paid to the shareholders for purchase of certain short-term investments in the name
of the company. As a result, dividend was paid to shareholders after 45 days.
(i) Since, declared dividend has not been paid within 30 days from the date of the
declaration to any shareholder entitled to the payment of dividend, the company shall,
within 7 days from the date of expiry of the said period of 30 days, transfer the total
amount of dividend which remains unpaid or unclaimed to a special account to be

opened by the company in any scheduled bank to be called the Unpaid Dividend
Account.
(ii) The Board of Directors of GEN X Fashions Limited has violated section 127 of the
Companies Act, 2013 as it failed to pay dividend to shareholders within 30 days due
to its decision to divert the total dividend to be paid to shareholders for purchase of
certain short-term investments in the name of the company.
Consequences: The following are the consequences for violation of the above
provisions:
(a) Every director of the company shall, if he is knowingly a party to the default, be
punishable with maximum imprisonment of two years and shall also be liable for
a minimum fine rupees one thousand for every day during which such default
continues.
(b) The company shall also be liable to pay simple interest at the rate of 18% p.a.
during the period for which such default continues.
2. As per section 139(6) of the Companies Act, 2013, the first auditor of a company, other
than a Government company, shall be appointed by the Board of Directors within thirty
days from the date of registration of the company and such auditor shall hold office till the
conclusion of the first annual general meeting.
Whereas Section 139(1) of the Companies Act, 2013 states that every company shall, at
the first annual general meeting (AGM), appoint an individual or a firm as an auditor of the
company who shall hold office from the conclusion of 1 st AGM till the conclusion of its
6th AGM and thereafter till the conclusion of every sixth AGM.
As per section 139(2), no listed company or a company belonging to such class or classes
of companies as may be prescribed, shall appoint or re-appoint an individual as auditor for
more than one term of five consecutive years.
(i) Appointment of Mr. Teja by the Board of Directors is valid as per the provisions of
section 139(6).
(ii) Appointment of Mr. Teja at the first Annual General Meeting is valid due to the fact
that the appointment of the first auditor made by the Board of Directors is a separate
appointment and the period of such appointment is not to be considered, while Mr.
Teja is appointed in the first Annual General Meeting, which is for the period from the
conclusion of the first Annual General Meeting to the conclusion of the sixth Annual
General Meeting.
3. According to section 138 read along with Rules of the Companies Act, 2013, every private
company having—
(A) turnover of 200 crore rupees or more during the preceding financial year; or
(B) outstanding loans or borrowings from banks or public financial institutions exceeding
100 crore rupees or more at any point of time during the preceding financial year.
shall be required to appoint an internal auditor which may be either an individual or a
partnership firm or a body corporate.
In the given question, the company has a paid up capital of ` 45 crore and turnover of
` 250 crore for the financial year 2019-20.
Since, the company is fulfilling the criteria of turnover (i.e. more than ` 200 crore), hence,
it is required to appoint an internal auditor for the financial year 2020 -21.
4. The term charge has been defined in section 2 (16) of the Companies Act, 2013 as ‘a n
interest or lien created on the property or assets of a company or any of its undertakings
or both as security and includes a mortgage’.
Punishment for contravention – According to section 86 of the Companies Act, 2013, if
any company is in default in complying with any of the provisions of this Chapter, the
company shall be liable to a penalty of five lakh rupees and every officer of the company
who is in default shall be liable to a penalty of fifty thousand rupees.
Further, if any person willfully furnishes any false or incorrect information or knowingly
suppresses any material information which is required to be registered under section 77,
he shall be liable for action under section 447 (punishment for fraud).
5. Sweat Equity Shares is governed by Section 54 of the Companies Act, 2013 and Rule 8
of Companies (Share capital and debentures) Rules, 2014. According to Section 54 the
company can issue sweat equity shares to its director and permanent employees of the
company.
According to rule 8 (4) proviso, states that a start up company, is defined in a notification
number Ministry of Commerce and industry Government of India, may issue sweat equity
share not exceeding 50% of its paid up share capital up to 10 years from the date of its in
incorporation or registration.
According to Rule 8(5), the sweat equity shares issued to directors or employees shall be
locked in/ non transferable for a period of three years from the date of allotment and the
fact that the share certificates are under lock-in too.
Hence, in the above case the company can issue sweat equity shares by passing special
resolution at its general meeting. The company as a startup company is ri ght in issue of
10% sweat equity share as it is overall within the limit of 50% of its paid up share capital.
But the lock in period of the shares is limited to maximum three years period from the date
of allotment.
6. This given problem is based on sub-clause (87) of Clause 2 read with section 19 of the
As per sub-clause (87) of Clause 2 of the Companies Act, 2013 "subsidiary company" or
"subsidiary", in relation to any other company (i.e., the holding company), means a
company in which the holding company—
together with one or more of its subsidiary companies.
For the purposes of this clause, Explanation is given providing that a company shall be
deemed to be a subsidiary company of the holding company even if the control referred to
in point (i) or point (ii) above, is of another subsidiary company of the holding company.
Whereas Section 19 provides that, no company shall, hold any shares in its holding
company and no holding company shall allot or transfer its shares to any of its subsidiary
companies and any such allotment or transfer of shares of a company to its subsidiary
company shall be void.
Provided that nothing in this sub-section shall apply to a case where the subsidiary
company is a shareholder even before it became a subsidiary company of the holding
company.
Here in the instant case, AB Ltd. issued 10,000 equity shares on 1.4.2020 whereby XY
Ltd. & PQ Ltd. holds 4000 & 2000 shares respectively in AB Ltd., Considering 1 share = 1
vote, XY Ltd. and PQ Ltd. together holds more than one-half (50%) of the total voting
power. Therefore, AB Ltd. will be subsidiary to XY Ltd. & PQ Ltd. from 1.4.2020.
Whereas AB Ltd. is already holding 20% equity shares of RS Ltd. before the date of issue
of equity shares i.e. 1.4.2020.
Further, RS Ltd. controls the composition of Board of Directors of XY Ltd. and PQ Ltd. from
01.08.2020. In the light of sub-clause (87) of Clause 2, RS Ltd. is a holding company of
XY Ltd. and PQ Ltd. (Subsidiary companies).
Following are the answers to the questions:
(i) Yes. In this case AB Ltd. shall be deemed to be a subsidiary company of the holding
company (RS Ltd.) as RS Ltd. controls the composition of subsidiary companies XY
Ltd. & PQ Ltd. as per explanation to sub-clause (87) of Clause 2.
(ii) Yes. In this case AB Limited is a subsidiary of RS Limited as AB Ltd. was holding
20% of equity shares of RS Ltd. even before it became a subsidiary company of the
RS Ltd. (i.e. on 01.08.2020), according to the exception to section 19.
(iii) No. The subsidiary company shall have a right to vote at a meeting of the holding
company only in respect of the shares held by it as a legal representative or as a
trustee but not where the subsidiary company is a shareholder even before it became
a subsidiary company of the holding company. Therefore, AB Ltd. cannot vote at AGM
of RS Ltd. held on 30.9.2020.
7. According to section 92(4) of the Companies Act, 2013, every company shall file with the
Registrar a copy of the annual return, within sixty days from the date on which the annual
general meeting is held or where no annual general meeting is held in any year
within sixty days from the date on which the annual general meeting should have been
held together with the statement specifying the reasons for not holding the annual general
meeting.
Sub-section (5) of Section 92 also states that if any company fails to file its annual return
under sub-section (4), before the expiry of the period specified therein, such company and
its every officer who is in default shall be liable to a penalty of ten thousand rupees and in
case of continuing failure, with further penalty of one hundred rupees for each day during
which such failure continues, subject to a maximum of two lakh rupees in case of a
company and fifty thousand rupees in case of an officer who is in default.
In the instant case, the idea of the directors that since the AGM was cancelled, the
provisions requiring the company to file annual returns within 60 days from the date of
AGM would not apply, is incorrect.
In the above case, the annual general meeting of Nutty Buddy Limited should have been
held within a period of six months, from the date of closing of the financial year but it did
not take place. Thus, the company has contravened the provisions of section 92 of the
Companies Act, 2013 for not filing the annual return and shall attract the penal provisions
along with every officer of the company who is in default as specified in Section 92(5) of
the Act.
8. According to Section 46(1) of the Companies Act, 2013, a share certificate once issued
under the common seal, if any, of the company or signed by two directors or by a director
and the Company Secretary, wherever the company has appointed a Company Secretary,
specifying the shares held by any person, shall be prima facie evidence of the title of the
person to such shares. Therefore, in the normal course the person named in the share
certificate is for all practical purposes the legal owner of the shares therein and the
company cannot deny his title to the shares.
However, a forged transfer is a nullity. It does not give the transferee (Mr. Amit) any title
to the shares. Similarly, any transfer made by Mr. Amit (to Mr. Abhi) will also not give a
good title to the shares as the title of the buyer is only as good as that of the seller.
Therefore, if the company acts on a forged transfer and removes the name of the re al
owner (Mr. Manoj) from the Register of Members, then the company is bound to restore
the name of Mr. Manoj as the holder of the shares and to pay him any dividends which he
ought to have received.
In the above case, therefore, Mr. Manoj has the right against the company to get the shares
recorded in his name. However, neither Mr. Amit nor Mr. Abhi have any rights against the
company even if they are bona fide purchasers. But as Mr. Abhi acted on the faith of share
certificate issued by company, he can demand compensation from Mr. Amit.
9. Section 189 of Indian Contract Act 1872 defines agent's authority in an emergency . An
agent has authority, in an emergency, to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary prudence, in his own case,
under similar circumstances.
In certain circumstances, a person who has been entrusted with another’s property may
have to incur unauthorized expenses to protect or preserve it. This is called an agency of
necessity. Hence, in the above case the Salvor had implied authority from the cargo owner
to take care of the cargo. They acted as agents of necessity on behalf of the cargo owner.
Cargo owner were duty-bound towards salvor. Salvor is entitled to recover the agreed sum
from Mr. Yadav and not from the ship owner, as a lien on the goods.
10. As per the provisions of section 142 of the Indian Contract Act 1872, where the guarantee
has been obtained by means of misrepresentation made by the creditor concerning a
material part of the transaction, the surety will be discharged. Further according to
provisions of section 134, the surety is discharged by any contract between the creditor
and the principal debtor, by which the principal debtor is released, or by any act or omission
of the creditor, the legal consequence of which is the discharge of the principal debtor.
In the given question, Priyanka wants to purchase air conditioner whose compressor
should be of copper, on credit from Rahul. Mr. Arvind has given the guarantee for payment
of price. Rahul sold the air conditioner of a particular brand on misrepresenting that it is
made of copper while it is made of aluminium of which both Priyanka & Mr. Arvind were
unaware. After being aware of the facts, Priyanka denied for payment of price. Rahul filed
the suit against Mr. Arvind for payment of price.
On the basis of above provisions and facts of the case, as guarantee was obtained by
Rahul by misrepresentation of the facts, Mr. Arvind will not be liable. He will be discharged
from liability.
11. By virtue of provisions of section 9 of the Negotiable Instrument Act 1881, any person who
for consideration became the possessor of a negotiable instrument in good faith and
without having sufficient cause to believe that any defect existed in the title of the person
from whom he derived his title. While Sec.47 provides if a negotiable instrument is
delivered to a person, upon condition, i.e. it will be effective on the happening of a certain
event, such negotiable instrument cannot be further negotiated unless such event
happens. However, if it is transferred to a holder in due course, his rights will not be
affected by such condition.
‘Akhil’ issued a promissory note to ‘Bhuvan’ on the condition that he (‘Bhuvan’) will demand
payment only on the death of ‘Chaman’. Before the death of ‘Chaman’, ‘Bhuvan’ indorsed
and delivered the promissory note to ‘Deepak’, who receive the promissory note in good
faith. On due date, ‘Deepak’ presented the promissory note for payment but ‘Akhil’ denied
for payment.
From the above provisions and facts of the case, it can be said that ‘Deepak’ has received
the promissory note in good faith, he is a holder in due course and his rights will not be
affected by any condition attached to the instrument by any prior party. Therefore, ‘Deepak’
can recover the amount due on the promissory note from ‘Akhil’.
12. Section10 of the General Clauses Act 1897 provides where by any legislation or regulation,
any act or proceeding is directed or allowed to be done or taken in any court or office on a
certain day or within a prescribed period then, if the Court or office is closed on that day or
last day of the prescribed period, the act or proceeding shall be considered as done or
taken in due time if it is done or taken on the next day afterwards on which the Court or
office is open.
A promissory note of `1000 was issued by Mr. Sohan to Mr. Mohan on 17 th May 2021
which was payable 3 months after date. After that, a sudden holiday was declared on 20 th
August 2021 due to Moharram.
In the given case, the period of 3 months ends on 17 th August 2021. Three days of grace
are to be added. It falls due on 20 th August 2021 which declared to be a public holiday after
the issue of Promissory Note. In the light of provisions of Sec. 10 of the General Clauses
Act 1897, the due date will be on next day when office is open i.e. 21 st August 2021.
13. Effect of usage: Usage or practice developed under the statute is indicative of the
important factors to show that the practice so followed was based on correct understanding
of the law. When the usage or practice receives judicial or legislative approval it gains
additional weight.
law); and
(ii) 'Contemporanea exposito est optima et fortissinia in lege' (the best way to interpret a
document is to read it as it would have been read when made).
enacted/written.
statutory instruments made under it have been used as contemporanea expositio to
ANNEXURE
Section 135 read along with Companies (Social Responsibility Policy) Rules, 2014
The Companies Act, 2013 lays down the provisions requiring corporates to mandatorily spend
a prescribed percentage of their profits on certain specified areas of social upliftment in
discharge of their social responsibilities. Broadly, Corporate Social Responsibility (CSR) implies
a concept, whereby companies decide to contribute to a better society and a cleaner
environment – a concept, whereby the companies integrate social and other useful concerns in
their business operations for the betterment of its stakeholders and society in general.
The provisions related with Corporate Social Responsibility has been enshrined under section
135 and Companies (Social Responsibility Policy) Rules, 2014 1.
DEFINITIONS
1. “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company
in pursuance of its statutory obligation laid down in section 135 of the Act in accordance
with the provisions contained in these rules, but shall not include the following, namely:-
(i) activities undertaken in pursuance of normal course of business of the company:
Provided that any company engaged in research and development activity of new
vaccine, drugs and medical devices in their normal course of business may undertake
research and development activity of new vaccine, drugs and medical devices related
to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions
that
(a) such research and development activities shall be carried out in collaboration
with any of the institutes or organisations mentioned in item (ix) of Schedule VII
to the Act;
(b) details of such activity shall be disclosed separately in the Annual report on CSR
included in the Board’s Report;
(ii) any activity undertaken by the company outside India except for training of Indian
sports personnel representing any State or Union territory at national level or India at
international level;
(iii) contribution of any amount directly or indirectly to any political party under section
182 of the Act;
(iv) activities benefitting employees of the company as defined in clause (k) of section 2
of the Code on Wages, 2019;
1These rules have been recently amended by the Companies (CSR Policy) Amendment Rules, 2021 dated
22nd January, 2021.
(v) activities supported by the companies on sponsorship basis for deriving marketing
benefits for its products or services;
(vi) activities carried out for fulfilment of any other statutory obligations under any law in
force in India; [Rule 2(d)]
2. "CSR Committee" means the Corporate Social Responsibility Committee of the Board
referred to in section 135 of the Act; [Rule 2(e)]
3. "CSR Policy" means a statement containing the approach and direction given by the board
of a company, taking into account the recommendations of its CSR Committee, and
includes guiding principles for selection, implementation and monitoring of activities as well
as formulation of the annual action plan; [Rule 2(f)]
4. “Administrative overheads” means the expenses incurred by the company for ‘general
management and administration’ of Corporate Social Responsibility functions in the
company but shall not include the expenses directly incurred for the designing,
implementation, monitoring, and evaluation of a particular Corporate Social Responsibility
project or programme; [Rule 2(b)]
5. “International Organisation” means an organisation notified by the Central Government
as an international organisation under section 3 of the United Nations (Privileges and
Immunities) Act, 1947, to which the provisions of the Schedule to the said Act apply; [Rule
2(g)]
6. "Net profit" means the net profit of a company as per its financial statement prepared in
accordance with the applicable provisions of the Act, but shall not include the following,
namely:-
(i) any profit arising from any overseas branch or branches of the company, whether
operated as a separate company or otherwise; and
Provided that in case of a foreign company covered under these rules, net profit means
the net profit of such company as per profit and loss account prepared in terms of clause
(a) of sub-section (1) of section 381, read with section 198 of the Act; [Rule 2(h)]
7. “Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of
its CSR obligation having timelines not exceeding three years excluding the financial year
in which it was commenced, and shall include such project that was initially not approved
as a multi-year project but whose duration has been extended beyond one year by the
board based on reasonable justification; [Rule 2(i)]
8. “Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the
Right to Information Act, 2005; [Rule 2(j)]
COMPANIES REQUIRED TO CONSTITUTE CSR COMMITTEE

According to section 135(1), every company having net worth of rupees five hundred crore or
more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or
more during the immediately preceding financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors, out of which at
least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director under sub -
section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or
more directors.
As per Rule 3(1), every company including its holding or subsidiary, and a foreign company
defined under clause (42) of section 2 of the Act having its branch office or project office in India,
which fulfills the criteria specified in sub-section (1) of section 135 of the Act shall comply with
the provisions of section 135 of the Act and these rules:
Provided that net worth, turnover or net profit. of a foreign company of the Act shall be computed
in accordance with balance sheet and Profit and loss account of such company prepared in
accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of
the Act.
“Net worth” [As per Section 2(57)] means the aggregate value of the paid-up share capital and
all reserves created out of the profits, securities premium account and debit or c redit balance of
the profit and loss account, after deducting the aggregate value of the accumulated losses,
deferred expenditure and miscellaneous expenditure not written off, as per the audited balance
sheet, but does not include reserves created out of revaluation of assets, write-back of
depreciation and amalgamation. 2
Example 5: The statutory auditors of a company were required to issue a certificate on the net
worth of the company as per the requirement of the management as on 30 th September 2020
computed as per the provision of section 2(57) of the Companies Act, 2013.
The company had fair valued its property, plant and equipment in the current year which was
mistakenly taken into retained earnings of the company in its books of accounts. Please advi se
whether this fair valuation would be covered in the net worth of the company as per the legal
requirements.
2For the purposes of this section (i.e. section 135) "net profit" shall not include such sums as
may be prescribed, and shall be calculated in accordance with the provisions of section 198.
For details about more about refer later pages- heading ‘Calculation of Net Profits’
Answer: As per sec 2(57) of the Companies Act 2013, any reserves created out of revaluation
of assets doesn’t form part of net worth. The company fair valued its property, plant and
equipment and took that to retained earnings.
Even if the company has taken the fair valuation to the retained earnings in its books of
accounts, the resultant credit in reserves (by whatever name called) would be in th e category
of ‘reserves created out of revaluation of assets’ which is specifically excluded in the definition
of ‘net worth’ in section 2 (57) and hence should be excluded by the company.
Further the auditors should also consider the matter related to accounting of this reserve
separately at the time of audit of books of accounts of the company.
Exclusion of Companies [Rule 3(2) of the Companies (CSR) Rules, 2014]
Every company which ceases to be a company covered under subsection (1) of section 135 of
the Act for three consecutive financial years shall not be required to -
(a) constitute a CSR Committee; and
(b) comply with the provisions contained in sub-section (2) to (6) of the said section,
till such time it meets the criteria specified in sub-section (1) of section 135.
COMPOSITION OF CSR COMMITTEE
Corporate Social Responsibility Committee of the Board shall consist of three or more directors,
out of which at least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director under sub -
section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or
more directors.
According to Rule 5(1) of the Companies (CSR) Rules, 2014:
The companies mentioned in the rule 3 shall constitute CSR Committee as under.-
(i) a company covered under subsection (1) of section 135 which is not required to appoint
an independent director pursuant to sub-section (4) of section 149 of the Act, shall have
its CSR Committee without such director;
(ii) a private company having only two directors on its Board shall constitute its CSR
Committee with two such directors;
(iii) with respect to a foreign company covered under these rules, the CSR Committee shall
comprise of at least two persons of which one person shall be as specified under clause
(d) of sub-section (1) of section 380 of the Act and another person shall be nominated by
the foreign company.
Disclosure of composition of CSR Committee
As per section 135(2), the Board's report under sub-section (3) of section 134 shall disclose the
composition of the Corporate Social Responsibility Committee.
DUTIES OF CSR COMMITTEE

According to section 135(3),
The Corporate Social Responsibility Committee shall,—(a) formulate and recommend to the
Board, a Corporate Social Responsibility Policy which shall indicate the activities to be
undertaken by the company in areas or subject, specified in Schedule VII;(b) recommend the
amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor
the Corporate Social Responsibility Policy of the company from time to time.
According to Rule 5(2) of Companies (CSR) Rules, 2014,
The CSR Committee shall formulate and recommend to the Board, an annual action plan in
pursuance of its CSR policy, which shall include the following, namely:-
(a) the list of CSR projects or programmes that are approved to be undertaken in areas or
subjects specified in Schedule VII of the Act;
(b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule
4;
(c) the modalities of utilisation of funds and implementation schedules for the projects or
programmes;
(d) monitoring and reporting mechanism for the projects or programmes; and
(e) details of need and impact assessment, if any, for the projects undertaken by the company:
Provided that Board may alter such plan at any time during the financial year, as per the
recommendation of its CSR Committee, based on the reasonable justification to that effect.
DUTIES OF THE BOARD IN RELATION TO CSR
According to 135(4), the Board of every company referred to in sub-section (1) shall,—(a) after
taking into account the recommendations made by the Corporate Social Responsibility
Committee, approve the Corporate Social Responsibility Policy for the company and disclose
contents of such Policy in its report and also place it on the company's website, if any, in such
manner as may be prescribed; and (b) ensure that the activities as are included in Corporate
Social Responsibility Policy of the company are undertaken by the company.
Display of CSR activities on its website
The Board of Directors of the Company shall mandatorily disclose the composition of the CSR
Committee, and CSR Policy and Projects approved by the Board on their website, if any, for
public access. [Rule 9 of the Companies (CSR Policy) Rules, 2014]
AMOUNT OF CONTRIBUTION TOWARDS CSR
According to section 135(5),
The Board of every company referred to in sub-section (1), shall ensure that the company
spends, in every financial year, at least two per cent. of the average net profits of the company
made during the three immediately preceding financial years or where the company has not
completed the period of three financial years since its incorporation, during such immediately
preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report
made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending
the amount and, unless the unspent amount relates to any ongoing project referred to in sub-
section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period
of six months of the expiry of the financial year.
Provided also that if the company spends an amount in excess of the requirements provided
under this sub-section, such company may set off such excess amount against the requirement
to spend under this sub-section for such number of succeeding financial years and in such
manner, as may be prescribed.
Explanation.—For the purposes of this section "net profit" shall not include such sums as may
be prescribed, and shall be calculated in accordance with the provisions of section 198.
According to section 135(6), any amount remaining unspent under sub -section (5), pursuant to
any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company
in persuance of its Corporate Social Responsibility Policy, shall be transferred by the company
within a period of thirty days from the end of the financial year to a special account to be opened
by the company in that behalf for that financial year in any scheduled bank to be called the
Unspent Corporate Social Responsibility Account, and such amount shall be spent by the
company in pursuance of its obligation towards the Corporate Social Responsibility Policy within
a period of three financial years from the date of such transfer, failing which, the company shall
transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the
date of completion of the third financial year.
Calculation of Net Profits
1. For the purposes of this section (i.e. section 135) "net profit" shall not include such sums
as may be prescribed, and shall be calculated in accordance with the provisions of section
198. [Explanation in section 135(5)]
2. "Net profit" means the net profit of a company as per its financial statement prepared in
accordance with the applicable provisions of the Act, but shall not include the following,
namely:-
(i) any profit arising from any overseas branch or branches of the company, whether
operated as a separate company or otherwise; and
Provided that in case of a foreign company covered under these rules, net profit means
the net profit of such company as per profit and loss account prepared in terms of clause
(a) of sub-section (1) of section 381, read with section 198 of the Act; [Rule 2(h)]
CSR Expenditure [Rule 7 of Companies (CSR) Rules, 2014]
(1) The board shall ensure that the administrative overheads shall not exceed five percent of
total CSR expenditure of the company for the financial year.
(2) Any surplus arising out of the CSR activities shall not form part of the business profit of a
company and shall be ploughed back into the same project or shall be transferred to the
Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the
company or transfer such surplus amount to a Fund specified in Schedule VII, within a
period of six months of the expiry of the financial year.
(3) Where a company spends an amount in excess of requirement provided under sub -section
(5) of section 135, such excess amount may be set off against the requirement to spend
under sub-section (5) of section 135 up to immediate succeeding three financial years
subject to the conditions that –
(i) the excess amount available for set off shall not include the surplus arising out of the
CSR activities, if any, in pursuance of sub-rule (2) of this rule.
(ii) the Board of the company shall pass a resolution to that effect.
(4) The CSR amount may be spent by a company for creation or acquisition of a capital asset,
which shall be held by -
(a) a company established under section 8 of the Act, or a Registered Public Trust or
Registered Society, having charitable objects and CSR Registration Number under
sub-rule (2) of rule 4; or
(b) beneficiaries of the said CSR project, in the form of self-help groups, collectives,
entities; or
(c) a public authority:
Provided that any capital asset created by a company prior to the commencement of the
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, shall within
a period of one hundred and eighty days from such commencement comply with the
requirement of this rule, which may be extended by a further period of not more than ninety
days with the approval of the Board based on reasonable justification.
Transfer of unspent CSR amount [Rule 10 of Companies (CSR Policy) Rules, 2014
Until a fund is specified in Schedule VII for the purposes of subsection (5) and (6) of section
135 of the Act, the unspent CSR amount, if any, shall be transferred by the company to any
fund included in schedule VII of the Act.
PENAL PROVISIONS
If a company is in default in complying with the provisions of sub-section (5) or sub-section (6),
the company shall be liable to a penalty of twice the amount required to be transferred by th e
company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility
Account, as the case may be, or one crore rupees, whichever is less, and every officer of the
company who is in default shall be liable to a penalty of one-tenth of the amount required to be
transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate
Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
[Section 135(7)]
SPECIAL INSTRUCTIONS OF THE CENTRAL GOVERNMENT
The Central Government may give such general or special directions to a company or class of
companies as it considers necessary to ensure compliance of provisions of this section and
such company or class of companies shall comply with such directions. [Section 135(8)]
WHEN IT IS NOT NECESSARY TO CONSTITUTE A CSR COMMITTEE
According to section 135(9), where the amount to be spent by a company under sub -section (5)
does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the
Corporate Social Responsibility Committee shall not be applicable and the functions of such
Committee provided under this section shall, in such cases, be discharged by the Board of
Directors of such company.
CSR IMPLEMENTATION [Rule 4 of the Companies (CSR Policy) Rules, 2014]:
(1) The Board shall ensure that the CSR activities are undertaken by the company itself or
through-
(a) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80 G of the Income Tax Act,
1961, established by the company, either singly or along with any other company, or
(b) a company established under section 8 of the Act or a registered trust or a registered
society, established by the Central Government or State Government; or
(c) any entity established under an Act of Parliament or a State legislature; or
(d) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80G of the Income Tax Act,
1961, and having an established track record of at least three years in undertaking
similar activities.
(2) (a) Every entity, covered under sub-rule (1), who intends to undertake any CSR activity,
shall register itself with the Central Government by filing the form CSR-1 electronically
with the Registrar, with effect from the 01 st day of April 2021:
Provided that the provisions of this sub-rule shall not affect the CSR projects or
programmes approved prior to the 01st day of April 2021.
(b) Form CSR-1 shall be signed and submitted electronically by the entity and shall be
verified digitally by a Chartered Accountant in practice or a Company Secretary in
practice or a Cost Accountant in practice.
(c) On the submission of the Form CSR-1 on the portal, a unique CSR Registration
Number shall be generated by the system automatically.
(3) A company may engage international organisations for designing, monitoring and
evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity
building of their own personnel for CSR.
(4) A company may also collaborate with other companies for undertaking projects or
programmes or CSR activities in such a manner that the CSR committees of respective
companies are in a position to report separately on such projects or programmes in
accordance with these rules.
(5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised
for the purposes and in the manner as approved by it and the Chief Financial Officer or the
person responsible for financial management shall certify to the effect.
(6) In case of ongoing project, the Board of a Company shall monitor the implementation of
the project with reference to the approved timelines and year-wise allocation and shall be
competent to make modifications, if any, for smooth implementation of the project within
the overall permissible time period.
CSR REPORTING (Rule 8)
(1) The Board's Report of a company covered under these rules pertaining to any financial
year shall include an annual report on CSR containing particulars specified in Annexure I
or Annexure II, as applicable.
(2) In case of a foreign company, the balance sheet filed under clause (b) of sub -section (1)
of section 381 of the Act, shall contain an annual report on CSR containing particulars
specified in Annexure I or Annexure II, as applicable.
(3) (a) Every company having average CSR obligation of ten crore rupees or more in
pursuance of subsection (5) of section 135 of the Act, in the three immediately
preceding financial years, shall undertake impact assessment, through an
independent agency, of their CSR projects having outlays of one crore rupees or
more, and which have been completed not less than one year before undertaking the
impact study.
(b) The impact assessment reports shall be placed before the Board and shall be
annexed to the annual report on CSR.
(c) A Company undertaking impact assessment may book the expenditure towards
Corporate Social Responsibility for that financial year, which shall not exceed five
percent of the total CSR expenditure for that financial year or fifty lakh rupees,
whichever is less.
ACTIVITIES SPECIFIED UNDER SCHEDULE VII

Activities which may be included by companies in their CSR Policies (i.e. Activities as specified
under Schedule VII) are as follows:
(1) eradicating hunger, poverty and malnutrition, promoting health care including preventive
health care and sanitation including contribution to the Swach Bharat Kosh set-up by the
Central Government for the promotion of sanitation and making available safe drinking
water;
(2) promoting education, including special education and employment enhancing vocation
skills especially among children, women, elderly, and the differently abled and livelihood
enhancement projects;
(3) promoting gender equality, empowering women, setting up homes and hostels for women
and orphans; setting up old age homes, day care centres and such other facilities for senior
citizens and measures for reducing inequalities faced by socially and economically
backward groups;
(4) ensuring environmental sustainability, ecological balance, protection of flora and fauna,
animal welfare, agroforestry, conservation of natural resources and maintaining quality of
soil, air and water including contribution to the Clean Ganga Fund set up by the Central
Government for rejuvenation of river Ganga;
(5) protection of national heritage, art and culture including restoration of buildings and si tes
of historical importance and works of art; setting up public libraries; promotion and
development of traditional arts and handicrafts;
(6) measures for the benefit of armed forces veterans, war widows and their dependents,
Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans,
and their dependents including widows;
(7) training to promote rural sports, nationally recognised sports, paralympic sports and
Olympic sports;
(8) contribution to the Prime Minister’s National Relief Fund or Prime Minister’s Citizen
Assistance and Relief in Emergency situations Fund (PM CARES FUND) any other fund
set up by the Central Government for socio-economic development and relief and welfare
of the Scheduled Castes, Tribes, other backward classes, minorities and women;
(9) (a) Contribution to incubators or research development projects in the field of science,
technology, engineering and medicine, funded by Central Government or State
Government or any agency or Public Sector Undertaking of Central Government or
State Government, and
(b) Contributions to public funded Universities; Indian Institute of Technology (IITs);
National Laboratories and Autonomous Bodies established under Department of
Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science
and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga
and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and
Information Technology and other bodies, namely Defense Research and Development
Organisation (DRDO);Indian Council of Agricultural Research (ICAR); Indian Council of
Medical Research (ICMR) Council of Scientific and Industrial Research (CSIR), engaged
in conducting research in science, technology, engineering and medicine aimed at
promoting Sustainable Development Goals (SDGs);
(10) rural development projects;
(11) slum area development. [For the purposes of this item, the term ‘slum area’ shall mean
any area declared as such by the Central Government or any State Government or any
other competent authority under any law for the time being in force.
(12) disaster management, including relief, rehabilitation and reconstruction activities.
CLARIFICATIONS
The MCA vide General Circular No. 21/2014 dated 18 June 2014 has provided many
clarifications with regard to provisions of Corporate Social Responsibility under section 135 of
the Companies Act, 2013 which are as under:
(i) The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities
undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the
Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so
as to capture the essence of the subjects enumerated in the said Schedule. The items
enlisted in the amended Schedule VII of the Act, are broad-based and are intended to
cover a wide range of activities as illustratively mentioned in the Annexure.
(ii) It is further clarified that CSR activities should be undertaken by the companies in project/
programme mode. One-off events such as marathons/ awards/ charitable contribution/
advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR
expenditure.
(iii) Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such
as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the
Companies Act.
3(v) “Any financial year” referred under sub-section (1) of section 135 of the Act read with the
Companies CSR Rule, 2014, implies ‘any of the three preceding financial years.
(vi) Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify
as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian
subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.
(vii) ‘Registered Trust’ would include Trusts registered under Income Tax Act 1956, for those
States where registration of Trust is not mandatory.
3 Point (iv) has been omitted (Refer clarification dated 17.09.2014)

(viii) Contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR
expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created
exclusively for undertaking CSR activities or (b) where the corpus is created exclusively
for a purpose directly relatable to a subject covered in Schedule VII of the Act.
Clarifications with respect to CSR on COVID
1. General Circular No. 10/2020 dated 23 rd March, 2020
The Ministry of Corporate Affairs have clarified that keeping in view of the spread of novel
Corona Virus (COVID-19) in India, its declaration as pandemic by the World Health
Organisation (WHO), and, decision of Government of India to treat this as a notified
disaster, spending of CSR funds for COVID-19 is eligible CSR activity.
Funds may be spent for various activities related to COVID-19 under item nos. (i) and
(xii) of Schedule VII relating to promotion of health care, including preventive health
care and sanitation, and, disaster management. Further, as per General Circular No.
21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be
interpreted liberally for this purpose.
2. General Circular No. 01/2021 dated 13th January, 2021
The Ministry of Corporate Affairs, have made a clarification on spending of CSR funds for
Awareness and public outreach on COVID-19 Vaccination programme.
This Circular is in continuation to this Ministry's General Circular No. 10/2020 dated
23.03.2020 wherein it was clarified that spending of CSR funds for COVID19 is an eligible
CSR activity , it is further clarified that spending of CSR funds for carrying out awareness
campaigns/ programmes or public outreach campaigns on COVID-19 Vaccination
programme is an eligible CSR activity under item no. (i),(ii) and (xii) of Schedule VII of the
Companies Act, 2013 relating to promotion of health care, including preventive health care
and sanitization, promoting education, and, disaster management respectively.
The companies may undertake the aforesaid activities subject to fulfillment of Companies
(CSR Policy) Rules, 2014 and the circulars related to CSR, issued by this ministry from
time to time.
3. General Circular No. 05/2021, dated 22nd April, 2021
A clarification has been issued on spending of CSR funds for setting up makeshift hospitals
and temporary COVID Care facilities.
In continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020 wherein
it was clarified that spending of CSR funds for COVID-19 is an eligible CSR activity, it is
further clarified that spending of CSR funds for 'setting up makeshift hospitals and
temporary COVID Care facilities' is an eligible CSR activity under item nos. (i) and (xii) of
PART – I: ANNOUNCEMENTS STATING APPLICABILITY FOR MAY, 2021

EXAMINATIONS

The Study Material (October 2020 edition) is applicable for May 2021 examinations. This
material is updated for all relevant amendments up to 31 st October 2020. For May 2021
examinations, amendments up to 31 st October, 2020 are applicable.
Besides, refer booklet on MCQS and Case scenarios of December 2020 edition containing
Independent MCQs and Case Scenarios on the topics covered under the study material for 30
marks segment of MCQs in the Examination.
Read thoroughly the study material first and then go with the said booklet to have practice and
revision of concepts with an analytical and application approach with the thorough
understanding of the subject.
PART I- COMPANY LAW
QUESTIONS
DIVISION A – CASE SCENARIO / MULTIPLE CHOICE QUESTIONS
1. Mr. Ajay is a renowned finance professional with wide experience in banking operations.
Due to his experience, he has been appointed as director on the Board of various
companies. He is working as the Executive Director - Finance of Doon Carbonates Limited
(DCL) for the past 4-5 years and heading the finance department there. As per the object
clause of the Memorandum of Association of DCL, it can raise funds by way of loans for
the advancement of its business. Articles of Association of DCL authorizes the directors to
borrow up to INR 50 lakhs on behalf of the company after passing a valid board resolution
and any loans for amounts exceeding the above limit can be raised only after approval at
a general meeting.
Board of Directors of DCL raised INR 80 lakhs from Srikant Finance Services after passing
a board resolution and out of this amount, INR 60 lakhs was used to pay a legitimate
liability of DCL by the directors. DCL is a widely held company with around 5600 members
as per the members register. The 21 st AGM of DCL is convened on 1 st September 2020. A
total of 34 members attended the meeting out of which 7 members attended through proxy.
6 of such members are represented by single proxy, Mr. Das. The articles of DCL is silent
about the quorum.

Mr. Ajay is also director of Padmani Silk Limited (PSL). PSL was established around 25
years back as a private company operating as a micro business with 10 employees in a
three- room building. During these years, the company grew exceptionally and went public
and was also listed on SME exchange. PSL declares the interim dividend out of the
previous year’s undistributed profit on 31 st August 2020 on the occasion of the
25th anniversary of the company. PSL deposited the amount of said dividend in a separate
bank account with a NBFC on 4th of September, 2020.
Mr. Ajay hails from a farming family and carries on the business of cultivation and milling
of paddy. He is also the sole member of New-Deal Limited (NDL), a one person company.
NDL is operated as rice sheller and also deals in trading of high quality basmati rice. Mr.
Ajay’s father is operating as a nominee for the purposes of this OPC. The accounts
department of NDL prepared and published only Profit and Loss Account and Balance
Sheet as a financial statement and did not prepare cash flow statements and explanatory
notes to accounts. A statement of changes in equity is not required in the case of NDL.
Multiple Choice Questions
1.1 Regarding compliance for declaration and distribution of Interim dividend by PSL,
which of the following statements is correct?
(a) There is a violation of the provisions because interim dividend can only be
declared out of current year’s profits.
(b) There is no violation at all, and all the provisions prescribed by law have been
complied with.
(c) There is a violation because the bank account shall be designated and shall be
one of existing banks account of company.
(d) There is a violation because the bank account shall be opened with scheduled
banks only.
1.2 Which of the following statements is correct, with reference to the requirement for
financial Statements of ‘New Deal Limited’ (One Person Company)
(a) NDL fails to meet the requirement because its financial statement do not include
explanatory notes to accounts
(b) NDL fails to meet the requirement because its financial statements do not
include cash flow statement
(c) NDL fails to meet the requirement because its financial statements do not
include explanatory notes to account and cash flow statement
(d) NDL has complied with the requirements related to financial statements
1.3 The borrowing of the sum of INR 80 lakhs by the directors of DCL is
(a) Void-ab-initio

(b) Void
(c) Voidable
(d) Valid
1.4 Regarding the validity of the 21st Annual General Meeting of DCL, which of the
following statements is correct?
(a) The meeting doesn’t have a quorum, because 30 members need to be present
in person at the meeting.
(b) The meeting is valid and has a quorum because 30 members are present at
meeting either personally or through a proxy.
(c) The meeting is valid and has a quorum, because only 5 members are required
to be present, either personally or through a proxy, if the number of members as
on the date of the meeting is more than five thousand but not more than ten
thousand
(d) The meeting is valid and has a quorum, because only 15 members are required
to be present, either personally or through a proxy, if the number of members as
on the date of the meeting is more than five thousand but not more than ten
thousand
2. Mr. M. Mishra is a director of Superior Carbonates and Chemicals Limited (SCCL). SCCL
was incorporated by Mr. S. K. Mishra (father of Mr. M. Mishra) on 05th July 1995 as a public
company. SCCL accepts a loan of ` 1.5 crores from Mr. M. Mishra for short term purpose
and the loan is expected to be repaid after twenty four months. SCCL in its books of
account, records the receipt as a loan under non-current liabilities. At the time of advancing
loan, Mr. M. Mishra affirms in writing that such amount is not being given out of funds
acquired by him by borrowing or accepting loans or deposits from others and complete
details of his loan transactions are furnished in the boards’ report.
DBSL which is an unlisted public company, also accept the deposits from the public as on
1st November 2018, which is due for repayment on 30 th September 2023. DBSL also
accepts a LAP (Loan against property) for a term of 10 years from a financial institution on
18th June 2020. Charge was created on that day, but DBSL has neglected to register the
charge with the registrar. Finally, the application for registration of charge is furnished on
18th August 2020.
SCCL has registered office in Paonta-sahib (Himachal Pradesh) and corporate office is
situated in Dehradun (Uttarakhand) but around 15% of members whose name is entered
in members register are residents of Nainital (Uttarakhand). SCCL has a liaison Office at
Nainital. Management of the company is willing to place, the Register of Members at the
Nainital Liaison Office.
DBSL convene its 7 th AGM on 10th September 2020 at the registered office of the company.
Notice for same was served on 21 st August 2020. 78% of members gave consent to

convening AGM at shorter notice due to ambiguity and possibility of another lockdown
starting from 11 th September 2020 on account of the second wave of COVID-19.
Multiple Choice Questions
2.1 Pick the right statement regarding SCCL’s willingness to keep and maintain the
register of members at the Nainital liaison office.
(a) Register of members shall be kept at either registered office or within the same
city that too after passing the resolution, hence SCCL is not correct in placing it
at the Nainital liaison office
(b) Register of members cannot be kept at any other place by SCCL, without
passing an ordinary resolution
(c) Register of members can be kept at Nainital liaison office, after passing a special
resolution, because more than 1/10 th of the total members entered in the register
of members reside there
(d) Register of members cannot be kept at Nainital liaison office, even after passing
a special resolution, because less than 1/5 th of the total members entered in the
register of members reside there
2.2 With reference to deposit accepted by DBSL and its duration, you are required to
identify which of the following statements is correct:
(a) There is no requirement relating to the duration of deposit, DBSL can accept a
deposit for any duration.
(b) Since DBSL is an unlisted company, provision relating to the duration of the
deposit is not applicable.
(c) There is a provision of a minimum duration of six months, but no upper cap to
length is provided. Hence deposit accepted by DBSL is in compliance to
provisions of Law.
(d) Acceptance of deposits by DBSL is in violation of provision of law, because the
maximum period of acceptance of deposit cannot exceed thirty-six months.
2.3 With reference to application to the registrar for registration of charge by DBSL, which
of the following statements is correct?
(a) The charge cannot be registered now, even if the Registrar permits the same.
(b) The charge can be registered, if registrar permits with payment of ad-valorem
fee.
(c) The charge can be registered, if registrar permits but with payment of an
additional fee.
(d) The charge can be registered, with payment of a standard fee.

2.4 With reference to the loan advanced by Mr. M. Mishra to SCCL, state whether the
same is to be classified as a deposit or not?
(a) Deposit, because any sum advanced by the director whether loan or otherwise
is always classified as a deposit.
(b) Deposit, because the tenor of the loan is for a period of more than six months.
(c) Not a deposit, because such amount is recorded as loan in books of account of
SCCL.
(d) Not a deposit, because the written declaration is provided by Mr. M. Mishra, who
was a director when the loan was advanced that the loan is not being given out
of funds acquired by him by borrowing or accepting loans or deposits from
others.
2.5 Considering the provision relating to length of Notice for AGM, pick out the right
option:
(a) Notice served by DBSL is not valid, because notice given within a shorter
duration has to be consented to by all the members entitled to vote at AGM.
(b) Notice served by DBSL is not valid, because notice given within a shorter
duration has to be consented to by at-least 95% of members entitled to vote
thereat.
(c) Notice served by DBSL is valid because the shorter length has been consented
to by 75% of members entitled to vote thereat.
(d) Notice served by DBSL is not valid, because notice given within a shorter length
duration needs has to by at-least 50% of the members entitled to vote at AGM
that too in writing.
3. Which of the following statement is contrary to the provisions of the Companies Act, 2013?
(a) A private company can make a private placement of its securities.
(b) The company has to pass a special resolution for private placement.
(c) Minimum offer per person should have Market Value of ` 20,000.
(d) A public company can make a private placement of its securities.
4. Vishal lends a horse to Preet. The horse is vicious, which is known to Vishal but he does
not disclose the fact to Preet. The horse runs away. Preet is thrown and injured. As per
the provisions of the Contract Act, 1872, which is the correct statement:
(a) Preet is responsible for his injury.
(b) Though the horse belonged to Vishal but he cannot be held responsible
(c) Vishal is responsible to Preet for damage sustained

(d) No one can be held responsible for the damage sustained as no one can take
guarantee for the horse
5. As per the Indian Contract Act, 1872, any guarantee which has been obtained by the
means of misrepresentation made by the creditor concerning a material part of the
transaction, is:
(a) Valid
(b) Invalid
(c) outside the ambit of the Indian Contract Act, 1872
(d) not revocable if the damage sustained is less than 10% of the amount for which the
guarantee is given
DIVISION B - DETAILED QUESTIONS
COMPANY LAW
1. The Board of Directors of Amit Ltd. requested its Statutory Auditor to accept the
assignment of designing and implementation of suitable financial information syste m to
strengthen the internal control mechanism of the Company. How will you approach to this
proposal, as an Statutory Auditor of Amit Ltd., taking into account the consequences, if
any, of accepting this proposal?
2. The Income Tax Authorities in the current financial year 2019-20 observed, during the
assessment proceedings, a need to re-open the accounts of Qurie Ltd. for the financial
year 2008-09 and, therefore, filed an application before the National Company Law
Tribunal (NCLT) to issue the order to Qurie Ltd. for re-opening of its accounts and recasting
the financial statements for the financial year 2008-09. Examine the validity of the
application filed by the Income Tax Authorities to NCLT.
3. (i) Mr. Bindra is holding 950 equity shares of Bio safe Herbals, a section 8 company. Bio
safe Herbals is planning to declare dividend in the Annual General Meeting for the
Financial Year ended 31-03-2020. Examine whether the act of the company is in
accordance with the provisions of the Companies Act, 2013.
(ii) Kiara, holder of 5000 equity shares of ` 100 each of Kanpur Leather Shoes Limited
did not pay final call of ` 10 per share. Kanpur Leather Shoes Limited declared
dividend @ 10%. Examine with reference to relevant provisions of the Companies
Act, 2013, the amount of dividend Kiara should receive.
4. A General Meeting was scheduled to be held on 15th April, 2019 at 3.00 P.M. As per the
notice the members who are unable to attend a meeting in person can appoint a proxy
and the proxy forms duly filled should be sent to the company so as to reach at least 48
hours before the meeting. Mr. X, a member of the company appoints Mr. Y as his proxy
and the proxy form dated 10-04-2019 was deposited by Mr. Y with the company at its

registered Office on 11-04-2019. Similarly, another member Mr. W also gives two
separate proxies to two individuals named Mr. M and Mr. N. In the case of Mr. M, the
proxy dated 12-04-2019 was deposited with the company on the same day and the proxy
form in favour of Mr. N was deposited on 14-04-2019. All the proxies viz., Y, M and N
were present before the meeting.
According to the provisions of the Companies Act, 2013, who would be the persons
allowed to represent as proxies for members X and W respectively?
5. Shiva Cement Limited is engaged in the manufacture of different types of cements and
has got a good brand value. Over the years, it has built a good reputation and its Balance
Sheet as at March 31, 2020 showed the following position:
1. Authorized Share Capital (25,00,000 equity shares of ` 10/- each) ` 2,50,00,000
2. Issued, subscribed and paid-up Share Capital (10,00,000 equity shares of ` 10/-
each, fully paid-up) ` 1,00,00,000
3. Free Reserves ` 3,00,00,000
The Board of Directors are proposing to declare a bonus issue of 1 share for every 2
shares held by the existing shareholders. The Board wants to know the conditions and
the manner of issuing bonus shares under the provisions of the Companies Act, 2013.
6. Pristine Limited, a listed public company, conducted its Annual General Meeting on
31st August, 2020. However, 10 days have passed since 31 st August, 2020, but it has
still not filed report on Annual General Meeting. The Accountant of the company has
approached you to advise them whether Pristine Limited is required to file report on
Annual General Meeting?
7. Keya Limited decides to issue 1,00,000 securities of the company. The company decides
to publish an advertisement of the prospectus. Enumerate to the company about
necessary contents of its memorandum to be specified therein.
8. Nadeem incorporated a "One Person Company" making his sister Nisha as the nominee.
Nisha is leaving India permanently due to her marriage abroad. Due to this fact, she is
withdrawing her consent of nomination in the said One Person Company. Taking into
considerations the provisions of the Companies Act, 2013 answer the questions given
below.
(A) If Nisha is leaving India permanently, is it mandatory for her to withdraw her
nomination in the said One Person Company?
(B) If Nisha maintained the status of Resident of India after her marriage, then can she
continue her nomination in the said One Person Company?

OTHER LAWS
9. Akash is a famous manufacturer of leather goods. He appoints Prashant as his agent.
Prashant is entrusted with the work of recovering money from various traders to whom
Akash sells leather goods. Prashant is paid a monthly remuneration of ` 15,000.
Prashant during a particular month recovers ` 40,000 from traders on account of Akash.
Prashant gives back ` 25,000 to Akash, after deducting his salary.
Examine with reference to relevant provisions of the Indian Contract Act, 1872, whether
act of Prashant is valid.
10. (i) Calculate the date of maturity of bill of exchange drawn on 1.6.2019, payable 120
days after considering the relevant provisions of the Negotiable Instruments Act,
1881.
(ii) Chandra issues a cheque for ` 50,000/- in favour of Daye. Chandra has sufficient
amount in his account with the Bank. The cheque was not presented within
reasonable time to the Bank for payment and the Bank, in the meantime, became
bankrupt. Decide under the provisions of the Negotiable Instruments Act, 1881,
whether Daye can recover the money from Chandra?
11. (i) Mr. Apar and Mr. New, both aspiring Chartered Accountants have met in a
conference for CA students. Both are having an argument about the meaning of
Financial Year. They have approached you as a senior in the profession to guide
them about the meaning of Financial Year as per the provisions of the General
Clauses Act, 1872. Also, brief them about the difference between a calendar year
and financial year.
(ii) What is the meaning of service by post as per provisions of the General Clauses
Act, 1897?
12. At the time of interpreting a statutes what will be the effect of 'Usage' or 'customs and
Practices'?

SUGGESTED ANSWERS
DIVISION A - ANSWER TO CASE SCENARIO / MULTIPULE CHOICE QUESTIONS

1.1 (d)
1.2 (a)
1.3 (c)
1.4 (a)
2.1 (c)
2.2 (d)
2.3 (b)
2.4 (d)
2.5 (b)
3. (c)
4. (c)
5. (b)
DIVISION B - ANSWER TO DETAILES QUESTIONS
1. According to section 144 of the Companies Act, 2013, an auditor appointed under this Act
shall provide to the company only such other services as are approved by the Board of
Directors or the audit committee, as the case may be. But such services shall not include
designing and implementation of any financial information system.
In the said instance, the Board of directors of Amit Ltd. requested its Statutory Auditor to
accept the assignment of designing and implementation of suitable financial information
system to strengthen the internal control mechanism of the company. As per the above
provision said service is strictly prohibited.
In case the Statutory Auditor accepts the assignment, he will attract the penal provisio ns
as specified in Section 147 of the Companies Act, 2013.
In the light of the above provisions, we shall advise the Statutory Auditor not to take up the
above stated assignment.
2. As per section 130 of the Companies Act, 2013, a company shall not re -open its books of
account and not recast its financial statements, unless an application in this regard is made
by the Central Government, the Income-tax authorities, the Securities and Exchange
Board, any other statutory body or authority or any person concerned and an order is made
by a court of competent jurisdiction or the Tribunal to the effect that—

(ii) the affairs of the company were mismanaged during the relevant period, c asting a
doubt on the reliability of financial statements:
However, no order shall be made in respect of re-opening of books of account relating to
a period earlier than eight financial years immediately preceding the current financial year.
In the given instance, an application was filed for re-opening and re-casting of the financial
statements of Qurie Ltd. for the financial year 2008-2009 which is beyond 8 financial years
immediately preceding the current financial year.
Though application filed by the Income Tax Authorities to NCLT is valid, its
recommendation for reopening and recasting of financial statements for the period earlier
than eight financial years immediately preceding the current financial year i.e. 2019 -2020,
is invalid.
3. (i) According to Section 8(1) of the Companies Act, 2013, the companies licenced under
Section 8 of the Act (Formation of companies with Charitable Objects, etc.) are
prohibited from paying any dividend to their members. Their profits are intended to
be applied only in promoting the objects for which they are formed.
Hence, in the instant case, the proposed act of Bio safe Herbals, a company licenced
under Section 8 of the Companies Act, 2013, which is planning to declare dividend,
is not in accordance to the provisions of the Companies Act, 2013.
(ii) As per the proviso to section 127 of the Companies Act, 2013, no offence will be
deemed to have been committed by a director for adjusting the calls in arrears
remaining unpaid or any other sum due from a member against the dividend declared
by the company.
Thus, as per the given facts, Kanpur Leather Shoes Limited can adjust the unpaid
call money of ` 50,000 against the declared dividend of 10%, i.e. 5,00,000 x 10/100
= 50,000. Hence, call money of ` 50,000 not paid by Kiara can be adjusted fully from
the entitled dividend amount of ` 50,000 payable to her.
4. A Proxy is an instrument in writing executed by a shareholder authorizing another person
to attend a meeting and to vote thereat on his behalf and in his absence. As per the
provisions of Section 105 of the Companies Act, 2013, every shareholder who is entitled
to attend and vote has a statutory right to appoint another person as his proxy. It is not
necessary that the proxy be a member of the company. Further, any provision in the articles
of association of the company requiring instrument of proxy to be lodged with the company
more than 48 hours before a meeting shall have effect as if 48 hours had been specified
therein. The members have a right to revoke the proxy’s authority by voting himself before
the proxy has voted but once the proxy has voted the member cannot retract his authority.
Where two proxy instruments by the same shareholder are lodged of in such a manner that
one is lodged before and the other after the expiry of the date fixed for lodging proxies, the
former will be counted.

Thus, in case of member X, the proxy Y will be permitted to vote on his behalf as form for
appointing proxy was submitted within the permitted time.
However, in the case of Member W, the proxy M (and not Proxy N) will be permitted to vote
as the proxy authorizing N to vote was deposited in less than 48 hours before the meeting.
5. According to Section 63 of the Companies Act, 2013, a company may issue fully paid -up
bonus shares to its members, in any manner whatsoever, out of -
Provided that no issue of bonus shares shall be made by capitalising reserves created by
the revaluation of assets.
Conditions for issue of Bonus Shares: No company shall capitalise its profits or reserves
for the purpose of issuing fully paid-up bonus shares, unless—
(i) it is authorised by its Articles;
(ii) it has, on the recommendation of the Board, been authorised in the general meeting
of the company;
(iii) it has not defaulted in payment of interest or principal in respect of fixed deposits or
debt securities issued by it;
(iv) it has not defaulted in respect of payment of statutory dues of the employees, such
as, contribution to provident fund, gratuity and bonus;
(v) the partly paid-up shares, if any, outstanding on the date of allotment, are made fully
paid-up;
(vi) it complies with such conditions as are prescribed by Rule 14 of the Companies
(Share Capital and debentures) Rules, 2014 which states that the company which
has once announced the decision of its Board recommending a bonus issue, shall not
subsequently withdraw the same.
Further, the company has to ensure that the bonus shares shall not be issued in lieu of
dividend.
For the issue of bonus shares Shiva Cement Limited will require reserves of ` 50,00,000
(i.e. half of ` 1,00,00,000 being the paid-up share capital), which is readily available with
the company. Hence, after following the above conditions relating to the issue of bonus
shares, the company may proceed for a bonus issue of 1 share for every 2 shares held by
the existing shareholders.
6. According to Section 121, every listed public company shall prepare a report on each
annual general meeting including the confirmation to the effect that the meeting was
convened held and conducted as per the provisions of the Act and the rules made

thereunder. A copy of the report is to be filed with the Registrar in Form No. MGT. 15 within
thirty days of the conclusion of AGM along with the prescribed fee. If the company does
not file such report on Annual General Meeting within 30 days of the conclusion of the
Annual General Meeting then the company and defaulting officers are liable for prescribed
penalties.
Since, Pristine Ltd. is a listed company, hence it has to file a copy of 1annual Report with
the Registrar within 30 days from 31 st August, 2020.
7. According to Section 30, where an advertisement of any prospectus of a company is
published in any manner, it shall be necessary to specify therein the contents of its
memorandum as regards the following:
(i) the objects,
(ii) the liability of members and the amount of share capital of the company,
(iii) the names of the signatories to the memorandum,
(iv) the number of shares subscribed for by the signatories, and
(v) the capital structure of the company.
8. As per Rule 3 & 4 of the Companies (Incorporation) Rules, 2014 following the answers:
(A) Yes, it is mandatory for Nisha to withdraw her nomination in the said OPC as she is
leaving India permanently as only a natural person who is an Indian citizen and
resident in India shall be a nominee in OPC.
(B) Yes, Nisha can continue her nomination in the said OPC, if she maintained the status
of Resident of India after her marriage by staying in India for a period of not less than
182 days during the immediately preceding financial year.
9. The given problem is based on the provision related to ‘agency coupled with interest’.
According to Section 202 of the Indian Contract Act, 1872 an agency becomes irrevocable
where the agent has himself an interest in the property which forms the subject -matter of
the agency, and such an agency cannot, in the absence of an express provision in the
contract, be terminated to the prejudice of such interest.
In the given instance, Akash appointed Prashant as his agent to recover money from
various traders to whom Akash sold his leather goods, on a monthly remuneration of
` 15,000. Prashant during a month recovers ` 40,000 from traders on account of Akash.
Prashant after deducting his salary give the rest amount to Akash. In the said case, interest
was created in favour of Prashant and the said agency is not revocable, therefore, the act
of Prashant is valid.
10. (i) Date of maturity of the bill of exchange: In this case the day of presentment for sight
is to be excluded i.e. 1st June, 2019. The period of 120 days ends on 29th September,
2019 (June 29 days + July 31 days + August 31 Days + September 29 days = 120
days). Three days of grace are to be added. It falls due on 2nd October, 2019, which

happens to be a public holiday. As such it will fall due on 1st October, 2019 i.e., the
next preceding Business Day.
(ii) Section 84(1) of the Negotiable Instruments Act, 1881 provides that cheque should
be presented to Bank within reasonable time. If cheque is not presented within
reasonable time, meanwhile the drawer suffers actual damage, the drawer is
discharged to the extent of such actual damage. This would be so if the cheque would
have been passed if it was presented within reasonable time. As per section 84(2), in
determining what is a reasonable time, regard shall be had to (a) the nature of the
instrument (b) the usage of trade and of bankers, and (c) facts of the particular case.
The drawer will get discharge, but the holder of the cheque will be treated as creditor
of the bank, in place of drawer. He will be entitled to recover the amount from Bank
[section 84(3)].
In the above case drawer i.e. Chandra has suffered damage as cheque was not
presented by Daye within reasonable time. Hence, Chandra will be discharged but
Daye will be the creditor of bank for the amount of cheque and can recover the amount
from the bank.
11. (i) Financial Year: According to section 3(21) of the General Clauses Act, 1897,
financial year shall mean the year commencing on the first day of April.
The term Year has been defined under Section 3(66) as a year reckoned according
to the British calendar. Thus, as per General Clauses Act, Year means calendar year
which starts from January to December.
Difference between Financial Year and Calendar Year: Financial year starts from
first day of April but Calendar Year starts from first day of January.
(ii) Meaning of Service by post: According to section 27 of the General Clauses Act,
1897, where any legislation or regulation requires any document to be served by post,
then unless a different intention appears, the service shall be deemed to be effected
by:
A letter containing the document to have been effected at the time at which the letter
would be delivered in the ordinary course of post.
12. Effect of usage: Usage or practice developed under the statute is indicative of the
important factors to show that the practice so followed was based on correct understanding
of the law. When the usage or practice receives judicial or legislative approval it gains
additional weight.


law); and
(ii) 'Contemporanea exposito est optima et fortissinia in lege' (the best way to interpret a
document is to read it as it would have been read when made).
enacted/written.
statutory instruments made under it have been used as contemporanea exposition to

PART I: ANNOUNCEMENTS STATING APPLICABILITY FOR NOVEMBER, 2020

EXAMINATIONS
The Study Material (July 2019 edition) is applicable for November, 2020 examinations. This
study material is updated for all amendments till 30 th April, 2019. Further, all relevant
amendments/ circulars/ notifications etc. in the Company law part and the Other Laws portion,
for the period 1st May 2019 to 30 th April, 2020 are mentioned below:
PART I- COMPANY LAW
I. Chapter 2: Incorporation of Company and Matters Incidental thereto
Amendments related to - Notification G.S.R. 357(E) dated 10 th May, 2019
Companies (Incorporation) Fifth Amendment Rules, 2019.
In the Companies (Incorporation) Rules, 2014, Rule 8 has been fully substituted by Rule
8, Rule 8A and Rule 8B.
[Note: On page 2.19 of the Study Material, under the heading of Undesirable names, ‘the
words and combinations thereof which shall not be used in the name of a company
depicting the same meaning unless the previous approval of the Central Government has
been obtained for the use of any such word or expression’, were earlier covered under
Rule 8. As per the amendment now they are dealt in with Rule 8B.]
II. Chapter 3: Prospectus and Allotment of Securities
Amendments related to - Companies (Amendment) Act, 2019
Following sections of the Companies Act, 2013 have been amended by the Companies
(Amendment) Act, 2019 through Notification No. S.O. 2947(E) dated 14 th August, 2019 [the
sections contained therein shall deemed to have come into force on 15 th August, 2019]
1. In section 26-
(i) in sub-sections (4), (5) and (6), for the word “registration”, the word “filing” shall
be substituted;
(ii) sub-section (7) shall be omitted
[Amendment to be incorporated on Pg. 3.7 and 3.8 of SM]
2. In section 29-
(i) in sub-section (1), in clause (b), the word “public” shall be omitted;
(ii) after sub-section (1), the following sub-section shall be inserted, namely:-

“(1A) In case of such class or classes of unlisted companies as may be prescribed,

the securities shall be held or transferred only in dematerialised form in the manner
laid down in the Depositories Act, 1996 and the regulations made thereunder.”.
[Amendment to be incorporated on Pg 3.9 of SM]
3. In section 35, in sub-section (2), in clause (c), for the words “delivery of a copy of the
prospectus for registration”, the words “filing of a copy of the prospectus with the
Registrar” shall be substituted.
III. Chapter 4: Share Capital and Debentures
Amendments related to - Notification G.S.R. 574(E) dated 16 th August, 2019
The Central Government has amended the Companies (Share Capital and Debentures)
Rules, 2014, by the Companies (Share Capital and Debentures) Amendment Rules, 2019.
In the Companies (Share Capital and Debentures) Rules, 2014:
1. In Rule 4, in sub-rule (1),
(i) for clause (c), the following clause shall be substituted, namely:-
“(c) the voting power in respect of shares with differential rights of the company shall
not exceed seventy four per cent. of total voting power including voting power in
respect of equity shares with differential rights issued at any point of time;”;
(ii) clause (d) shall be omitted.
[Enforcement Date: 16 th August, 2019]
2. In the principal rules, in rule 18, for sub-rule (7), the following sub-rule shall be
“(7) The company shall comply with the requirements with regard to Debenture
Redemption Reserve (DRR) and investment or deposit of sum in respect of
debentures maturing during the year ending on the 31st day of March of next year, in
accordance with the conditions given below:-
(a) Debenture Redemption Reserve shall be created out of profits of the company
available for payment of dividend;
(b) the limits with respect to adequacy of Debenture Redemption Reserve and
investment or deposits, as the case may be, shall be as under;-
(i) Debenture Redemption Reserve is not required for debentures issued by
All India Financial Institutions regulated by Reserve Bank of India and
Banking Companies for both public as well as privately placed debentures;
(ii) For other Financial Institutions within the meaning of clause (72) of section
2 of the Companies Act, 2013, Debenture Redemption Reserve shall be as

applicable to Non –Banking Finance Companies registered with Reserve

Bank of India.
(iii) For listed companies (other than All India Financial Institutions and
Banking Companies as specified in sub-clause (i)), Debenture Redemption
Reserve is not required in the following cases-
(A) in case of public issue of debentures –
A. for NBFCs registered with Reserve Bank of India under section
45-IA of the RBI Act, 1934 and for Housing Finance Companies
registered with National Housing Bank;
B. for other listed companies;
(B) in case of privately placed debentures, for companies specified in
sub-items A and B.
(iv) for unlisted companies, (other than All India Financial Institutions and
Banking Companies as specified in sub-clause (i)) –
(A) for NBFCs registered with RBI under section 45-IA of the Reserve
Bank of India Act, 1934 and for Housing Finance Companies
registered with National Housing Bank, Debenture Redemption
Reserve is not required in case of privately placed debentures.
(B) for other unlisted companies, the adequacy of Debenture Redemption
Reserve shall be ten percent. of the value of the outstanding debentures;
(v) In case a company is covered in item (A) or item (B) of sub-clause (iii) of
clause (b) or item (B) of sub-clause (iv) of clause (b), it shall on or before
the 30th day of April in each year, in respect of debentures issued by a
company covered in item (A) or item (B) of subclause (iii) of clause (b) or
item (B) of sub-clause (iv) of clause (b), invest or deposit, as the case may
be, a sum which shall not be less than fifteen per cent., of the amount of
its debentures maturing during the year, ending on the 31st day of March
of the next year in any one or more methods of investments or deposits as
provided in sub-clause (vi):
Provided that the amount remaining invested or deposited, as the case may
be, shall not at any time fall below fifteen percent. of the amount of the
debentures maturing during the year ending on 31st day of March of that year.
(vi) for the purpose of sub-clause (v), the methods of deposits or investments,
as the case may be, are as follows:—
(A) in deposits with any scheduled bank, free from any charge or lien;
(B) in unencumbered securities of the Central Government or any State
Government;

(C) in unencumbered securities mentioned in sub-clause (a) to (d) and

(ee) of section 20 of the Indian Trusts Act, 1882;
(D) in unencumbered bonds issued by any other company which is notified
under sub-clause (f) of section 20 of the Indian Trusts Act, 1882:
Provided that the amount invested or deposited as above shall not be used
for any purpose other than for redemption of debentures maturing during
the year referred above.
(c) in case of partly convertible debentures, Debenture Redemption Reserve shall
be created in respect of non-convertible portion of debenture issue in
accordance with this sub-rule.
(d) the amount credited to Debenture Redemption Reserve shall not be utilized by
the company except for the purpose of redemption of debentures.“
IV. Chapter 7: Management and Administration
Amendments related to - Companies (Amendment) Act, 2019
In section 90,
(i) after sub-section (4), the following sub-section shall be inserted, namely:-
“(4A) Every company shall take necessary steps to identify an individual who is a
significant beneficial owner in relation to the company and require him to comply with
the provisions of this section.”;
(ii) after sub-section (9), as so substituted, the following sub-section shall be inserted, namely:
“(9A) The Central Government may make rules for the purposes of this section.”
(iii) in sub-section (11), after the word, brackets and figure “sub-section (4)”, the words,
brackets, figure and letter “or required to take necessary steps under sub -section
(4A)” shall be inserted.
V. Chapter 9: Accounts of Companies
(A) Amendments related to - Notification G.S.R. 390(E) dated 30 th May, 2019
The Central Government has amended the Schedule VII of the Companies Act, 2013.

In the said Schedule VII, after item (xi) and the entries relating thereto, the following
item and entries shall be inserted, namely:
“(xii) disaster management, including relief, rehabilitation and reconstruction
activities.”
[Enforcement Date: 30 th May, 2019]
(B) Amendments related to - Notification G.S.R. 776(E) dated 11 th October, 2019
In the said Schedule VII, for item (ix) and the entries relating thereto, the following
item and entries shall be substituted, namely:
“(ix) Contribution to incubators funded by Central Government or State Government
or any agency or Public Sector Undertaking of Central Government or State
Government, and contributions to public funded Universities, Indian Institute of
Technology (IITs), National Laboratories and Autonomous Bodies (established under
the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of
Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR),
Department of Atomic Energy (DAE), Defence Research and Development
Organisation (DRDO), Department of Biotechnology (DBT), Department of Science
and Technology (DST), Ministry of Electronics and Information Technology) engaged
in conducting research in science, technology, engineering and medicine aimed at
promoting Sustainable Development Goals (SDGs).”
[Enforcement Date: 11 th October, 2019]
(C) Amendments related to - Companies (Amendment) Act, 2019
Following sections of the Companies Act, 2013 have been amended by the
Companies (Amendment) Act, 2019 through Notification No. S.O. 2947(E) dated 14 th
August, 2019 [the sections contained therein shall deemed to have come into force
on 15th August, 2019]
In section 132—
(i) after sub-section (1), the following sub-section shall be inserted, namely:—
“(1A) The National Financial Reporting Authority shall perform its functions
through such divisions as may be prescribed.”
(ii) after sub-section (3), the following sub-sections shall be inserted, namely:—
“(3A) Each division of the National Financial Reporting Authority shall be
presided over by the Chairperson or a full-time Member authorised by the
Chairperson.

(3B) There shall be an executive body of the National Financial Reporting

Authority consisting of the Chairperson and full-time Members of such Authority
for efficient discharge of its functions under sub-section (2) [other than clause
(a)] and sub-section (4).”;
(iii) in sub-section (4), in clause (c), for sub-clause (B), the following sub-clause shall
be substituted, namely:—
“(B) debarring the member or the firm from—
I. being appointed as an auditor or internal auditor or undertaking any audit
in respect of financial statements or internal audit of the functions and
activities of any company or body corporate; or
II. performing any valuation as provided under section 247,
for a minimum period of six months or such higher period not exceeding ten
years as may be determined by the National Financial Reporting Authority.”.
(D) Amendments related to - Notification G.S.R. 636(E) 5 th September, 2019
The Central Government has amended the National Financial Reporting Authority
Rules, 2018, by the National Financial Reporting Authority (Amendment) Rules, 2019.
In the National Financial Reporting Authority Rules, 2018, after clause (c) of sub-rule
(1) of rule 3, the following explanation shall be inserted, namely:-
“Explanation.- For the purpose of this clause, “banking company” includes
‘corresponding new bank’ as defined in clause (d) of section 2 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and
clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980) and ‘subsidiary bank’ as defined in clause (k)
of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959).”.
[Enforcement Date: 5 th September, 2019]
(E) Amendments related to - Notification G.S.R. 803 (E) dated 22 nd October, 2019 w.e.f
1st December , 2019
The Central Government has amended the Companies (Accounts) Rules, 2014, by
the Companies (Accounts) Amendment Rules, 2019.
In the Companies (Accounts) Rules, 2014, in rule 8, in sub-rule (5), after clause (iii),
the following clause shall be inserted namely:—
“(iiia) a statement regarding opinion of the Board with regard to integrity, expertise
and experience (including the proficiency) of the independent directors appointed
during the year”.

Explanation.—For the purposes of this clause, the expression “proficiency” means the
proficiency of the independent director as ascertained from the online proficiency self-
assessment test conducted by the institute notified under sub-section (1) of section 150.
(F) Amendments related to - Notification G.S.R. 313(E).—dated 26th May, 2020
In Schedule VII, item (viii), after the words “Prime Minister’s National Relief Fund”,
the words “or Prime Minister’s Citizen Assistance and Relief in Emergency Situations
Fund (PM CARES Fund)” shall be inserted.
PART II- OTHER LAWS
[I] THE INDIAN CONTRACT ACT, 1872
Amendment via the Jammu and Kashmir Reorganisation Act, 2019, dated 9 th August, 2019. The
amendment is effective with effect from 31 st October, 2019.
As per the Jammu and Kashmir Reorganisation Act, 2019, in the Indian Contract Act, 1872, in
sub-section (2) of section 1, words, "except the State of Jammu and Kashmir" shall be omitted.
Now, Section 1 will be read as under,
‘Short title- This Act may be called the Indian Contract Act, 1872.
Extent, Commencement- It extends to the whole of India and it shall come into force on the
first day of September, 1872.
Saving- Nothing herein contained shall affect the provisions of any Statute, Act or Regulation
not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any
contract, not inconsistent with the provisions of this Act.’
[II] THE GENERAL CLAUSES ACT, 1897
amendment is effective with effect from 31st October, 2019.
As per the Jammu and Kashmir Reorganisation Act, 2019, the General Clauses Act, 1897 has
been extended as a whole.

Part II: Questions and Answers
Questions
Division A: Case Scenario/ Multiple Choice Questions

1. Mr. B R Mohanty, around two-decade back; along with two of his elder brothers and few
friends, who are pharma and chemical engineers by profession promoted two companies;
first being Well-Mount Limited (WML) dealing in wellness products and pharmaceuticals;
whereas other is Tex-Mount Limited (TML) dealing in textile products. During these two
decades, both WML and TML has grown magnificently as both the sectors expanded
beyond imagination. Both companies went public and stock of same listed on leading stock
exchanges of countries.
TML did well in the past and emerged as a major export unit but in recent years the textile
sector witness stiff competition due to new entrants. The increased cost of the workforce
and other input materials is also made sector unprofitable and recent lockdown hit the
sector further adversely. TML’s bottom line for the current financial year is red. TML was
declaring dividends since the very first year of operation and willing to continue the tradition
considering dividend as signalling effect to an investor for valuation purpose. Rate of
dividend for the recent five years was 9%, 10%, 8%, 5% and 2% (9% being five years ago
and 2% being the previous year) respectively. The management at TML decided to declare
dividends out of the profit of previous years. TML deals in export hence came under the
scanner of enforcement authority, who seek financial statements and books of accounts of
TML for scrutiny for the last 10 preceding financial years. In response to notice, TML furnish
financial statements and books of accounts for last 8 immediately preceding financial years
only, stating as per its Article of Association; TML is required to maintain and keep the
books of accounts for 8 immediately preceding financial years only and that too without
any record of vouchers pertaining to such accounts.
WML is doing well, it seizes outbreak of COVID-19 as a business opportunity and registers
significant growth in both top and bottom line. For the past many years, WML declare a
dividend at a constant rate of 20%. During the financial year 2019-20, WML earns a profit
of 580 Crores. Board of directors of WML declares 25% dividend without transferring any
% to reserve on 15 th June, 2020. On 14 th July, 2020 some of the amount remaining unpaid,
due to operation of law; has been transferred to unpaid dividend account on 20 th July,
2020. CA. Dev was appointed as auditor under section 139 of Companies Act, 2013 of
WML in individual capacity during 17 th AGM for against the financial year 2018-19.
A. In case of TML, which of the following statements are correct regarding the
declaration of dividend?
(i) TML can’t declare the dividend because it earns a loss in the current financial
year.

(ii) TML can declare the dividend but only up to 9%

(iii) TML can declare the dividend but only up to 5%
(iv) TML can declare the dividend but only up to 6.8%
B. CA. Dev, who is the auditor of WML have to vacate the office of the auditor in and
can be reappointed again only in
(i) 22nd AGM and 27 th AGM
(ii) 27th AGM and 32 nd AGM
(iii) 22nd AGM and 23rd AGM
(iv) 22nd AGM and can’t be re-appointed again.
C. In case of WML, which of the following statements is correct regarding the declaration
of dividend?
(i) WML can’t declare the dividend at a rate more than 20%
(ii) WML can declare the dividend out current year’s profit but it needs to transfer
sum equal to 20% to reserve first.
(iii) WML can declare the dividend out current year’s profit but it needs to transfer
sum equal to 10% of paid-up share capital to reserve first.
(iv) WML can declare the dividend out of current years’ profit without transferring
any % to reserve.
D. In case of TML, regarding maintenance and keeping the books of account; which of
the following statements hold truth?
(i) TML needs to maintain and keep the books of account for 10 preceding financial
years, hence TML violate the law.
(ii) TML doesn’t violate the provision of law because it keeps the books of account
for 8 immediate preceding financial years.
(iii) TML violate the provision of law because it keeps the books of account for 8
immediately preceding financial years without keeping relevant vouchers in the
record pertaining to such books of account.
(iv) TML doesn’t violate the provision of law because it is complying to its Article of
Association.
E. Regarding declaration and distribution of dividend by WML, which of the following
statements is correct from the view of the timeline?
(i) WML violates the law, because some of the dividend remain unpaid; irrespective
of reason for non-payment

(ii) WML violates the law, because unpaid dividend need to transfer to unpaid
dividend account by 19 th July 2020.
(iii) WML doesn’t violate the law, because an unpaid dividend transferred to unpaid
dividend account prior to 21 st July 2020.
(iv) WML doesn’t violate the law, because an unpaid dividend can be transferred to
unpaid dividend account at any time within 90 days from the date of declaration.
2. Mr. Purshottam Prasad, a business graduate from leading B-School, running the chain of
restaurants; as sole proprietor concern; based in Chennai. Mr. Prasad being dynamic
businessman, in order to develop the business; decided to give corporate form to his
business; but concerned with dilution of the control over business decisions.
Mr. Prasad, during some journey met Mr. Chinmay Dass; who is school days friend of Mr.
Prasad and presently working in one of leading corporate advisory firm. Mr. Prasad seeks
advice from Mr. Dass, regarding conversion of sole proprietorship concern to company and
also explain his intention to keep the entire control in his hand. Mr. Dass told, about new
type of company; which can be formed under Companies Act, 2013; One Person Company
(OPC). Mr. Dass quoted section 2 (62), which define 'one person company' , a company
which has only one person as a member.
Mr. Prasad, felt OPC is correct form of business for him, hence promotes an OPC ‘Casa
Hangout Private Limited’ (One Person Company) on 14 th September 2019, to which he
sold his sole proprietor business and himself became sole member. Mr. Prasad, appointed
his younger son Mr. Vijay, who was 21 year old then; as Nominee to OPC. Mr. Anand who
is old friend of Mr. Prasad was appointed as director of OPC, Mr. Prasad himself also
become director of company.
Mr. Vijay is professional photographer, and for some certification course went to abroad
on 23rd October 2019. He came back on 1 st of March 2020. He established photo-studio in
form of OPC ‘Best Click (OPC) Private Limited’ on 20 th March 2020, in which Mr. Prasad
is nominee and he became sole member. In mean time, Mr. Vijay also gave his consent
as nominee to another OPC in which his elder brother Mr. Shankar is sole member.
Mr. Prasad met an accident on 25 th March, 2020, in which he lost his life. Nomination
clause invoked, resultantly Mr. Vijay has to take charge over ‘Casa Hangout (OPC) Private
Limited’ (One Person Company) as member with immediate effect. On 30 th March, 2020
Mr. Shankar was appointed as new nominee to ‘Casa Hangout (OPC) Private Limited’, who
gave written consent on 31 st March 2020. Mr. Shankar who is investment banker by
profession, is of opinion that ‘Casa Hangout (OPC) Private Limited’ need to amend its
object clause and add ‘carry out investment in securities of body corporate’ as one of
object.
Financial Period closed on 31 st March 2020. Financial statements of ‘Casa Hangout (OPC)
Private Limited’, which is not containing cash flow statement; signed by Mr. Anand (who
left as only director after death of Mr. Prasad).

A. With reference to appointment of Mr. Vijay and Mr. Shankar as nominee to ‘Casa
Hangout (OPC) Private Limited’, out of followings, who is eligible to be nominee of
OPC?
(i) Any natural person excluding minor
(ii) Any legal person excluding minor
(iii) Any natural person, who is resident of India; but excluding minor
(iv) Any natural person, who is resident as well as citizen of India; but excluding
minor
B. Mr. Shankar if wish to withdraw his consent as nominee, can do so; by giving written
notice to
(i) Director of OPC and to sole member of company
(ii) Director of OPC and to Registrar of companies
(iii) Sole member of company and to OPC
(iv) Sole member of company and to Registrar of companies
C. With reference to legal position of Mr. Vijay as member/s and nominee/s to various
OPCs, Which of the following statement is correct in reference to ceiling limit in
relation to membership and being nominee to OPC? A person, other than minor; at
specific point of time;
(i) Can be member in any number of OPCs but nominee in one OPC
(ii) Can be member in one OPC and nominee in any number of OPCs
(iii) Can be member in one OPC and nominee in another one OPCs
(iv) Can be member and nominee both in any number of OPCs
D. Which of following statement is correct, in reference to requirement for financial
Statements of ‘Casa Hangout (OPC) Private Limited’
(i) Must be signed by one director
(ii) Must be signed by at-least by two directors
(iii) Must contain cash flow statement as part of financial statements
(iv) None of the above
E. With reference to opinion of Mr. Shankar to add ‘carry out investment in securities of
body corporate’ object, ‘Casa Hangout (OPC) Private Limited’
(i) Can’t carry out non-banking financial investment activities & investment in
securities of body corporate
(ii) Can’t carry out non-banking financial investment, but can invest in securities of
body corporate’

(iii) Can carry-out non-banking financial investment & invest in securities of body
corporate’
(iv) None of the above
3. A is residing in Delhi and has a house in Mumbai. A appoints B by a power of attorney to
take care of his house. State the nature of agency created between A and B:
(a) Implied agency
(b) Agency by ratification
(c) Agency by necessity
(d) Express agency
4. One Person Company shall file a copy of the duly adopted financial statements to the
Registrar in:
(a) 30 days of the date of meeting in which it was adopted
(b) 90 days of the date of meeting in which it was adopted
(c) 90 days from the closure of the financial statement
(d) 180 days from the closure of the financial statement
5. A guarantee which extend to a series of transactions is called
(a) Special Guarantee
(b) Continuing Guarantee
(c) Specific Guarantee
(d) None of the above
6. An aid that expresses the scope, object and purpose of the Act—
(a) Title of the Act
(b) Heading of the Chapter
(c) Preamble
(d) Definitional sections
7. Roma along with her six friends has got incorporated Roma Trading Ltd. in May 2019. She
kept the paid-up share capital at ` 30 lacs. Further, in April 2020, she noticed that in the
last financial year, the turnover of the company was well below ` 2 crores. Advise whether
the company can be treated as a ‘small company’.
(a) Roma Trading Ltd. is definitely a ‘small company’ since its paid-up capital is much
below ` 50 lacs and also its turnover has not exceeded the threshold limit of ` 2
crores.

(b) The concept of ‘small company’ is applicable only in case of a private limited
company/OPC and therefore, despite meeting the criteria of ‘small company’ it being
a public limited company cannot enjoy benefits of ‘small company’.
(c) Unlike a private limited company/OPC which automatically becomes a ‘small
company’ as soon as it meets the criteria of ‘small company’, Roma Trading Ltd. being
a public limited company has to maintain the norms applicable to a ‘small company’
continuously for two years so that, thereafter, it is treated as a ‘small company’.
(d) If all the shareholders of Roma Trading Ltd. give an undertaking to the ROC stating
that they will not let the paid share capital and also turnover exceed the limits
applicable to a ‘small company’ in the next two years, then it can be treated as a
‘small company’.
8. Red Flag Ltd., which has its registered office at Delhi and having 12500 members is holding
its Annual General Meeting in Ashoka Hotel. Despite swanky arrangements most of t he
members did not turn up and quorum was not present within half an hour of the schedule
time of the meeting, as a result meeting was adjourned. However, due to heavy booking
schedule, hotel authorities could not make available, for adjourned meeting, suf ficient
space in the same hall where meeting was originally called but allowed conduct of meeting
in a different hall on a different floor next week at same time. Please advise the option
available to board:
(a) The meeting stands adjourned automatically to the same place and time next week
as per provisions of law. There is no alternate but to hold meeting in the same hall,
(b) As same banquet hall is not available meeting can be held at different place as may
be decided appropriate by the Board,
(c) As the same hall is not available to conduct meeting after one week, a fresh notice of
21 days is needed for a different location,
(d) As the same hall is not available to conduct the meeting, the company needs to
conduct meeting electronically through internet and give sufficient notice to
shareholders,
9. Shreyas Mechanics Limited owns a plot of land which was purchased long before. As the
property rates are going up, it is decided to revalue the plot at fair value which is moderately
ten times the original price, thus resulting in a revaluation profit of ` 20,00,000. The Board
of Directors is keen to utilize ` 20,00,000 along with free reserves of ` 24,00,000 for
declaration of dividend at the forthcoming Annual General Meeting (AGM) to be held on
28th September, 2019. Advise the company.
(a) ` 20,00,000 are to be excluded from the distributable profits as the same cannot be
utilized towards declaration of dividend.
(b) Only 25% of ` 20,00,000 can be utilized as distributable profits towards declaration
of dividend.

(c) Up to 50% of ` 20,00,000 can be utilized as distributable profits towards declaration

of dividend.
(d) Up to 60% of ` 20,00,000 can be utilized as distributable profits towards declaration
of dividend.
Division B: Descriptive questions
1. Vijay, a member of Mayur Electricals Ltd. gave in writing to the company that the notice for
any general meeting be sent to him only by registered post at his residential address at
Kanpur for which he deposited sufficient money. The company sent notice to him by
ordinary mail under certificate of posting. Vijay did not receive this notice and could not
attend the meeting and contended that the notice was improper.
Decide:
(i) Whether the contention of Vijay is valid.
(ii) Will your answer be the same if Vijay remains in London for two months during the
notice of the meeting and the meeting held?
2. Shekhar Limited appointed an individual firm, Suresh & Company, Chartered Accountants,
as Auditors of the company at the Annual General Meeting held on 30 th September, 2019.
Mrs. Kamala, wife of Mr. Suresh, invested in the equity shares having face value of ` 1
lakh of Shekhar Limited on 15 th October, 2019. But Suresh & Company continues to
function as statutory auditors of the company. Advice.
3. The Board of Directors of Ramesh Ltd. proposes to issue the prospectus inviting offers
from the public for subscribing the shares of the Company. State the reports which shall
be included in the prospectus for the purposes of providing financial information under the
provisions of the Companies Act, 2013.
4. Surya Ltd. is engaged in the manufacture of consumer goods and has got a good brand
value. Over the years, it has built a good reputation and its Balance Sheet as at March 31,
2019 shows the following position:
Authorized Share Capital (25,00,000 equity shares of face value of ` 10/- each)
` 2,50,00,000
Issued, subscribed and paid-up capital (10,00,000 equity shares of face value of `10/-
each, fully paid-up) ` 1,00,00,000
Free Reserves ` 3,00,00,000
The Board of Directors are proposing to declare a bonus issue of 1 share for every 2 shares
held by the existing shareholders. The Board wants to know the conditions and the manner
of issuing bonus shares under the provisions of the Companies Act, 2013. Discuss.
5. State, with reasons, whether the following statements are true or false?

(i) XYZ Private Limited may accept the deposits from its members to the extent of `
60.00 Lakh, if the aggregate of its paid-up capital, free reserves and security premium
account is ` 60.00 Lakh.
(ii) A Government Company, which is eligible to accept deposits under Section 76 of the
Companies Act, 2013 cannot accept deposits from public exceeding 25% of the
aggregate of its paid- up capital, free reserves and security premium account.
6. What are the powers of Registrar to make entries of satisfaction and release of charges in
the absence of any intimation from the company. Discuss this matter in the light of
7. Chetan Ltd. issued a notice for holding its Annual general meeting on 7 th November 2019.
The notice was posted to the members on 16 th October 2019. Some members of the
company allege that the company had not complied with the provisions of the Companies
Act, 2013 with regard to the period of notice and as such the meeting was valid. Referring
to the provisions of the Act, decide:
(i) Whether the meeting has been validly called?
(ii) If there is a shortfall, state and explain by how many days does the notice fall short
of the statutory requirement?
(iii) Can the delay in giving notice be condoned?
Other Laws
8. Sandeep guarantees for Gaurav, a retail textile merchant, for an amount of ` 1,00,000, for
which Sharma, the supplier may from time to time supply goods on credit basis to Gaurav
during the next 3 months.
After 1 month, Sandeep revokes the guarantee, when Sharma had supplied goods on
credit for ` 40,000. Referring to the provisions of the Indian Contract Act, 1872, decide
whether Sandeep is discharged from all the liabilities to Sharma for any subsequent credit
supply. What would be your answer in case Gaurav makes default in paying back Sharma
for the goods already supplied on credit i.e. ` 40,000?
9. Raj gives his umbrella to Manoj during raining season to be used for two days during
Examinations. Manoj keeps the umbrella for a week. While going to Raj’s house to return
the umbrella, Manoj accidently slips and the umbrella is badly damaged. Who bear the loss
and why?
10. Rahul drew a cheque in favour of Aman. After having issued the cheque; Rahul requested
Aman not to present the cheque for payment and gave a stop payment request to the bank
in respect of the cheque issued to Aman. Decide, under the provisions of the Negotiable
Instruments Act, 1881 whether the said acts of Rahul constitute an offence?
11. Referring to the provisions of the General Clauses Act, 1897, find out the day/ date on
which the following Act/Regulation comes into force. Give reasons also.

(1) An Act of Parliament which has not specifically mentioned a particular date.
(2) The Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) (Fifth Amendment) Regulations, 2015 was issued by SEBI vide
Notification dated 14 th August, 2015 with effect from 1 st January, 2016.
12. ‘Preamble does not over-ride the plain provision of the Act.' Comment. Also give suitable
example.
SUGGESTED ANSWERS/HINTS
Division A –Answers to Case Scenario/ Multiple Choice Question

1. A. (iii)
B. (i)
C. (iv)
D. (iii)
E. (iii)
2. A. (iv)
B. (iii)
C. (iii)
D. (i)
E. (i)
3. (d)
4. (d)
5. (b)
6. (c)
7. (b)
8. (b)
9. (a)
Division B –Anwers to Descriptive Type Questions
1. According to section 20(2) of the Companies Act, 2013, a document may be served on
Registrar or any member by sending it to him by post or by registered post or by speed
post or by courier or by delivering at his office or address, or by such electronic or other
mode as may be prescribed.

Provided that a member may request for delivery of any document through a particular
mode, for which he shall pay such fees as may be determined by the company in its annual
general meeting.
Thus, if a member wants the notice to be served on him only by registered post at his
residential address at Kanpur for which he has deposited sufficient money, the notice must
be served accordingly, otherwise service will not be deemed to have been effected.
Accordingly, the questions as asked may be answered as under:
(i) The contention of Vijay shall be tenable, for the reason that the notice was not
properly served.
(ii) In the given circumstances, the company is bound to serve a valid notice to Vijay by
registered post at his residential address at Kanpur and not outside India.
2. Disqualification of auditor: According to section 141(3)(d)(i) of the Companies Act, 2013,
a person who, or his relative or partner holds any security of the company or its subsidiary
or of its holding or associate company a subsidiary of such holding company, which carries
voting rights, such person cannot be appointed as auditor of the company. Provided that
the relative of such person may hold security or interest in the company of face value not
exceeding 1 lakh rupees as prescribed under the Companies (Audit and Auditors) Rules,
2014.
In this case, Mr. Suresh, Chartered Accountants, did not hold any such security. But Mrs.
Kamala, his wife held equity shares of Shekhar Limited of face value ` 1 lakh, which is
within the specified limit.
Further Section 141(4) provides that if an auditor becomes subject, after his appointment,
to any of the disqualifications specified in sub-section 3 of section 141, he shall be deemed
to have vacated his office of auditor. Hence, Suresh & Company can continue to function
as auditors of the Company even after 15 th October, 2019 i.e. after the investment made
by his wife in the equity shares of Shekhar Limited.
3. As per section 26(1) of the Companies Act, 2013, every prospectus issued by or on behalf
of a public company either with reference to its formation or subsequently, or by or on
behalf of any person who is or has been engaged or interested in the formation of a public
company, shall be dated and signed and shall state such information and set out such
reports on financial information as may be specified by the Securities and Exchange Board
in consultation with the Central Government.
Provided that until the Securities and Exchange Board specifies the information and reports
on financial information under this sub-section, the regulations made by the Securities and
Exchange Board under the Securities and Exchange Board of India Act, 1992, in respect
of such financial information or reports on financial information shall apply.
Prospectus issued make a declaration about the compliance of the provisions of this Act
and a statement to the effect that nothing in the prospectus is contrary to the provisions of

this Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange
Board of India Act, 1992 and the rules and regulations made thereunder.
Accordingly, the Board of Directors of Ramesh Ltd. who proposes to issue the prospectus
shall provide such reports on financial information as may be specified by the Securities
and Exchange Board in consultation with the Central Government in compliance with the
above stated provision and make a declaration about the compliance of the above stated
provisions.
4. According to Section 63 of the Companies Act, 2013, a company may issue fully paid -up
bonus shares to its members, in any manner whatsoever, out of -
Provided that no issue of bonus shares shall be made by capitalising reserves created by
the revaluation of assets.
Conditions for issue of Bonus Shares: No company shall capitalise its profits or reserves
for the purpose of issuing fully paid-up bonus shares, unless—
(i) it is authorised by its Articles;
(ii) it has, on the recommendation of the Board, been authorised in the general meeting
of the company;
(iii) it has not defaulted in payment of interest or principal in respect of fixed deposits or
debt securities issued by it;
(iv) it has not defaulted in respect of payment of statutory dues of the employees, such
as, contribution to provident fund, gratuity and bonus;
(v) the partly paid-up shares, if any outstanding on the date of allotment, are made fully
paid-up;
(vi) it complies with such conditions as may be prescribed.
But the company has to ensure that the bonus shares shall not be issued in lieu of dividend.
To issue bonus shares, company will need reserves of ` 50,00,000 (half of `1,00,00,000),
which is available with the company. Hence, after following the above compliances on
issuing bonus shares under the Companies Act, 2013, Surya Ltd. may proceed for a bonus
issue of 1 share for every 2 shares held by the existing shareholders.
5. (i) As per the provisions of Section 73(2) of the Companies Act, 2013 read with Rule 3
of the Companies (Acceptance of Deposits) Rules, 2014, as amended by the
Companies (Acceptance of Deposits) Amendment Rules, 2016, a company shall
accept any deposit from its members, together with the amount of other deposits
outstanding as on the date of acceptance of such deposits not exceeding thirty five

per cent of the aggregate of the Paid-up share capital, free Reserves and securities
premium account of the company. Provided that a private company may accept from
its members monies not exceeding one hundred per cent of aggregate of the paid up
share capital, free reserves and securities premium account and such company shall
file the details of monies so accepted to the Registrar in such manner as may be
specified.
Therefore, the given statement of eligibility of XYZ Private Ltd. to accept deposits
from its members to the extent of ` 60.00 lakh is True.
(ii) A Government company is not eligible to accept or renew deposits under section 76,
if the amount of such deposits together with the amount of other deposits outstanding
as on the date of acceptance or renewal exceeds thirty five per cent of the aggregate
of its Paid-up share capital, free Reserves and securities premium account of the
company.
Therefore, the given statement prescribing the limit of 25% to accept deposits is
False.
6. Section 83 of the Companies Act, 2013 empowers the Registrar to make entries with
respect to the satisfaction and release of charges even if no intimation has been received
by him from the company.
Accordingly, with respect to any registered charge if an evidence is shown to the
satisfaction of Registrar that the debt secured by charge has been paid or satisfied in whole
or in part or that the part of the property or undertaking charged has been released from
the charge or has ceased to form part of the company’s property or undertaking, then he
may enter in the register of charges a memorandum of satisfaction that:
 the debt has been satisfied in whole or in part; or
 the part of the property or undertaking has been released from the charge or has
ceased to form part of the company’s property or undertaking.
Information to affected parties: The Registrar shall inform the affected parties within 30
days of making the entry in the register of charges.
satisfaction of charge in full, he shall issue a certificate of registration of satisfaction of
charge in Form No. CHG-5.
7. According to section 101(1) of the Companies Act, 2013, a general meeting of a company
may be called by giving not less than clear twenty-one days' notice either in writing or
through electronic mode in such manner as may be prescribed.

Also, it is to be noted that 21 clear days mean that the date on which notice is served and
the date of meeting are excluded for sending the notice.
Further, Rule 35(6) of the Companies (Incorporation) Rules, 2014, provides that in case of
delivery by post, such service shall be deemed to have been effected in the case of a
notice of a meeting, at the expiration of forty eight hours after the letter containing the
same is posted.
(i) A 21 days’ clear notice must be given. In the given question, only 19 clear days’ notice
is served (after excluding 48 hours from the time of its posting and the day of sending
and date of meeting). Therefore, the meeting was not validly called.
condonation of delay in giving of notice. Hence, the delay in giving the notice calling
the meeting cannot be condoned.
8. Discharge of Surety by Revocation: As per section 130 of the Indian Contract Act, 1872
a specific guarantee cannot be revoked by the surety if the liability has already accrued. A
continuing guarantee may, at any time, be revoked by the surety, as to future transactions,
by notice to the creditor, but the surety remains liable for transactions already entered into.
As per the above provisions, liability of Sandeep is discharged with relation to all
subsequent credit supplies made by Sharma after revocation of guarantee, because it is a
case of continuing guarantee.
However, liability of Sandeep for previous transactions (before revocation) i.e. for
` 40,000 remains. He is liable for payment of ` 40,000 to Sharma because the transaction
was already entered into before revocation of guarantee.
9. It is the duty of bailee to return, or deliver according to the bailor’s directions, the goods
bailed without demand, as soon as the time for which they were bailed, has expired, or the
purpose for which they were bailed has been accomplished. [Section 160 of the Indian
Contract Act, 1872]
If, by the default of the bailee, the goods are not returned, delivered or tendered at the
proper time, he is responsible to the bailor for any loss, destruction or deterioration of the
goods from that time. [Section 161]
In the instant case, Manoj shall have to bear the loss since he failed to return the umbrella
within the stipulated time and Section 161 clearly says that where a bailee fails to return
the goods within the agreed time, he shall be responsible to the bailor for any loss,
destruction or deterioration of the goods from that time notwithstanding the exercise of
reasonable care on his part.

10. As per the facts stated in the question, Rahul (drawer) after having issued the cheque,
informs Aman (drawee) not to present the cheque for payment and as well as gave a stop
payment request to the bank in respect of the cheque issued to Aman.
Section 138 of the Negotiable Instruments Act, 1881, is a penal provision in the sense that
once a cheque is drawn on an account maintained by the drawer with his banker for
payment of any amount of money to another person out of that account for the discharge
in whole or in part of any debt or liability, is informed by the bank unpaid either because of
insufficiency of funds to honour the cheques or the amount exceeding the arrangement
made with the bank, such a person shall be deemed to have committe d an offence.
Once a cheque is issued by the drawer, a presumption under Section 139 of the Negotiable
Instruments Act, 1881 follows and merely because the drawer issues a notice thereafter to
the drawee or to the bank for stoppage of payment, it will not preclude an action under
Section 138.
Also, Section 140 of the Negotiable Instruments Act, 1881, specifies absolute liability of
the drawer of the cheque for commission of an offence under the section 138 of the Act.
Section 140 states that it shall not be a defence in a prosecution for an offence under
section 138 that the drawer had no reason to believe when he issued the cheque that the
cheque may be dishonoured on presentment for the reasons stated in that section.
Accordingly, the act of Rahul, i.e., his request of stop payment constitutes an offence under
the provisions of the Negotiable Instruments Act, 1881.
11. (1) According to section 5 of the General Clauses Act, 1897, where any Central Act has
not specifically mentioned a particular date to come into force, it shall be implemented
on the day on which it receives the assent of the President in case of an Act of
Parliament.
(2) If any specific date of enforcement is prescribed in the Official Gazette, the Act shall
come into enforcement from such date.
Thus, in the given question, the SEBI (Issue of Capital and Disclosure Requirements)
(Fifth Amendment) Regulations, 2015 shall come into enforcement on 1 st January,
2016 rather than the date of its notification in the gazette.
12. Preamble: The Preamble expresses the scope, object and purpose of the Act more
comprehensively. The Preamble of a Statute is a part of the enactment and can legitimately
be used as an internal aid for construing it. However, the Preamble does not over -ride the
plain provision of the Act. But if the wording of the statute gives rise to doubts as to its
proper construction, for example, where the words or phrase has more than one meaning
and a doubt arises as to which of the two meanings is intended in the Act, the Preamble
can and ought to be referred to in order to arrive at the proper construction.
In short, the Preamble to an Act discloses the primary intention of the legislature but can
only be brought in as an aid to construction if the language of the s tatute is not clear.
However, it cannot override the provisions of the enactment.

Example: Use of the word ‘may’ in section 5 of the Hindu Marriage Act, 1955 provides that
“a marriage may be solemnized between two Hindus…..” has been construed to be
mandatory in the sense that both parties to the marriage must be Hindus as defined in
section 2 of the Act. It was held that a marriage between a Christian male and a Hindu
female solemnized under the Hindu Marriage Act was void. This result was reached also
having regard to the preamble of the Act which reads: ‘An Act to amend and codify the law
relating to marriage among Hindus” [Gullipoli Sowria Raj V. Bandaru Pavani, (2009)].

PART – I: ANNOUNCEMENTS STATING APPLICABILITY

FOR MAY, 2020 EXAMINATIONS

The Study Material (July 2019 edition) is applicable for May, 2020 examinations. This study
material is updated for all amendments till 30 th April, 2019. Further, all relevant amendments/
circulars/ notifications etc. in the Company law part and the Other Laws portion, for the period
1st May 2019 to 31 st October, 2019 are mentioned below:
PART I- COMPANY LAW
I. Chapter 2: Incorporation of Company and Matters Incidental thereto
Amendments related to - Notification G.S.R. 357(E) dated 10 th May, 2019
Companies (Incorporation) Fifth Amendment Rules, 2019.
In the Companies (Incorporation) Rules, 2014, Rule 8 has been fully substituted by Rule
8, Rule 8A and Rule 8B.
[Note: On page 2.19 of the Study Material, under the heading of Undesirable names, ‘the
words and combinations thereof which shall not be used in the name of a company
depicting the same meaning unless the previous approval of the Central Government has
been obtained for the use of any such word or expression’, were earlier covered under
Rule 8. As per the amendment now they are dealt in with Rule 8B.]
II. Chapter 3: Prospectus and Allotment of Securities
Amendments related to - COMPANIES (AMENDMENT) ACT, 2019
1. In section 26-
(i) in sub-sections (4), (5) and (6), for the word “registration”, the word “filing” shall
be substituted;
(ii) sub-section (7) shall be omitted
[Amendment to be incorporated on Pg 3.7 and 3.8 of SM]
2. In section 29-
(i) in sub-section (1), in clause (b), the word “public” shall be omitted;

(ii) after sub-section (1), the following sub-section shall be inserted, namely:-
“(1A) In case of such class or classes of unlisted companies as may be prescribed,
the securities shall be held or transferred only in dematerialised form in the manner
laid down in the Depositories Act, 1996 and the regulations made thereunder.”.
3. In section 35, in sub-section (2), in clause (c), for the words “delivery of a copy of the
prospectus for registration”, the words “filing of a copy of the prospectus with the
Registrar” shall be substituted.
[Enforcement Date: 15th August, 2019]
III. Chapter 4: Share Capital and Debentures
Amendments related to - Notification G.S.R. 574(E) dated 16 th August, 2019
The Central Government has amended the Companies (Share Capital and Debentures)
Rules, 2014, by the Companies (Share Capital and Debentures) Amendment Rules, 2019.
In the Companies (Share Capital and Debentures) Rules, 2014:
In Rule 4, in sub-rule (1),
(i) for clause (c), the following clause shall be substituted, namely:-
“(c) the voting power in respect of shares with differential rights of the company shall
not exceed seventy four per cent. of total voting power including voting power in
respect of equity shares with differential rights issued at any point of time;”;
(ii) clause (d) shall be omitted.
IV. Chapter 7: Management and Administration
Amendments related to - COMPANIES (AMENDMENT) ACT, 2019
In section 90,
(i) after sub-section (4), the following sub-section shall be inserted, namely:-
“(4A) Every company shall take necessary steps to identify an individual who is a
significant beneficial owner in relation to the company and require him to comply with
the provisions of this section.”;

(ii) after sub-section (9), as so substituted, the following sub-section shall be inserted,
namely:-
“(9A) The Central Government may make rules for the purposes of this section.”;
(iii) in sub-section (11), after the word, brackets and figure “sub-section (4)”, the words,
brackets, figure and letter “or required to take necessary steps under sub -section
(4A)” shall be inserted.
V. Chapter 9: Accounts of Companies
(A) Amendments related to - Notification G.S.R. 390(E) dated 30 th May, 2019
In the said Schedule VII, after item (xi) and the entries relating thereto, the following
item and entries shall be inserted, namely:
“(xii) disaster management, including relief, rehabilitation and reconstruction
activities.”
[Enforcement Date: 30 th May, 2019]
(B) Amendments related to - Notification G.S.R. 776(E) dated 11 th October, 2019
In the said Schedule VII, for item (ix) and the entries relating thereto, the following
item and entries shall be substituted, namely:
“(ix) Contribution to incubators funded by Central Government or State Government
or any agency or Public Sector Undertaking of Central Government or State
Government, and contributions to public funded Universities, Indian Institute of
Technology (IITs), National Laboratories and Autonomous Bodies (established under
the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of
Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR),
Department of Atomic Energy (DAE), Defence Research and Development
Organisation (DRDO), Department of Science and Technology (DST), Ministry of
Electronics and Information Technology) engaged in conducting research in science,
technology, engineering and medicine aimed at promoting Sustainable Development
Goals (SDGs).”
[Enforcement Date: 11 th October, 2019]

(C) Amendments related to - COMPANIES (AMENDMENT) ACT, 2019

Following sections of the Companies Act, 2013 have been amended by the
Companies (Amendment) Act, 2019 through Notification No. S.O. 2947(E) dated 14 th
August, 2019 [the sections contained therein shall deemed to have come into force
on 15th August, 2019]
In section 132—
(i) after sub-section (1), the following sub-section shall be inserted, namely:—
“(1A) The National Financial Reporting Authority shall perform its functions
through such divisions as may be prescribed.”;
(ii) after sub-section (3), the following sub-sections shall be inserted, namely:—
“(3A) Each division of the National Financial Reporting Authority shall be
presided over by the Chairperson or a full-time Member authorised by the
Chairperson.
(3B) There shall be an executive body of the National Financial Reporting
Authority consisting of the Chairperson and full-time Members of such Authority
for efficient discharge of its functions under sub-section (2) [other than clause
(a)] and sub-section (4).”;
(iii) in sub-section (4), in clause (c), for sub-clause (B), the following sub-clause shall
be substituted, namely:—
“(B) debarring the member or the firm from—
I. being appointed as an auditor or internal auditor or undertaking any audit
in respect of financial statements or internal audit of the functions and
activities of any company or body corporate; or
II. performing any valuation as provided under section 247,
for a minimum period of six months or such higher period not exceeding ten
years as may be determined by the National Financial Reporting Authority.”.
(D) Amendments related to - Notification G.S.R. 636(E) 5 th September, 2019
The Central Government has amended the National Financial Reporting Authority
Rules, 2018, by the National Financial Reporting Authority (Amendment) Rules, 2019.

In the National Financial Reporting Authority Rules, 2018, after clause (c) of sub-rule
(1) of rule 3, the following explanation shall be inserted, namely:-
“Explanation.- For the purpose of this clause, “banking company” includes
‘corresponding new bank’ as defined in clause (d) of section 2 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and
clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980) and ‘subsidiary bank’ as de fined in clause (k)
of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959).”.
[Enforcement Date: 5 th September, 2019]
PART II- OTHER LAWS
THE INDIAN CONTRACT ACT, 1872

As per the Jammu and Kashmir Reorganisation Act, 2019, in the Indian Contract Act, 1872, in
sub-section (2) of section 1, words, "except the State of Jammu and Kashmir" shall be omitted.
Now, Section 1 will be read as under,
‘Short title- This Act may be called the Indian Contract Act, 1872.
Extent, Commencement- It extends to the whole of India and it shall come into force on the
first day of September, 1872.
Saving- Nothing herein contained shall affect the provisions of any Statute, Act or Regulation
not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any
contract, not inconsistent with the provisions of this Act.’
THE GENERAL CLAUSES ACT, 1897
As per the Jammu and Kashmir Reorganisation Act, 2019, the General Clauses Act, 1897 has
been extended as a whole.

QUESTIONS
DIVISION A – CASE SCENARIO / MULTIPLE CHOICE QUESTIONS
1 A private company by the name of Neha Pvt. Limited was incorporated in the year 2002.
The registered office of the company Neha Pvt. Limited was situated in city K of state Y.
During the financial year beginning on 01/04/2018 and ending on 31/03/2019 the turnover
of the company Neha Pvt. Limited was ` 1010 crore. The net profit of the company Neha
Pvt. Limited for the financial year 2018-19 was ` 4 crore.
The Board of Directors of Neha Pvt. Limited consisted of only two directors namely Mr. M
and Mr. N. Mr. M and Mr. N were the only directors of company Neha Pvt. Limited since
its incorporation in the year 2002.
Mr. M one of the two directors of Neha Pvt. Limited was of the opinion that no Corporate
Social Responsibility Committee of the Board was required to be formed as for the financial
year 2019 – 20 due to the reason that net profit of the company Neha Pvt. Limited for
financial year 2018-19 was ` 4 crore which was less than ` 5 crore.
Mr. N the other director of Neha Pvt. Limited was not having the same opinion as
Mr. M. He was of the opinion that Corporate Social Responsibility Committee of the Board
must be formed for the company Neha Pvt. Limited.
The net profit of the company Neha Pvt. Limited for the financial year 2015-16, 2016-17
and 2017-18 were ` 1 crore, ` 2 crore and ` 3 crore respectively.
Keeping the basic provisions of Companies Act in mind answer the following multiple
choice questions:
(A) Mr. M one of the director of Neha Pvt. Limited was of the opinion that no Corporate
Social Responsibility Committee of Board was required to be formed for financial year
2019-20 but Mr. N other director was of opinion that it was required to be formed.
According to your understanding which one of the two director is right and why:
(a) Mr. M because net profit of Neha Pvt. Limited for financial year 2018-19 was
less than ` 5 crore.
(b) Mr. N because turnover of Neha Pvt. Limited for financial year 2018-19 was
more than ` 1,000 crore.
(c) Mr. N because net profit of Neha Pvt. Limited for financial year 2018-19 was
more than ` 2 crore.
(d) Mr. M because turnover of Neha Pvt. Limited for financial year 2019-19 was less
than ` 1,500 crore.
(B) The company Neha Pvt. Limited must give preference to spend the amount of
contribution towards Corporate Social Responsibility in area of:

(a) City O of State Y

(b) City A of State Z
(c) City G of State Z
(d) City K of State Y
(C) According to law Corporate Social Responsibility Committee shall consist of three or
more directors, so for company Neha Pvt. Limited the Corporate Social Responsibility
Committee will:
(a) Not be formed as it has only two directors namely Mr. M and Mr. N
(b) Be formed only after appointing one more director apart from Mr. M and Mr. N
(c) Be formed with two directors only namely Mr. M and Mr. N
(d) Be formed only after appointing two more directors apart from Mr. M and Mr. N
(D) The company Neha Pvt. Limited shall spend during financial year 2018-19 on
Corporate Social Responsibility an amount of atleast:
(a) ` 0.04 crore
(b) ` 0.12 crore
(c) ` 0.18 crore
(d) ` 0.06 crore
2. GHWX Private Limited was incorporated in the year 2009. The registered office of the
company GHWX Private Limited was situated in city T of state V. The Board of Directors
of GHWX Private Limited comprised of five directors namely Mr. K, Mr. N, Mr. R, Mr. U and
Mr. W.
During the financial year beginning on 01/04/2018 and ending on 31/03/2019 the second
meeting of Board of Directors of GHWX Private Limited was held on 7 September, 2018.
Out of 5 directors, Mr. K, Mr. N, Mr. R and Mr. W were present for the said meeting. During
the meeting of Board of Directors a resolution on one of the important matters was passed.
While three directors namely Mr. K, Mr. N and Mr. R agreed with the resolution and voted
in favour of resolution, however, Mr. W did not agree with the resolution and voted against
the resolution.
The minutes of the second meeting of Board of Directors of GHWX Private Limited held on
7 September, 2018 were prepared and they were entered in Minutes Book of meeting of
Board of Directors of GHWX Private Limited. One of the director Mr. K was of the opinion
that minutes of second meeting of Board of Directors of GHWX Private Limited must be
prepared and entered in Minute Book of meeting of Board of Directors of GHWX Private
Limited by end of October, 2018. The remaining four directors namely Mr. N, Mr. R, Mr. U
and Mr. W did not agree with the opinion of Mr. K because they thought that it was not
within the time limit as prescribed by the law.

One of the directors, Mr. N. opined that minute books of meetings of Board of Directors of
GHWX private limited for the years starting with 2009 to 2015 should be shredded to ruins
as these papers were taking a lot of space. He further added that since the Companies
Act, 2013 is silent as to maintaining the minute book of meetings of Board of Directors, it
is not necessary to maintain such minute books.
The Board of Directors of GHWX Private Limited did not decide any place where minute
book of meetings of Board of Directors of GHWX Private Limited will be kept.
Keeping the provisions of minutes and minutes book in mind answer the following multiple
choice questions:
(A) The second meeting of Board of Directors of GHWX Private Limited was held on 7
September, 2018 for the financial year 2018-19. The minutes of second meeting of
Board of Directors of GHWX Private Limited for financial year 2018-19 must contain:
(a) Name of director Mr. U who was absent from the meeting of Board of Directors
held on 7 September, 2018.
(b) Names of all the directors Mr. K, Mr. N, Mr. R, Mr. U and Mr. W comprising Board
of Directors of GHWX Private Limited.
(c) Name of one director Mr. U who was absent and one director Mr. K who was
present in the meeting of Board of Directors held on 7 September, 2018.
(d) Names of directors Mr. K, Mr. N, Mr. R and Mr. W who were present in the
meeting of Board of Directors held on 7 September, 2018.
(B) The minutes of second meeting of Board of Directors of GHWX Private Limited for
financial year 2018-19 held on 7 September, 2018 must contain:
(a) Name of four directors Mr. K, Mr. N, Mr. R and Mr. W who were present in
meeting and voted in the resolution.
(b) Name of director Mr. W who voted against the resolution.
(c) Name of directors Mr. K, Mr. N and Mr. R who voted in favour of the resolution.
(d) Names of all the directors Mr. K, Mr. N, Mr. R, Mr. U and Mr. W who all had the
right to attend the meeting and vote in the resolution.
(C) The opinion of one of the director Mr. K was that minutes of second meeting of Board
of Directors of GHWX Private Limited for financial year 2018-19 must be prepared
and entered in minutes book of meeting of Board of Directors of GHWX Private
Limited by the end of October, 2018 is incorrect. The opinion of Mr. K is incorrect
because:
(a) Minutes of second meeting of Board of Directors of GHWX Private Limited for
financial year 2018-19 must be entered in minute book of meeting of Board of
Directors within thirty days of the conclusion of meeting on 7 September, 2018.

(b) Minutes of second meeting of Board of Directors of GHWX Private Limited for
the financial year 2018-19 must be entered in minute book of meeting of Board
of Directors within sixty days of the conclusion of meeting on 7 September, 2018.
(c) Minutes of second meeting of Board of Directors of GHWX Private Limited for
the financial year 2018-19 must be entered in minute book of meeting of Board
of Directors within ninety days of the conclusion of meeting on 7 September,
2018.
(d) Minutes of second meeting of Board of Directors of GHWX Private Limited for
financial year 2018-19 must be entered in minute book of meeting of Board of
Directors within one twenty days of the conclusion of meeting on 7 September,
2018.
3. G Ltd. (a company having CSR Committee as per the provision of Section 13 of the
Companies Act, 2013) decides to spend and utilize half of the amount of Corporate Social
Responsibility on the activities for the benefit of all the employees of G Limited and the
remaining half of the amount of Corporate Social Responsibility on the activities for the
benefit of family members of employees of G Limited As per the provision of Companies
Act, 2013 this would mean that:-
(a) Total Amount spent on Corporate Social Responsibility Activities by G Limited for that
financial year
(b) No amount spent on Corporate Social Responsibility Activities by G Limited for that
financial year
(c) Half amount spent on Corporate Social Responsibility Activities by G Limited for that
financial year
(d) Half amount spent on Corporate Social Responsibility Activities and remaining half
amount spent on Other Activities by G Limited for that financial year
4. The minute book of General meetings of Alpha Limited will be kept at:
(a) That place where members of Alpha Limited will decide.
(b) That place where all employees of Alpha Limited will decide.
(c) Registered office of the company Alpha Limited.
(d) That place where senior officials of Alpha Limited will decide.
5 R purchases some goods on credit from S, payable within 3 months. After 2 months, R
makes out a blank cheque in favour of S, signs and delivers it to S with a req uest to fill up
the amount due, as R does not know the exact amount payable by him. S fills up
fraudulently the amount larger than the amount payable by R and endorses the cheque to
C in full payment of S's own due. R's cheque is dishonoured. Referring to the provisions
of the Negotiable Instruments Act, 1881, C:
(a) Can claim the full amount from R
(b) Can claim the full from S

(c) Cannot claim the amount either from R or S

(d) Can claim from S only the exact amount due from R
COMPANY LAW
1. MNP Ltd. has a paid up share capital of ` 10 crore and free reserves of ` 50 crore, as on
31st March, 2019. The company made a loss of ` 40 lakh after providing for depreciation
for the year ended 31 st March, 2019 and as a result, the company was not in a position to
declare any dividend for the said year out of profits. However, the Board of directors of the
company announced the declaration of dividend of 20% on the equity shares payable out
of free reserves. The average dividend declared by the company in the last three years is
25%. Referring to the provisions of the Companies Act, 2013, examine the va lidity of
declaration of dividend.
2. New Limited appointed an individual firm, Naresh & Company, Chartered Accountants, as
Auditors of the company at the Annual General Meeting held on 30 September 201 9.
Mrs. Reena, wife of Mr. Naresh, invested in the equity shares face value of ` 1 lakh of New
Limited on 15 October 2019. But Naresh & Company continues to function as statutory
auditors of the company. Advice, Naresh & Company on the continuation of such
appointment, as per provisions of the Companies Act, 2013.
3. The Board of Directors of Vishwakarma Electronics Limited consists of Mr. Ghanshyam
(Director), Mr. Hyder (Director) and Mr. Indersen (Managing Director). The company has
also employed a full time Secretary.
The Profit and Loss Account and Balance Sheet of the company were signed by
Mr. Ghanshyam and Mr. Hyder. Examine whether the authentication of financial
statements of the company was in accordance with the provisions of the Companies Act,
2013?
4. EFG Ltd. was incorporated on 1.4.2017. No General Meeting of the company has been
held till 30.4.2019. Discuss the provisions of the Companies Act, 2013 regarding the time
limit for holding the first annual general meeting of the Company and the power of the
Registrar to grant extension of time for the First Annual General Meeting.
5. Green Ltd. was dealing in export of rubber to specified foreign countries. The company
was willing to purchase rubber trees in A.P. State. The prospectus issued by the company
contained some important extracts of the expert report and number of trees in A.P. State.
The report was found untrue. Mr. Andrew purchased the shares of Green Ltd. on the basis
of the expert’s report published in the prospectus. Will Mr. Andrew have any remedy
against the company? State also the circumstances where an expert is not liable under the
6. The Articles of Association of Ajad Ltd. require the personal presence of 7 members to
constitute quorum of General Meetings. The company has 965 members as on the date of

meeting. The following persons were present in the extra-ordinary meeting to consider the
appointment of Managing Director:
(i) A, the representative of Governor of Uttar Pradesh.
(ii) B and C, shareholders of preference shares,
(iii) D, representing Y Ltd. and Z Ltd.
(iv) E, F, G and H as proxies of shareholders.
Can it be said that the quorum was present in the meeting?
7. K Limited, a subsidiary of Old Limited, decides to give a loan of ` 4,00,000 to the Human
Resource Manager, who is not a Key Managerial Personnel of K Limited, drawing salary
of ` 30,000 per month, to buy 500 partly paid-up equity Shares of ` 1000 each in K Limited.
Examine the validity of company's decision under the provisions of the Companies Act,
2013.
8. Yadav Dairy Products Private limited has registered its articles along with memorandum at
the time of registration of company in December, 2014. Now directors of the company are
of the view that provisions of articles regarding forfeiture of shares should not be changed
except by a resolution of 90% majority. While as per section 14 of the Companies Act,
2013 articles may be changed by passing a special resolution only. Hence, one of the
directors is of the view that they cannot make a provision against the Companies Act, 2013.
You are required to advise the company on this matter.
OTHER LAWS
9. Pankaj appoints Shruti as his agent to sell his estate. Shruti, on looking over the estate
before selling it, finds the existence of a good quality Granite-Mine on the estate, which is
unknown to Pankaj. Shruti buys the estate herself after informing Pankaj that she (Shruti)
wishes to buy the estate for herself but conceals the existence of Granite-Mine. Pankaj
allows Shruti to buy the estate, in ignorance of the existence of Mine. State giving reasons
in brief the rights of Pankaj, the principal, against Shruti, the agent. Give your answer as
per the provisions of the Contract Act, 1872.
What would be your answer if Shruti had informed Pankaj about the existence of Mine
before she purchased the estate, but after two months, she sold the estate at a profit of
` 10 lac?
10. Discuss with reasons, whether the following persons can be called as a ‘holder’ under the
(i) X who obtains a cheque drawn by Y by way of gift.

(ii) A, the payee of the cheque, who is prohibited by a court order from receiving the
amount of the cheque.
(iii) M, who finds a cheque payable to bearer, on the road and retains it.
(iv) B, the agent of C, is entrusted with an instrument without endorsement by C, who is
the payee.
(v) B, who steals a blank cheque of A and forges A’s signature.
11. Mr. Vyas is the owner of House No. 20 in Geeta Colony, Delhi. He has rented two rooms
in this house to Mr. Iyer. The Income Tax Authority has served a show cause notice to Mr.
Vyas. The said notice was received by Mr. Iyer and returned the notice with an
endorsement of refusal. Decide with reference to provisions of "General Clauses Act,
1897”, whether the notice was rightfully served on Mr. Vyas.
12. Explain the function of ‘proviso’ as an internal aid to construction.
DIVISION A - ANSWER TO CASE SCENARIO / MULTIPULE CHOICE QUESTIONS

1. (A) (b)
(B) (d)
(C) (c)
(D) (a)
2. (A) (d)
(B) (b)
(C) (a)
3. (b)
4. (c)
5. (b)
1. As per Second Proviso to Section 123 (1), in the event of inadequacy or absence of profits
in any financial year, a company may declare dividend out of the accumulated profits of
previous years which have been transferred to the free reserves. However, such
declaration shall be subject to the following conditions as per Rule 3 of Companies
(Declaration and Payment of Dividend) Rules, 2014.

(i) The rate of dividend declared shall not exceed the average of the rates at which
dividend was declared by the company in the immediately preceding three years.
As per facts of the question the present rate of dividend is 20% and average dividend
declared in the last three years is 25%. So, this condition is fulfilled.
(ii) The total amount to be drawn from free reserves shall not exceed one-tenth i.e., 10%
of its paid-up share capital and free reserves as per the latest audited financial
statement.
Amount of dividend proposed: ` 2 Crores (20% of ` 10 Crore i.e on paid up capital)
10% of paid up share capital and free reserves: 10% of (10 crore + 50 crore) = ` 6
Crore.
This condition is fulfilled as amount of dividend is not exceeding 10% of its paid -up
share capital and free reserves.
(iii) The amount so drawn shall first be utilized to set off the losses incurred in the financial
year in which dividend is declared and only thereafter, any dividend in respect of
equity shares shall be declared.
(iv) After such withdrawal from free reserves, the residual reserves shall not fall below
15% of its paid-up share capital as per the latest audited financial statement.
Balance of reserves after payment of dividend: ` 48 crore (50 crore – 2 crore)
15% of paid up share capital: 1.5 crore (15% of 10 crore)
This condition is fulfilled.
Taking into account all the conditions, it can be said that declaration of dividend by MNP
Limited is valid.
2. Disqualification of auditor: According to section 141(3)(d)(i) of the Companies Act, 2013,
a person who, or his relative or partner holds any security of the company or its subsidiary
or of its holding or associate company or a subsidiary of such holding company, which
carries voting rights, such person cannot be appointed as auditor of the company. Provided
that the relative of such person may hold security or interest in the company of face value
not exceeding 1 lakh rupees as prescribed under the Companies (Audit and Auditors)
Rules, 2014.
In the case Mr. Naresh, Chartered Accountants, did not hold any such security. But
Mrs. Reena, his wife held equity shares of New Limited of face value ` 1 lakh, which is
within the specified limit.
Further Section 141(4) provides that if an auditor becomes subject, after his appointment,
to any of the disqualifications specified in sub-section 3 of section 141, he shall be deemed
to have vacated his office of auditor. Hence, Naresh & Company can continue to function
as auditors of the Company even after 15 October 2019 i.e. after the investment made by
his wife in the equity shares of New Limited.

3. According to section 134(1) of the Companies Act, 2013, the financial statement, including
consolidated financial statement, if any, shall be approved by the Board of Directors before
they are signed on behalf of the Board by the chairperson of the company where he is
authorised by the Board or by two directors out of which one shall be managing director, if
any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary
of the company, wherever they are appointed, or in the case of One Person Company, only
by one director, for submission to the auditor for his report thereon.
In the instant case, the Balance Sheet and Profit and Loss Account have been signed by
Mr. Ghanshyam and Mr. Hyder, the directors. In view of Section 134(1) of the Companies
Act, 2013, Mr. Indersen, the Managing Director should be one of the two signing directors.
Since, the company has also employed a full- time Secretary, he should also sign the
Balance Sheet and Profit and Loss Account.
4. According to Section 96 of the Companies Act, 2013, every company shall be required to
hold its first annual general meeting within a period of 9 months from the date of closing of
its first financial year.
The first financial year of EFG Ltd is for the period 1st April 2017 to 31st March 2018, the
first annual general meeting (AGM) of the company should be held on or before
31st December, 2018.
The section further provides that the Registrar may, for any special reason, extend the
time within which any annual general meeting, other than the first annual general meeting,
shall be held, by a period not exceeding three months.
Thus, the first AGM of EFG Ltd. should have been held on or before 31 st December, 2018.
Further, the Registrar does not have the power to grant extension to time limit for the first
AGM.
5. Under section 35 (1) of the Companies Act 2013, where a person has subscribed for
securities of a company acting on any statement included in the prospectus which is
misleading and has sustained any loss or damage as a consequence thereof, the company
and every person including an expert shall, be liable to pay compensation to the person
who has sustained such loss or damage.
In the present case, Mr. Andrew purchased the shares of Green Ltd. on the basis of the
expert report published in the prospectus. Mr. Andrew can claim compensation for any loss
or damage that he might have sustained from the purchase of shares, which has not been
mentioned in the given case.
Hence, Mr. Andrew will have no remedy against the company.
Circumstances when an expert is not liable: An expert will not be liable for any mis-
statements in the prospectus under the following situations:
(i) Under section 26 (5), that having given his consent, but withdrew it in writing before
delivery of the copy of prospectus for registration, or

(ii) Under section 35 (2), that the prospectus was issued without his knowledge / consent
and that on becoming aware of it, he forthwith gave a reasonable public notice that it
was issued without his knowledge or consent;
(iii) An expert will not be liable in respect of any statement not made by him in the capacity
of an expert and included in the prospectus as such;
(iv) that, as regards every misleading statement purported to be made by an expert or
contained in what purports to be a copy of or an extract from a report or valuation of
an expert, it was a correct and fair representation of the statement, or a correct copy
of, or a correct and fair extract from, the report or valuation; and he had reasonabl e
ground to believe and did up to the time of the issue of the prospectus believe, that
the person making the statement was competent to make it and that the said person
had given the consent required by section 26(5) to the issue of the prospectus and
had not withdrawn that consent before filing of a copy of the prospectus with the
Registrar or, to the defendant's knowledge, before allotment thereunder.
6. According to section 103 of the Companies Act, 2013, unless the articles of the company
provide for a larger number in case of a public company, five members personally present
if the number of members as on the date of meeting is not more than o ne thousand, shall
be the quorum.
In this case the quorum for holding a general meeting is 7 members to be personally
present (higher of 5 or 7). For the purpose of quorum, only those members are counted
who are entitled to vote on resolution proposed to be passed in the meeting.
Again, only members present in person and not by proxy are to be counted. Hence, proxies
If a company is a member of another company, it may authorize a person by resolution to
act as its representative at a meeting of the latter company, then such a person shall be
deemed to be a member present in person and counted for the purpose of quorum Where
two or more companies which are members of another company, appoint a single person
as their representative then each such company will be counted as quorum at a meeting
of the latter company.
Further the President of India or Governor of a State, if he is a member of a company, may
appoint such a person as he thinks fit, to act as his representative at any meeting of the
company. A person so appointed shall be deemed to be a member of such a company and
thus considered as member personally present.
In view of the above there are only three members personally present.
‘A’ will be included for the purpose of quorum. B & C have to be excluded for the purpose
of quorum because they represent the preference shares and since the agenda being the
appointment of Managing Director, their rights cannot be said to be directly affected and
therefore, they shall not have voting rights. D will have two votes for the purpose of quorum
as he represents two companies ‘Y Ltd.’ and ‘Z Ltd.’ E, F, G and H are not to be included
as they are not members but representing as proxies for the members.

Thus, it can be said that the requirements of quorum has not been met and it shall not
constitute a valid quorum for the meeting.
7. Restrictions on purchase by company or giving of loans by it for purchase of its
share: As per section 67 (3) of the Companies Act, 2013 a company is allowed to give a
loan to its employees subject to the following limitations:
(a) The employee must not be a Key Managerial Personnel;
(b) The amount of such loan shall not exceed an amount equal to six months’ salary of
the employee.
(c) The shares to be subscribed must be fully paid shares
In the given instance, Human Resource Manager is not a Key Managerial Personnel of the
K Ltd. He is drawing salary of ` 30,000 per month and loan taken to buy 500 partly paid
up equity shares of ` 1000 each in K Ltd.
Keeping the above provisions of law in mind, the company’s (K Ltd.) decision is invalid due
to two reasons:
i. The amount of loan being more than 6 months’ salary of the HR Manager, which
should have restricted the loan to ` 1.8 Lakh.
ii. The shares subscribed are partly paid shares whereas the benefit is available only
for subscribing fully paid shares.
8. As per section 5 of the Companies Act, 2013 the article may contain provisions for
entrenchment to the effect that specified provisions of the articles may be altered only if
more restrictive conditions than a special resolution, are met.
The provisions for entrenchment shall only be made either on formation of a company, or
by an amendment in the articles agreed to by all the members of the company in the case
of a private company and by a special resolution in the case of a public company.
Where the articles contain provisions for entrenchment, whether made on formation or by
amendment, the company shall give notice to the Registrar of such provisions in prescribed
manner.
In the present case, Yadav Dairy Products Private Limited is a private company and wants
to protect provisions of articles regarding forfeiture of shares. It means it wants to make
entrenchment of articles, which is allowed. But the company will have to pass a resolution
taking permission of all the members and it should also give notice to Register of
Companies regarding entrenchment of articles.
9. Agent’s duty to disclose all material circumstances & his duty not to deal on his own
account without principal’s consent. The problem is based on Sections 215 & 216 of
the Indian Contract Act, 1872. According to Section 215, if an agent deals on his own
account in the business of the agency, without obtaining the consent of his principal and
without acquainting him with all material circumstances, then the principal may repudiate
the transaction. On the other hand, section 216 provides that, if an agent, without the
knowledge of his principal, acts on his own account in the business of the agency, then

the principal may claim any benefit which may have accrued to the agent from such a
transaction. Hence in the first instance, though Pankaj had given his consent to Shruti
permitting the latter to act on his own account in the business of agency, Pankaj may still
repudiate the sale as the existence of the mine, a material circumstance, had not been
disclosed to him.
In the second instance, Pankaj had knowledge that Shruti was acting on her own account
and also that the mine was in existence; hence, Pankaj cannot repudiate the transaction
under section 215. Also, under Section 216, he cannot claim any benefit from Shruti as he
had knowledge that Shruti was acting on her own account in the business of the agency.
10. Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881
‘holder’ of a Negotiable Instrument means any person entitled in his own name to the
possession of it and to receive or recover the amount due thereon from the parties thereto.
(i) Yes, X can be termed as a holder because he has a right to possession and to receive
the amount due in his own name.
(ii) No, he is not a ‘holder’ because to be called as a ‘holder’ he must be entitled not only
to the possession of the instrument but also to receive the amount mentioned therein.
(iii) No, M is not a holder of the Instrument though he is in possession of t he cheque, so
is not entitled to the possession of it in his own name.
(iv) No, B is not a holder. While the agent may receive payment of the amount mentioned
in the cheque, yet he cannot be called the holder thereof because he has no right to
sue on the instrument in his own name.
(v) No, B is not a holder because he is in wrongful possession of the instrument.
11. According to section 27 of the General Clauses Act, 1897, where any legislation or
regulation requires any document to be served by post, then unless a different intention
appears, the service shall be deemed to be effected by:
(i) Properly addressing
(ii) Pre-paying, and
(iii) Posting by registered post.
A letter containing the document to have been effected at the time at which the letter wou ld
be delivered in the ordinary course of post.
The facts of the question are similar to a decided case law, wherein it was held that where
a notice is sent to the landlord by registered post and the same is returned by the tenant
with an endorsement of refusal, it will be presumed that the notice has been served. Thus,
in the given question it can be deemed that the notice was rightfully served on Mr. Vyas.

12. Proviso: The normal function of a proviso is to except something out of the enactment or
to qualify something stated in the enactment which would be within its purview if the proviso
were not there. The effect of the proviso is to qualify the preceding enactment which is
expressed in terms which are too general. As a general rule, a proviso is added to an
enactment to qualify or create an exception to what is in the enactment. Ordinarily a proviso
is not interpreted as stating a general rule.
embraces the field which is covered by the main provision. It carves out an exception to
the main provision to which it has been enacted as a proviso and to no other. (Ram Narain
Sons Ltd. vs. Assistant Commissioner of Sales Tax, AIR 1955 SC 765).


FOR NOVEMBER, 2019 EXAMINATIONS
The Study Material (July 2017 edition) is applicable for November, 2019 examinations. This
study material is updated for all amendments till 30 th April, 2017. Further, all relevant
amendments/ circulars/ notifications etc. in the Company law part and the Negotiable
Instruments Act, 1881, for the period 1st May 2017 to 30th April, 2019 are mentioned below:
Relevant Legislative amendments from 1 st May 2017 to 30th April, 2019
The Companies Act, 2013/ Corporate Laws
Sl. Relevant Amendments Pg Earlier Law
No. no.*
I Amendments related to - Enforcement of the 5.4 -
Companies (Acceptance of Deposits) Amendment (The words have
Rules, 2017 Vide Notification G.S.R. 454 (E) dated been newly inserted
11th May, 2017 in the said sub-
In the Companies (Acceptance of Deposits) Rules, clause)
2014,
In rule 2, in sub-rule (1), in clause (c), in sub-
clause (xviii), after the words “Domestic Venture
Capital Funds” the words “Infrastructure
Investment Trusts” shall be inserted.
II Amendments related to – Exemptions to 7.51 Such other place as
Government Companies Vide Notification G.S.R. the Central
582(E) Dated 13th June, 2017 Government may
The Central Government amends the Notification approve in this
G.S.R. 463(E), dated 5 th June 2015, whereby behalf.
Exceptions, Modifications and Adaptations were
provided in case of Government companies.
Following is the amendment:
In sub-section (2) of section 96, for the words
"such other place as the Central Government may
approve in this behalf”, the words “such other
place within the city, town or village in which the
registered office of the company is situate or such
other place as the Central Government may
approve in this behalf” shall be substituted.”

Insertion of Paragraph 2A in the principal notification G.S.R. 463(E), dated 5 th June

2015:
The aforesaid exceptions, modifications and adaptations (i.e. as given in Notification
G.S.R. 463(E), dated 5th June 2015 and Notification G.S.R. 582(E) Dated 13th June,
2017) shall be applicable to a Government company which has not committed a default
in filing of its financial statements under section 137 of the Companies Act or annual
return under section 92 of the said Act with the Registrar.
III Amendments related to - Exemptions to Private
Companies Vide Notification G.S.R. 583(E) Dated
13th June, 2017
The Central Government amends the Notification
G.S.R. 464(E), dated 5 th June 2015 whereby
Exceptions, Modifications and Adaptations were
provided in case of Private companies. Following
are the amendments:
(1) In Chapter I, Clause (40) of section 2. 1.9 Provided that the
For the proviso, the following shall be substituted, financial statement,
namely:- with respect to One
Provided that the financial statement, with respect Person Company,
to one person company, small company, dormant small company and
company and private company (if such private dormant company,
company is a start-up) may not include the cash may not include the
flow statement; cash flow statement
Explanation. - For the purposes of this Act, the
term “start-up‟ or “start-up company” means a
private company incorporated under the
Companies Act, 2013 or the Companies Act, 1956
and recognised as start-up in accordance with the
notification issued by the Department of Industrial
Policy and Promotion, Ministry of Commerce and
Industry.
(2) In Chapter V, clauses (a) to (e) of sub-section 5.6 Clause (a) to (e) of
(2) of section 73, shall not apply to a private Section 73 provides
company- conditions for
(A) which accepts from its members monies not acceptance of
exceeding one hundred per cent. of aggregate of deposits from
the paid up share capital, free reserves and members.
securities premium account; or Notification dated 5th
(B) which is a start-up, for five years from the date June, 2015, provided
of its incorporation; or that Clause (a) to (e)
of Sub-section 2 of

(C) which fulfils all of the following conditions, Section 73 shall not
namely:- apply to private
(a) which is not an associate or a subsidiary Companies which
company of any other company; accepts from its
(b) if the borrowings of such a company from members monies not
banks or financial institutions or any body exceeding one
corporate is less than twice of its paid up share hundred per cent, of
capital or fifty crore rupees, whichever is lower; aggregate of the paid
and up share capital and
free reserves, and
(c) such a company has not defaulted in the
such company shall
repayment of such borrowings subsisting at the
file the details of
time of accepting deposits under this section:
monies so accepted
Provided that the company referred to in clauses to the Registrar in
(A), (B) or (C) shall file the details of monies such manner as may
accepted to the Registrar in such manner as may be specified.
be specified.
(3) In Chapter VII, clause (g) of sub-section (1) of 7.11 clause (g) of sub-
section 92, shall apply to private companies which section (1) of section
are small companies, namely:- 92 is read as
“(g) aggregate amount of remuneration drawn by “remuneration of
directors;” directors and key
managerial
personnel”
(4) In Chapter VII, proviso to sub-section (1) of 7.12 (4) However, in
section 92, relation to One
For the proviso, the following proviso shall be Person Company
substituted, namely:- and small company,
“Provided that in relation to One Person Company, the annual return
small company and private company (if such shall be signed by the
private company is a start-up), the annual return company secretary,
shall be signed by the company secretary, or or where there is no
where there is no company secretary, by the company secretary,
director of the company.”. by the director of the
company.
(5) Section 143(3)(i), shall not apply to a private 10.24 (5) Section 143(3)(i)
company:- provides- whether
(i) which is a one person company or a small the company has
company; or adequate internal
(ii) which has turnover less than rupees fifty crores financial controls
as per latest audited financial statement or# system in place and
which has aggregate borrowings from banks or the operating

financial institutions or anybody corporate at any effectiveness of such

point of time during the financial year less than controls;
rupees twenty five crore."
Insertion of Paragraph 2A in the principal notification G.S.R. 464(E), dated 5th June
2015:
The aforesaid exceptions, modifications and adaptations shall be applicable to a
Private company which has not committed a default in filing of its financial
statements under section 137 or annual return under section 92 of the said Act with
the Registrar.
#IV Amendments related to - Corrigendum vide Refer In Section 143(3)(i)
poi
n t 3 the words
Notification S.O. 2218(E) dated 13 th July 2017 with
above “statement or” which
respect to the Notification G.S.R. 583(E) Dated
13 June, 2017
th has been replaced
with the word
Ministry of Corporate Affairs vide corrigendum “statement and”
stated that for the words “statement or” to read as through this
“statement and” under section 143(3)(i). notification.
V Amendments related to - Enforcement of the 10.6 Earlier Rule 5(b)
Companies (Audit and Auditors) Second stated that -all private
Amendment Rules, 2017 Vide Notification G.S.R. limited companies
621(E) dated 22nd June 2017. having paid up share
The Central Government hereby amends the capital of rupees 20
Companies (Audit and Auditors) Rules, 2014. crore or more;
Through this amendment rule, in Rule 5(b), for the

word “twenty”, the word “fifty” shall be substituted.
VI Amendments related to - Clarification regarding - For the purposes of
applicability of exemption given to certain private clause (i) of sub-
companies under section 143(3)(i) vide circular section (3) of section
no. 08/2017 dated 25 th July 2017 143, for the financial
Notification No. G.S.R. 583(E) dated 13th June, years commencing on
2017 stated that requirements of reporting under or after 1st April, 2015,
section 143(3)(i) read Rule 10 A of the Companies the report of the
(Audit and Auditors) Rules, 2014 of the auditor shall state
Companies Act 2013 shall not apply to certain about existence of
private companies. Through issue of this circular, adequate internal
it is hereby clarified that the exemption shall be financial controls
applicable for those audit reports in respect of system and its
financial statements pertaining to financial year, operating
commencing on or after 1st April, 2016, which are effectiveness:
made on or after the date of the said notification.

Provided that auditor

of a company may
voluntarily include the
statement referred to
in this rule for the
financial year
commencing on or
after 1st April, 2014
and ending on or
before 31st March,
2015.
VII Amendments related to - Clarification regarding - For the purposes of
applicability of exemption given to certain private clause (i) of sub-
companies under section 143(3)(i) vide circular section (3) of section
no. 08/2017 dated 25 th July 2017 143, for the financial
Notification No. G.S.R. 583(E) dated 13th June, years commencing on
2017 stated that requirements of reporting under or after 1st April, 2015,
section 143(3)(i) read Rule 10 A of the Companies the report of the
(Audit and Auditors) Rules, 2014 of the auditor ….. controls
Companies Act 2013 shall not apply to certain system and its
private companies. Through issue of this circular, operating
it is hereby clarified that the exemption shall be effectiveness:
applicable for those audit reports in respect of
financial statements pertaining to financial year, Provided that auditor
commencing on or after 1st April, 2016, which are of a company may
made on or after the date of the said notification. voluntarily …… on or
after 1st April, 2014
and ending on or
before 31st March,
2015.
VIII Amendments related to - Enforcement of the 5.8 Provided that a
Companies (Acceptance of Deposits) Second private company
Amendment Rules, 2017 Vide Notification G.S.R. may accept from its
1172(E) dated 19th September, 2017. members monies
In the Companies (Acceptance of Deposits) Rules, not exceeding one
2014, in rule 3, in sub-rule (3), for the proviso, the hundred per cent of
following shall be substituted, namely:- aggregate of the
“Provided that a Specified IFSC Public company paid up share
and a private company may accept from its capital, free
members monies not exceeding one hundred per reserves and
cent. of aggregate of the paid up share capital, securities premium
free reserves and securities premium account and account and such
company shall file

such company shall file the details of monies so the details of

accepted to the Registrar in Form DPT -3. monies so accepted
Explanation.—For the purpose of this rule, a to the Registrar in
Specified IFSC Public company means an unlisted such manner as
public company which is licensed to operate by the may be specified.
Reserve Bank of India or the Securities and
Exchange Board of India or the Insurance
Regulatory and Development Authority of India
from the International Financial Services Centre
located in an approved multi services Special
Economic Zone set-up under the Special
Economic Zones Act, 2005 read with the Special
Economic Zones Rules, 2006:
Provided further that the maximum limit in respect
of deposits to be accepted from members shall not
apply to following classes of private companies,
namely:—
(i) a private company which is a start-up, for five
years from the date of its incorporation;
(ii) a private company which fulfils all of the
following conditions, namely:—
(a) which is not an associate or a subsidiary
company of any other company;
(b) the borrowings of such a company from banks
or financial institutions or any body corporate is
less than twice of its paid up share capital or fifty
crore rupees, whichever is less; and
(c) such a company has not defaulted in the
repayment of such borrowings subsisting at the time
of accepting deposits under section 73:
Provided also that all the companies accepting
deposits shall file the details of monies so
accepted to the Registrar in Form DPT -3.”.
IX Amendments related to - Notification S.O. 1.20 -
3086(E) dated 20th September 2017 (The proviso is newly
The Central Government hereby appoints the 20 th notified)
September, 2017 as the date on which proviso to
clause (87) of section 2 of the said Act shall come
into force.
The proviso to section 2(87) shall be read as,
“Provided that such class or classes of holding

companies as may be prescribed shall not have

layers of subsidiaries beyond such numbers as
may be prescribed.”
X Amendments related to - COMPANIES
(AMENDMENT) ACT, 2017
Following sections of the Companies Act, 2013
(hereinafter referred to as the principal Act) have
been amended by the Companies (Amendment) Act,
2017 via Notification S.O. 351 (E) dated 26th
January, 2018; Notification S. O. 630 (E) dated 9 th
February; 2018, Notifications: S.O. 1833 (E) dated
7th May, 2018; S.O. 2422(E) dated 13 th June, 2018;
SO. 3299(E) dated 5th July, 2018; S.O. 3300(E)
dated 5th July, 2018; S.O. 3684(E) dated 27th July,
2018; S.O. 3838(E) dated 31 st July, 2018; S.O.
3921(E) dated 7th August, 2018 and S.O. 4907(E)
dated 19th September, 2018.
1. In section 2 of the Companies Act, 2013
(hereinafter referred to as the principal Act)-
(i) in clause (6), for the Explanation, the following 1.4 Explanation.— For
Explanation shall be substituted, namely:— the purposes of this
clause, “significant
'Explanation.—For the purpose of this clause,— influence” means
(a) the expression "significant influence" means control of at least
control of at least twenty per cent. of total voting twenty per cent of
power, or control of or participation in business total share capital,
or of business
decisions under an agreement;
decisions under an
(b) the expression "joint venture" means a joint agreement
arrangement whereby the parties that have joint
control of the arrangement have rights to the net
assets of the arrangement;
Enforcement Date: 7 th May, 2018
(i) for clause (28), the following clause shall be 1.7 Cost accountant
substituted, namely:— means a cost
'(28) "Cost Accountant" means a cost accountant accountant as
as defined in clause (b) of sub-section (1) of defined in clause
section 2 of the Cost and Works Accountants Act, (b) of sub-section
1959 and who holds a valid certificate of practice (1) of section 2 of
under sub-section (1) of section 6 of that Act; the Cost and Works

Accountants Act,
1959.
(ii) in clause (30), the following proviso shall be 1.8 –
inserted, namely: (The proviso is newly
"Provided that- inserted)
(a) the instruments referred to in Chapter III-D
of the Reserve Bank of India Act, 1934; and
(b) such other instrument, as may be prescribed
by the Central Government in consultation with the
Reserve Bank of India, issued by a company,
shall not be treated as debenture;";
1(iii) in clause (41), in the first proviso, after the
1.9 -
word "subsidiary", the words "or associate (The words are newly
company" shall be inserted; inserted)
which is a holding
company or a
subsidiary of a
company
incorporated outside
India
(iv) in clause (46), the following Explanation shall 1.11 -
be inserted, namely:- (The Explanation is
'Explanation.—For the purposes of this clause, the newly inserted)
expression "company" includes any body
corporate;';
(v) clause (49) shall be omitted 1.11 (49) Interested
director means a
director who is in
any way, whether
by…………, entered
into or to be entered
into by or on behalf
of a company;
This definition is
relevant for section
174 relating to
quorum …….. 188
1First proviso to section 2(41) has been fully substituted by the Companies (Amendment) Second Ordinance,
2019 (with retrospective effect from 2 nd November, 2018).

relating to related
party transactions
of the Companies
Act, 2013.
(vi) in clause (51),- 1.11 (iii) the whole-time
director;
(a) in sub-clause (iv), the word "and" shall be (iv) the Chief
omitted; Financial Officer;
(b) for sub-clause (v), the following sub-clauses and
shall be substituted, namely:- (v) such other
"(v) such other officer, not more than one level officer as may be
below the directors who is in whole-time prescribed;
employment, designated as key managerial
personnel by the Board; and
(vi) such other officer as may be prescribed;"
(vii) in clause (57), for the words "and securities 1.12 ……the aggregate
premium account", the words ", securities value of the paid-up
premium account and debit or credit balance of share capital and all
profit and loss account," shall be substituted reserves created out
of the profits and
securities premium
account, after
deducting the
aggregate…..
(viii) in clause (71), in sub-clause (a), after the 1.15 –
word "company;", the word "and" shall be inserted; (The word is newly
inserted)
(ix) in clause (72), in the proviso, in clause (A), 1.16 -
after the words “State Act”, the words “other than (The words are newly
this Act or the previous company law” shall be inserted)
inserted;
(x) in clause (76), for sub-clause (viii), the 1.17 (viii) any company
following sub-clause shall be substituted, which is—
namely:— (A) a holding,
subsidiary or an
"(viii) any body corporate which is— associate company
(A) a holding, subsidiary or an associate company of such company;
of such company; or
(B) a subsidiary of a holding company to which it (B) a subsidiary of a
is also a subsidiary; or holding company to

(C) an investing company or the venturer of the which it is also a

company;"; subsidiary;
Explanation.—For the purpose of this clause, “the
investing company or the venturer of a company”
means a body corporate whose investment in the
company would result in the company becoming
an associate company of the body corporate.
(xi) in clause (85)- 1.20 For (a)
(a) in sub-clause (i), for the words "five crore paid-up share capital
rupees", the words "ten crore rupees" shall be of which does not
substituted; exceed fifty lakh
rupees or such
higher amount as
may be prescribed
which shall not be
more than five crore
rupees; or
(b) in sub-clause (ii),- For (b)
(A) for the words "as per its last profit and loss turnover of which as
account", the words "as per profit and loss account per its last profit
for the immediately preceding financial year" shall and loss account
be substituted; does not exceed two
(B) for the words "twenty crore rupees", the crore rupees or such
words "one hundred crore rupees" shall be higher amount as
substituted; may be prescribed
which shall not be
more than twenty
crore rupees:
(ii) in clause (87), in sub-clause (ii), for the words 1.20 (ii) exercises or
“total share capital”, the words “total voting power” controls more than
shall be substituted; one-half of the total
share capital either
Enforcement Date: 7 th May, 2018 at its own or together
with one or more of
its subsidiary
companies:
(xii) for clause (91), the following clause shall be 1.21 (91) Turnover
substituted, namely:- means the
'(91) "turnover" means the gross amount of aggregate value of
revenue recognised in the profit and loss account the realisation of
from the sale, supply, or distribution of goods or amount made from

on account of services rendered, or both, by a the sale, supply or

company during a financial year;'. distribution of
goods or on
account of services
rendered, or both,
by the company
during a financial
year;
Note: There is in
ambiguity in
definition. So, there
is a need for
amendment in this
definition. Further,
the change in
definition is
pending in the
Companies
(Amendment) Bill,
2016.
2. After section 3 of the principal Act, the following 2.4 -
section shall be inserted, namely:- (The section is newly
"3A. If at any time the number of members of a inserted)
company is reduced, in the case of a public
company, below seven, in the case of a private
company, below two, and the company carries on
business for more than six months while the
number of members is so reduced, every person
who is a member of the company during the time
that it so carries on business after those six
months and is cognisant of the fact that it is
carrying on business with less than seven
members or two members, as the case may be,
shall be severally liable for the payment of the
whole debts of the company contracted during that
time, and may be severally sued therefor.".
Enforcement Date: 9 th February, 2018
3. In section 4 of the principal Act, in sub-section 2.11 Upon receipt of an
(5), for clause (i), the following shall be application, the
substituted, namely:- Registrar may, on
"(i) Upon receipt of an application under sub- the basis of
section (4), the Registrar may, on the basis of information and

information and documents furnished along with documents

the application, reserve the name for a period of furnished along
twenty days from the date of approval or such with the
other period as may be prescribed: application, reserve
Provided that in case of an application for the name for a
reservation of name or for change of its name by period of sixty days
an existing company, the Registrar may reserve from the date of the
the name for a period of sixty days from the date application.
of approval."
Enforcement Date: 26 th January, 2018
4. In section 7 of the principal Act, in sub-section 2.18 an affidavit from
(1), in item (c), for the words "an affidavit", the each of the
words "a declaration" shall be substituted. subscribers to the
memorandum and
Enforcement Date: 27 th July, 2018 from persons named
as the first directors,
if any, in the articles
stating that
5. In section 12 of the principal Act,— 2.22 (1) Registered office:
(i) in sub-section (1), for the words "on and from From the 15th day
the fifteenth day of its incorporation", the words of its incorporation
"within thirty days of its incorporation" shall be and at all times
substituted; thereafter a company
shall …..be
Enforcement Date: 27 th July, 2018 addressed to it.
5. In section 12 of the principal Act,— 2.23 (6) Notice of
(ii) in sub-section (4), for the words "within fifteen change to registrar:
days", the words "within thirty days" shall be Notice of every
substituted. change ……..
Enforcement Date: 27 th July, 2018 Registrar within 15
days of the change,
who shall record the
same.
6. In section 21 of the principal Act, for the words 2.35 (ii) an officer of
"an officer of the company", the words "an officer the company duly
or employee of the company" shall be substituted authorised by the
Enforcement Date: 9th February, 2018 Board in this behalf.
7. In section 26 of the principal Act, in sub-section 3.7 -
(1),— (The words have
(i) after the words "signed and shall", the following been newly inserted)
shall be inserted, namely:—

"state such information and set out such reports

on financial information as may be specified by the
Securities and Exchange Board in consultation
with the Central Government:
Provided that until the Securities and Exchange
Board specifies the information and reports on
financial information under this sub-section, the
regulations made by the Securities and Exchange
Board under the Securities and Exchange Board
of India Act, 1992, in respect of such financial
information or reports on financial information
shall apply.";
Enforcement Date: 7th May, 2018

7. In section 26 of the principal Act, in sub-section 3.7, (a) Firstly, under
(1),- 3.8, the general
3.9 information, the
(ii) clauses (a), (b) and (d) shall be omitted. prospectus shall
contained the
following
Enforcement Date: 7 th May, 2018 information,
namely—
(i) names and
addresses of the
………of promoter‘s
contribution;
(b) Secondly,
under the Financial
informations, …….
applied directly or
indirectly;
(d) state such
other matters and
set out such other
reports, as may be
prescribed.
8. In section 35 of the principal Act, in sub-section 3.22 -
(2), after clause (b), the following clause shall be (The clause is newly
inserted, namely:- inserted)

"(c) that, as regards every misleading statement To be inserted in

purported to be made by an expert or contained in Point (2) after point
what purports to be a copy of or an extract from a (b)
report or valuation of an expert, it was a correct
and fair representation of the statement, or a
correct copy of, or a correct and fair extract from,
the report or valuation; and he had reasonable
ground to believe and did up to the time of the
issue of the prospectus believe, that the person
making the statement was competent to make it
and that the said person had given the consent
required by sub-section (5) of section 26 to the
issue of the prospectus and had not withdrawn
that consent before delivery of a copy of the
prospectus for registration or, to the defendant's
knowledge, before allotment thereunder.".
Enforcement Date: 9th February, 2018
9. For section 42 of the principal Act, the following 3.28 The content related
section shall be substituted, namely:— to to section 42 is to be
'42. (1) A company may, subject to the provisions 3.32 deleted
of this section, make a private placement of
securities.
(2) A private placement shall be made only to a
select group of persons who have been identified
by the Board (herein referred to as "identified
persons"), whose number shall not exceed fifty or
such higher number as may be prescribed
[excluding the qualified institutional buyers and
employees of the company being offered
securities under a scheme of employees stock
option in terms of provisions of clause (b) of sub-
section (1) of section 62], in a financial year
subject to such conditions as may be prescribed.
(3) A company making private placement shall
issue private placement offer and application in
such form and manner as may be prescribed to
identified persons, whose names and addresses
are recorded by the company in such manner as
may be prescribed:
Provided that the private placement offer and
application shall not carry any right of
renunciation.

Explanation I.—"private placement" means any

offer or invitation to subscribe or issue of
securities to a select group of persons by a
company (other than by way of public offer)
through private placement offer-cum-application,
which satisfies the conditions specified in this
section.
Explanation II.—"qualified institutional buyer"
means the qualified institutional buyer as defined
in the Securities and Exchange Board of India
(Issue of Capital and Disclosure Requirements)
Regulations, 2009, as amended from time to time,
made under the Securities and Exchange Board of
India Act, 1992.
Explanation III.—If a company, listed or unlisted,
makes an offer to allot or invites subscription, or
allots, or enters into an agreement to allot,
securities to more than the prescribed number of
persons, whether the payment for the securities
has been received or not or whether the company
intends to list its securities or not on any
recognised stock exchange in or outside India, the
same shall be deemed to be an offer to the public
and shall accordingly be governed by the
provisions of Part I of this Chapter.
(4) Every identified person willing to subscribe to
the private placement issue shall apply in the
private placement and application issued to such
person alongwith subscription money paid either
by cheque or demand draft or other banking
channel and not by cash:
Provided that a company shall not utilise monies
raised through private placement unless allotment
is made and the return of allotment is filed with the
Registrar in accordance with sub-section (8).
(5) No fresh offer or invitation under this section
shall be made unless the allotments with respect
to any offer or invitation made earlier have been
completed or that offer or invitation has been
withdrawn or abandoned by the company:
Provided that, subject to the maximum number of
identified persons under sub-section (2), a

company may, at any time, make more than one

issue of securities to such class of identified
persons as may be prescribed.
(6) A company making an offer or invitation under
this section shall allot its securities within sixty
days from the date of receipt of the application
money for such securities and if the company is
not able to allot the securities within that period, it
shall repay the application money to the
subscribers within fifteen days from the expiry of
sixty days and if the company fails to repay the
application money within the aforesaid period, it
shall be liable to repay that money with interest at
the rate of twelve per cent. per annum from the
expiry of the sixtieth day:
Provided that monies received on application
under this section shall be kept in a separate bank
account in a scheduled bank and shall not be
utilised for any purpose other than—
(a) for adjustment against allotment of
securities; or
(b) for the repayment of monies where the
company is unable to allot
securities.
(7) No company issuing securities under this
section shall release any public advertisements or
utilise any media, marketing or distribution
channels or agents to inform the public at large
about such an issue.
(8) A company making any allotment of securities
under this section, shall file with the Registrar a
return of allotment within fifteen days from the date
of the allotment in such manner as may be
prescribed, including a complete list of all
allottees, with their full names, addresses, number
of securities allotted and such other relevant
information as may be prescribed.
(9) If a company defaults in filing the return of
allotment within the period prescribed under sub-
section (8), the company, its promoters and
directors shall be liable to a penalty for each
default of one thousand rupees for each day

during which such default continues but not

exceeding twenty-five lakh rupees.
(10) Subject to sub-section (11), if a company
makes an offer or accepts monies in contravention
of this section, the company, its promoters and
directors shall be liable for a penalty which may
extend to the amount raised through the private
placement or two crore rupees, whichever is
lower, and the company shall also refund all
monies with interest as specified in sub-section (6)
to subscribers within a period of thirty days of the
order imposing the penalty.
(11) Notwithstanding anything contained in sub-
section (9) and sub-section (10), any private
placement issue not made in compliance of the
provisions of sub-section (2) shall be deemed to
be a public offer and all the provisions of this Act
and the Securities Contracts (Regulation) Act,
1956 and the Securities and Exchange Board of
India Act, 1992 shall be applicable.’.
Enforcement Date: 7 th August, 2018
10. In section 47, in sub-section (1), for the words, 4.6 In Point (i), the
figures and brackets "provisions of section 43 and following may be
sub-section (2) of section 50", the words, figures added,
and brackets "provisions of section 43, sub-
“Subject to
section (2) of section 50 and sub-section (1) of
the provisions of
section 188" shall be substituted.
section 43, sub-
Enforcement Date: 9 th February, 2018 section (2) of section
50 and sub-section
(1) of section 188,”
11. In section 53 of the principal Act,- 4.10 For (i)
(i) in sub-section (2), for the words "discounted Any share issued by
price", the word "discount" shall be substituted; a company at a
Enforcement Date: 9 th February, 2018 discounted price
shall be void.
11. In section 53 of the principal Act,- 4.10 For (ii): -
(ii) after sub-section (2), the following sub-section (The sub- section is
shall be inserted, namely:- newly inserted)
"(2A) Notwithstanding anything contained in
sub-sections (1) and (2), a company may issue

shares at a discount to its creditors when its debt

is converted into shares in pursuance of any
statutory resolution plan or debt restructuring
scheme in accordance with any guidelines or
directions or regulations specified by the Reserve
Bank of India under the Reserve Bank of India Act,
1934 or the Banking (Regulation) Act, 1949.".
12. In section 54, in sub-section (1), clause (c) 4.11 (c) not less than
shall be omitted. one year has, at the
date of such issue,
Enforcement Date: 7 th May, 2018 elapsed since the
date on which the
company had
commenced
business; and
13. In section 62 of the principal Act,- 4.22 For (i)
(i) in sub-section (1), in clause (c), for the words (c) to any persons,
"of a registered valuer subject to such conditions if it is authorised by a
as may be prescribed", the words and figures "of special resolution,
a registered valuer, subject to the compliance with ….. is determined by
the applicable provisions of Chapter III and any the valuation report
other conditions as may be prescribed" shall be of a registered
substituted; valuer subject to
such conditions as
Enforcement Date: 9 th February, 2018 prescribed ………
13. In section 62 of the principal Act,- 4.22 For (ii)
The notice of offer
(ii) for sub-section (2), the following sub-section of shares shall be
shall be substituted, namely:- despatched
"(2) The notice referred to in sub-clause (i) of through registered
clause (a) of sub-section (1) shall be dispatched post or speed post
through registered post or speed post or through or through
electronic mode or courier or any other mode electronic mode to
having proof of delivery to all the existing all the existing
shareholders at least three days before the shareholders at
opening of the issue.". least three days
before the opening
of the issue.

14. In section 73 of the principal Act, in sub- 5.6 (c) depositing

section (2),— such sum which
(i) for clause (c), the following clause shall be shall not be less
substituted, namely:— than fifteen per
"(c) depositing, on or before the thirtieth day of cent. of the amount
April each year, such sum which shall not be less of its deposits
than twenty per cent. of the amount of its deposits maturing during a
maturing during the following financial year and financial year and
kept in a scheduled bank in a separate bank the financial year
account to be called deposit repayment reserve next following, and
account;"; kept in a scheduled
bank in a separate
Enforcement Date: 15th August, 2018 bank account to be
called as deposit
repayment reserve
account
14. In section 73 of the principal Act, in sub- 5.6 (d) providing such
section (2),— deposit insurance
(ii) clause (d) shall be omitted; in such manner and
to such extent as
Enforcement Date: 15 th August, 2018 may be prescribed
14. In section 73 of the principal Act, in sub- 5.6 (e) certifying that the
section (2),— ………. Act or
(iii) in clause (e), for the words "such deposits;", payment of interest
the following shall be substituted, namely:— on such deposits
"such deposits and where a default had occurred,
the company made good the default and a period
of five years had lapsed since the date of making
good the default;".
15. In section 74, in sub-section (1), for clause 5.13 repay within one
(b), the following clause shall be substituted, year from such
namely:— commencement or
"(b) repay within three years from such from the date on
commencement or on or before expiry of the which such
period for which the deposits were accepted, payments are due,
whichever is earlier: whichever is earlier
Provided that renewal of any such deposits shall
be done in accordance with the provisions of
Chapter V and the rules made thereunder."


16. In section 76A of the principal Act,- (a) For (a)
(a) in clause (a), for the words, “one crore rupees”, 5.14 the company ….shall
the words “one crore rupees or twice the amount not be less than one
of deposit accepted by the company, whichever is crore rupees but
lower” shall be substituted; which may extend to
ten crore rupees; and
16. In section 76A of the principal Act,- 5.15 For (b)
every officer ….with
(b) in clause (b),- imprisonment which
(i) for the words "seven years or with fine", the may extend to seven
words "seven years and with fine" shall be years or with fine
substituted; which shall not be
less than twenty-five
(ii) the words "or with both" shall be omitted
lakh rupees but
which may extend to
Enforcement Date: 9 th February, 2018 two crore rupees, or
with both
17. In section 77 of the principal Act, in sub- 6.3 -
section (1), after the third proviso, the following (The proviso is newly
proviso shall be inserted, namely:— inserted)
"Provided also that this section shall not apply to
such charges as may be prescribed in consultation
with the Reserve Bank of India.".

18. In section 78 of the principal Act, for the words 6.4 As per section 78
and figures "register the charge within the period ……. to register the
specified in section 77", the words, brackets and charge within the
figures "register the charge within the period of period 30 days, the
thirty days referred to in sub-section (1) of section person in whose
77" shall be substituted. favour the charge is
created may apply
19. In section 82 of the principal Act, in sub- 6.7 According to section
section (1),— 82 of the Companies
(i) the words, brackets and figures "and the Act, 2013, …… from
provisions of sub-section (1) of section 77 shall, the date of such
payment or

as far as may be, apply to an intimation given satisfaction and the

under this section" shall be omitted; provisions of
section 77(1) shall,
Enforcement Date: 5 th July, 2018 as far as may be,
apply to an
intimation given
under this section.
section (1),— (The proviso is newly
(ii) the following proviso shall be inserted, inserted)
namely:—
"Provided that the Registrar may, on an
application by the company or the charge holder,
allow such intimation of payment or satisfaction to
be made within a period of three hundred days of
such payment or satisfaction on payment of such
additional fees as may be prescribed.".
Enforcement Date: 5 th July, 2018

20. In section 89 of the principal Act,— 7.9 For (i), the said words
(i) in sub-section (6), the words and figures, are omitted.
"within the time specified under section 403" shall (however, the study
be omitted; material does not
contain reference of
section 403)
20. In section 89 of the principal Act,— 7.9 the said words have
been substituted
(ii) in sub-section (7), for the words and figures, (however, the study
"under the first proviso to sub-section (1) of material does not
section 403", the word "therein", shall be contain reference of
substituted; section 403)
20. In section 89 of the principal Act,— 7.9 The sub- section is
newly inserted.
(iii) after sub-section (9), the following sub-section
"(10) For the purposes of this section and section
90, beneficial interest in a share includes, directly
or indirectly, through any contract, arrangement or

otherwise, the right or entitlement of a person

alone or together with any other
person to—
(i) exercise or cause to be exercised any or all of
the rights attached to such share; or
(ii) receive or participate in any dividend or other
distribution in respect of such share.".
Enforcement Date: 13 th June, 2018
21. For section 90 of the principal Act, the 7.10 INVESTIGATION OF
following section shall be substituted, namely:— BENEFICIAL
OWNERSHIP OF
‘REGISTER OF SIGNIFICANT BENEFICIAL
SHARES IN CERTAI N
OWNERS IN A COMPANY
CASES The section
(1) Every individual, who acting alone or together, simply enables the
or through one or more persons or trust, including Central …….
a trust and persons resident outside India, holds investigation
beneficial interests, of not less than twenty-five ordered under that
per cent. or such other percentage as may be section.
prescribed, in shares of a company or the right to
exercise, or the actual exercising of significant
influence or control as defined in clause (27) of
section 2, over the company (herein referred to as
"significant beneficial owner"), shall make a
declaration to the company, specifying the nature
of his interest and other particulars, in such
manner and within such period of acquisition of the
beneficial interest or rights and any change
thereof, as may be prescribed:
Provided that the Central Government may
prescribe a class or classes of persons who shall
not be required to make declaration under this
sub-section.
(2) Every company shall maintain a register of the
interest declared by individuals under sub-section
(1) and changes therein which shall include the
name of individual, his date of birth, address,
details of ownership in the company and such
other details as may be prescribed.
(3) The register maintained under sub-section (2)
shall be open to inspection by any member of the
company on payment of such fees as may be
prescribed.

(4) Every company shall file a return of significant

beneficial owners of the company and changes
therein with the Registrar containing names,
addresses and other details as may be prescribed
within such time, in such form and manner as may
be prescribed.
(5) A company shall give notice, in the prescribed
manner, to any person (whether or not a member
of the company) whom the company knows or has
reasonable cause to believe—
(a) to be a significant beneficial owner of the
company;
(b) to be having knowledge of the identity of a
significant beneficial owner or another person
likely to have such knowledge; or
(c) to have been a significant beneficial owner of
the company at any time during the three years
immediately preceding the date on which the
notice is issued,
and who is not registered as a significant
beneficial owner with the company as required
under this section.
(6) The information required by the notice under
sub-section (5) shall be given by the concerned
person within a period not exceeding thirty days of
the date of the notice.
(7) The company shall,—
(a) where that person fails to give the company
the information required by the notice within the
time specified therein; or
(b) where the information given is not
satisfactory,
apply to the Tribunal within a period of fifteen days
of the expiry of the period specified in the notice,
for an order directing that the shares in question
be subject to restrictions with regard to transfer of
interest, suspension of all rights attached to the
shares and such other matters as may be
prescribed.
(8) On any application made under sub-section
(7), the Tribunal may, after giving an opportunity

of being heard to the parties concerned, make

such order restricting the rights attached with the
shares within a period of sixty days of receipt of
application or such other period as may be
prescribed.
(9) The company or the person aggrieved by the
order of the Tribunal may make an application to
the Tribunal for relaxation or lifting of the
restrictions placed under sub-section (8).
(10) If any person fails to make a declaration as
required under sub-section (1), he shall be
punishable with fine which shall not be less than
one lakh rupees but which may extend to ten lakh
rupees and where the failure is a continuing one,
with a further fine which may extend to one
thousand rupees for every day after the first during
which the failure continues.
(11) If a company, required to maintain register
under sub-section (2) and file the information
under sub-section (4), fails to do so or denies
inspection as provided therein, the company and
every officer of the company who is in default shall
be punishable with fine which shall not be less
than ten lakh rupees but which may extend to fifty
lakh rupees and where the failure is a continuing
one, with a further fine which may extend to one
thousand rupees for every day after the first during
(12) If any person wilfully furnishes any false or
incorrect information or suppresses any material
information of which he is aware in the declaration
made under this section, he shall be liable to
action under section 447.'.
22. In section 92 of the principal Act,— 7.12 A copy of annual
return shall be file
(i) in sub-section (4), the words and figures, with the RoC within
"within the time as specified, under section 403" 60 days …… holding
shall be omitted; the AGM within the
time specified
under section 403

been substituted
2(ii) in sub-section (5), for the words and figures, (however, the study
"under section 403 with additional fees" the word material does not
"therein" shall be substituted. contain reference of
section 403)
23. Section 93 of the principal Act shall be 7.13 SECTION 93 –
omitted. RETURN …..
company in each
Enforcement Date: 13th June, 2018 case
24. In section 94 of the principal Act,— 7.14 the change has to be
(i) in sub-section (1), in the first proviso, the words made in the diagram
"and the Registrar has been given a copy of the given on page 7.14
proposed special resolution in advance" shall be
omitted;
24. In section 94 of the principal Act,— 7.14 -
(The proviso is newly
(ii) in sub-section (3), the following proviso shall inserted)
be inserted, namely:—
"Provided that such particulars of the register or
index or return as may be prescribed shall not be
available for inspection under sub-section (2) or
for taking extracts or copies under this sub-
section.".
section (2), in the proviso, for the words "Provided (The proviso is newly
that", the following shall be substituted, namely:— inserted)
"Provided that annual general meeting of an
unlisted company may be held at any place in
India if consent is given in writing or by electronic
mode by all the members in advance:
Provided further that".
Enforcement Date: 13th June, 2018
2Sub-section 5 of section 92 has been fully substituted by the Companies (Amendment) Second Ordinance,
2019 (w.r.e.f. 2.11.2018)


section (1), the following proviso shall be inserted, (The proviso is newly
namely:- "Provided that an extraordinary general inserted)
meeting of the company, other than of the wholly
owned subsidiary of a company incorporated
outside India, shall be held at a place within
India.".
27. In section 101 of the principal Act, in sub- 7.19 The proviso to
section (1), for the proviso, the following proviso section 101(1) also
shall be substituted, namely:- states that a shorter
"Provided that a general meeting may be called notice may also be
after giving shorter notice than that specified in given with the
this sub-section if consent, in writing or by consent of 95 per
electronic mode, is accorded thereto- cent of the
(i) in the case of an annual general meeting, by not members entitled to
less than ninty-five per cent. of the members vote. Generally
entitled to vote thereat; and meetings need to be
called by giving a
(ii) in the case of any other general meeting, by
notice of 21 clear
members of the company-
days. However, they
(a) holding, if the company has a share capital, can be called on a
majority in number of members entitled to vote and shorter notice if, 95
who represent not less than ninety-five per cent. per cent of the
of such part of the paid-up share capital of the members entitled to
company as gives a right to vote at the meeting; vote in that meeting
or give their consent
(b) having, if the company has no share capital, in writing or by
not less than ninety-five per cent. of the total electronic mode.
voting power exercisable at that meeting: It is also important
Provided further that where any member of a to note that only the
company is entitled to vote only on some requirement as
resolution or resolutions to be moved at a meeting regards the length
and not on the others, those members shall be of the notice being
taken into account for the purposes of this sub- 21 days, is
section in respect of the former resolution or dispensed with by
resolutions and not in respect of the latter.". such consent of not
Enforcement Date: 9 th February, 2018 less than 95 per
cent of the
members entitled to
vote at such
meeting and not the

necessity to call
and hold such
meeting.
section (1), the following proviso shall be inserted, (The proviso is newly
namely:- inserted)
"Provided that any item of business required to be
transacted by means of postal ballot under clause
(a), may be transacted at a general meeting by a
company which is required to provide the facility
to members to vote by electronic means under
section 108, in the manner provided in that
section."
(i) in sub-section (1), the words and figures “within been omitted
the time specified under section 403” shall be (however, the study
omitted; material does not
Enforcement Date: 7 th May, 2018 contain reference of
section 403)
29. In section 117 of the principal Act,— 7.46 Section 117(2) sets
out …….. to …... the
3(ii) in sub-section (2),— specified time under
(a) for the words and figures “under section 403 section 403 and
……. which shall not
with additional fees”, the word “therein” shall be
be less than
substituted;
` 5,00,000 but which
(b) for the words "not be less than five lakh may extend to
rupees", the words "not be less than one lakh ` 25,00,000 and
rupees" shall be substituted; every officer ……
(c) for the words "one lakh rupees", the words "fifty with fine which shall
thousand rupees" shall be substituted; not be less than
` 1,00,000 but which
Enforcement Date: 7 th May, 2018 may extend to
` 5,00,000
3 Sub-section 2 of section 117 has been fully substituted by the Companies (Amendment) Second
Ordinance, 2019 (w.r.e.f. 2.11.2018)

29. In section 117 of the principal Act,— 7.45 For (a)

(iii) in sub-section (3),— resolutions passed
(a) clause (e) shall be omitted; by a …….. of any of
(b) in clause (g), in the proviso, the word “and” the powers under
shall be omitted and the following proviso shall be …(1)(c)
inserted, namely:—
"Provided further that nothing contained in this For (b)-
clause shall apply to a banking company in (The proviso is newly
respect of a resolution passed to grant loans, or inserted)
give guarantee or provide security in respect of
loans under clause (f) of sub-section (3) of section
179 in the ordinary course of its business; and.".
been omitted/
(i) in sub-section (2), the words and figures “within substituted
the time as specified, under section 403” shall be (however, the study
omitted; material does not
4(ii) in sub-section (3), for the words and figures contain reference of
section 403)
“under section 403 with additional fees”, the word
“therein” shall be substituted.
31. In section 123 of the principal Act,- 8.4
(a) in sub-section (1)-
(i) in clause (a),-
(A) for the words "both; or", the word "both:" (i) For point (A)
shall be substituted; (c) out of both (a)
(B) the following proviso shall be inserted, and (b); or
namely:-
"Provided that in computing profits any amount
representing unrealised gains, notional gains or For point (B): -
revaluation of assets and any change in carrying
amount of an asset or of a liability on
inserted)
measurement of the asset or the liability at fair
value shall be excluded; or";
2019 (w.r.e.f. 2.11.2018)

31. In section 123 of the principal Act,- 8.4 For (ii)

Where a company,
(a) in sub-section (1)- ……. it in previous
(ii) in the second proviso, for the words years and
"transferred by the company to the reserves", the transferred by the
words "transferred by the company to the free company to the
reserves" shall be substituted; reserves, such
declaration of
dividend …… with
Enforcement Date: 9 th February, 2018 prescribed rules.
[Second Proviso to
section 123(1)]
31. In section 123 of the principal Act,- 8.6 According to section
123(3), the Board of
(b) for sub-section (3), the following sub-section Directors of a
shall be substituted, namely:- company may
declare interim
"(3) The Board of Directors of a company may
dividend during any
declare interim dividend during any financial year
financial year out of
or at any time during the period from closure of
the surplus in the
financial year till holding of the annual general
profit and loss
meeting out of the surplus in the profit and loss
account and out of
account or out of profits of the financial year for
profits of the
which such interim dividend is sought to be
financial year in
declared or out of profits generated in the financial
which such interim
year till the quarter preceding the date of
dividend is sought
declaration of the interim dividend:
to be declared.
Provided that in case the company has incurred
However, in case
loss during the current financial year up to the end
the company has
of the quarter immediately preceding the date of
incurred loss
declaration of interim dividend, such interim
during the current
dividend shall not be declared at a rate higher than
financial year up to
the average dividends declared by the company
the end of the
during immediately preceding three financial
quarter immediately
years.".
preceding the date
of declaration of
Enforcement Date: 9 th February, 2018 interim dividend,
such interim
dividend shall not
be declared at a rate
higher than the
average dividends

declared by the
company during
immediately
preceding three
financial years.
32. In section 129 of the principal Act, for sub- 9.8 (1) Where a
section (3), the following sub-section shall be and company has one
substituted, namely:— 9.9 or more
"(3) Where a company has one or more subsidiaries, ……
subsidiaries or associate companies, it shall, in Rule 6 of
addition to financial statements provided under the Companies
sub-section (2), prepare a consolidated financial (Accounts) Rules,
statement of the company and of all the 2014.
subsidiaries and associate companies in the same
form and manner as that of its own and in Explanation—For
accordance with applicable accounting standards,
the purposes of this
which shall also be laid before the annual general
sub-section, the
meeting of the company along with the laying of its
word “subsidiary”
financial statement under sub-section (2):
shall include
Provided that the company shall also attach along
associate company
with its financial statement, a separate statement
and joint venture.
containing the salient features of the financial
statement of its subsidiary or subsidiaries and
associate company or companies in such form as
may be prescribed:
Provided further that the Central Government may
provide for the consolidation of accounts of
companies in such manner as may be prescribed.
33. In section 130 of the principal Act,- 9.13 For (i) -
(i) in sub-section (1), in the proviso,- (The words are newly
(a) after the words "regulatory body or authorities inserted)
concerned", the words "or any other person
concerned" shall be inserted;
(b) after the words "the body or authority
concerned", the words "or the other person
33. In section 130 of the principal Act,- 9.13
(ii) after sub-section (2), the following sub-section For (ii) –

"(3) No order shall be made under sub-section (1) (This sub- section is
in respect of re-opening of books of account newly inserted)
relating to a period earlier than eight financial
years immediately preceding the current financial
year: Provided that where a direction has been
issued by the Central Government under the
proviso to sub-section (5) of section 128 for
keeping of books of account for a period longer
than eight years, the books of account may be
ordered to be re-opened within such longer
period."
34. In section 134 of the principal Act,— 9.16
(a) for sub-section (1), the following sub-section The financial
shall be substituted, namely:— statements,
including
"(1) The financial statement, including
consolidated
consolidated financial statement, if any, shall be
financial statement,
approved by the Board of Directors before they are
…......... for
signed on behalf of the Board by the chairperson
submission to the
of the company where he is authorised by the
auditor for his
Board or by two directors out of which one shall be
report thereon.
managing director, if any, and the Chief Executive
Officer, the Chief Financial Officer and the
company secretary of the company, wherever they
are appointed, or in the case of One Person
Company, only by one director, for submission to
the auditor for his report thereon.";
Enforcement Date: 31 st July, 2018
34. In section 134 of the principal Act,— 9.17 For (i)
(b) in sub-section (3),— Extract of annual
return (in the
(i) for clause (a), the following clause shall be
diagram)
"(a) the web address, if any, where annual return
referred to in sub-section (3) of section 92 has For (ii)
been placed;"; Listed /other public
(ii) in clause (p), for the words "annual evaluation …….
has been made by the Board of its own statement
performance and that of its committees and of annual evaluation
individual directors", the words "annual evaluation of performances of
of the performance of the Board, its Committees Board,

and of individual directors has been made" shall committees and

be substituted; individual directors.
(iii) after clause (q), the following provisos shall be (in the diagram)
"Provided that where disclosures referred to in this For (iii)
sub-section have been included in the financial The proviso is newly
statements, such disclosures shall be referred to inserted (in the
instead of being repeated in the Board's report: diagram)
Provided further that where the policy referred to
in clause (e) or clause (o) is made available on
company's website, if any, it shall be sufficient
compliance of the requirements under such
clauses if the salient features of the policy and any
change therein are specified in brief in the Board's
report and the web-address is indicated therein at
which the complete policy is available.";
Enforcement Date: 31 st July, 2018
34. In section 134 of the principal Act,— - -
(c) after sub-section (3), the following sub-section (The sub- section is
shall be inserted, namely:— newly inserted)
"(3A) The Central Government may prescribe an
abridged Board's report, for the purpose of
compliance with this section by One Person
Company or small company.".
Enforcement Date: 31st July, 2018
(i) in sub-section (1),— during any financial
(a) for the words "any financial year", the words year shall constitute
"the immediately preceding financial year" shall be a Corporate Social
substituted; Responsibility
(b) the following proviso shall be inserted, Committee of the
namely:— Board.
"Provided that where a company is not required to
appoint an independent director under sub-section For (b)-
(4) of section 149, it shall have in its Corporate (The proviso has
Social Responsibility Committee two or more been newly inserted)
directors.";
Enforcement Date: 19 th September, 2018

35. In section 135 of the principal Act,— 9.24 formulate and

(ii) in sub-section (3), in clause (a), for the recommend …….
words and figures "as specified in Schedule VII", which shall indicate
the words and figures "in areas or subject, the activities to be
specified in Schedule VII" shall be substituted; undertaken by the
company as
specified in
Schedule VII;
35. In section 135 of the principal Act,— 9.26 Here, “average net
(iii) in sub-section (5), for the Explanation, the profit” shall be
following Explanation shall be substituted, calculated in
namely:— accordance with the
'Explanation.—For the purposes of this section provisions of
"net profit" shall not include such sums as may be section 198
prescribed, and shall be calculated in accordance
with the provisions of section 198.'.
36. In section 136 of the principal Act,- 9.30 As per the
(i) in sub-section (1),- amendment the word
(a) the words and figures "Without prejudice to the “Without prejudice to
provisions of section 101," shall be omitted; the provisions of
Enforcement Date: 9 th February, 2018 section 101,” shall be
omitted
36. In section 136 of the principal Act,- 9.31 -
(i) in sub-section (1),- (The proviso is newly
inserted)
(b) in the first proviso, for the words "Provided
that", the following shall be substituted, namely:-
"Provided that if the copies of the documents are
sent less than twenty-one days before the date of
the meeting, they shall, notwithstanding that fact,
be deemed to have been duly sent if it is so agreed
by members-
(a) holding, if the company has a share capital,
majority in number entitled to vote and who
represent not less than ninety-five per cent. of
such part of the paid-up share capital of the
company as gives a right to vote at the meeting;
or

(b) having, if the company has no share

capital, not less than ninety five per cent. of the
total voting power exercisable at the meeting:
Provided further that";
36. In section 136 of the principal Act,- 9.31 Related to point (ii)
(i) in sub-section (1),- on Page 9.31
(c) in the second proviso, for the words "Provided
further", the words, "Provided also" shall be
substituted;
36. In section 136 of the principal Act,- 9.31 (iii) Subsidiary
(i) in sub-section (1),- Companies:
(d) for the fourth proviso, the following provisos Every company
shall be substituted, namely:— having a subsidiary
'Provided also that every listed company having a or subsidiaries
subsidiary or subsidiaries shall place separate shall,—
audited accounts in respect of each of subsidiary (1) place separate
on its website, if any: audited accounts in
Provided also that a listed company which has a respect of each of
subsidiary incorporated outside India (herein its subsidiary on its
referred to as "foreign subsidiary")- website, if any;
(a) where such foreign subsidiary is statutorily (2) provide a copy
required to prepare consolidated financial of separate audited
statement under any law of the country of its financial
incorporation, the requirement of this proviso shall statements in
be met if consolidated financial statement of such respect of each of
foreign subsidiary is placed on the website of the its subsidiary, to
listed company; any shareholder of
the company who
(b) where such foreign subsidiary is not
asks for it.
required to get its financial statement audited
under any law of the country of its incorporation
and which does not get such financial statement
audited, the holding Indian listed company may
place such unaudited financial statement on its
website and where such financial statement is in a
language other than English, a translated copy of
the financial statement in English shall also be
placed on the website.’;


(ii) in sub-section (2), the following proviso shall inserted)
be inserted, namely:- Add the proviso in
"Provided that every company having a subsidiary point (iv)
or subsidiaries shall provide a copy of separate
audited or unaudited financial statements, as the
case may be, as prepared in respect of each of its
subsidiary to any member of the company who
asks for it."
(i) in sub-section (1),— (i) Filing of financial
(a) the words and figures "within the time specified statements [Section
under section 403" shall be omitted; 137(1)]: A copy of the
(b) in the second proviso, the words and figures financial ….. fees as
"within the time specified under section 403" shall may be prescribed
be omitted; within the time
specified under
(c) after the fourth proviso, the following proviso
section 403
shall be inserted,
namely:—
For (b)
'Provided also that in the case of a subsidiary
which has been incorporated outside India (herein (c) If the financial
referred to as "foreign subsidiary"), which is not statements are
required to get its financial statement audited adopted …… such
under any law of the country of its incorporation additional
and which does not get such financial statement fees as may be
audited, the requirements of the fourth proviso prescribed within
shall be met if the holding Indian company files the time specified
such unaudited financial statement along with a under section 403.
declaration to this effect and where such financial
statement is in a language other than English, For (c) –
along with a translated copy of the financial (The proviso is newly
statement in English.'. inserted)
37. In section 137 of the principal Act,— 9.35 (v) Annual General
(ii) in sub-section (2), the words and figures meeting not held
“within the time specified, under section 403” shall [Section 137(2)] :
be omitted; Where the annual
general …..

Enforcement Date: 7 th May, 2018 additional fees as

may be prescribed
within the time
specified, under
section 403.
(iii) in sub-section (3), for the words and figures been substituted
“in section 403”, the word “therein” shall be (however, the study
substituted. material does not
Enforcement Date: 7 th May, 2018 contain reference of
section 403)
38. In section 139 of the principal Act, in sub- 10.5 The company shall
section (1), the first proviso shall be omitted. place the matter
Enforcement Date: 7 th May, 2018 relating to such
appointment for
ratification by
members at every
AGM.
539. In section 140 of the principal Act, in sub- 10.15 (d) If the auditor
section (3), for the words "fifty thousand rupees", does not ……. with
the words "fifty thousand rupees or the fine which shall not
remuneration of the auditor, whichever is less," be less than
shall be substituted. ` 50,000 but which
may extend to ` 5
Enforcement Date: 9 th February, 2018 Lacs.
40. In section 141 of the principal Act, in sub- 10.22 (9) any person
section (3), for clause (i), the following clause shall whose subsidiary
be substituted, namely:- or associate
‘(i) a person who, directly or indirectly, renders any company or any
service referred to in section 144 to the company other form of entity,
or its holding company or its subsidiary company. is engaged as on
Explanation.—For the purposes of this clause, the the date of
term "directly or indirectly" shall have the meaning appointment in
assigned to it in the Explanation to section 144.’. consulting and
specialised
services as
2019 (w.r.e.f. 2.11.2018)

provided in section
144
41. In section 143 of the principal Act,- 10.23 (c) Access to record
(i) in sub-section (1), in the proviso, for the words of all its subsidiaries:
"its subsidiaries", at both the places, the words "its The auditor of a …….
subsidiaries and associate companies" shall be the records of all its
substituted; subsidiaries in so
far as it relates to the
consolidation of its
financial statements
with that of its
subsidiaries.
41. In section 143 of the principal Act,- 10.24 (9) whether the
(ii) in sub-section (3), in clause (i), for the words company has
"internal financial controls system", the words adequate internal
"internal financial controls with reference to financial controls
financial statements" shall be substituted; system in place and
Enforcement Date: 9 th February, 2018 the operating
effectiveness of such
controls;
41. In section 143 of the principal Act,- 10.36 The provisions of
(iii) in sub-section (14), in clause (a), for the words section 143 shall
"cost accountant in practice", the words "cost mutatis mutandis
accountant" shall be substituted apply to the cost
accountant in
practice conducting
cost audit under
section 148.
(i) in sub-section (2),- The words shall be
(a) after the words "five lakh rupees", the words inserted in point (iii)
"or four times the remuneration of the auditor, (a)
whichever is less" shall be inserted;
42. In section 147 of the principal Act,- 10.33and
(i) in sub-section (2),-
(b) in the proviso, for the words "and with fine (2) Fine which shall
which shall not be less than one lakh rupees but not be less than ` 1
which may extend to twenty-five lakh rupees", the lac but which may
words "and with fine which shall not be less than extend to ` 25 Lacs
fifty thousand rupees but which may extend to

twenty-five lakh rupees or eight times the

remuneration of the auditor, whichever is less"
shall be substituted;
42. In section 147 of the principal Act,- 10.33 (2) pay for damages
(ii) in sub-section (3), in clause (ii), for the words to the company,
"or to any other persons", the words "or to statutory bodies or
members or creditors of the company" shall be authorities or to any
substituted; other persons for
Enforcement Date: 9 th February, 2018 loss arising out of
incorrect …. audit
report.
(iii) in sub-section (5), the following proviso shall (The proviso is newly
be inserted, namely:- inserted)
"Provided that in case of criminal liability of an
audit firm, in respect of liability other than fine, the
concerned partner or partners, who acted in a
fraudulent manner or abetted or, as the case may
be, colluded in any fraud shall only be liable.".
43. In section 148 of the principal Act,- 10.34 (iv) The cost audit
(i) in sub-section (3),- shall be conducted
(a) for the words "Cost Accountant in practice", the by a Cost
words "cost accountant" shall be substituted; Accountant in
Enforcement Date: 9 th February, 2018 practice who shall
be …… by the
members in such
manner as may be
prescribed.
43. In section 148 of the principal Act,- 10.35 Here, the expression
(i) in sub-section (3),- “cost auditing
(b) in the Explanation, for the words "Institute of standards” mean
Cost and Works Accountants of India", the words such standards as
"Institute of Cost Accountants of India" shall be are issued by the
substituted; Institute of Cost
Enforcement Date: 9 th February, 2018 and Works
Accountants of
India, constituted
under the Cost and

Works Accountants
Act, 1959, with the
approval of the
Central Government.
43. In section 148 of the principal Act,- 10.35 (x) The report on
(ii) in sub-section (5), in the proviso, for the words the audit of cost
"cost accountant in practice", the words "cost records shall be
accountant" shall be substituted submitted by the
Enforcement Date: 9 th February, 2018 cost accountant in
practice to the Board
of Directors (BoD) of
the company.
44. In section 447 of the principal Act,- 3.25 The words are newly
(a) after the words "guilty of fraud", the words inserted
"involving an amount of at least ten lakh rupees or
one per cent. of the turnover of the company,
whichever is lower" shall be inserted.
44. In section 447 of the principal Act,- 3.26 In earlier law the
(b) after the proviso, the following proviso shall be proviso was not
inserted, namely:— "Provided further that where there. The proviso is
the fraud involves an amount less than ten lakh newly inserted
rupees or one per cent. of the turnover of the
company, whichever is lower, and does not
involve public interest, any person guilty of such
fraud shall be punishable with imprisonment for a
term which may extend to five years or with fine
which may extend to 6twenty lakh rupees or with
both.”
XI Amendments related to - Amendment in the 9.7 Replace the footnote
notification number G.S.R. 463(E) dated the 5th ‘Section 129 shall not
June, 2015 vide Notification no. S.O. 802(E) dated apply to the
23rd February, 2018 Government
In exercise of the powers conferred by clauses (a) companies to the
and (b) of sub-section (1) and subsection (2) of extent of
6 The amount of “twenty lakh rupees” has been replaced with “fifty lakh rupees” as per the Companies
(Amendment) Second Ordinance, 2019.

section 462 of the Companies Act, 2013, the application of

Central Government, in the interest of public Accounting
amends the notification of the Government of India Standard 17
in the Ministry of Corporate Affairs number G.S.R. (Segment
463(E) dated the 5th June, 2015 namely:— Reporting) to the
In the said notification, in the Table, for serial companies
number 8 and entries relating thereto, the engaged in defence
following serial number and entries shall be production.
respectively substituted, namely:-
“In Chapter IX, Section 129- Shall not apply to the
companies engaged in defence production to the
extent of application of relevant Accounting
Standard on segment reporting”.
XII Amendments related to - Notification G.S.R. 2.11 -
284(E) dated 23rd March, 2018 (This Rule may be
Rule 9: Reservation of name read with respect to
An application for reservation of name shall be point (iv)
made through the web service available at Requirement for
www.mca.gov.in by using [form RUN](Reserve reservation of the
Unique Name) along with fee as provided in the name of the
Companies (Registration offices and fees) Rules, company)
2014, which may either be approved or rejected,
as the case may be, by the Registrar, Central
Registration Centre after allowing re--submission
of such application within fifteen days for
rectification of the defects, if any.
XIII Amendments related to - Notification G.S.R. 1.4 & As per the
433(E) dated 7th May, 2018 1.21 Companies
The Central Government has amended the (Specification of
Companies (Specification of Definitions Details) Definitions Details)
Rules, 2014, by the Companies (Specification of Rules, 2014, “Total
Definitions Details) Amendment Rules, 2018. It Share Capital”,
shall come into force on 7th May, 2018. ……. (b) convertible
In the Companies (Specification of Definitions preference share
Details) Rules, 2014, in rule 2, in sub-rule (1), capital
clause (r) shall be omitted.
Please note: The said clause (r) deals with ‘Total

Share Capital’

XIV Amendments related to - Notification G.S.R. 4.12 ‘‘Employee’’ means-

434(E) dated 7th May, 2018 (a) a permanent
The Central Government has amended the employee of the
Companies (Share Capital and Debentures) company who has
Rules, 2014, by the Companies (Share Capital been working
and Debentures) Second Amendment Rules, in India or outside
2018. It shall come into force on 7 th May, 2018. India, for at least
In the Companies (Share Capital and Debentures) last one year; or
Rules, 2014, in the principal rules, in rule 8, in sub-
rule (1), in the Explanation, in clause (i) in sub-
clause (a), the words “for at least last one year”
shall be omitted.
XV Amendments related to - Notification G.S.R. 1.- 1. Rule 13 dealt with
560(E) dated 13th June, 2018 7.13 Return of Changes in
The Ministry of Corporate Affairs vide G.S.R. 560 2.- Shareholding
(E) dated 13th June, 2018, has amended the 7.13 Position of Promoters
Companies (Management and Administration) 3.- and Top Ten
Rules, 2014 through the Companies 7.15 Shareholders.
(Management and Administration) Second 4.- 2. MGT- 10
Amendment Rules, 2018. 7.30 3. Copy of proposed
Accordingly, in the Companies (Management and 5.- Special Resolution
Administration) Rules, 2014, 7.37 field with ROC:
1. rule 13 shall be omitted …..at least one day
2. the “Form No.MGT -10” shall be omitted. before the date of
general meeting of
3. in rule 15, the sub-rule(6), shall be omitted
the company in
4. in rule 18, in sub-rule (3), Explanation after Form MGT – 14.
clause (ix), shall be omitted
4. In Diagram ignore
5. in rule 22, in sub-rule(16) for the proviso, the the words, and
following shall be substituted, namely:- Explanation under
"Provided that any aforesaid items of business Rule 18(3)
under this sub-rule, required to be transacted by 5. Provided that
means of postal ballot, may be transacted at a One Person
general meeting by a company which is required Company and other
to provide the facility to members to vote by companies having
electronic means under section 108, in the manner members upto 200
provided in that section: are not required to
Provided further that One Person Companies and transact any
other companies having members upto two business through
hundred are not required to transact any business postal ballot.
through postal ballot"

XVI Amendments related to - Notification G.S.R. 612 5.11 (k) details of

(E) dated 5th July, 2018 deposit insurance
The Central Government has amended the including extent of
Companies (Acceptance of Deposits) Rules, deposit insurance;
2014, by the Companies (Acceptance of Deposits)
Amendment Rules, 2018. It shall come into force
on 15th August, 2018.
In the Companies (Acceptance of Deposits) Rules,
2014 in rule 14, in sub-rule (1), clause (k) shall be
omitted;
XVII Amendments related to - Notification G.S.R. 2.4 (person who has
708(E) dated 27th July, 2018 stayed in India for a
The Central Government has amended the period of not less
Companies (Incorporation) Rules, 2014, by the than 182 days
Companies (Incorporation) Third Amendment during the
Rules, 2018. It shall come into force on 27 th July, immediately
2018. preceding one
In the Companies (Incorporation) Rules, 2014. calendar year)
(a) in rule 3, for Explanation to sub-rule (1), the
following shall be substituted, namely:-
“Explanation I. - For the purposes of this rule, the
term "resident in India" means a person who has
stayed in India for a period of not less than one
hundred and eighty two days during the
immediately preceding financial year.
Explanation II.- For the purposes of this rule, while
counting the number of days of stay of a director
in India for the financial year 2018-2019, any
period of stay between 01.01.2018 till the date of
notification of this rule shall also be counted”;
XVIII Amendments related to - Enforcement of the 10.5 According to the
Companies (Audit and Auditors) Amendment Companies (Audit
Rules, 2018 vide Notification G.S.R. 432 (E) dated and Auditors)
7th May 2018 Rules, 2014, …….
by way of passing
The Central Government makes the Companies of an ordinary
(Audit and Auditors) Second Amendment Rules, resolution.
2018 to amend the Companies (Audit and If the appointment
Auditors) Rules, 2014. is not ……..
1. In the Companies (Audit and Auditors) Rules,
2014, in rule 3 which deals with the Manner and

Procedure of selection and appointment of procedure laid

auditors: down in this behalf
(a) Explanation shall be omitted. under the Act.
(b) proviso to sub-rule (7) shall be omitted.
2. In the principal rules, in rule 10A i.e., related 10.24 As per the rule 10A
to Internal Financial controls system, for the words inserted by the
"adequate internal financial controls system", the Companies (Audit
words "internal financial controls with reference to and Auditors) …..
financial statements" shall be substituted. about existence of
adequate internal
financial controls
system and its
operating
effectiveness.
3. In the principal rules, in rule 14 which deals with 10.34 (A) the Board shall
the remuneration of the cost auditor, following are appoint an individual,
the changes- who is a cost
(a) in clause (a), in sub-clause (i), for the words, accountant in
"who is a cost accountant in practice", the words practice, or a firm of
"who is a cost accountant" shall be substituted;
3. In the principal rules, in rule 14 which deals with 10.34 (2) in the case of
the remuneration of the cost auditor, following are other companies
the changes- which are not
(b) in clause (b) for the words "who is a cost required……, shall
accountant in practice", the words "who is a cost appoint an individual
accountant" shall be substituted. who is a cost
accountant in
practice or a firm of
XIX Amendments related to - Enforcement of the 9.20 -
Companies (Accounts) Amendment Rules, 2018 [Clause (ix) and (x) is
vide Notification G.S.R. 725(E) dated 31st July, newly inserted]
2018
The Central Government makes the Companies
(Accounts) Amendment Rules, 2018 to amend the
Companies (Accounts) Rules, 2014.
1. In the Companies (Accounts) Rules, 2014,
In sub-rule (5) of Rule 8 which deals with the
Matters to be included in Board's report, after
clause (viii) the following clauses shall be inserted,
namely:-

“(ix) a disclosure, as to whether maintenance of

cost records as specified by the Central
Government under sub-section (1) of section 148
of the Companies Act, 2013, is required by the
Company and accordingly such accounts and
records are made and maintained,
(x) a statement that the company has complied
with provisions relating to the constitution of
Internal Complaints Committee under the Sexual
Harassment of Women at Workplace (Prevention,
Prohibition and Redressal) Act, 2013,”
2. In the Companies (Accounts) Rules, 2014, after 9.20 -
sub-rule (5), the following Sub Rule (6), rule shall (Sub- rule 6 is newly
be inserted, namely:- inserted)
“(6) This rule shall not apply to One Person
Company or Small Company”.
XX Amendments related to - Enforcement of the 9.22 (i) Projects or
Companies (Corporate Social Responsibility programs relating to
Policy) Amendment Rules, 2018 vide Notification activities areas or
G.S.R. 865 (E) dated 19th September, 2018 subjects specified in
Schedule VII to the
The Central Government makes the Companies Act; or
(Corporate Social Responsibility Policy) (ii) Projects or
Amendment Rules, 2018 to amend the Companies programs relating to
(Corporate Social Responsibility Policy) Rules, ….. subject to the
2014. condition that
1. In Companies (Corporate Social Responsibility such policy will cover
Policy) Rules, 2014, in rule 2 which deals with the subjects
definitions, - enumerated in
(a) in sub-rule (1), in sub-clause (i) of clause (c) Schedule VII of the
which defines “Corporate Social Responsibility Act.
(CSR)”, after the words “relating to activities”, the
words “, areas or subjects” shall be inserted;
(b) in sub-rule (1), in sub-clause (ii) of clause (c),
for the words “cover subjects enumerated”, the
words “include activities, areas or subjects
specified” shall be substituted;
2. In Companies (Corporate Social Responsibility 9.23 (b) An unlisted
Policy) Rules, 2014, in rule 5 which deals with the public company or
“CSR Committees”, in clause (i) of sub rule (1), for a private company
the words “an unlisted public company or a private which is not required

company”, the words “a company” shall be to appoint an

substituted. independent
3. In Companies (Corporate Social Responsibility 9.24 (a) List of CSR
Policy) Rules, 2014, In rule 6 which states of CSR projects or programs
Policy, following are the changes- which a company
(a) in sub-rule (1), in clause (a), for the words plans to undertake
“falling within the purview of” the words “areas or falling within the
subjects specified in” shall be substituted; purview of the
Schedule VII
3. In Companies (Corporate Social Responsibility 9.24 For point (b)-
Policy) Rules, 2014, in rule 6 which states of CSR (d) The Board of
Policy, following are the changes- Directors shall ….
(b) in sub-rule (1), in second proviso to clause (b), CSR Policy are
for the words, “activities included in Schedule VII” related to the
the words “areas or subjects specified in Schedule activities included
VII” shall be substituted. in Schedule VII of
the Act.
XXI Amendments related to - Constitution of National 9.14 -
Financial Reporting Authority
The Central Government appointed 1 st October,

2018 (Notification S.O. 5099(E) dated 1 st October,
2018) as the date of constitution Of National
Financial Reporting Authority.
Section 132 shall now be read as under:
Constitution of National Financial Reporting
Authority, have also been notified.
132. *(1) The Central Government may, by
notification, constitute a National Financial
Reporting Authority to provide for matters relating
to accounting and auditing standards under this
Act.
**(2) Notwithstanding anything contained in any
other law for the time being in force, the National
Financial Reporting Authority shall—
(a) make recommendations to the Central
Government on the formulation and laying down of
accounting and auditing policies and standards for
adoption by companies or class of companies or
their auditors, as the case may be;

(b) monitor and enforce the compliance with

accounting standards and auditing standards in
such manner as may be prescribed;
(c) oversee the quality of service of the
professions associated with ensuring compliance
with such standards, and suggest measures
required for improvement in quality of service and
such other related matters as may be prescribed;
and
(d) perform such other functions relating to
clauses (a), (b) and (c) as may be prescribed.
(3) The National Financial Reporting Authority
shall consist of a chairperson, who shall be a
person of eminence and having expertise in
accountancy, auditing, finance or law to be
appointed by the Central Government and such
other members not exceeding fifteen consisting of
part-time and full-time members as may be
prescribed:
Provided that the terms and conditions and the
manner of appointment of the chairperson and
members shall be such as may be prescribed:
Provided further that the chairperson and
members shall make a declaration to the Central
Government in the prescribed form regarding no
conflict of interest or lack of independence in
respect of his or their appointment:
Provided also that the chairperson and members,
who are in full-time employment with National
Financial Reporting Authority shall not be
associated with any audit firm (including related
consultancy firms) during the course of their
appointment and two years after ceasing to hold
such appointment.
**(4) Notwithstanding anything contained in any
other law for the time being in force, the National
Financial Reporting Authority shall—
(a) have the power to investigate, either suo moto
or on a reference made to it by the Central
Government, for such class of bodies corporate or

persons, in such manner as may be prescribed

into the matters of professional or other
misconduct committed by any member or firm of
chartered accountants, registered under the
Chartered Accountants Act, 1949:
Provided that no other institute or body shall
initiate or continue any proceedings in such
matters of misconduct where the National
Financial Reporting Authority has initiated an
investigation under this section;
(b) have the same powers as are vested in a civil
court under the Code of Civil Procedure, 1908,
while trying a suit, in respect of the following
matters, namely:—
(i) discovery and production of books of account
and other documents, at such place and at such
time as may be specified by the National Financial
Reporting Authority;
(ii) summoning and enforcing the attendance of
persons and examining them on oath;
(iii) inspection of any books, registers and other
documents of any person referred to in clause (b)
at any place;
(iv) issuing commissions for examination of
witnesses or documents;
(c) where professional or other misconduct is
proved, have the power to make order for—
(A) imposing penalty of—
(I) not less than one lakh rupees, but which
may extend to five times of the fees received, in
case of individuals; and
(II) not less than five lakh rupees, but which
may extend to ten times of the fees received, in
case of firms;
(B) debarring the member or the firm from
engaging himself or itself from practice as member
of the Institute of Chartered Accountant of India

referred to in clause (e) of sub-section (1) of

section 2 of the Chartered Accountants Act, 1949
for a minimum period of six months or for such
higher period not exceeding ten years as may be
decided by the National Financial Reporting
Authority.
Explanation.—For the purposes of his sub-
section, the expression "professional or other
misconduct" shall have the same meaning
assigned to it under section 22 of the Chartered
Accountants Act, 1949.
**(5) Any person aggrieved by any order of the
National Financial Reporting Authority issued
under clause (c) of sub-section (4), may prefer an
appeal before the Appellate Tribunal in such
manner and on payment of such fee as may be
prescribed.
**(10) The National Financial Reporting Authority
shall meet at such times and places and shall
observe such rules of procedure in regard to the
transaction of business at its meetings in such
manner as may be prescribed.
(11) The Central Government may appoint a
secretary and such other employees as it may
consider necessary for the efficient performance
of functions by the National Financial Reporting
Authority under this Act and the terms and
conditions of service of the secretary and
employees shall be such as may be prescribed.
*(12) The head office of the National Financial
Reporting Authority shall be at New Delhi and the
National Financial Reporting Authority may, meet
at such other places in India as it deems fit.
shall cause to be maintained such books of
account and other books in relation to its accounts
in such form and in such manner as the Central
Government may, in consultation with the

Comptroller and Auditor-General of India

prescribe.
**(14) The accounts of the National Financial
Reporting Authority shall be audited by the
Comptroller and Auditor-General of India at such
intervals as may be specified by him and such
accounts as certified by the Comptroller and
Auditor-General of India together with the audit
report thereon shall be forwarded annually to the
Central Government by the National Financial
Reporting Authority.
shall prepare in such form and at such time for
each financial year as may be prescribed its
annual report giving a full account of its activities
during the financial year and forward a copy
thereof to the Central Government and the Central
Government shall cause the annual report and the
audit report given by the Comptroller and Auditor -
General of India to be laid before each House of
Parliament.
Please note: (i) Sub Section (3) and (11) have
been notified on 21st March 2018. [Notification
No. S.O. 1316(E)]
(ii) Sub Section (6), (7), (8) and (9) have been
omitted [with effect from 9th February, 2018]
(iii) *Sub- section (1) and (12) notified on 1st
October, 2018 [Notification S.O. 5098(E) dated 1st
October, 2018]
(iv) **Sub- Section (2),(4),(5),(10),(13),(14) and
(15) have been notified on 24th October 2018
[Notification S.O. 5385(E) dated 24th October,
2018]
XXII Amendments related to - COMPANIES 1.9 Provided that on an

(AMENDMENT) SECOND ORDINANCE, 2019 application made by
Following sections of the Companies Act, 2013 a company or body
(hereinafter referred to as the principal Act) have corporate, which is
been amended by the Companies (Amendment) a holding company
Second Ordinance, 2019 dated 21st February, or a subsidiary or

2019. [It shall be deemed to have come into force associate company
on 2nd November, 2018.] of a company
1. In clause (41) of section 2, incorporated
(a) for the first proviso, the following provisos shall outside India and is
be substituted namely: required to follow a
different financial
“Provided that where a company or body
year for
corporate, which is a holding company or a
consolidation of its
subsidiary or associate company of a company
accounts outside
incorporated outside India and is required to follow
India, the Tribunal
a different financial year for consolidation of its
may, if it is
accounts outside India, the Central Government
satisfied, allow any
may, on an application made by that company or
period as its
body corporate in such form and manner as may
financial year,
be prescribed, allow any period as its financial
whether or not that
year, whether or not that period is a year:
period is a year:
Provided further that any application pending
before the Tribunal as on the date of
commencement of the Companies (Amendment)
Ordinance, 2019, shall be disposed of by the
Tribunal in accordance with the provisions
applicable to it before such commencement.”
(b) for the second proviso, the for the words
“Provided further that”, the words “Provided also
that” shall be substituted.
2. After section 10, the following section shall be - The section is newly
inserted, namely: inserted
“10A.Commencement of business etc.
(1) A company incorporated after the
commencement of the Companies (Amendment)
Ordinance, 2019 and having a share capital shall
not commence any business or exercise any
borrowing powers unless—
(a) a declaration is filed by a director within a
period of one hundred and eighty days of the date
of incorporation of the company in such form and
verified in such manner as may be prescribed, with
the Registrar that every subscriber to the
memorandum has paid the value of the shares
agreed to be taken by him on the date of making
of such declaration; and

(b) The company has filed with the Registrar a

verification of its registered office as provided in
sub-section (2) of section 12.
(2) If any default is made in complying with the
requirements of this section, the company shall be
liable to a penalty of fifty thousand rupees and
every officer who is in default shall be liable to a
penalty of one thousand rupees for each day
during which such default continues but not
exceeding an amount of one lakh rupees.
(3) Where no declaration has been filed with the
Registrar under clause (a) of sub-section (1) within
a period of one hundred and eighty days of the
date of incorporation of the company and the
Registrar has reasonable cause to believe that the
company is not carrying on any business or
operations, he may, without prejudice to the
provisions of sub-section (2), initiate action for the
removal of the name of the company from the
register of companies under Chapter XVIII.”
3. In section 12, after sub- section (8), the 2.24 The sub- section is
following sub- section shall be inserted, namely: newly inserted
“(9) If the Registrar has reasonable cause to
believe that the company is not carrying on any
business or operations, he may cause a physical
verification of the registered office of the company
in such manner as may be prescribed and if any
default is found to be made in complying with the
requirements of sub-section (1), he may without
prejudice to the provisions of sub-section (8),
initiate action for the removal of the name of the
company from the register of companies under
Chapter XVIII.”
4. In section 14, 2.31 However, any such
(i) in Sub- section (1), for the second proviso, the alteration having
following provisos shall be substituted namely: the effect of
“Provided further that any alteration having the conversion of a
effect of conversion of a public company into a public company
private company shall not be valid unless it is into a private
approved by an order of the Central Government company shall not
on an application made in such form and manner take effect except
as may be prescribed: with the approval of

Provided also that any application pending before the Tribunal which
the Tribunal, as on the date of commencement of shall make such
the Companies (Amendment) Ordinance, 2019, order as it may
shall be disposed of by the Tribunal in accordance deem fit.
with the provisions applicable to it before such
commencement.”
4. In section 14, 2.31 Every alteration of
(ii) in sub- section (2), for the word “Tribunal”, the the articles and a
words “Central Government” shall be substituted. copy of the order of
the Tribunal
approving the
alteration, shall be
filed with the
Registrar, together
with a printed copy of
the altered articles,
within a period of
fifteen days in such
manner as may be
prescribed, who shall
register the same.
5. In section 53, for sub – section (3), the 4.10 Where a company
following sub- section shall be substituted, contravenes the
namely: provisions of this
“(3) Where any company fails to comply with the section, the
provisions of this section, such company and company shall be
every officer who is in default shall be liable to a punishable with
penalty which may extend to an amount equal to fine which shall not
the amount raised through the issue of shares at be less than one
a discount or five lakh rupees, whichever is less, lakh rupees but
and the company shall also be liable to refund all which may extend
monies received with interest at the rate of twelve to five lakh rupees
per cent. per annum from the date of issue of such and every officer
shares to the persons to whom such shares have who is in default
been issued.” shall be punishable
with imprisonment
for a term which
may extend to six
months or with fine
which shall not be
less than one lakh
rupees but which
may extend to five

lakh rupees, or with

both.
6. In section 64, for sub- section (2), the following 4.24 If a company and
sub- section shall be substituted, namely: any officer of the
“(2) Where any company fails to comply with the company who is in
provisions of sub-section (1), such company and default contravenes
every officer who is in default shall be liable to a the provisions of
penalty of one thousand rupees for each day sub-section (1), it or
during which such default continues, or five lakh he shall be
rupees whichever is less.” punishable with
fine which may
extend to one
thousand rupees
for each day during
which such default
continues, or five
lakh rupees,
whichever is less.
7. In section 77, in sub- section (1), for the first 6.3 The Registrar may,
and second provisos, the following provisos shall on an application by
be substituted, namely: the company, allow
“Provided that the Registrar may, on an such registration to
application by the company, allow such be made within a
registration to be made- period of three
(a) in case of charges created before the hundred days of
commencement of the Companies (Amendment) such creation on
Ordinance, 2019, within a period of three hundred payment of such
days of such creation; or additional fees as
may be prescribed:
(b) in case of charges created on or after the
commencement of the Companies (Amendment) Provided further
Ordinance, 2019, within a period of sixty days of that if registration
such creation, on payment of such additional fees is not made within a
as may be prescribed: period of three
hundred days of
Provided further that if the registration is not made
such creation, the
within the period specified-
company shall seek
(a) in clause (a) to the first proviso, the extension of time in
registration of the charge shall be made within six accordance with
months from the date of commencement of the section 87:
Companies (Amendment) Ordinance, 2019, on
payment of such additional fees as may be
prescribed and different fees may be prescribed
for different classes of companies;

(b) in clause (b) to the first proviso, the Registrar

may, on an application, allow such registration to
be made within a further period of sixty days after
payment of such advalorem fees as may be
prescribed.”
8. Section 86 of the Companies Act, 2013, shall 6.10 The sub- section is
be numbered as sub- section (1) thereof and after newly inserted
sub- section (1) as so numbered, the following
sub- section shall be inserted, namely:
“(2) If any person wilfully furnishes any false or
incorrect information or knowingly suppresses any
material information, required to be registered in
accordance with the provisions of section 77, he
shall be liable for action under section 447.”
9. For section 87, the following sections shall be 6.10 (1) The Central
substituted, namely: Government on
“87. The Central Government on being satisfied being satisfied
that — that—
(a) the omission to give intimation to the ……… before the
Registrar of the payment or satisfaction of a charge is actually
charge, within the time required under this registered.
Chapter; or
(b) the omission or misstatement of any
particulars, in any filing previously made to the
Registrar with respect to any such charge or
modification thereof or with respect to any
memorandum of satisfaction or other entry made
in pursuance of section 82 or section 83,
was accidental or due to inadvertence or some
other sufficient cause or it is not of a nature to
prejudice the position of creditors or shareholders
of the company, it may, on the application of the
company or any person interested and on such
terms and conditions as it deems just and
expedient, direct that the time for the giving of
intimation of payment or satisfaction shall be
extended or, as the case may require, that the
omission or misstatement shall be rectified.”

10. In section 90, - 7The company or

(i) for sub- section (9), the following sub- section the person
shall be substituted, namely: aggrieved by the
“(9) The company or the person aggrieved by the order of the
order of the Tribunal may make an application to Tribunal may make
the Tribunal for relaxation or lifting of the an application to
restrictions placed under sub-section (8), within a the Tribunal for
period of one year from the date of such order: relaxation or lifting
of the restrictions
Provided that if no such application has been filed
placed under sub-
within a period of one year from the date of the
order under sub-section (8), such shares shall be section (8).
transferred, without any restrictions, to the
authority constituted under sub-section (5) of
section 125, in such manner as may be
prescribed.”
10. In section 90, - -8
(ii) in sub- section (10),- (The words are newly
(a) after the word “punishable”, the words “with inserted)
imprisonment for a term which may extend to one
year or” shall be inserted;
(b) after the words “ten lakh rupees”, the words “or
with both” shall be inserted.
11. In section 92, for sub- section (5), the 7.12 Section 92(5) of the
following sub- section shall be substituted, Act specifies that if
namely: the company
“(5) If any company fails to file its annual return defaults in filing the
under sub-section (4), before the expiry of the annual return within
period specified therein, such company and its the time as
every officer who is in default shall be liable to a specified in this
penalty of fifty thousand rupees and in case of section, the
continuing failure, with further penalty of one company shall be
hundred rupees for each day during which such punishable with
failure continues, subject to a maximum of five fine which shall not
lakh rupees.” be less than
` 50,000 but which
7Section 90 (Investigation of Beneficial Ownership of Shares in Certain cases) has been replaced with section
90 (Register of Significant Beneficial Owners in a Company) via Companies (Amendment) Act, 2017 [w.e.f.
13th June, 2018].
8 Same as footnote 7

may extend to
` 5,00,000 or
imprisonment up to
6 months or with
both.
12. In section 102, for sub- section (5), the 7.22 If any default is
following sub- section shall be substituted, made in complying
namely: with the provisions
“(5) Without prejudice to the provisions of sub- of this section, then
section (4), if any default is made in complying every promoter,
with the provisions of this section, every promoter, director, manager,
director, manager or other key managerial or other key
personnel of the company who is in default shall managerial
be liable to a penalty of fifty thousand rupees or personnel who is in
five times the amount of benefit accruing to the default shall be
promoter, director, manager or other key punishable with
managerial personnel or any of his relatives, fine which may
whichever is higher.” extend to ` 50,000
or 5 times the
amount of benefit
accruing to the
promoter, director,
manager or other
key managerial
personnel or any of
his relatives,
whichever is more.
13. In section 105, in sub- section (3), for the 7.25 Failure to state in
words “punishable with fine which may extend to notice of meeting that
five thousand rupees”, the words “liable to a a member is entitled
penalty of five thousand rupees” shall be to appoint proxy who
substituted. need not be a
member every officer
of the company who
is in default shall be
punishable with
fine which may
extend to ` 5,000.
14. In section 117, for sub- section (2), the 7.46 Section 117(2) sets
following sub- section shall be substituted, out the penalty in
namely: case of failure to
intimate RoC about

“(2) If any company fails to file the resolution or the resolutions and
the agreement under sub-section (1) before the agreements that are
expiry of the period specified therein, such required to be filed
company shall be liable to a penalty of one lakh within the specified
rupees and in case of continuing failure, with time under section
further penalty of five hundred rupees for each day 403 and states that
after the first during which such failure continues, the company shall
subject to a maximum of twenty-five lakh rupees be punishable with
and every officer of the company who is in default fine which shall not
including liquidator of the company, if any, shall be be less than
liable to a penalty of fifty thousand rupees and in ` 5,00,000 but
case of continuing failure, with further penalty of which may extend
five hundred rupees for each day after the first to ` 25,00,000 and
during which such failure continues, subject to a every officer of the
maximum of five lakh rupees.” company who is in
default, including
the liquidator, if
any, shall be
punishable with
fine which shall not
be less than
` 1,00,000 but
which may extend
to ` 5,00,000.
15. In section 121, for sub- section (3), the 7.52 if it fails to file such
following sub- section shall be substituted, report then
namely: company shall be
“(3) If the company fails to file the report under punishable with
sub-section (2) before the expiry of the period fine which shall not
specified therein, such company shall be liable to be less than
a penalty of one lakh rupees and in case of `1,00,000 but which
continuing failure, with further penalty of five may extend to
hundred rupees for each day after the first during `5,00,000 and every
which such failure continues, subject to a officer of the
maximum of five lakh rupees and every officer of company, who is in
the company who is in default shall be liable to a default, shall be
penalty which shall not be less than twenty-five punishable with
thousand rupees and in case of continuing failure, fine which shall not
with further penalty of five hundred rupees for be less than
each day after the first during which such failure `25,000 but which
continues, subject to a maximum of one lakh may extend to
rupees.” `1,00,000.

16. In section 137, in sub- section (3), 9.35 The company shall
(a) for the words “punishable with fine”, the words be punishable with
“liable to a penalty” shall be substitute; fine of `1,000 for
every day during
which the failure
continues
16. In section 137, in sub- section (3), 9.35 any such director, all
(b) for the portion beginning with “punishable with the directors of the
imprisonment”, and ending with “five lakh rupees company, shall be
or with both”, the words “shall be liable to a penalty punishable with:
of one lakh rupees and in case of continuing (1) Imprisonment
failure, with a further penalty of one hundred for a term which
rupees for each day after the first during which may extend to 6
such failure continues, subject to a maximum of months or
five lakh rupees” shall be substituted. (2) Fine which shall
not be less than ` 1
lac but which may
extend to `5 Lacs,
or
(3) Both with
imprisonment and
fine.
17. In section 140, for the sub- section (3), the 10.15 If the auditor does
following sub- section shall be substitute, namely: not comply with
9“(3) If the auditor does not comply with the aforesaid provision,
provisions of sub-section (2), he or it shall be liable he or it shall be
to a penalty of fifty thousand rupees or an amount punishable with
equal to the remuneration of the auditor, fine which shall not
whichever is less, and in case of continuing failure, be less than
with further penalty of five hundred rupees for ` 50,000 but which
each day after the first during which such failure may extend to ` 5
continues, subject to a maximum of five lakh Lacs.
rupees.”
18. In section 447, in the second proviso, for the 3.26 The amount of
words “twenty lakh rupees”, the words “fifty lakh “twenty lakh rupees”
rupees” shall be substituted. has been replaced
with “fifty lakh
rupees” as per the
9Sub-section 3 of section 140 has been fully substituted by the Companies (Amendment) Ordinance, 2019
w.r.e.f. 2.11.2018.

Companies
(Amendment)
Second Ordinance,
2019
XXIII Amendments related to - Notification G.S.R. 2.41 -
1219(E) dated 18th December, 2018 The Rule is newly
The Central Government has amended the inserted
Companies (Incorporation) Rules, 2014, by the
Companies (Incorporation) Fourth Amendment
Rules, 2018. It shall come into force on 18 th
December, 2018.
In the Companies (Incorporation) Rules, 2014
(hereinafter referred to as the said rules), after rule
23, the following rule shall be inserted, namely:-
“23A. Declaration at the time of commencement of
business.-The declaration under section 10A by a
director shall be in Form No.INC-20A and shall be
filed as provided in the Companies (Registration
Offices and Fees) Rules, 2014 and the contents of
the said form shall be verified by a Company
Secretary or a Chartered Accountant or a Cost
Accountant, in practice:
Provided that in the case of a company pursuing
objects requiring registration or approval from any
sectoral regulators such as the Reserve Bank of
India, Securities and Exchange Board of India,
etc., the registration or approval, as the case may
be from such regulator shall also be obtained and
attached with the declaration.”.
XXIV Amendments related to - Notification G.S.R. 1.5.4
42(E) dated 22nd January, 2019 2.
The Central Government has amended the 5.11
Companies (Acceptance of Deposits) Rules, 3.
2014, by the Companies (Acceptance of Deposits) 5.11
Amendment Rules, 2019. It shall come into force
on 22nd January, 2019.
2014 (hereinafter referred to as the said rules):
1. In rule 2, in sub-rule (1), in clause (c), in sub-
clause(xviii), after the words “Infrastructure

Investment Trusts,” the words “Real Estate

Investment Trusts” shall be inserted.
2. In the said rules, in rule 16, the following
Explanation shall be inserted, namely:-
“Explanation.- It is hereby clarified that Form DPT -
3 shall be used for filing return of deposit or
particulars of transaction not considered as
deposit or both by every company other than
Government company.”.
3. In rule 16(A), after sub-rule (2), the following
sub-rule shall be inserted, namely:-
“(3) Every company other than Government
company shall file a onetime return of outstanding
receipt of money or loan by a company but not
considered as deposits, in terms of clause (c) of
sub-rule 1 of rule 2 from the 01st April, 2014 to
*[the date of publication of this notification in the
Official Gazette], as specified in Form DPT -3
within **[ninety days from the date of said
publication of this notification] along with fee as
provided in the Companies (Registration Offices
and Fees) Rules, 2014.”.
XXV Amendments related to - Notification G.S.R. 5.11 Read in reference to
341(E) dated 30th April, 2019 XXIV above
The Central Government has amended the
Companies (Acceptance of Deposits) Rules,
2014, by the Companies (Acceptance of Deposits)
Second Amendment Rules, 2019. It shall come
into force on 22nd January, 2019.
2014, in rule 16A, in sub-rule (3), -
*(a) for the words “the date of publication of this
notification in the Official Gazette”, the figures,
letters and word “31st March, 2019” shall be
substituted;
**(b) for the words “ninety days from the date of
said publication of this notification”, the words,
figures and letters “ninety days from 31st March,
2019” shall be substituted.

XXVI Amendments related to - Notification dated 30 th 6.3 (a) The Registrar

April, 2019 may, on being
The Central Government has amended the satisfied ......... .. .
Companies (Registration of Charges) Rules, Intervening
2014, by the Companies (Registration of Charges) creditors of the
Amendment Rules, 2019. company.
In the Companies (Registration of Charges) Rules,
2014:
1. In Rule 4, the following rules shall be
substituted, namely:
“4. Application to Registrar

(1) For the purposes of the first proviso and clause
(b) of the second proviso to sub-section (1) of
section 77, the Registrar may, on being satisfied
that the company had sufficient cause for not filing
the particulars and instrument of charge, if any,
within a period of thirty days of the date of creation
of the charge including modification thereto, allow
the registration of the same after thirty days but
within the period as specified in the said provisos,
on payment of fee, additional fee
or advalorem fee, as may be applicable, as
prescribed in the Companies (Registration Offices
and Fees) Rules, 2014.
(2) The application under sub-rule (1) shall be
made in Form No. CHG-l and Form No.CHG-
9 supported by a declaration from the company
signed by its company secretary or a director that
such belated filing shall not adversely affect the
rights of any other intervening creditors of the
company.”
In the Companies (Registration of Charges) Rules, 6.11 II. Condonation of
2014: delay and
2. For Rule 12, the following rule shall be rectification of
substituted, namely: register of charges.
“12. Rectification in register of charges on According to Rule
account of omission or misstatement of 12 ……… in the said
particulars in charge previously recorded and order.
extension of time in filing of satisfaction of
charge.-

The Central Government may on an application

filed in Form No. CHG-8 in accordance with
section 87-
(a) direct rectification of the omission or
misstatement of any particulars, in any filing,
previously recorded with the Registrar with
respect to any charge or modification thereof, or
with respect to any memorandum of satisfaction or
other entry made in pursuance of section 82 or
section 83,
(b) direct extension of time for satisfaction of
charge, if such filing is not made within a period of
three hundred days from the date of such payment
or satisfaction."
I. Amendments related to – THE NEGOTIABLE
INSTRUMENTS (AMENDMENT) ACT, 2018
The Ministry of Law and Justice has made
amendments to the Negotiable Instruments Act,
1881 through the Negotiable Instruments
(Amendment) Act, 2018. This Amendment Act
received the assent of the President and published
in the Official Gazette on 2 nd August, 2018.
In the Negotiable Instruments Act, 1881 -
(hereinafter referred to as the principal Act), after (The section is newly
section 143, the following section shall be inserted)
‘‘143A. Power to direct interim compensation.
(1) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973, the Court
trying an offence under section 138 may order the
drawer of the cheque to pay interim compensation
to the complainant—
(a) in a summary trial or a summons case, where
he pleads not guilty to the accusation made in the
complaint; and
(b) in any other case, upon framing of charge.
(2) The interim compensation under sub-section
(1) shall not exceed twenty per cent. of the amount
of the cheque.

(3) The interim compensation shall be paid within

sixty days from the date of the order under sub-
section (1), or within such further period not
exceeding thirty days as may be directed by the
Court on sufficient cause being shown by the
drawer of the cheque.
(4) If the drawer of the cheque is acquitted, the
Court shall direct the complainant to repay to the
drawer the amount of interim compensation, with
interest at the bank rate as published by the
Reserve Bank of India, prevalent at the beginning
of the relevant financial year, within sixty days
from the date of the order, or within such further
period not exceeding thirty days as may be
directed by the Court on sufficient cause being
shown by the complainant.
(5) The interim compensation payable under this
section may be recovered as if it were a fine under
section 421 of the Code of Criminal Procedure,
1973.
(6) The amount of fine imposed under section 138
or the amount of compensation awarded under
section 357 of the Code of Criminal Procedure,
1973, shall be reduced by the amount paid or
recovered as interim compensation under this
section.’’.
(2) In the principal Act, after section 147, the -
following section shall be inserted, (The section is newly
namely:— inserted)
‘‘148. Power of Appellate Court to order
payment pending appeal against conviction.
(1) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973, in an appeal by
the drawer against conviction under section 138,
the Appellate Court may order the appellant to
deposit such sum which shall be a minimum of
twenty per cent. of the fine or compensation
awarded by the trial Court:
Provided that the amount payable under this sub-
section shall be in addition to any interim
compensation paid by the appellant under section
143A.

(2) The amount referred to in sub-section (1) shall

be deposited within sixty days from the date of the
order, or within such further period not exceeding
thirty days as may be directed by the Court on
sufficient cause being shown by the appellant.
(3) The Appellate Court may direct the release of
the amount deposited by the appellant to the
complainant at any time during the pendency of
the appeal:
Provided that if the appellant is acquitted, the
Court shall direct the complainant to repay to the
appellant the amount so released, with interest at
the bank rate as published by the Reserve Bank
of India, prevalent at the beginning of the relevant
financial year, within sixty days from the date of
the order, or within such further period not
exceeding thirty days as may be directed by the
Court on sufficient cause being shown by the
complainant.’’
# Page number of the Study material (SM) with reference of relevant provisions
Please note: The Ministry of Corporate Affairs has replaced Rule 14 of the Companies
(Prospectus and Allotment of Securities) Rule, 2014 through Companies (Prospectus and
Allotment of Securities) Second Rule, 2018. Hence, students are advised not to read the content
related to Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rule, 2014 as
contained on pages 3.31 and Page 3.32 of Study Material. [For November 2019 examinations
the said amended rule has not been made applicable for the students.]
QUESTIONS
DIVISION A - MULTIPLE CHOICE QUESTIONS

1. Eztech Machines Limited owns a plot of land which was mortgaged to Urbane Commercial
Bank Limited for raising term loan of ` 2.00 crore. The mortgage was duly registered with
the Central Registry. First loan installment of ` 50.00 lacs was released immediately after
sanction of term loan with the condition that subsequent three installments of `50.00 lacs
shall be released as soon as the earlier released installment is utilized satisfactorily. Is it
necessary either for the company or the bank to register the charge on plot with the

concerned Registrar of Companies (ROC) when the mortgage is registered with the Central
Registry?
(a) It is not necessary either for the bank or the company to register the charge on plot
of land with the concerned Registrar of Companies (ROC) when the mortgage is
registered with the Central Registry.
(b) It is necessary to get the charge on plot on land registered with the concerned
Registrar of Companies (ROC) irrespective of the fact that mortgage is registered
with the Central Registry.
(c) The charge on plot needs to be registered with the concerned Registrar of Companies
(ROC) only when the actual liability of the company with the Bank exceeds ` 1.00
crore.
(d) The charge on plot needs to be registered with the concerned Registrar of Companies
(ROC) only when the term loan sanctioned by the bank to the company exceeds `
2.00 crores.
2. With a view to augment its production, Surya Techno-Products Limited availed a loan of `
50.00 lacs from Shrilaxmi First Bank Limited for purchase of a new machinery by offering
its factory worth ` 2.25 crores as security. However, the company did not initiate any steps
to get the charge on factory registered in favour of lending banker within the specified time.
As soon as the charge-holder bank came to know about the non-registration of charge with
the ROC, it applied to the Registrar for registration of charge along with the instrument
creating the charge and paid the requisite fees when demanded. Advise the bank whether
it can recover the fees so paid for registration of charge from Surya Techno-Products.
(a) Yes, the bank can recover the fees paid by it for registration of charge.
(b) No, the bank cannot recover the fees paid by it for registration of charge because the
bank is equally responsible for getting the charge registered.
(c) Only when it obtains recovery orders from Regional Director (RD), the bank can
recover the fees paid by it for registration of charge from the company.
(d) Only when it obtains recovery orders from National Company Law Tribunal (NCLT),
the bank can recover the fees paid by it for registration of charge from the company.
3. A charge was created by Cygnus Softwares Limited on its office premises to secure a term
loan of ` 1.00 crore availed from Next_Gen Commercial Bank Limited through an
instrument of charge executed by both the parties on 16 th February, 2019. Inadvertently,
the company could not get the charge registered with the concerned Registrar of
Companies (ROC) within the first statutory period permitted by law and the default was
made known to it by the lending banker with a stern warning to take immediate steps for
rectification. Advise the company regarding the latest date within which it must register the
charge with the ROC so that it is not required to pay a specific type of fees for charge
registration.

(a) With a view to avoid paying a specific type of fees for charge registration, the
company must get the charge registered latest by 27 th April, 2019.
(b) With a view to avoid paying a specific type of fees for charge registration, the
company must get the charge registered latest by 17 th April, 2019.
(c) With a view to avoid paying a specific type of fees for charge registration, the
company must get the charge registered latest by 2 nd May, 2019.
(d) The company cannot now get the charge register as the time prescribed by Law has
expired.
4. Cyplish Games and Toys Limited was sanctioned a term loan of ` 60.00 lacs by Zawnn
Industrial Bank Limited on 21 st November, 2018. As a security, the company offered its
office premises situated at Bandra, Mumbai and an instrument of charge was executed.
However, the company failed to get the charge registered with the concerned Registrar
within the first as well as second statutory period available as per law. This was adversely
commented by the internal auditors of the bank and therefore, after a strict advisory
received from Shahji, the senior manager of the bank, the company was prompted to take
steps for registration of charge. Name the specific type of fees which the company is now
required to pay for registration of charge.
(a) Special Fees.
(b) Ad-valorem Fees.
(c) A Late Registration Fees.
(d) Ad-valorem Duty.
5. Sumitra Healthcare and Hospitality Limited had issued 9% non-convertible debentures
which matured four years back. However, 1000 such debentures of ` 100 each are still
remaining unclaimed and unpaid even after the maturity. State the period after which the
company needs to transfer them to Investor Education and Protection Fund (IEPF) if they
remain unclaimed and unpaid.
(a) After the expiry of five years from the maturity date.
(b) After the expiry of six years from the maturity date
(c) After the expiry of seven years from the maturity date
(d) After the expiry of eight years from the maturity date.
6. Delight Sports Garments Limited is contemplating to raise funds through issue of
prospectus in which, according to the directors, a sum of ` 50 crores should be stated as
the minimum amount that needs to be subscribed by the prospective subscribers. The
funds shall be raised in four instalments consisting of application, allotment, first cal l and
second & final call. Advise the company by which instalment it should receive the minimum
subscription stated in the prospectus.

(a) Along with amount subscribed as application money.

(b) Along with amount subscribed as final call money.
(c) Along with amount subscribed as first call money.
(d) Along with amount subscribed as second and final call money.
7. All the 40 members of Taxila Traders Limited have valid voting rights. Due to some
urgency, its directors are desirous of convening Annual General Meeting (AGM) at a
shorter notice than statutorily required. Is it possible for them to do so?
(a) Taxila Traders Limited cannot convene AGM at shorter notice than statutorily
required.
(b) Taxila Traders Limited can convene AGM at shorter notice than statutorily required,
if consent in writing or by electronic mode is accorded by all the forty members who
are entitled to vote at the AGM.
(c) Taxila Traders Limited can convene AGM at shorter notice than statutorily required if
consent in writing or by electronic mode is accorded by at least 38 members who are
entitled to vote at the AGM.
(d) Taxila Traders Limited can convene AGM at shorter notice than statutorily required if
consent in writing or by electronic mode is accorded by at least 36 members who
are entitled to vote at the AGM.
8. A draws a bill on B for ` 500 payable to the order of A. B accepts the bill, but subsequently
dishonours it by non-payment. A sues B on the bill. B proves that it was accepted for value
as to ` 400, and as an accommodation to the plaintiff as to the residue. Thus, as per the
provisions of the Negotiable Instruments Act, 1881, A can only recover the following
amount:
(a) ` 900
(b) ` 500
(c) ` 400
(d) ` 100
COMPANY LAW
1. S Ltd. is a company in which H Ltd. is holding 60% of its paid up share capital. One of the
shareholder of H Ltd. made a charitable trust and donated his 10% shares in H Ltd. and
`50 crores to the trust. He appoints S Ltd. as the trustee. All the assets of the trust are
held in the name of S Ltd. Can a subsidiary hold shares in its holding company in this way?

2. Vintage security equipments limited is a manufacturer of CCTV cameras. It has raised `

100 crores through public issue of its equity shares for starting one more unit of CCTV
camera manufacturing. It has utilized 10 crores rupees and then it realized that its existing
business has no potential for expansion because government has reduced customs duty
on import of CCTV camera hence imported cameras from china are cheaper than its own
manufacturing. Now it wants to utilize remaining amount in mobile app development
business by adding a new object in its memorandum of association.
Does the Companies Act, 2013 allow such change of object. If not then what advise will
you give to company. If yes, then give steps to be followed.
3. What are the powers of Registrar to make entries of satisfaction and release of charges in
the absence of any intimation from the company. Discuss this matter in the light of
4. Neemrana Infotech Ltd. was incorporated on 1.4.2017. No General Meeting of the
company has been held so far. Explain the provisions of the Companies Act, 2013
regarding the time limit for holding the first annual general meeting of the Company and
the power of the Registrar to grant extension of time for the First Annual General Meeting.
5. Mr. Pink held 100 partly paid up shares of Red Limited. The company asked him to pay
the final call money on the shares. Due to some unavoidable circumstances he was unable
to pay the amount of call money to the company. At a general meeting of the shareholders,
the chairman disallowed him to cast his vote on the ground that the articles do not permit
a shareholder to vote if he has not paid the calls on the shares held by him. Mr. Pink
contested the decision of the Chairman. Referring to the provisions of the Companies Act,
2013 decide whether the contention of Mr. Pink is valid.
6. Red Limited was incorporated on 1st April, 2014 is facing severe effects of depression of
the economy. Owing to its bad financial status most of the members have started
withdrawing their holding from the company. The company had 250 members on 10th
January, 2019. By 15th January, 2019, 244 members had withdrawn their holding. No new
member has invested in the company after 15th February till date. Now, Mr. A, an existing
member has approached you to advise him regarding his liabilities in such a situation.
7. Rijwan Limited, a listed company, is in the business of garment manufacturing and has its
registered office at 123, N Tower, Commercial Beta Complex, Biwadi, Rajasthan. The
company has called its 6 th Annual General Meeting at 3 PM on 22 nd August, 2019 at Ansal
Plaza, Bhiwadi. Some of the members of the company have opposed to calling of the
meeting at Ansal Plaza. The company has approached you to advise them in this regard.
Suppose, Rijwan Limited is an unlisted company and wants to call their 6 th AGM at Jaipur,
will your answer differ.
8. Yellow limited has prepared its financial statements for the year 2018-19. Mr. Prateek, the
Managing director the company is declining to sign these financial statements on the
grounds that it is only the duty of the Board of the directors to sign the financial statements

as approved by the Board and he is not liable to sign the same. Now, Mr. Prateek has
approached you advise him regarding his responsbilty for signing the financial statement.
Advise Mr. Prateek regarding his responsibility for signing the financial statements as per
the provisions of the Companies Act, 2013.
Mr. Prateek has also provided to you the following more informations:
1. The Board as a policy does not authorise the chairperson of the company to sign the
financial statements
2. The company has appointed Ms. Sunanina as its Company Secretary
OTHER LAWS
9. Mr. Chintu was appointed as Site Manager of ABC Constructions Company on a two years
contract at a monthly salary of ` 50,000. Mr. Ganesh gave a surety in respect of Mr. Chintu's
conduct. After six months the company was not in position to pay ` 50,000 to Mr. Chintu
because of financial constraints. Chintu agreed for a lower salary of ` 30,000 from the
company. This was not communicated to Mr. Ganesh. Three months afterwards it was
discovered that Chintu had been doing fraud since the time of his appointment. What is
the liability of Mr. Ganesh during the whole duration of Chintu's Appointment.
10. Mr. Madhavan drew a cheque payable to Mr. Vikas or order. Mr. Vikas lost the cheque and
was not aware of the loss of the cheque. The person who found the cheque forged the
signature of Mr. Vyas and endorsed it to Mr. Pawan as the consideration for goods bought
by him from Mr. Pawan. Mr. Pawan encashed the cheque, on the very same day from the
drawee bank. Mr. Vikas intimated the drawee bank about the theft of the cheque after three
days. Examine the liability of the drawee bank.
Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881.
11. Vyas owned a land with fifty tamarind trees. He sold his land and the timber (obtained after
cutting the fifty trees) to Yash. Vyas wants to know whether the sale of timber tantamounts
to sale of immovable property. Advise him with reference to provisions of "General Clauses
Act, 1897”.
12. Explain whether Foreign Decisions be used for construing Indian Acts.

DIVISION A - ANSWER TO MULTIPLE CHOICE QUESTIONS

Question No. 1 2 3 4 5 6 7 8
Correct Option (b) (a) (b) (b) (c) (a) (c) (c)
1. According to section 19 of the Companies Act, 2013 a company shall not hold any shares
in its holding company either by itself or through its nominees. Also, holding company
shall not allot or transfer its shares to any of its subsidiary companies and any such
allotment or transfer of shares of a company to its subsidiary company shall be void.
Following are the exceptions to the above rule—
(a) where the subsidiary company holds such shares as the legal representative of a
deceased member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary
company of the holding company but in this case it will not have a right to vote in the
meeting of holding company.
In the given case one of the shareholders of holding company has transferred his shares
in the holding company to a trust where the shares will be held by subsidiary company. It
means now subsidiary will hold shares in the holding company. But it will hold shares in
the capacity of a trustee. Therefore, we can conclude that in the given situation S Ltd. can
hold shares in H Ltd.
2. According to section 13 of the Companies Act, 2013 a company, which has raised money
from public through prospectus and still has any unutilised amount out of the money so
raised, shall not change its objects for which it raised the money through prospectus unless
a special resolution is passed by the company and—
(i) the details in respect of such resolution shall also be published in the newspapers
(one in English and one in vernacular language) which is in circulation at the place
where the registered office of the company is situated and shall also be placed on the
website of the company, if any, indicating therein the justification for such change;
(ii) the dissenting shareholders shall be given an opportunity to exit by the promoters
and shareholders having control in accordance with SEBI regulations.
Company will have to file copy of special resolution with ROC and he will certify the
registration within a period of thirty days. Alteration will be effective only after this certificate
by ROC.

Looking at the above provision we can say that company can add the object of mobile app
development in its memorandum and divert public money into that business. But for that it
will have to comply with above requirements.
3. Section 83 of the Act of 2013 empowers the Registrar to make entries with respect to the
satisfaction and release of charges even if no intimation has been received by him from
the company.
Accordingly, with respect to any registered charge if an evidence is shown to the
satisfaction of Registrar that the debt secured by charge has been paid or satisfied in whole
or in part or that the part of the property or undertaking charged has been released from
the charge or has ceased to form part of the company’s property or undertaking, then he
may enter in the register of charges a memorandum of satisfaction that:
• the debt has been satisfied in whole or in part; or
• the part of the property or undertaking has been released from the charge or has
ceased to form part of the company’s property or undertaking.
Information to affected parties: The Registrar shall inform the affected parties within 30
days of making the entry in the register of charges.
satisfaction of charge in full, he shall issue a certificate of registration of satisfaction of
charge.
4. According to Section 96 of the Companies Act, 2013, every company shall be required to
hold its first annual general meeting within a period of 9 months from the closing of its first
financial year.
Also, if a company holds its first annual general meeting as aforesaid, it shall not be
necessary for the company to hold any annual general meeting in the year of its
incorporation:
It also provide that the Registrar may, for any special reason, extend the time within which
any annual general meeting, other than the first annual general meeting, shall be held, by
a period not exceeding three months.
In the given case, taking the first financial year of Neemrana Infotech Ltd is for the period
1st April 2017 to 31st March 2018, the first annual general meeting of the company should
be held on or before 31st December, 2018.
According to section 99, if any default is made in holding a meeting of the company in
accordance with section 96, the company and every officer of the company who is in
default shall be punishable with fine which may extend to one lakh rupees and in the case

of a continuing default, with a further fine which may extend to five thousand rupees for
every day during which such default continues.
Even though the Registrar of Companies is empowered to grant extension of time for a
period not exceeding 3 months for holding the annual general meetings, such power does
not apply in the case of the first annual general meeting. Thus, the company and its
directors will be liable under section 99 of the Companies Act, 2013 for the default if the
annual general meeting was held after 31 st December, 2018.
5. Section 106 (1) of the Companies Act, 2013 states that the articles of a company may
provide that no member shall exercise any voting right in respect of any 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.
In the present case the articles of the company do not permit a shareholder to vote if he
has not paid the calls on the shares held by him. Therefore, the chairman at the meeting
is well within its right to refuse him the right to vote at the meeting and Mr. Pink’s contention
is not valid.
6. According to section 3A of the Companies Act, 2013, If at any time the number of members
of a company is reduced, in the case of a public company, below seven, in the case of a
private company, below two, and the company carries on business for more than six
months while the number of members is so reduced, every person who is a member of the
company during the time that it so carries on business after those six months and is
cognisant of the fact that it is carrying on business with less than seven members or two
members, as the case may be, shall be severally liable for the payment of the whole debts
of the company contracted during that time, and may be severally sued therefor.
Hence, in the given situation, the number of member in the said public company have fallen
below 7 [250-244=6] and these members have continued beyond the specified limit of 6
months, the reduced members of the company during the period of 1 month shall be
severally liable for the payment of the whole debts of the company contracted during that
time, and may be severally sued therefor.
7. According to section 96(2) of the Companies Act, 2013, every annual general meeting shall
be called during business hours, that is, between 9 a.m. and 6 p.m. on any day that is not
a National Holiday and shall be held either at the registered office of the company or at
some other place within the city, town or village in which the registered office of the
company is situate.
Provided that annual general meeting of an unlisted company may be held at any place in
India if consent is given in writing or by electronic mode by all the members in advance.
Thus, in the first case, the company is rightful in calling the Annual G eneral meeting at
Ansal Plaza.
In the second scenario, in case of an unlisted company, annual general meeting may be
held at any place in India if consent is given in writing or by electronic mode by all the

members in advance. Hence, if consent is given in writing or by electronic mode by all the
members in advance, the AGM can be called at Jaipur, otherwise not.
8. According to section 134(1) of the Companies Act, 2013, the financial statement, including
consolidated financial statement, if any, shall be approved by the Board of Directors before
they are signed on behalf of the Board by the chairperson of the company where he is
authorised by the Board or by two directors out of which one shall be managing director, if
any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary
of the company, wherever they are appointed, or in the case of One Person Company, only
by one director, for submission to the auditor for his report thereon.
As per the facts of the question, the Board has not authorised the chairperson of the
company to sign the financial statements. Hence, the financial statement shall be signed
by two directors out of which one shall be managing director [i.e. Mr. Prateek].
9. As per the provisions of Section 133 of the Indian Contract Act, 1872, if the creditor makes
any variance (i.e. change in terms) without the consent of the surety, then surety is
discharged as to the transactions subsequent to the change.
In the instant case, Mr. Ganesh is liable as a surety for the loss suffered by ABC
Constructions company due to misappropriation of cash by Mr. Chintu during the first six
months but not for misappropriations committed after the reduction in salary.
Hence, Mr. Ganesh, will be liable as a surety for the act of Mr. Chintu before the change
in the terms of the contract i.e., during the first six months. Variation in the terms of the
contract (as to the reduction of salary) without consent of Mr. Ganesh, will discharge
Mr. Ganesh from all the liabilities towards the act of the Mr. Chintu after such variation.
10. Cheque payable to order
According to Section 85 of the Negotiable Instruments Act, 1881.
(1) Where a cheque payable to order purports to be indorsed by or on behalf of the payee,
the drawee is discharged by payment in due course.
(2) Where a cheque is originally expressed to be payable to bearer, the drawee is
discharged by payment in due course to the bearer thereof, notwithstanding any
indorsement whether in full or in blank appearing thereon, and notwithstanding that
any such indorsement purports to restrict or exclude further negotiation.
As per the given facts, cheque is drawn payable to “Mr. Vikas or order”. It was lost and Mr.
Vikas was not aware of the same. The person found the cheque and forged and endorsed
it to Mr. Pawan, who encashed the cheque from the drawee bank. After few days, Mr. Vikas
intimated about the theft of the cheque, to the drawee bank, by which time, the drawee
bank had already made the payment.
According to above stated section 85, the drawee banker is discharged when it has made
a payment against the cheque payable to order when it is purported to be endorsed by or
on behalf of the payee. Even though the signature of Mr. Vikas is forged, the banker is

protected and is discharged. The true owner, Mr. Vikas, cannot recover the money from
the drawee bank in this situation.
11. “Immovable Property” [Section 3(26) of the General Clauses Act, 1897]: ‘Immovable
Property’ shall include:
(i) Land,
(ii) Benefits to arise out of land, and
(iii) Things attached to the earth, or
(iv) Permanently fastened to anything attached to the earth.
It is an inclusive definition. It contains four elements: land, benefits to arise out o f land,
things attached to the earth and things permanently fastened to anything attached to the
earth. Where, in any enactment, the definition of immovable property is in the negative and
not exhaustive, the definition as given in the General Clauses Act will apply to the
expression given in that enactment.
In the instant case, Vyas sold Land along with timber (obtained after cutting trees) of fifty
tamarind trees of his land. According to the above definition, Land is immovable property;
however, timber cannot be immovable property since the same are not attached to the
earth.
12. The normal function of a proviso is to except something out of the enactment or to qualify
something stated in the enactment which would be within its purview if the proviso were
not there. The effect of the proviso is to qualify the preceding enactment which is expressed
in terms which are too general. As a general rule, a proviso is added to an enactment to
qualify or create an exception to what is in the enactment ordinarily a proviso is not
interpreted as it stating a general rule.
the provision to which it has been enacted as a proviso and not to the other. (Ram Narain
Sons Ltd. Vs. Assistant Commissioner of Sales Tax. A.I.R,1995 SC 765)


FOR MAY, 2019 EXAMINATIONS
The Study Material (July 2017 edition) is updated for all amendments till 30 th April, 2017. Further,
all relevant amendments/ circulars/ notifications etc. in the Company law part for the period
1st May 2017 to 31st October, 2018 are mentioned below:
Relevant Legislative amendments from 1 st of May 2017 to 31st October, 2018
The Companies Act, 2013/ Corporate Laws
Sl. Amendments Relevant Amendments Pg no.* Earlier Law
No. related to
I. Enforcement In the Companies (Acceptance of 5.4 -
of the Deposits) Rules, 2014, (The words have
Companies In rule 2, in sub-rule (1), in clause been newly
(Acceptance (c), in sub-clause (xviii), after the inserted in the
of Deposits) words “Domestic Venture Capital said sub-
Amendment Funds” the words “Infrastructure clause)
Rules, 2017 Investment Trusts” shall be (xviii) any
Vide inserted. amount received
Notification by a company
G.S.R. 454 (E) from Alternate
dated 11th Investment
May, 2017 in Funds, Domestic
exercise of Venture Capital
powers Funds and
conferred by Mutual Funds
section 73 and registered with
73 read with the Securities
469(1) and and Exchange
469(2). Board of India in
accordance with
regulations
made by it.
II. Exemptions to The Central Government amends 7.51 Such other place
Government the Notification G.S.R. 463(E), as the Central
Companies dated 5th June 2015, whereby Government may
Vide Exceptions, Modifications and approve in this
Notification Adaptations were provided in case behalf.
G.S.R. 582(E)

Dated 13th of Government companies.

June, 2017 Following is the amendments:
In sub-section (2) of section 96, for
the words "such other place as the
Central Government may approve
in this behalf”, the words “such
other place within the city, town or
village in which the registered office
of the company is situate or such
other place as the Central
Government may approve in this
behalf” shall be substituted.”.
Insertion of Paragraph 2A in the principal notification G.S.R.
463(E), dated 5th June 2015:
The aforesaid exceptions, modifications and adaptations (i.e. as given
in Notification G.S.R. 463(E), dated 5th June 2015 and Notification
G.S.R. 582(E) Dated 13th June, 2017) shall be applicable to a
Government company which has not committed a default in filing of its
financial statements under section 137 of the Companies Act or annual
return under section 92 of the said Act with the Registrar.
III. Exemptions to The Central Government amends
Private the Notification G.S.R. 464(E),
Companies dated 5th June 2015 whereby
Vide Exceptions, Modifications and
Notification Adaptations were provided in case
G.S.R. 583(E) of Private companies. Following
Dated 13TH are the amendments:
June, 2017
(1) In Chapter I, Clause (40) of 1.9 Provided that
section 2. the financial
For the proviso, the following shall statement, with
be substituted, namely:- respect to One
Provided that the financial Person
statement, with respect to one Company, small
person company, small company, company and
dormant company and private dormant
company (if such private company company, may
is a start-up) may not include the not include the
cash flow statement; cash flow
statement
Explanation. - For the purposes of
this Act, the term “start-up‟ or

“start-up company” means a private

company incorporated under the
Companies Act, 2013 or the
Companies Act, 1956 and
recognised as start-up in
accordance with the notification
issued by the Department of
Industrial Policy and Promotion,
Ministry of Commerce and Industry.
(2) In Chapter V, clauses (a) to (e) 5.6 Clause (a) to (e)
of sub-section (2) of section 73, of Section 73
shall not apply to a private provides
company- conditions for
(A) which accepts from its acceptance of
members monies not exceeding deposits from
one hundred per cent. of aggregate members.
of the paid up share capital, free Notification
reserves and securities premium dated 5th June,
account; or 2015, provided
(B) which is a start-up, for five that Clause (a)
years from the date of its to (e) of Sub-
incorporation; or section 2 of
(C) which fulfils all of the following Section 73 shall
conditions, namely:- not apply to
private
(a) which is not an associate or a
Companies
subsidiary company of any other
which accepts
company;
from its
(b) if the borrowings of such a members
company from banks or financial monies not
institutions or any body corporate is exceeding one
less than twice of its paid up share hundred per
capital or fifty crore rupees, cent, of
whichever is lower; and aggregate of the
(c) such a company has not paid up share
defaulted in the repayment of such capital and free
borrowings subsisting at the time of reserves, and
accepting deposits under this such company
section: shall file the
Provided that the company referred details of monies
to in clauses (A), (B) or (C) shall file so accepted to
the details of monies accepted to the Registrar in
such manner as

the Registrar in such manner as may be

may be specified. specified.
(3) In Chapter VII, clause (g) of 7.11 clause (g) of
sub-section (1) of section 92, shall sub-section (1)
apply to private companies which of section 92 is
are small companies, namely:- read as
“(g) aggregate amount of “remuneration of
remuneration drawn by directors;” directors and
key managerial
personnel”
(4) In Chapter VII, proviso to sub- 7.12 (4) However, in
section (1) of section 92, relation to One
For the proviso, the following Person
proviso shall be substituted, Company and
namely:- small company,
“Provided that in relation to One the annual
Person Company, small company return shall be
and private company (if such signed by the
private company is a start-up), the company
annual return shall be signed by the secretary, or
company secretary, or where there where there is
is no company secretary, by the no company
director of the company.”. secretary, by the
director of the
company.
(5) Section 143(3)(i), shall not 10.24 (5) Section
apply to a private company:- 143(3)(i)
(i) which is a one person provides-
company or a small company; or whether the
(ii) which has turnover less than company has
rupees fifty crores as per latest adequate
audited financial statement or# internal financial
which has aggregate borrowings controls system
from banks or financial institutions in place and the
or anybody corporate at any point operating
of time during the financial year effectiveness of
less than rupees twenty five crore." such controls;
Insertion of Paragraph 2A in the principal notification G.S.R.
464(E), dated 5th June 2015:
The aforesaid exceptions, modifications and adaptations shall be
applicable to a Private company which has not committed a default in

filing of its financial statements under section 137 or annual return

under section 92 of the said Act with the Registrar.
#IV Corrigendum Ministry of Corporate Affairs vide Refer point In Section
vide corrigendum stated that for the 3 above 143(3)(i)(ii)
Notification words “statement or” to read as there were the
S.O. 2218(E) “statement and” under section words
dated 13th July 143(3)(i). “statement or”
2017 with which has been
respect to the replaced with
Notification the word
G.S.R. 583(E) “statement and”
Dated 13TH through this
June, 2017 notification.
V Enforcement The Central Government hereby 10.6 Earlier Rule 5(b)
of the amends the Companies (Audit and stated that -all
Companies Auditors) Rules, 2014. private limited
(Audit and companies
Auditors) Through this amendment rule, in having paid up
Second Rule 5(b), for the word “twenty”, the share capital of
Amendment word “fifty” shall be substituted. rupees 20 crore
Rules, 2017 or more;
Vide
Notification
G.S.R. 621(E)
dated 22nd
June 2017 in
exercise of
powers
conferred by
section 139.
VI Clarification Notification No. G.S.R. 583(E) - For the purposes
regarding dated 13th June, 2017 stated that of clause (i) of
applicability of requirements of reporting under sub-section (3)
exemption section 143(3)(i) read Rule 10 A of of section 143,
given to the Companies (Audit and for the financial
certain private Auditors) Rules, 2014 of the years
companies Companies Act 2013 shall not commencing on
under section apply to certain private companies. or after 1st April,
143(3)(i) vide Through issue of this circular, it is 2015, the report
circular no. hereby clarified that the exemption of the auditor
08/2017 dated shall be applicable for those audit shall state about
25th July 2017 reports in respect of financial existence of

statements pertaining to financial adequate internal

year, commencing on or after 1st financial controls
April, 2016, which are made on or system and its
after the date of the said operating
notification. effectiveness:
Provided that
auditor of a
company may
voluntarily
include the
statement
referred to in this
rule for the
financial year
commencing on
or after 1st April,
2014 and ending
on or before 31st
March, 2015.
VII Clarification Notification No. G.S.R. 583(E) - For the purposes
regarding dated 13th June, 2017 stated that of clause (i) of
applicability of requirements of reporting under sub-section (3)
exemption section 143(3)(i) read Rule 10 A of of section 143,
given to the Companies(Audit and Auditors) for the financial
certain private Rules, 2014 of the Companies Act years
companies 2013 shall not apply to certain commencing on
under section private companies. Through issue or after 1st April,
143(3)(i) vide of this circular, it is hereby clarified 2015, the report
circular no. that the exemption shall be of the auditor
08/2017 dated applicable for those audit reports in shall state about
25th July 2017 respect of financial statements existence of
pertaining to financial year, adequate internal
commencing on or after 1st April, financial controls
2016, which are made on or after system and its
the date of the said notification. operating
effectiveness:
Provided that
auditor of a
company may
voluntarily
include the

statement
referred to in this
rule for the
financial year
commencing on
or after 1st April,
2014 and ending
on or before 31st
March, 2015.
VIII Enforcement In the Companies (Acceptance of 5.8 Provided that a
of the Deposits) Rules, 2014, in rule 3, in private company
Companies sub-rule (3), for the proviso, the may accept from
(Acceptance following shall be substituted, its members
of Deposits) namely:- monies not
Second “Provided that a Specified IFSC exceeding one
Amendment Public company and a private hundred per cent
Rules, 2017 company may accept from its of aggregate of
Vide members monies not exceeding the paid up
Notification one hundred per cent. of aggregate share capital,
G.S.R. of the paid up share capital, free free reserves
1172(E) dated reserves and securities premium and securities
19th account and such company shall premium
September, file the details of monies so account and
2017 in accepted to the Registrar in Form such company
exercise of DPT -3. shall file the
powers Explanation.—For the purpose of details of monies
conferred by this rule, a Specified IFSC Public so accepted to
section 73 and company means an unlisted public the Registrar in
73 read with company which is licensed to such manner as
469(1) and operate by the Reserve Bank of may be
469(2). India or the Securities and specified.
Exchange Board of India or the
Insurance Regulatory and
Development Authority of India
from the International Financial
Services Centre located in an
approved multi services Special
Economic Zone set-up under the
Special Economic Zones Act, 2005
read with the Special Economic
Zones Rules, 2006:

Provided further that the maximum

limit in respect of deposits to be
accepted from members shall not
apply to following classes of private
companies, namely:—
(i) a private company which is a
start-up, for five years from the date
of its incorporation;
(ii) a private company which fulfils
all of the following conditions,
namely:—
(a) which is not an associate or a
subsidiary company of any other
company;
(b) the borrowings of such a
company from banks or financial
institutions or any body corporate is
less than twice of its paid up share
capital or fifty crore rupees,
whichever is less; and
(c) such a company has not defaulted
in the repayment of such borrowings
subsisting at the time of accepting
deposits under section 73:
Provided also that all the
companies accepting deposits shall
file the details of monies so
accepted to the Registrar in Form
DPT -3.”.
IX Vide The Central Government hereby 1.20 -
notification appoints the 20th September, 2017 (The proviso is
S.O. 3086(E) as the date on which proviso to newly notified)
dated 20th clause (87) of section 2 of the said
September Act shall come into force.
2017
The proviso to section 2(87) shall
be read as, “Provided that such
class or classes of holding
companies as may be prescribed
shall not have layers of subsidiaries
beyond such numbers as may be
prescribed.”

X Companies Following sections of the Companies

(Amendment) Act, 2013 (hereinafter referred to as
Act, 2017 the principal Act) have been
amended by the Companies
(Amendment) Act, 2017 via
Notification S.O. 351 (E) dated 26 th
January, 2018; Notification S. O. 630
(E) dated 9th February; 2018,
Notifications: S.O. 1833 (E) dated
7th May, 2018; S.O. 2422(E) dated
13th June, 2018; SO. 3299(E) dated
5th July, 2018; S.O. 3300(E) dated 5 th
July, 2018; S.O. 3684(E) dated 27 th
July, 2018; S.O. 3838(E) dated 31 st
July, 2018; S.O. 3921(E) dated 7 th
August, 2018 and S.O. 4907(E)
dated 19th September, 2018.
1. In section 2 of the Companies
Act, 2013 (hereinafter referred to
as the principal Act)-
(i) in clause (6), for the 1.4 Explanation.—
Explanation, the following For the
Explanation shall be substituted, purposes of
namely:— this clause,
“significant
'Explanation.—For the purpose of influence”
this clause,— means control
of at least
(a) the expression "significant twenty per cent
influence" means control of at least of total share
twenty per cent. of total voting capital, or of
power, or control of or participation business
in business decisions under an decisions
agreement; under an
agreement
(b) the expression "joint venture"
means a joint arrangement
whereby the parties that have joint
control of the arrangement have
rights to the net assets of the
arrangement;

(i) for clause (28), the following 1.7 Cost

clause shall be substituted, accountant
namely:— means a cost
'(28) "Cost Accountant" means a accountant as
cost accountant as defined in defined in
clause (b) of sub-section (1) of clause (b) of
section 2 of the Cost and Works sub-section (1)
Accountants Act, 1959 and who of section 2 of
holds a valid certificate of practice the Cost and
under sub-section (1) of section 6 Works
of that Act; Accountants
Act, 1959.
(ii) in clause (30), the following 1.8 –
proviso shall be inserted, namely: (The proviso is
"Provided that- newly inserted)
(a) the instruments referred to in
Chapter III-D of the Reserve Bank
of India Act, 1934; and
(b) such other instrument, as
may be prescribed by the Central
Government in consultation with
the Reserve Bank of India, issued
by a company,
shall not be treated as debenture;";
(iii) in clause (41), in the first 1.9 -
proviso, after the word "subsidiary", (The words are
the words "or associate company" newly inserted)
shall be inserted; which is a
holding
company or a
subsidiary of a
company
incorporated
outside India
(iv) in clause (46), the following 1.11 -
Explanation shall be inserted, (The
namely:- Explanation is
'Explanation.—For the purposes of newly inserted)
this clause, the expression
"company" includes any body
corporate;';

(v) clause (49) shall be omitted 1.11 (49) Interested

director means
a director who
is in any way,
whether by
himself or
through any of
his relatives or
firm, body
corporate or
other
association of
individuals in
which he or any
of his relatives
is a partner,
director or a
member,
interested in a
contract or
arrangement,
or proposed
contract or
arrangement,
entered into or
to be entered
into by or on
behalf of a
company;
This definition
is relevant for
section 174
relating to
quorum for
meetings of the
Board of
Directors, for
section 184
relating to
disclosure of
interest by
directors and
also for section

188 relating to
related party
transactions of
the Companies
Act, 2013.
(vi) in clause (51),- 1.11 (iii) the whole-
time director;
(a) in sub-clause (iv), the word (iv) the Chief
"and" shall be omitted; Financial
(b) for sub-clause (v), the following Officer; and
sub-clauses shall be substituted, (v) such other
namely:- officer as may
"(v) such other officer, not more be prescribed;
than one level below the directors
who is in whole-time employment,
designated as key managerial
personnel by the Board; and
(vi) such other officer as may be
prescribed;"
(vii) in clause (57), for the words 1.12 ……the
"and securities premium account", aggregate value
the words ", securities premium of the paid-up
account and debit or credit balance share capital
of profit and loss account," shall be and all reserves
substituted created out of
the profits and
securities
premium
account, after
deducting the
aggregate…..
(viii) in clause (71), in sub-clause 1.15 –
(a), after the word "company;", the (The word is
word "and" shall be inserted; newly inserted)
(ix) in clause (72), in the proviso, 1.16 -
in clause (A), after the words “State (The words are
Act”, the words “other than this Act newly inserted)
or the previous company law” shall
be inserted;

(x) in clause (76), for sub-clause 1.17 (viii) any

(viii), the following sub-clause shall company which
be substituted, namely:— is—
(A) a holding,
"(viii) any body corporate which subsidiary or
is— (A) a holding, subsidiary or an associate
an associate company of such company of
company; such company;
(B) a subsidiary of a holding or
company to which it is also a (B) a subsidiary
subsidiary; or of a holding
(C) an investing company or the company to
venturer of the company;"; which it is also
a subsidiary;
Explanation.—For the purpose of
this clause, “the investing company
or the venturer of a company”
means a body corporate whose
investment in the company would
result in the company becoming an
associate company of the body
corporate.
(xi) in clause (85)- 1.20 For (a)
(a) in sub-clause (i), for the words paid-up share
"five crore rupees", the words "ten capital of which
crore rupees" shall be substituted; does not exceed
fifty lakh rupees
or such
higher amount
as may be
prescribed
which shall not
be more than
five crore
rupees; or
(b) in sub-clause (ii),- For (b)
(A) for the words "as per its last turnover of
profit and loss account", the words which as per its
"as per profit and loss account for last profit and
the immediately preceding financial loss account
year" shall be substituted; does not exceed
two crore rupees

(B) for the words "twenty crore or such higher

rupees", the words "one hundred amount as may
crore rupees" shall be substituted; be prescribed
which shall not
be more than
twenty crore
rupees:
(ii) in clause (87), in sub-clause 1.20 (ii) exercises
(ii), for the words “total share or controls more
capital”, the words “total voting than one-half of
power” shall be substituted; the total share
capital either at
Enforcement Date: 7 th May, 2018 its own or
together with
one or more of
its subsidiary
companies:
(xii) for clause (91), the following 1.21 (91) Turnover

clause shall be substituted, means the
namely:- aggregate
'(91) "turnover" means the gross value of the
amount of revenue recognised in realisation of
the profit and loss account from the amount made
sale, supply, or distribution of from the sale,
goods or on account of services supply or
rendered, or both, by a company distribution of
during a financial year;'. goods or on
account of
services
rendered, or
both, by the
company
during a
financial year;
Note: There is
in ambiguity in
definition. So,
there is a need
for amendment
in this

definition.
Further, the
change in
definition is
pending in the
Companies
(Amendment)
Bill, 2016.
2. After section 3 of the principal 2.4 -
Act, the following section shall be (The section is
inserted, namely:- newly inserted)
"3A. If at any time the number of
members of a company is reduced,
in the case of a public company,
below seven, in the case of a
private company, below two, and
the company carries on business
for more than six months while the
number of members is so reduced,
every person who is a member of
the company during the time that it
so carries on business after those
six months and is cognisant of the
fact that it is carrying on business
with less than seven members or
two members, as the case may be,
shall be severally liable for the
payment of the whole debts of the
company contracted during that
time, and may be severally sued
therefor.".
Enforcement Date: 9 th February,
2018
3. In section 4 of the principal Act, 2.11 Upon receipt
in sub-section (5), for clause (i), the of an
following shall be substituted, application, the
namely:- Registrar may,
"(i) Upon receipt of an application on the basis of
under sub-section (4), the Registrar information
may, on the basis of information and documents
and documents furnished along furnished along
with the application, reserve the with the

name for a period of twenty days application,

from the date of approval or such reserve the
other period as may be prescribed: name for a
Provided that in case of an period of sixty
application for reservation of name days from the
or for change of its name by an date of the
existing company, the Registrar application.
may reserve the name for a period
of sixty days from the date of
approval."
Enforcement Date: 26 th January,
2018
4. In section 7 of the principal Act, 2.18 an affidavit
in sub-section (1), in item (c), for from each of the
the words "an affidavit", the words subscribers to
"a declaration" shall be substituted. the
memorandum
Enforcement Date: 27 th July, and from
2018 persons named
as the first
directors, if any,
in the articles
stating that
5. In section 12 of the principal 2.22 (1) Registered
Act,— office: From the
(i) in sub-section (1), for the words 15th day of its
"on and from the fifteenth day of its incorporation
incorporation", the words "within and at all times
thirty days of its incorporation" shall thereafter a
be substituted; company shall
…..be
Enforcement Date: 27 th July, addressed to it.
2018
5. In section 12 of the principal 2.23 (6) Notice of
Act,— change to
(ii) in sub-section (4), for the registrar: Notice
words "within fifteen days", the of every change
words "within thirty days" shall be …….. Registrar
substituted. within 15 days
Enforcement Date: 27 th July, of the change,
2018

who shall record

the same.
6. In section 21 of the principal Act, 2.35 (ii) an officer
for the words "an officer of the of the company
company", the words "an officer or duly authorised
employee of the company" shall be by the Board in
substituted this behalf.
2018
7. In section 26 of the principal Act, 3.7 -
in sub-section (1),— (The words have
(i) after the words "signed and been newly
shall", the following shall be inserted)
"state such information and set out
such reports on financial
information as may be specified by
the Securities and Exchange Board
in consultation with the Central
Government:
Provided that until the Securities
and Exchange Board specifies the
information and reports on financial
information under this sub-section,
the regulations made by the
Securities and Exchange Board
under the Securities and Exchange
Board of India Act, 1992, in respect
of such financial information or
reports on financial information
shall apply.";

7. In section 26 of the principal Act, 3.7, 3.8, (a) Firstly,
in sub-section (1),- 3.9 under the
general
(ii) clauses (a), (b) and (d) shall be information,
omitted. the prospectus
shall contained
the following

Enforcement Date: 7th May, information,

2018 namely —
(i) names and
addresses of
the
………. of
promoter‘s
contribution;
(b) Secondly,
under the
Financial
informations,
……. applied
directly or
indirectly;
(d) state such
other matters
and set out
such other
reports, as may
be prescribed.
8. In section 35 of the principal Act, 3.22 -
in sub-section (2), after clause (b), (The clause is
the following clause shall be newly inserted)
inserted, namely:- To be inserted in
"(c) that, as regards every Point (2) after
misleading statement purported to point (b)
be made by an expert or contained
in what purports to be a copy of or
an extract from a report or valuation
of an expert, it was a correct and
fair representation of the
statement, or a correct copy of, or
a correct and fair extract from, the
report or valuation; and he had
reasonable ground to believe and
did up to the time of the issue of the
prospectus believe, that the person
making the statement was
competent to make it and that the

said person had given the consent

required by sub-section (5) of
section 26 to the issue of the
prospectus and had not withdrawn
that consent before delivery of a
copy of the prospectus for
registration or, to the defendant's
knowledge, before allotment
thereunder.".
2018
9. For section 42 of the principal 3.28 to The content
Act, the following section shall be 3.32 related to
substituted, namely:— section 42 is to
'42. (1) A company may, subject to be deleted
the provisions of this section, make
a private placement of securities.
(2) A private placement shall be
made only to a select group of
persons who have been identified
by the Board (herein referred to as
"identified persons"), whose
number shall not exceed fifty or
such higher number as may be
prescribed [excluding the qualified
institutional buyers and employees
of the company being offered
securities under a scheme of
employees stock option in terms of
provisions of clause (b) of sub-
section (1) of section 62], in a
financial year subject to such
conditions as may be prescribed.
(3) A company making private
placement shall issue private
placement offer and application in
such form and manner as may be
prescribed to identified persons,
whose names and addresses are
recorded by the company in such
manner as may be prescribed:

Provided that the private placement

offer and application shall not carry
any right of renunciation.
Explanation I.—"private
placement" means any offer or
invitation to subscribe or issue of
securities to a select group of
persons by a company (other than
by way of public offer) through
private placement offer-cum-
application, which satisfies the
conditions specified in this section.
Explanation II.—"qualified
institutional buyer" means the
qualified institutional buyer as
defined in the Securities and
Exchange Board of India (Issue of
Capital and Disclosure
Requirements) Regulations, 2009,
as amended from time to time,
made under the Securities and
Exchange Board of India Act, 1992.
Explanation III.—If a company,
listed or unlisted, makes an offer to
allot or invites subscription, or
allots, or enters into an agreement
to allot, securities to more than the
prescribed number of persons,
whether the payment for the
securities has been received or not
or whether the company intends to
list its securities or not on any
recognised stock exchange in or
outside India, the same shall be
deemed to be an offer to the public
and shall accordingly be governe d
by the provisions of Part I of this
Chapter.
(4) Every identified person willing to
subscribe to the private placement
issue shall apply in the private
placement and application issued
to such person alongwith

subscription money paid either by

cheque or demand draft or other
banking channel and not by cash:
Provided that a company shall not
utilise monies raised through
private placement unless allotment
is made and the return of allotment
is filed with the Registrar in
accordance with sub-section (8).
(5) No fresh offer or invitation under
this section shall be made unless
the allotments with respect to any
offer or invitation made earlier have
been completed or that offer or
invitation has been withdrawn or
abandoned by the company:
Provided that, subject to the
maximum number of identified
persons under sub-section (2), a
company may, at any time, make
more than one issue of securities to
such class of identified persons as
may be prescribed.
(6) A company making an offer or
invitation under this section shall
allot its securities within sixty days
from the date of receipt of the
application money for such
securities and if the company is not
able to allot the securities within
that period, it shall repay the
application money to the
subscribers within fifteen days from
the expiry of sixty days and if the
company fails to repay the
application money within the
aforesaid period, it shall be liable to
repay that money with interest at
the rate of twelve per cent. per
annum from the expiry of the
sixtieth day:
Provided that monies received on
application under this section shall

be kept in a separate bank account

in a scheduled bank and shall not
be utilised for any purpose other
than—
(a) for adjustment against
allotment of securities; or
(b) for the repayment of monies
where the company is unable to
allot
securities.
(7) No company issuing securities
under this section shall release any
public advertisements or utilise any
media, marketing or distribution
channels or agents to inform the
public at large about such an issue.
(8) A company making any
allotment of securities under this
section, shall file with the Registrar
a return of allotment within fifteen
days from the date of the allotment
in such manner as may be
prescribed, including a complete
list of all allottees, with their full
names, addresses, number of
securities allotted and such other
relevant information as may be
prescribed.
(9) If a company defaults in filing
the return of allotment within the
period prescribed under sub-
section (8), the company, its
promoters and directors shall be
liable to a penalty for each default
of one thousand rupees for each
day during which such default
continues but not exceeding
twenty-five lakh rupees.
(10) Subject to sub-section (11), if
a company makes an offer or
accepts monies in contravention of
this section, the company, its

promoters and directors shall be

liable for a penalty which may
extend to the amount raised
through the private placement or
two crore rupees, whichever is
lower, and the company shall also
refund all monies with interest as
specified in sub-section (6) to
subscribers within a period of thirty
days of the order imposing the
penalty.
(11) Notwithstanding anything
contained in sub-section (9) and
sub-section (10), any private
placement issue not made in
compliance of the provisions of
sub-section (2) shall be deemed to
be a public offer and all the
provisions of this Act and the
Securities Contracts (Regulation)
Act, 1956 and the Securities and
Exchange Board of India Act, 1992
shall be applicable.’.
Enforcement Date: 7 th August,
2018
10. In section 47, in sub-section 4.6 In Point (i), the
(1), for the words, figures and following may be
brackets "provisions of section 43 added,
and sub-section (2) of section 50", “Subject to
the words, figures and brackets the provisions of
"provisions of section 43, sub- section 43, sub-
section (2) of section 50 and sub- section (2) of
section (1) of section 188" shall be section 50 and
substituted. sub-section (1)
Enforcement Date: 9 th February, of section 188,”
2018
11. In section 53 of the principal 4.10 For (i)
Act,- Any share
(i) in sub-section (2), for the words issued by a
"discounted price", the word company at a
"discount" shall be substituted; discounted

Enforcement Date: 9 th February, price shall be

2018 void.
11. In section 53 of the principal 4.10 For (ii): -
Act,- (The sub-
(ii) after sub-section (2), the section is newly
following sub-section shall be inserted)
inserted, namely:-
"(2A) Notwithstanding anything
contained in sub-sections (1) and
(2), a company may issue shares at
a discount to its creditors when its
debt is converted into shares in
pursuance of any statutory
resolution plan or debt restructuring
scheme in accordance with any
guidelines or directions or
regulations specified by the
Reserve Bank of India under the
Reserve Bank of India Act, 1934 or
the Banking (Regulation) Act,
1949.".
2018
12. In section 54, in sub-section 4.11 (c) not less
(1), clause (c) shall be omitted. than one year
has, at the date
Enforcement Date: 7 th May, 2018 of such issue,
elapsed since
the date on
which the
company had
commenced
business; and
Act,- (c) to any
(i) in sub-section (1), in clause (c), persons, if it is
for the words "of a registered valuer authorised by a
subject to such conditions as may special
be prescribed", the words and resolution, ….. is
figures "of a registered valuer, determined by
subject to the compliance with the the valuation
applicable provisions of Chapter III report of a

and any other conditions as may be registered

prescribed" shall be substituted; valuer subject to
such conditions
Enforcement Date: 9 th February, as prescribed
2018 ………
13. In section 62 of the principal 4.22 For (ii)
Act,- The notice of
offer of shares
(ii) for sub-section (2), the following shall be
sub-section shall be substituted, despatched
namely:- through
"(2) The notice referred to in sub- registered post
clause (i) of clause (a) of sub- or speed post
section (1) shall be dispatched or through
through registered post or speed electronic
post or through electronic mode or mode to all the
courier or any other mode having existing
proof of delivery to all the existing shareholders at
shareholders at least three days least three days
before the opening of the issue.". before the
opening of the
issue.
2018
14. In section 73 of the principal 5.6 (c) depositing
Act, in sub-section (2),— such sum
(i) for clause (c), the following which shall not
clause shall be substituted, be less than
namely:— fifteen per
"(c) depositing, on or before the cent. of the
thirtieth day of April each year, amount of its
such sum which shall not be less deposits
than twenty per cent. of the amount maturing
of its deposits maturing during the during a
following financial year and kept in financial year
a scheduled bank in a separate and the
bank account to be called deposit financial year
repayment reserve account;"; next following,
and kept in a
Enforcement Date: 15 th August, scheduled
2018 bank in a
separate bank

account to be
called as
deposit
repayment
reserve account
14. In section 73 of the principal 5.6 (d) providing
Act, in sub-section (2),— such deposit
(ii) clause (d) shall be omitted; insurance in
such manner
Enforcement Date: 15 th August, and to such
2018 extent as may
be prescribed
14. In section 73 of the principal 5.6 (e) certifying that
Act, in sub-section (2),— the ………. Act or
(iii) in clause (e), for the words payment of
"such deposits;", the following shall interest on such
be substituted, namely:— deposits
"such deposits and where a default
had occurred, the company made
good the default and a period of five
years had lapsed since the date of
making good the default;".
Enforcement Date: 15th August,
2018
15. In section 74, in sub-section 5.13 repay within
(1), for clause (b), the following one year from
clause shall be substituted, such
namely:— commencemen
"(b) repay within three years from t or from the
such commencement or on or date on which
before expiry of the period for such payments
which the deposits were accepted, are due,
whichever is earlier: whichever is
Provided that renewal of any such earlier
deposits shall be done in
accordance with the provisions of
Chapter V and the rules made
thereunder.".
Enforcement Date: 15th August,
2018

16. In section 76A of the principal (a) 5.14 For (a)

Act,- the company
(a) in clause (a), for the words, “one …..shall not be
crore rupees”, the words “one crore less than one
rupees or twice the amount of crore rupees
deposit accepted by the company, but which may
whichever is lower” shall be extend to ten
substituted; crore rupees;
and
2018
16. In section 76A of the principal For (b)
Act,- 5.15 every officer
…….with
(b) in clause (b),- imprisonment
(i) for the words "seven years or which may
with fine", the words "seven years extend to seven
and with fine" shall be substituted; years or with
fine which shall
(ii) the words "or with both" shall
not be less than
be omitted
twenty-five lakh
rupees but which
Enforcement Date: 9 th February, may extend to
2018 two crore
rupees, or with
both
17. In section 77 of the principal 6.3 -
Act, in sub-section (1), after the (The proviso is
third proviso, the following proviso newly inserted)
"Provided also that this section
shall not apply to such charges as
may be prescribed in consultation
with the Reserve Bank of India.".

18. In section 78 of the principal 6.4 As per section
Act, for the words and figures 78 ……. to
"register the charge within the register the
period specified in section 77", the charge within
words, brackets and figures the period 30

"register the charge within the days, the person

period of thirty days referred to in in whose favour
sub-section (1) of section 77" shall the charge is
be substituted. created may
apply
19. In section 82 of the principal 6.7 According to
Act, in sub-section (1),— section 82 of the
(i) the words, brackets and figures Companies Act,
"and the provisions of sub-section 2013, …… from
(1) of section 77 shall, as far as the date of such
may be, apply to an intimation payment or
given under this section" shall be satisfaction and
omitted; the provisions
of section 77(1)
shall, as far as
Enforcement Date: 5th July, 2018
may be, apply
to an intimation
given under
this section.
Act, in sub-section (1),— (The proviso is
(ii) the following proviso shall be newly inserted)
"Provided that the Registrar may,
on an application by the company
or the charge holder, allow such
intimation of payment or
satisfaction to be made within a
period of three hundred days of
such payment or satisfaction on
payment of such additional fees as
may be prescribed.".
Enforcement Date: 5 th July, 2018

20. In section 89 of the principal 7.9 For (i), the said

Act,— words are
(i) in sub-section (6), the words omitted.
and figures, "within the time (however, the
specified under section 403" shall study material
be omitted; does not contain
reference of
section 403)
20. In section 89 of the principal 7.9 the said words

Act,— have been
substituted
(ii) in sub-section (7), for the (however, the
words and figures, "under the first study material
proviso to sub-section (1) of section does not contain
403", the word "therein", shall be reference of
substituted; section 403)

20. In section 89 of the principal 7.9 The sub- section
Act,— is newly
inserted.
(iii) after sub-section (9), the
following sub-section shall be
"(10) For the purposes of this
section and section 90, beneficial
interest in a share includes, directly
or indirectly, through any contract,
arrangement or otherwise, the right
or entitlement of a person alone or
together with any other
person to—
(i) exercise or cause to be
exercised any or all of the rights
attached to such share; or
(ii) receive or participate in any
dividend or other distribution in
respect of such share.".
Enforcement Date: 13 th June,
2018

21. For section 90 of the principal 7.10 INVESTIGATION

Act, the following section shall be OF BENEFICIAL
substituted, namely:— OWNERSHIP OF
SHARES IN
‘REGISTER OF SIGNIFICANT CERTAIN CASES
BENEFICIAL OWNERS IN A The section
COMPANY simply enables
(1) Every individual, who acting the Central
alone or together, or through one or …….
more persons or trust, including a investigation
trust and persons resident outside ordered under
India, holds beneficial interests, of that section.
not less than twenty-five per cent.
or such other percentage as may
be prescribed, in shares of a
company or the right to exercise, or
the actual exercising of significant
influence or control as defined in
clause (27) of section 2, over the
company (herein referred to as
"significant beneficial owner"), shall
make a declaration to the company,
specifying the nature of his interest
and other particulars, in such
manner and within such period of
acquisition of the beneficial interest
or rights and any change thereof,
as may be prescribed:
Provided that the Central
Government may prescribe a class
or classes of persons who shall not
be required to make declaration
under this sub-section.
(2) Every company shall maintain a
register of the interest declared by
individuals under sub-section (1)
and changes therein which shall
include the name of individual, his
date of birth, address, details of
ownership in the company and
such other details as may be
prescribed.

(3) The register maintained under

sub-section (2) shall be open to
inspection by any member of the
company on payment of such fees
as may be prescribed.
(4) Every company shall file a
return of significant beneficial
owners of the company and
changes therein with the Registrar
containing names, addresses and
other details as may be prescribed
within such time, in such form and
(5) A company shall give notice, in
the prescribed manner, to any
person (whether or not a member
of the company) whom the
company knows or has reasonable
cause to believe—
(a) to be a significant beneficial
owner of the company;
(b) to be having knowledge of the
identity of a significant beneficial
owner or another person likely to
have such knowledge; or
(c) to have been a significant
beneficial owner of the company at
any time during the three years
immediately preceding the date on
which the notice is issued,
and who is not registered as a
significant beneficial owner with the
company as required under this
section.
(6) The information required by the
notice under sub-section (5) shall
be given by the concerned person
within a period not exceeding thirty
days of the date of the notice.
(7) The company shall,—
(a) where that person fails to
give the company the information

required by the notice within the

time specified therein; or
(b) where the information given
is not satisfactory,
apply to the Tribunal within a period
of fifteen days of the expiry of the
period specified in the notice, for an
order directing that the shares in
question be subject to restrictions
with regard to transfer of interest,
suspension of all rights attached to
the shares and such other matters
(8) On any application made under
sub-section (7), the Tribunal may,
after giving an opportunity of being
heard to the parties concerned,
make such order restricting the
rights attached with the shares
within a period of sixty days of
receipt of application or such other
period as may be prescribed.
(9) The company or the person
aggrieved by the order of the
Tribunal may make an application
to the Tribunal for relaxation or
lifting of the restrictions placed
under sub-section (8).
(10) If any person fails to make a
declaration as required under sub-
section (1), he shall be punishable
with fine which shall not be less
than one lakh rupees but which
may extend to ten lakh rupees and
where the failure is a continuing
one, with a further fine which may
extend to one thousand rupees for
every day after the first during
(11) If a company, required to
maintain register under sub-section
(2) and file the information under

sub-section (4), fails to do so or

denies inspection as provided
therein, the company and every
officer of the company who is in
default shall be punishable with fine
which shall not be less than ten
lakh rupees but which may extend
to fifty lakh rupees and where the
failure is a continuing one, with a
further fine which may extend to
one thousand rupees for every day
after the first during which the
failure continues.
(12) If any person wilfully furnishes
any false or incorrect information or
suppresses any material
information of which he is aware in
the declaration made under this
section, he shall be liable to action
under section 447.'.

2018
22. In section 92 of the principal 7.12 A copy of annual
Act,— return shall be
file with the RoC
(i) in sub-section (4), the words within 60 days
and figures, "within the time as …… holding the
specified, under section 403" shall AGM within the
be omitted; time specified
under section
403
Act,— have been
substituted
(ii) in sub-section (5), for the (however, the
words and figures, "under section study material
403 with additional fees" the word does not contain
"therein" shall be substituted. reference of
Enforcement Date: 7 th May, 2018 section 403)

23. Section 93 of the principal Act 7.13 SECTION 93 –

shall be omitted. RETURN …..
company in
Enforcement Date: 13 th June, each case
2018
24. In section 94 of the principal 7.14 the change has
Act,— to be made in
(i) in sub-section (1), in the first the diagram
proviso, the words "and the given on page
Registrar has been given a copy of 7.14
the proposed special resolution in
advance" shall be omitted;

2018
Act,— (The proviso is
newly inserted)
(ii) in sub-section (3), the following
proviso shall be inserted,
namely:—
"Provided that such particulars of
the register or index or return as
may be prescribed shall not be
available for inspection under sub-
section (2) or for taking extracts or
copies under this sub-section.".

2018
Act, in sub-section (2), in the (The proviso is
proviso, for the words "Provided newly inserted)
that", the following shall be
"Provided that annual general
meeting of an unlisted company
may be held at any place in India if
consent is given in writing or by

electronic mode by all the members

in advance:
Provided further that".
2018
Act, in sub-section (1), the following (The proviso is
proviso shall be inserted, namely:- newly inserted)
"Provided that an extraordinary
general meeting of the company,
other than of the wholly owned
subsidiary of a company
incorporated outside India, shall be
held at a place within India.".
2018
27. In section 101 of the principal 7.19 The proviso to
Act, in sub-section (1), for the section 101(1)
proviso, the following proviso shall also states that
be substituted, namely:- a shorter notice
"Provided that a general meeting may also be
may be called after giving shorter given with the
notice than that specified in this consent of 95
sub-section if consent, in writing or per cent of the
by electronic mode, is accorded members
thereto- entitled to vote.
(i) in the case of an annual general Generally
meeting, by not less than ninty-five meetings need
per cent. of the members entitled to to be called by
vote thereat; and giving a notice
of 21 clear
(ii) in the case of any other general
days. However,
meeting, by members of the
they can be
company-
called on a
(a) holding, if the company has shorter notice
a share capital, majority in number if, 95 per cent of
of members entitled to vote and the members
who represent not less than ninety- entitled to vote
five per cent. of such part of the in that meeting
paid-up share capital of the give their
company as gives a right to vote at consent in
the meeting; or writing or by

(b) having, if the company has electronic

no share capital, not less than mode.
ninety-five per cent. of the total It is also
voting power exercisable at that important to
meeting: note that only
Provided further that where any the
member of a company is entitled to requirement as
vote only on some resolution or regards the
resolutions to be moved at a length of the
meeting and not on the others, notice being 21
those members shall be taken into days, is
account for the purposes of this dispensed with
sub-section in respect of the former by such
resolution or resolutions and not in consent of not
respect of the latter.". less than 95 per
Enforcement Date: 9 th February, cent of the
2018 members
entitled to vote
at such
meeting and
not the
necessity to
call and hold
such meeting.
Act, in sub-section (1), the following (The proviso is
proviso shall be inserted, namely:- newly inserted)
"Provided that any item of business
required to be transacted by means
of postal ballot under clause (a),
may be transacted at a general
meeting by a company which is
required to provide the facility to
members to vote by electronic
means under section 108, in the
manner provided in that section."
2018
Act,— have been
(i) in sub-section (1), the words and omitted
figures “within the time specified (however, the

under section 403” shall be study material

omitted; does not contain
reference of
Enforcement Date: 7th May, 2018 section 403)
29. In section 117 of the principal 7.46 Section 117(2)
Act,— sets out …….. to
…... the
(ii) in sub-section (2),— specified time
under section
(a) for the words and figures “under
403 and …….
section 403 with additional fees”,
which shall not
the word “therein” shall be
be less than
substituted;
` 5,00,000 but
(b) for the words "not be less than which may
five lakh rupees", the words "not be extend to
less than one lakh rupees" shall be ` 25,00,000 and
substituted; every officer
(c) for the words "one lakh rupees", …… with fine
the words "fifty thousand rupees" which shall not
shall be substituted; be less than
` 1,00,000 but
Enforcement Date: 7 th May, 2018 which may
extend to
` 5,00,000
29. In section 117 of the principal 7.45 For (a)
Act,— resolutions
passed by a
(iii) in sub-section (3),— …….. of any of
(a) clause (e) shall be omitted; the powers
under …(1)(c)
(b) in clause (g), in the proviso, the
word “and” shall be omitted and the
following proviso shall be inserted, For (b)-
namely:— (The proviso is
"Provided further that nothing newly inserted)
contained in this clause shall apply
to a banking company in respect of
a resolution passed to grant loans,
or give guarantee or provide
security in respect of loans under
clause (f) of sub-section (3) of

section 179 in the ordinary course

of its business; and.".

Act,— have been
omitted/
(i) in sub-section (2), the words and substituted
figures “within the time as (however, the
specified, under section 403” shall study material
be omitted; does not contain
reference of
section 403)
(ii) in sub-section (3), for the words
and figures “under section 403 with
additional fees”, the word “therein”

31. In section 123 of the principal 8.4
Act,-
(a) in sub-section (1)- (i) For point (A)

(i) in clause (a),- (c) out of both
(A) for the words "both; or", the (a) and (b); or
word "both:" shall be substituted;
(B) the following proviso shall
be inserted, namely:- For point (B): -
"Provided that in computing profits (The proviso is
any amount representing newly inserted)
unrealised gains, notional gains or
revaluation of assets and any
change in carrying amount of an
asset or of a liability on
measurement of the asset or the
liability at fair value shall be
excluded; or";

2018

31. In section 123 of the principal 8.4 For (ii)

Act,- Where a
company, …….
(ii) in the second proviso, for the it in previous
words "transferred by the company years and
to the reserves", the words transferred by
"transferred by the company to the the company to
free reserves" shall be substituted; the reserves,
Enforcement Date: 9 th February, such declaration
2018 of dividend ……
with prescribed
rules. [Second
Proviso to
section 123(1)]
31. In section 123 of the principal 8.6 According to
Act,- section 123(3),
the Board of
(b) for sub-section (3), the following Directors of a
sub-section shall be substituted, company may
namely:- declare interim
dividend during
"(3) The Board of Directors of a
any financial
company may declare interim
year out of the
dividend during any financial year
surplus in the
or at any time during the period
profit and loss
from closure of financial year till
account and
holding of the annual general
out of profits of
meeting out of the surplus in the
the financial
profit and loss account or out of
year in which
profits of the financial year for
such interim
which such interim dividend is
dividend is
sought to be declared or out of
sought to be
profits generated in the financial
year till the quarter preceding the declared.
date of declaration of the interim However, in
dividend: case the
company has
Provided that in case the company
incurred loss
has incurred loss during the current
during the
financial year up to the end of the
current
quarter immediately preceding the
financial year
date of declaration of interim
up to the end of
dividend, such interim dividend
the quarter
shall not be declared at a rate

higher than the average dividends immediately

declared by the company during preceding the
immediately preceding three date of
financial years.". declaration of
interim
Enforcement Date: 9 February,
th dividend, such
2018 interim
dividend shall
not be declared
at a rate higher
than the
average
dividends
declared by the
company
during
immediately
preceding three
financial years.
32. In section 129 of the principal 9.8 and (1) Where a
Act, for sub-section (3), the 9.9 company has
following sub-section shall be one or more
substituted, namely:— subsidiaries,
"(3) Where a company has one or ……
more subsidiaries or associate Rule 6 of
companies, it shall, in addition to the Companies
financial statements provided (Accounts)
under sub-section (2), prepare a Rules, 2014.
consolidated financial statement of
the company and of all the
Explanation—
subsidiaries and associate
For the
companies in the same form and
purposes of
manner as that of its own and in
this sub-
accordance with applicable
section, the
accounting standards, which shall
word
also be laid before the annual
“subsidiary”
general meeting of the company
shall include
along with the laying of its financial
statement under sub-section (2): associate
company and
Provided that the company shall
joint venture.
also attach along with its financial
statement, a separate statement
containing the salient features of

the financial statement of its

subsidiary or subsidiaries and
associate company or companies
in such form as may be prescribed:
Provided further that the Central
Government may provide for the
consolidation of accounts of
companies in such manner as may
be prescribed.

33. In section 130 of the principal 9.13 For (i) -
Act,- (The words are
newly inserted)
(i) in sub-section (1), in the
proviso,-
(a) after the words "regulatory body
or authorities concerned", the
words "or any other person
(b) after the words "the body or
authority concerned", the words "or
the other person concerned" shall
be inserted;

2018
33. In section 130 of the principal 9.13
Act,- For (ii) –
(This sub-
(ii) after sub-section (2), the section is newly
inserted, namely:-
"(3) No order shall be made under
sub-section (1) in respect of re-
opening of books of account
relating to a period earlier than
eight financial years immediately
preceding the current financial
year: Provided that where a
direction has been issued by the

Central Government under the

proviso to sub-section (5) of section
128 for keeping of books of account
for a period longer than eight years,
the books of account may be
ordered to be re-opened within
such longer period."
2018
34. In section 134 of the principal 9.16 The financial
Act,— statements,
including
(a) for sub-section (1), the
consolidated
following sub-section shall be
financial
statement,
"(1) The financial statement, …….. for
including consolidated financial submission to
statement, if any, shall be approved the auditor for
by the Board of Directors before his report
they are signed on behalf of the thereon.
Board by the chairperson of the
company where he is authorised by
the Board or by two directors out of
which one shall be managing
director, if any, and the Chief
Executive Officer, the Chief
Financial Officer and the company
secretary of the company,
wherever they are appointed, or in
the case of One Person Company,
only by one director, for submission
to the auditor for his report
thereon.";
Enforcement Date: 31 st July,
2018
Act,— Extract of
(b) in sub-section (3),— annual return
(i) for clause (a), the following (in the diagram)
clause shall be substituted,
namely:— For (ii)

"(a) the web address, if any, where Listed /other

annual return referred to in sub- public …….
section (3) of section 92 has been statement
placed;"; of annual
(ii) in clause (p), for the words evaluation of
"annual evaluation has been made performances
by the Board of its own of Board,
performance and that of its committees
committees and individual and individual
directors", the words "annual directors.
evaluation of the performance of (in the diagram)
the Board, its Committees and of
individual directors has been
made" shall be substituted; For (iii)
(iii) after clause (q), the following The proviso is
provisos shall be inserted, newly inserted
namely:— (in the diagram)
"Provided that where disclosures
referred to in this sub-section have
been included in the financial
statements, such disclosures shall
be referred to instead of being
repeated in the Board's report:
Provided further that where the
policy referred to in clause (e) or
clause (o) is made available on
company's website, if any, it shall
be sufficient compliance of the
requirements under such clauses if
the salient features of the policy
and any change therein are
specified in brief in the Board's
report and the web-address is
indicated therein at which the
complete policy is available.";
2018
34. In section 134 of the principal - -
Act,— (The sub-
(c) after sub-section (3), the section is newly

"(3A) The Central Government may

prescribe an abridged Board's
report, for the purpose of
compliance with this section by
One Person Company or small
company.".
2018
Act,— during any
(i) in sub-section (1),— financial year
(a) for the words "any financial shall constitute a
year", the words "the immediately Corporate Social
preceding financial year" shall be Responsibility
substituted; Committee of
(b) the following proviso shall be the Board.
"Provided that where a company is For (b)-
not required to appoint an (The proviso has
independent director under sub- been newly
section (4) of section 149, it shall inserted)
have in its Corporate Social
Responsibility Committee two or
more directors.";
Enforcement Date: 19 th
September, 2018
35. In section 135 of the principal 9.24 formulate and
Act,— recommend
(ii) in sub-section (3), in clause ……. which shall
(a), for the words and figures "as indicate the
specified in Schedule VII", the activities to be
words and figures "in areas or undertaken by
subject, specified in Schedule VII" the company as
shall be substituted; specified in
Enforcement Date: 19 th Schedule VII;
September, 2018
35. In section 135 of the principal 9.26 Here, “average
Act,— net profit” shall
(iii) in sub-section (5), for the be calculated in
Explanation, the following accordance
with the

Explanation shall be substituted, provisions

namely:— of section 198
'Explanation.—For the purposes of
this section "net profit" shall not
include such sums as may be
prescribed, and shall be calculated
in accordance with the provisions
of section 198.'.
Enforcement Date: 19 th
September, 2018
36. In section 136 of the principal 9.30 As per the
Act,- amendment the
(i) in sub-section (1),- word Without
(a) the words and figures "Without prejudice to the
prejudice to the provisions of provisions of
section 101," shall be omitted; section 101,"
Enforcement Date: 9 th February, shall be omitted
2018
Act,- (The proviso is
(i) in sub-section (1),- newly inserted)
(b) in the first proviso, for the words

"Provided that", the following shall
be substituted, namely:-
"Provided that if the copies of the
documents are sent less than
twenty-one days before the date of
the meeting, they shall,
notwithstanding that fact, be
deemed to have been duly sent if it
is so agreed by members-
(a) holding, if the company has
a share capital, majority in number
entitled to vote and who represent
not less than ninety-five per cent. of
such part of the paid-up share
capital of the company as gives a
right to vote at the meeting; or
(b) having, if the company has
no share capital, not less than

ninety five per cent. of the total

voting power exercisable at the
meeting:
Provided further that";
2018
36. In section 136 of the principal 9.31 Related to point
Act,- (ii) on Page 9.31
(i) in sub-section (1),-
(c) in the second proviso, for the
words "Provided further", the
words, "Provided also" shall be
substituted;
2018
36. In section 136 of the principal 9.31 (iii) Subsidiary
Act,- Companies:
(i) in sub-section (1),- Every
(d) for the fourth proviso, the company
following provisos shall be having a
substituted, namely:— subsidiary or
'Provided also that every listed subsidiaries
company having a subsidiary or shall,—
subsidiaries shall place separate (1) place
audited accounts in respect of each separate
of subsidiary on its website, if any: audited
Provided also that a listed company accounts in
which has a subsidiary respect of each
incorporated outside India (herein of its
referred to as "foreign subsidiary")- subsidiary on
its website, if
(a) where such foreign
any;
subsidiary is statutorily required to
prepare consolidated financial (2) provide a
statement under any law of the copy of
country of its incorporation, the separate
requirement of this proviso shall be audited
met if consolidated financial financial
statement of such foreign statements in
respect of each

subsidiary is placed on the website of its

of the listed company; subsidiary, to
(b) where such foreign any
subsidiary is not required to get its shareholder of
financial statement audited under the company
any law of the country of its who asks for it.
incorporation and which does not
get such financial statement
audited, the holding Indian listed
company may place such
unaudited financial statement on its
website and where such financial
statement is in a language other
than English, a translated copy of
the financial statement in English
shall also be placed on the
website.’;
2018
newly inserted)
(ii) in sub-section (2), the following Add the proviso
proviso shall be inserted, namely:- in point (iv)
"Provided that every company
having a subsidiary or subsidiaries
shall provide a copy of separate
audited or unaudited financial
statements, as the case may be, as
prepared in respect of each of its
subsidiary to any member of the
company who asks for it."

2018
Act,— (i) Filing of
(i) in sub-section (1),— financial
(a) the words and figures "within statements
the time specified under section [Section 137(1)]:
403" shall be omitted; A copy of the

(b) in the second proviso, the words financial …..

and figures "within the time fees as may
specified under section 403" shall be prescribed
be omitted; within the time
(c) after the fourth proviso, the specified under
following proviso shall be inserted, section 403
namely:—
'Provided also that in the case of a For (b)
subsidiary which has been (c) If the
incorporated outside India (herein financial
referred to as "foreign subsidiary"), statements are
which is not required to get its adopted
financial statement audited under …… such
any law of the country of its additional
incorporation and which does not fees as may be
get such financial statement prescribed
audited, the requirements of the within the time
fourth proviso shall be met if the specified under
holding Indian company files such section 403.
unaudited financial statement
along with a declaration to this
effect and where such financial For (c) –
statement is in a language other (The proviso is
than English, along with a newly inserted)
translated copy of the financial
statement in English.'.

37. In section 137 of the principal 9.35 (v) Annual
Act,— General meeting
(ii) in sub-section (2), the words not held [Section
and figures “within the time 137(2)] :
specified, under section 403” shall Where the
be omitted; annual general
…..
Enforcement Date: 7 th May, 2018 additional fees
as may be
prescribed
within the time
specified,
under section
403.


Act,— have been
(iii) in sub-section (3), for the substituted
words and figures “in section 403”, (however, the
the word “therein” shall be study material
substituted. does not contain
reference of
section 403)
38. In section 139 of the principal 10.5 The company
Act, in sub-section (1), the first shall place the
proviso shall be omitted. matter relating
to such
Enforcement Date: 7 th May, 2018 appointment
for
ratification by
members at
every AGM.
39. In section 140 of the principal 10.15 (d) If the

Act, in sub-section (3), for the auditor does not
words "fifty thousand rupees", the ……. with fine
words "fifty thousand rupees or the which shall not
remuneration of the auditor, be less than
whichever is less," shall be ` 50,000 but
substituted. which may
extend to ` 5
Enforcement Date: 9 th February, Lacs.
2018
40. In section 141 of the principal 10.22 (9) any person
Act, in sub-section (3), for clause whose
(i), the following clause shall be subsidiary or
substituted, namely:- associate
‘(i) a person who, directly or company or
indirectly, renders any service any other form
referred to in section 144 to the of entity, is
company or its holding company or engaged as on
its subsidiary company. the date of
Explanation.—For the purposes of appointment in
this clause, the term "directly or consulting and
indirectly" shall have the meaning specialised
services as

assigned to it in the Explanation to provided in

section 144.’. section 144

2018
41. In section 143 of the principal 10.23 (c) Access to
Act,- record of all its
(i) in sub-section (1), in the proviso, subsidiaries:
for the words "its subsidiaries", at The auditor of a
both the places, the words "its ……. the records
subsidiaries and associate of all its
companies" shall be substituted; subsidiaries in
so far as it
relates to the
consolidation of
2018
its financial
statements with
that of its
subsidiaries.
41. In section 143 of the principal 10.24 (9) whether the
Act,- company has
(ii) in sub-section (3), in clause (i), adequate
for the words "internal financial internal
controls system", the words financial
"internal financial controls with controls
reference to financial statements" system in place
shall be substituted; and the
Enforcement Date: 9 th February, operating
2018 effectiveness of
such controls;
41. In section 143 of the principal 10.36 The provisions
Act,- of section 143
(iii) in sub-section (14), in clause shall mutatis
(a), for the words "cost accountant mutandis apply
in practice", the words "cost to the cost
accountant" shall be substituted accountant in
practice
conducting cost
audit under
2018
section 148.


Act,- The words shall
(i) in sub-section (2),- be inserted in
(a) after the words "five lakh point (iii) (a)
rupees", the words "or four times
the remuneration of the auditor,
whichever is less" shall be inserted;
2018
42. In section 147 of the principal 10.33 and
Act,-
(i) in sub-section (2),- (2) Fine which
(b) in the proviso, for the words shall not be
"and with fine which shall not be less than Rs. 1
less than one lakh rupees but which lac but which
may extend to twenty-five lakh may extend to
rupees", the words "and with fine Rs. 25 Lacs
which shall not be less than fifty
thousand rupees but which may
extend to twenty-five lakh rupees or
eight times the remuneration of the
auditor, whichever is less" shall be
substituted;
2018
42. In section 147 of the principal 10.33 (2) pay for
Act,- damages to the
(ii) in sub-section (3), in clause (ii), company,
for the words "or to any other statutory bodies
persons", the words "or to members or authorities or
or creditors of the company" shall to any other
be substituted; persons for loss
Enforcement Date: 9 th February, arising out of
2018 incorrect ….
audit report.
(iii) in sub-section (5), the following newly inserted)
proviso shall be inserted, namely:-
"Provided that in case of criminal
liability of an audit firm, in respect

of liability other than fine, the

concerned partner or partners, who
acted in a fraudulent manner or
abetted or, as the case may be,
colluded in any fraud shall only be
liable.".
2018
43. In section 148 of the principal 10.34 (iv) The cost
Act,- audit shall be
(i) in sub-section (3),- conducted by a
(a) for the words "Cost Accountant Cost
in practice", the words "cost Accountant in
accountant" shall be substituted; practice who
Enforcement Date: 9 th February, shall be …… by
2018 the members in
such manner as
may be
prescribed.
43. In section 148 of the principal 10.35 Here, the
Act,- expression “cost
(i) in sub-section (3),- auditing
(b) in the Explanation, for the words standards” mean
"Institute of Cost and Works such standards
Accountants of India", the words as are issued by
"Institute of Cost Accountants of the Institute of
India" shall be substituted; Cost and Works
Enforcement Date: 9 th February, Accountants of
2018 India,
constituted
under the Cost
and Works
Accountants
Act, 1959, with
the approval of
the Central
Government.
43. In section 148 of the principal 10.35 (x) The report
Act,- on the audit of
(ii) in sub-section (5), in the cost records
proviso, for the words "cost shall be

accountant in practice", the words submitted by the

"cost accountant" shall be cost
substituted accountant in
Enforcement Date: 9 th February, practice to the
2018 Board of
Directors (BoD)
of the company.
XI Amendment in In exercise of the powers conferred 9.7 Replace the
the notification by clauses (a) and (b) of sub- footnote
number section (1) and subsection (2) of ‘Section 129
G.S.R. 463(E) section 462 of the Companies Act, shall not apply to
dated the 5th 2013, the Central Government, in the Government
June, 2015 the interest of public amends the companies to
vide notification of the Government of the extent of
Notification India in the Ministry of Corporate application of
no. S.O. Affairs number G.S.R. 463(E) Accounting
802(E) dated dated the 5th June, 2015 namely:— Standard 17
23rd February, In the said notification, in the (Segment
2018 Table, for serial number 8 and Reporting) to
entries relating thereto, the the companies
following serial number and entries engaged in
shall be respectively substituted, defence
namely:- production.
“In Chapter IX, Section 129- Shall
not apply to the companies
engaged in defence production to
the extent of application of relevant
Accounting Standard on segment
reporting”.
XII ‘Reservation Rule 9: Reservation of name 2.11 -
of Name of An application for reservation of (This Rule may
Company’ name shall be made through the be read with
web service available at respect to point
Notification www.mca.gov.in by using [form (iv) Requirement
G.S.R. 284(E) RUN](Reserve Unique Name) for reservation of
dated 23rd along with fee as provided in the the name of the
March, 2018 Companies (Registration offices company)
and fees) Rules, 2014, which may
either be approved or rejected, as
the case may be, by the Registrar,
Central Registration Centre after
allowing re--submission of such

application within fifteen days for

rectification of the defects, if any.
XIII Notification The Central Government has 1.21 As per the
G.S.R. 433(E) amended the Companies Companies
dated 7th May, (Specification of Definitions (Specification
2018 Details) Rules, 2014, by the of Definitions
Companies (Specification of Details) Rules,
Definitions Details) Amendment 2014, “Total
Rules, 2018. It shall come into Share Capital”,
force on 7th May, 2018. ……. (b)
In the Companies (Specification of convertible
Definitions Details) Rules, 2014, in preference
rule 2, in sub-rule (1), clause (r) share capital
shall be omitted.
Please note: The said clause (r)

deals with ‘Total Share Capital’
XIV Notification The Central Government has 4.12 ‘‘Employee’’
G.S.R. 434(E) amended the Companies (Share means-(a) a
dated 7th May, Capital and Debentures) Rules, permanent
2018 2014, by the Companies (Share employee of the
Capital and Debentures) Second company who
Amendment Rules, 2018. It shall has been
come into force on 7th May, 2018. working
In the Companies (Share Capital in India or
and Debentures) Rules, 2014, in outside India,
the principal rules, in rule 8, in sub- for at least last
rule (1), in the Explanation, in one year; or
clause (i) in sub-clause (a), the
words “for at least last one year”
shall be omitted.
XV Notification The Central Government has 5.11 (k) details of
G.S.R. 612 (E) amended the Companies deposit
dated 5th July, (Acceptance of Deposits) Rules, insurance
2018 2014, by the Companies including
(Acceptance of Deposits) extent of
Amendment Rules, 2018. It shall deposit
come into force on 15th August, insurance;
2018.
In the Companies (Acceptance of
Deposits) Rules, 2014 in rule 14, in

sub-rule (1), clause (k) shall be

omitted;
XVI Notification The Central Government has 2.4 (person who
G.S.R. 708(E) amended the Companies has stayed in
dated 27th (Incorporation) Rules, 2014, by the India for a
July, 2018 Companies (Incorporation) Third period of not
Amendment Rules, 2018. It shall less than 182
come into force on 27 th July, 2018. days during the
In the Companies (Incorporation) immediately
Rules, 2014. preceding one
(a) in rule 3, for Explanation to sub- calendar year)
rule (1), the following shall be
“Explanation I. - For the purposes
of this rule, the term "resident in
India" means a person who has
stayed in India for a period of not
less than one hundred and eighty
two days during the immediately
Explanation II.- For the purposes
of this rule, while counting the
number of days of stay of a director
in India for the financial year 2018-
2019, any period of stay between
01.01.2018 till the date of
notification of this rule shall also be
counted”;
XVI Enforcement The Central Government makes 10.5 According to
I of the the Companies (Audit and the Companies
Companies Auditors) Second Amendment (Audit
(Audit and Rules, 2018 to amend the and Auditors)
Auditors) Companies (Audit and Auditors) Rules, 2014,
Amendment Rules, 2014. …….
Rules, 2018 1. In the Companies (Audit and by way of
vide Auditors) Rules, 2014, in rule 3 passing of an
Notification which deals with the Manner and ordinary
G.S.R. 432 (E) Procedure of selection and
resolution.
dated 7th May appointment of auditors:
2018 If the
(a) Explanation shall be omitted. appointment is
not ……..

(b) proviso to sub-rule (7) shall be procedure laid

omitted. down in this
behalf under
the Act.
XVI The Central Government makes 10.24 As per the rule
I the Companies (Audit and 10A inserted by
Auditors) Second Amendment the Companies
Rules, 2018 to amend the (Audit and
Companies (Audit and Auditors) Auditors)…..
Rules, 2014. about existence
2. In the principal rules, in rule 10A of adequate
i.e., related to Internal Financial internal
controls system, for the words financial
"adequate internal financial controls
controls system", the words system and
"internal financial controls with its operating
reference to financial statements" effectiveness.
XVI The Central Government makes 10.34 (A) the Board
I the Companies (Audit and shall appoint an
Auditors) Second Amendment individual, who
Rules, 2018 to amend the is a cost
Companies (Audit and Auditors) accountant in
Rules, 2014. practice, or a
3. In the principal rules, in rule 14 firm of
which deals with the remuneration
of the cost auditor, following are the (2) in the case of
changes- other companies
(a) in clause (a), in sub-clause (i), which are not
for the words, "who is a cost required……,
accountant in practice", the words shall appoint an
"who is a cost accountant" shall be individual who
substituted; is a cost
(b) in clause (b) for the words "who accountant
is a cost accountant in practice", in practice or a
the words "who is a cost firm of
accountant" shall be substituted.
XVI Enforcement The Central Government makes 9.20 -
II of the the Companies (Accounts) [Clause (ix) and
Companies Amendment Rules, 2018 to amend (x) is newly
(Accounts) inserted]
Amendment

Rules, 2018 the Companies (Accounts) Rules,

vide 2014.
Notification 1. In the Companies (Accounts)
G.S.R. 725(E) Rules, 2014,
dated 31st In sub-rule (5) of Rule 8 which
July, 2018 deals with the Matters to be
included in Board's report, after
clause (viii) the following clauses
“(ix) a disclosure, as to whether
maintenance of cost records as
specified by the Central
Government under sub-section (1)
of section 148 of the Companies
Act, 2013, is required by the
Company and accordingly such
accounts and records are made
and maintained,
(x) a statement that the company
has complied with provisions
relating to the constitution of
Internal Complaints Committee
under the Sexual Harassment of
Women at Workplace (Prevention,
Prohibition and Redressal) Act,
2013,”
XVI 2. In the Companies (Accounts) 9.20 -
II Rules, 2014, after sub-rule (5), the (Sub- rule 6 is
following Sub Rule (6), rule shall be newly inserted)
inserted, namely:-
“(6) This rule shall not apply to
One Person Company or Small
Company”.
XIX Enforcement The Central Government makes 9.22 (i) Projects or
of the the Companies (Corporate Social programs
Companies Responsibility Policy) Amendment relating to
(Corporate Rules, 2018 to amend the activities areas
Social Companies (Corporate Social or subjects
Responsibility Responsibility Policy) Rules, 2014. specified in
Policy) 1. In Companies (Corporate Social Schedule VII to
Amendment Responsibility Policy) Rules, 2014, the Act; or
Rules, 2018

vide in rule 2 which deals with the (ii) Projects or

Notification definitions, - programs
G.S.R. 865 (E) (a) in sub-rule (1), in sub-clause (i) relating to …..
dated 19th of clause (c) which defines subject to the
September, “Corporate Social Responsibility condition that
2018 (CSR)”, after the words “relating to such policy will
activities”, the words “, areas or cover subjects
subjects” shall be inserted; enumerated in
(b) in sub-rule (1), in sub-clause (ii) Schedule VII of
of clause (c), for the words “cover the Act.
subjects enumerated”, the words
“include activities, areas or
subjects specified” shall be
substituted;
XIX 2. In Companies (Corporate Social 9.23 (b) An unlisted
Responsibility Policy) Rules, 2014, public
in rule 5 which deals with the “CSR company or a
Committees”, in clause (i) of sub private
rule (1), for the words “an unlisted company which
public company or a private is not required to
company”, the words “a company” appoint an
shall be substituted. independent
XIX 3. In Companies (Corporate Social 9.24 For point (a)-
Responsibility Policy) Rules, 2014, (a) List of CSR
In rule 6 which states of CSR projects or
Policy, following are the changes- programs whicha
(a) in sub-rule (1), in clause (a), for company plans to
the words “falling within the purview undertake falling
of” the words “areas or subjects within the
specified in” shall be substituted; purview of the
(b) in sub-rule (1), in second Schedule VII
proviso to clause (b), for the words,
“activities included in Schedule VII” For point (b)-
the words “areas or subjects
(d) The Board of
specified in Schedule VII” shall be
Directors shall
substituted.
…. CSR Policy
are related to the
activities
included in
Schedule VII of
the Act.

XX Constitution of The Central Government appointed 9.14 -

National 1st October, 2018 (Notification S.O.
Financial 5099(E) dated 1st October, 2018)
Reporting as the date of constitution Of
Authority National Financial Reporting
Authority.
Section 132 shall now be read as
under:
Constitution of National
Financial Reporting Authority,
have also been notified.
132. *(1) The Central Government
may, by notification, constitute a
National Financial Reporting
Authority to provide for matters
relating to accounting and auditing
standards under this Act.
**(2) Notwithstanding anything
contained in any other law for the
time being in force, the National
shall—
(a) make recommendations to the
Central Government on the
formulation and laying down of
accounting and auditing policies
and standards for adoption by
companies or class of companies
or their auditors, as the case may
be;
(b) monitor and enforce the
compliance with accounting
standards and auditing standards
in such manner as may be
prescribed;
(c) oversee the quality of service of
the professions associated with
ensuring compliance with such
standards, and suggest measures
required for improvement in quality
of service and such other related

matters as may be prescribed; and

(d) perform such other functions
relating to clauses (a), (b) and (c)
(3) The National Financial
Reporting Authority shall consist of
a chairperson, who shall be a
person of eminence and having
expertise in accountancy, auditing,
finance or law to be appointed by
the Central Government and such
other members not exceeding
fifteen consisting of part-time and
full-time members as may be
prescribed:
Provided that the terms and
conditions and the manner of
appointment of the chairperson and
members shall be such as may be
prescribed:
Provided further that the
chairperson and members shall
make a declaration to the Central
Government in the prescribed form
regarding no conflict of interest or
lack of independence in respect of
his or their appointment:
Provided also that the chairperson
and members, who are in full-time
employment with National Financial
Reporting Authority shall not be
associated with any audit firm
(including related consultancy
firms) during the course of their
appointment and two years after
ceasing to hold such appointment.
**(4) Notwithstanding anything
contained in any other law for the
time being in force, the National


shall—
(a) have the power to investigate,
either suo moto or on a reference
made to it by the Central
Government, for such class of
bodies corporate or persons, in
such manner as may be prescribed
into the matters of professional or
other misconduct committed by any
member or firm of chartered
accountants, registered under the
Chartered Accountants Act, 1949:
Provided that no other institute or
body shall initiate or continue any
proceedings in such matters of
misconduct where the National
Financial Reporting Authority has
initiated an investigation under this
section;
(b) have the same powers as are
vested in a civil court under the
Code of Civil Procedure, 1908,
while trying a suit, in respect of the
following matters, namely:—
(i) discovery and production of
books of account and other
documents, at such place and at
such time as may be specified by
the National Financial Reporting
Authority;
(ii) summoning and enforcing the
attendance of persons and
examining them on oath;
(iii) inspection of any books,
registers and other documents of
any person referred to in clause (b)
at any place;
(iv) issuing commissions for
examination of witnesses or
documents;

(c) where professional or other

misconduct is proved, have the
power to make order for—
(A) imposing penalty of—
(I) not less than one lakh
rupees, but which may extend to
five times of the fees received, in
case of individuals; and
(II) not less than five lakh
rupees, but which may extend to
ten times of the fees received, in
case of firms;
(B) debarring the member or the
firm from engaging himself or itself
from practice as member of the
Institute of Chartered Accountant of
India referred to in clause (e) of
sub-section (1) of section 2 of the
Chartered Accountants Act, 1949
for a minimum period of six months
or for such higher period not
exceeding ten years as may be
decided by the National Financial
Reporting Authority.
Explanation.—For the purposes of
his sub-section, the expression
"professional or other misconduct"
shall have the same meaning
assigned to it under section 22 of
the Chartered Accountants Act,
1949.
**(5) Any person aggrieved by any
order of the National Financial
Reporting Authority issued under
clause (c) of sub-section (4), may
prefer an appeal before the
Appellate Tribunal in such manner
and on payment of such fee as may
be prescribed.

**(10) The National Financial

Reporting Authority shall meet at
such times and places and shall
observe such rules of procedure in
regard to the transaction of
business at its meetings in such
(11) The Central Government may
appoint a secretary and such other
employees as it may consider
necessary for the efficient
performance of functions by the
Authority under this Act and the
terms and conditions of service of
the secretary and employees shall
be such as may be prescribed.
*(12) The head office of the
Authority shall be at New Delhi and
the National Financial Reporting
Authority may, meet at such other
places in India as it deems fit.
Reporting Authority shall cause to
be maintained such books of
account and other books in relation
to its accounts in such form and in
such manner as the Central
Government may, in consultation
with the Comptroller and Auditor-
General of India prescribe.
**(14) The accounts of the National
Financial Reporting Authority shall
be audited by the Comptroller and
Auditor-General of India at such
intervals as may be specified by
him and such accounts as certified
by the Comptroller and Auditor-
General of India together with the
audit report thereon shall be

forwarded annually to the Central

Government by the National
Financial Reporting Authority.
Reporting Authority shall prepare in
such form and at such time for each
financial year as may be prescribed
its annual report giving a full
account of its activities during the
financial year and forward a copy
thereof to the Central Government
and the Central Government shall
cause the annual report and the
audit report given by the
Comptroller and Auditor-General of
India to be laid before each House
of Parliament.
Please note: (i) Sub Section (3)
and (11) have been notified on 21st
March 2018. [Notification No. S.O.
1316(E)]
(ii) Sub Section (6), (7), (8) and (9)
have been omitted [with effect from
9th February, 2018]
(iii) *Sub- section (1) and (12)
notified on 1st October, 2018
[Notification S.O. 5098(E) dated 1st
October, 2018]
(iv) **Sub- Section
(2),(4),(5),(10),(13),(14) and (15)
have been notified on 24th October
2018 [Notification S.O. 5385(E)
dated 24th October, 2018]

7. Amendments The Ministry of Law and Justice has
to the made amendments to the
Negotiable Negotiable Instruments Act, 1881
Instruments through the Negotiable Instruments
Act, 1881 (Amendment) Act, 2018. This

Amendment Act received the

assent of the President and
published in the Official Gazette on
2nd August, 2018.
In the Negotiable Instruments Act, -
1881 (hereinafter referred to as the (The section is
principal Act), after section 143, the newly inserted)
following section shall be inserted,
namely:—
‘‘143A. Power to direct interim
compensation.
contained in the Code of Criminal
Procedure, 1973, the Court trying
an offence under section 138 may
order the drawer of the cheque to
pay interim compensation to the
complainant—
(a) in a summary trial or a summons
case, where he pleads not guilty to
the accusation made in the
complaint; and
(b) in any other case, upon framing
of charge.
(2) The interim compensation
under sub-section (1) shall not
exceed twenty per cent. of the
amount of the cheque.
(3) The interim compensation shall
be paid within sixty days from the
date of the order under sub-section
(1), or within such further period not
exceeding thirty days as may be
directed by the Court on sufficient
cause being shown by the drawer
of the cheque.
(4) If the drawer of the cheque is
acquitted, the Court shall direct the
complainant to repay to the drawer
the amount of interim
compensation, with interest at the
bank rate as published by the

Reserve Bank of India, prevalent at

the beginning of the relevant
financial year, within sixty days
from the date of the order, or within
such further period not exceeding
thirty days as may be directed by
the Court on sufficient cause being
shown by the complainant.
(5) The interim compensation
payable under this section may be
recovered as if it were a fine under
section 421 of the Code of Criminal
Procedure, 1973.
(6) The amount of fine imposed
under section 138 or the amount of
compensation awarded under
section 357 of the Code of Criminal
Procedure, 1973, shall be reduced
by the amount paid or recovered as
interim compensation under this
section.’’.
(2) In the principal Act, after -
section 147, the following section (The section is
shall be inserted, newly inserted)
namely:—
‘‘148. Power of Appellate Court to
order payment pending appeal
against conviction.
contained in the Code of Criminal
Procedure, 1973, in an appeal by
the drawer against conviction
under section 138, the Appellate
Court may order the appellant to
deposit such sum which shall be a
minimum of twenty per cent. of the
fine or compensation awarded by
the trial Court:
Provided that the amount payable
under this sub-section shall be in
addition to any interim

compensation paid by the appellant

under section 143A.
(2) The amount referred to in sub-
section (1) shall be deposited
within sixty days from the date of
the order, or within such further
period not exceeding thirty days as
may be directed by the Court on
sufficient cause being shown by the
appellant.
(3) The Appellate Court may direct
the release of the amount
deposited by the appellant to the
complainant at any time during the
pendency of the appeal:
Provided that if the appellant is
acquitted, the Court shall direct the
complainant to repay to the
appellant the amount so released,
with interest at the bank rate as
published by the Reserve Bank of
India, prevalent at the beginning of
the relevant financial year, within
sixty days from the date of the
order, or within such further period
not exceeding thirty days as may
be directed by the Court on
sufficient cause being shown by the
complainant.’’.
# Page number of the Study material (SM) with reference of relevant provisions
Please note: The Ministry of Corporate Affairs has replaced Rule 14 of the Companies
(Prospectus and Allotment of Securities) Rule, 2014 through Companies (Prospectus and
Allotment of Securities) Second Rule, 2018. Hence, students are advised not to read the content
related to Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rule, 2014 as
contained on pages 3.31 and Page 3.32 of Study Material. [For May 2019 examinations the said
amended rule has not been made applicable for the students.]

QUESTIONS
DIVISION A - MULTIPLE CHOICE QUESTIONS

1. Rajesh has formed a ‘One Person Company (OPC)’ with his wife Roopali as nominee. For
the last two years his wife Roopali is suffering from terminal illness and due to this hard
fact he wants to change her as nominee. He has a trusted and experienced friend
Ramnivas who could be made nominee or his (Rajesh) son Rakshak who is of seventeen
years of age. Whom should he nominate as nominee in place of his wife?
(a) Since blood relation can only be appointed as nominee in case of OPC, Rajesh needs
to appoint his son Rakshak.
(b) Rajesh can appoint his friend Ramnivas as nominee in his OPC
(c) Roopali is not agreeable to the proposal of Rajesh and hence, Rajesh cannot change
her as the nominee
(d) Either Rakshak or Mr. Ramnivas can be appointed as nominee
2. A Company limited by shares can issue equity shares with differential voting rights. Which
of the following is not a necessary condition to be fulfilled before issue of such shares:
(a) The articles of association of the company shall authorize issue of shares with
differential rights;
(b) The issue of shares shall be authorized by an ordinary resolution passed at a general
meeting of the shareholders;
(c) The issue of shares shall be authorized by special resolution passed at a general
meeting of the shareholders;
(d) The company shall have consistent track record of distributable profits for the last
three years;
3. A Ltd. is the holding company of B Ltd. Another company C Ltd. is the subsidiary company
of B Ltd. Is there any relationship between A Ltd. and C Ltd.
(a) There is no relationship between A Ltd. and C Ltd.
(b) C Ltd. is deemed to be the subsidiary of A Ltd.
(c) A Ltd. shall be deemed to be the holding company of C Ltd. provided A Ltd. acquires
at least 10% stake in C Ltd.
(d) C Ltd. shall be deemed to be the subsidiary of A Ltd. if the latter company acquires
minimum 10% stake in the former company within six months after C Ltd. becomes
subsidiary of B Ltd.

4. Shruti, a common friend of Suchitra and Sukanya, got incorporated OPC sometime before
and during a chit-chat with her friends informed them that there is some limit on the
maximum capital which her OPC can have and she would have to convert her OPC either
into a private or public limited company if such limit exceeded. Suchitra and Sukanya who
are desirous of forming a private limited company for carrying on textile trading business,
are unsure about the maximum capital which a private limited company can have. Advise.
(a) A private limited company can have maximum of ` One crore as share capital.
(b) A private limited company can have maximum of ` Two crores as share capital.
(c) A private limited company can have maximum of ` Five crores as share capital.
(d) A private limited company can have unlimited share capital.
5. Vinay and Sanjay made a name reservation application accompanied by requisite fee to
the Registrar for forming a new private company. The Registrar accorded its approval for
reservation of most preferred name Vinanjay Softwares Private Ltd. on 7 th July, 2018. By
which date necessary documents for incorporation of the company must be submitted to
the Registrar so that the reserved name does not get lapsed.
(a) Latest by 20th July, 2018
(b) Latest by 27th July, 2018
(c) Latest by 4th August, 2018
(d) Latest by 4th September, 2018
6. Aman contracts to indemnify Megha against the consequences of any proceedings which
Chandar may take against Megha in respect of a sum of ` 15000/- advanced by Chandar
to Megha. Now, Megha who is called upon to pay the sum of money to Chandar but she
fails to do so. Now, as per the provisions of the Indian Contract Act, 1872, advise the future
course of action to be taken by Chandar.
(a) Chandar can recover the amount only from Megha
(b) Chandar can recover the full amount from Aman
(c) Chandar cannot recover the amount from Aman
(d) Chandar can recover at least 10% of the total amount from Megha
COMPANY LAW
1. MNO a One Person company (OPC) was incorporated during the year 2015-16 with an
authorised capital of ` 45 lakhs (4.5 lakhs shares of ` 10 each). The capital was fully

subscribed and paid up. Turnover of the company during 2015-16 and 2016-17 was ` 2
crores and ` 2.5 crores respectively. Promoter of the company seeks your advice in the
following circumstances, whether MNO (OPC) can convert into any other kind of company
during 2017-18. Please, advise with reference to relevant provisions of the Companies Act,
2013 in the below mentioned circumstances:
(i) If promoter increases the paid up capital of the company by ` 10 lakhs during 2017-18
(ii) If turnover of the company during 2017-18 was ` 3 crores.
2. The paid-up share capital of Altar Private Limited is ` 1 crore, consisting of 8 lacs Equity
Shares of ` 10 each, fully paid-up and 2 lacs Cumulative Preference Shares of `10 each,
fully paid-up. New Private Limited and Ultra Private Limited are holding 3 lacs Equity
Shares and 50,000 Equity Shares respectively in Altar Private Limited. New Private Limited
and Ultra Private Limited are the subsidiaries of PQR Private Limited. With reference to
the provisions of the Companies Act, 2013 examine whether Altar Private Limited is a
subsidiary of PQR Private Limited? Would your answer be different if PQR Private Limited
has 8 out of 9 Directors on the Board of Altar Private Limited?
3. Data Limited (listed on Stock Exchange) was incorporated on 1 st October, 2018 with a paid-
up share capital of ` 200 crores. Within this small time of 4 months it has earned huge
profits and has topped the charts for its high employee friendly environment. The company
wants to issue sweat equity to its employees. A friend of the CEO of the company has told
him that they cannot issue sweat equity shares as 2 years have not elapsed since the time
company has commenced its business. The CEO of the company has approached you to
advise them about the essential conditions to fulfilled before the issue of sweat equity
shares especially since their company is just a few months old.
4. Walnut Limited has an authorized share capital of 1,00,000 equity shares of ` 100 per
share and an amount of ` 3 crores in its Share Premium Account as on 31-3-2018. The
Board of Directors seeks your advice about the application of share premium account for
its business purposes. Please give your advice.
5. Ashish Ltd. having a net-worth of ` 80 crores and turnover of ` 30 crores wants to accept
deposits from public other than its members. Referring to the provisions of the Companies
Act, 2013, state the conditions and the procedures to be followed by Ashish Ltd. for
accepting deposits from public other than its members.
6. RST Ltd. declared dividend at the rate of 20% for the financial year 2017-2018 in the AGM
scheduled on 15th June 2018. As RST Ltd. is left with certain unpaid and unclaimed
dividend, it transferred amount of unpaid and unclaimed dividend to UDA (unpaid dividend
account). After remaining unpaid and unclaimed for more than 2 years in the UDA, some
of the entitled shareholders made liable RST Ltd. for noncompliance of section 124, and
claimed for their unpaid dividend amount. RST Ltd. denies saying that there were certain
legal issues on the entitlement of the dividend amount to the respective shareholders.

State in the light of the given facts, whether the allegation marked by shareholders and
claim for the divided amount, against RST Ltd. is justifiable?
7. Examine the following situations in the light of the Companies Act, 2013
(i) Mr. Ayush, a Chartered accountant has been appointed as an auditor of X Ltd. in the
Annual General Meeting of the company held in September, 2018, in which he
accepted the assignment. Subsequently, in January, 2019 he joined B, as a partner
for the consultancy firm of Mr. B. Mr. B is working also working as a Finance Executive
of X Ltd.
(ii) “Mr. Abhi”, a practicing Chartered Accountant, is holding securities of “Abhiman Ltd.”
having face value of ` 1000/-. Whether Mr. Abhi is qualified for appointment as an
Auditor of Abhiman Ltd.”?
8. Primal Limited is a company incorporated in India. It owns two subsidiaries- Privy Limited
(in which it holds 75% shares) and Malvy Limited (a wholly owned subsidiary). Both the
subsidiaries are incorporated outside India. The Board of Directors of Primal Limited
intends to call an Extraordinary General Meeting (EGM) of Primal Limited on urgent basis.
Advise the Board of Directors on the following:
(i) EGM be held in India
(ii) EGM be held in Netherlands
OTHER LAWS
9. ‘A’ gives to ‘M’ a continuing guarantee to the extent of ` 8,000 for the fruits to be supplied
by ‘M’ to ‘S’ from time to time on credit. Afterwards ‘S’ became embarrassed and without
the knowledge of ‘A’, ‘M’ and ‘S’ contract that ‘M’ shall continue to supply ‘S’ with fruits for
ready money and that payments shall be applied to the then existing debts between ‘S’
and ‘M’. Examining the provision of the Indian Contract Act, 1872, decide whether ‘A’ is
liable on his guarantee given to M.
10. Manoj owes money to Umesh. Therefore, he makes a promissory note for the amount in
favour of Umesh, for safety of transmission he cuts the note in half and posts one half to
Umesh. He then changes his mind and calls upon Umesh to return the half of the note
which he had sent. Umesh requires Manoj to send the other half of the promissory note.
Decide how rights of the parties are to be adjusted.
Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881.


11. A notice when required under the Statutory rules to be sent by “registered post
acknowledgment due” is instead sent by “registered post” only. Whether the protection of
presumption regarding serving of notice by “registered post” under the General Clauses
Act is tenable? Referring to the provisions of the General Clauses Act, 1897, examine the
validity of such notice in this case.
12. Many a time a proviso is added to a Section of the enactment. Explain the function of such
a proviso in the interpretation of the section/ provision.
DIVISION A - ANSWER TO MULTIPLE CHOICE QUESTIONS

Question No. 1 2 3 4 5 6
Correct Option (b) (c) (b) (d) (b) (b)
1. As per Rule 3 of the Companies (Incorporation) Rules, 2014, One Person Company (OPC)
cannot convert voluntarily into any kind of company unless two years have expired from
the date of incorporation, except where the paid up share capital is increased beyond fifty
lakh rupees or its average annual turnover during the relevant period exceeds two crore
rupees.
Besides, Section 18 of the Companies Act, 2013 provides that a company of any class
registered under this Act may convert itself as a company of other class under this Act by
alteration of memorandum and articles of the company in accordance with the provisions
of the Chapter II of the Act.
According to the above provisions, following are the answers to the given circumstances:
(i) Where, if the promotors increase the paid up capital of the company by ` 10.00 lakh
during 2017-2018 i.e., to ` 55 lakh (45+10= 55), MNO (OPC) may convert itself
voluntarily into any other kind of company due to increase in the paid up share capital
exceeding 50 lakh rupees. This could be done by the MNO by alteration of
memorandum and articles of the company in compliance with the Provisions of the Act.
(ii) Where if the turnover of the MNO during 2017-18 was ` 3.00 crore, there will be no
change in the answer, as it meets up the requirement of minimum turnover i.e, ` 2
crore for voluntarily conversion of MNO (OPC) into any other kind of company.

2. In terms of section 2 (87) of the Companies Act 2013 "subsidiary company" or "subsidiary",
in relation to any other company (that is to say the holding company), means a company
in which the holding company—
together with one or more of its subsidiary companies:
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even
if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled
by another company if that other company by exercise of some power exercisable by
it at its discretion can appoint or remove all or a majority of the directors.
In the present case, New Pvt. Ltd. and Ultra Pvt. Ltd. together hold less than one half of
the total share capital i.e. less than one-half of total voting power. Hence, PQR Private Ltd.
(holding of New Pvt. Ltd. and Ultra Pvt. Ltd) will not be a holding company of Altar Pvt. Ltd.
However, if PQR Pvt. Ltd. has 8 out of 9 Directors on the Board of Altar Pvt. Ltd. i.e.
controls the composition of the Board of Directors; it (PQR Pvt. Ltd.) will be treated as the
holding company of Altar Pvt. Ltd.
3. Sweat equity shares of a class of shares already issued.
According to section 54 of the Companies Act, 2013, a company may issue sweat equity
shares of a class of shares already issued, if the following conditions are fulfilled, namely—
(i) the issue is authorised by a special resolution passed by the company;
(ii) the resolution specifies the number of shares, the current market price,
consideration, if any, and the class or classes of directors or employees to whom
such equity shares are to be issued;
(iii) where the equity shares of the company are listed on a recognised stock exchange,
the sweat equity shares are issued in accordance with the regulations made by the
Securities and Exchange Board in this behalf and if they are not so listed, the sweat
equity shares are issued in accordance with such rules as prescribed under Rule 8 of
the Companies (Share and Debentures) Rules, 2014,
The rights, limitations, restrictions and provisions as are for the time being applicable
to equity shares shall be applicable to the sweat equity shares issued under this section
and the holders of such shares shall rank pari passu with other equity shareholders.

Data Limited can issue Sweat equity shares by following the conditions as mentioned
above. It does not make a difference that the company is just a few months old.
4. According to section 52 of the Companies Act, 2013, where a company issues shares at a
premium, whether for cash or otherwise, a sum equal to the aggregate amount of the
premium received on those shares shall be transferred to a "securities premium account"
and the provisions of this Act relating to reduction of share capital of a company shall,
except as provided in this section, apply as if the securities premium account were the
paid-up share capital of the company.
The securities premium account may be applied by the company—
(a) towards the issue of unissued shares of the company to the members of the company
as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any
issue of shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference
shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68
5. Acceptance of deposit from public: According to section 76 of the Companies Act, 2013,
a public company, having net worth of not less than 100 crore rupees or turnover of not
less than 500 crore rupees, can accept deposits from persons other than its members
subject to compliance with the requirements provided in sub-section (2) of section 73 and
subject to such rules as the Central Government may, in consultation with the Reserve
Bank of India, prescribe.
Provided that such a company shall be required to obtain the rating (including its net-worth,
liquidity and ability to pay its deposits on due date) from a recognised credit rating agency
for informing the public the rating given to the company at the time of invitation of deposits
from the public which ensures adequate safety and the rating shall be obtained for every
year during the tenure of deposits.
Provided further that every company accepting secured deposits from the public shall
within thirty days of such acceptance, create a charge on its assets of an amount not less
than the amount of deposits accepted in favour of the deposit holders in accordance with
such rules as may be prescribed.
Since, Ashish Ltd. has a net worth of ` 80 crores and turnover of ` 30 crores, which is
less than the prescribed limits, hence, it cannot accept deposit from public other than its
members. If the company wants to accept deposits from public other than its members,

it has to fulfill the eligibility criteria of net worth or Turnover or both and then the other
conditions as stated above.
6. As per section 124 of the Companies Act, 2013, where a dividend has been declared by a
company but has not been paid/claimed to/by shareholder within 30 days from the date of
the declaration, the company shall, within 7 days from the date of expiry of the said period
of 30 days, transfer the total amount of dividend which remains unpaid/unclaimed to the
Unpaid Dividend Account.
The company shall, within a period of 90 days of making any transfer of an amount, prepare
a statement containing the names, their last known addresses and the unpaid dividend to
be paid to each person and place it on the web-site of the company, if any, and also on
any other web-site approved by the Central Government for this purpose, in such form,
manner and other particulars as may be prescribed.
Accordingly, in the given situation, RST Ltd. failed to give statement of Unpaid/unclaimed
dividend and so liable for the said nonc ompliance of section 124 of the Companies Act,
2013. Any person claiming to be entitled to any money transferred under section 124(1) to
the Unpaid Dividend Account of the company may apply to the company for payment of
the money claimed. Since RST Ltd. failed to comply with the requirements of this section
as to the preparing of a statement of unpaid dividend, so shall be punishable with fine
which shall not be less than five lakh rupees but which may extend to twenty-five lakh
rupees and every officer of the company who is in default shall be punishable with fine
which shall not be less than one lakh rupees but which may extend to 5 lakh rupees.
7. (i) Provisions and Explanation: Section 141(3) (c) of the Companies Act, 2013
prescribes that any person who is a partner or in employment of an officer or
employee of the company will be disqualified to act as an auditor of a company. Sub-
section (4) of Section 141 provides that an auditor who becomes subject, after his
appointment, to any of the disqualifications specified in sub-sections (3) of Section
141, he shall be deemed to have vacated his office as an auditor.
Conclusion: In the present case, Ayush, an auditor of X Ltd., joined as partner with
B, who is Finance executive of X Ltd., has attracted clause (3) (c) of Section 141 and,
therefore, he shall be deemed to have vacated office of the auditor of X Limited.
(ii) As per section 141 (3)(d) (i) an auditor is disqualified to be appointed as an auditor if
he, or his relative or partner holding any security of or interest in the company or its
subsidiary, or of its holding or associate company or a subsidiary of such holding
company:
In the present case, Mr. Abhi. is holding security of ` 1000 in the Abhiman Ltd,
therefore he is not eligible for appointment as an Auditor of “Abhiman Ltd.”

8. According to section 100 of the Companies Act, 2013, the Board may, whenever it deems
fit, call an extraordinary general meeting of the company.
Provided that an extraordinary general meeting of the company, other than of the wholly
owned subsidiary of a company incorporated outside India, shall be held at a place within
India.
In the light of the above provisions:
(i) The Board of Directors can call the EGM in India.
(ii) The Board of Directors cannot call the EGM of Primal Limited outside India as it is a
company incorporated in India.
9. Discharge of surety by variance in terms of contract: The problem asked in the
question is based on the provisions of the Indian Contract Act, 1872 as contained in
Section 133. The section provides that any variance made without the surety’s consent in
the terms of the contract between the principal debtor and the creditor, discharges the
surety as to transactions subsequent to the variance.
In the given problem, ‘M’ and ‘S’ entered into arrangement by entering into a new contract
without knowledge of the Surety ‘A’. Since, the variance made in the contract is without
the surety’s consent in the existing contract, as per the provision, ‘A’ is not liable on his
guarantee for the fruits supplied after this new arrangement. The reason for such a
discharge is that the surety agreed to be liable for a contract which is no more there now
and he is not liable on the altered contract because it is different from the contract made
by him.
10. The question arising in this problem is whether the making of promissory note is complete
when one half of the note was delivered to Umesh. Under Section 46 of the Negoti able
Instruments Act, 1881, the making of a promissory note is completed by delivery, actual or
constructive. Delivery refers to the whole of the instrument and not merely a part of it.
Delivery of half instrument cannot be treated as constructive delivery of the whole. So, the
claim of Umesh to have the other half of the promissory note sent to him is not
maintainable. Manoj is justified in demanding the return of the first half sent by him. He
can change his mind and refuse to send the other half of the promissory note.
11. As per the provisions of Section 27 of the General Clauses Act, 1897, where any legislation
or regulation requires any document to be served by post, then unless a different intention
appears, the service shall be deemed to be effected by:
(i) properly addressing,


A letter containing the document to have been effected at the time at which the letter would
be delivered in the ordinary course of post.
Therefore, in view of the above provision, since, the statutory rules itself provides about
the service of notice that a notice when required under said statutory rules to be sent by
‘registered post acknowledgement due’, then, if notice was sent by ‘registered post’ only it
will not be the compliance of said rules. However, if such provision was not provided by
such statutory rules, then service of notice if by registered post only shall be deemed to be
effected.
Furthermore, in similar case of In United Commercial Bank v. Bhim Sain Makhija, AIR 1994
Del 181: A notice when required under the statutory rules to be sent by ‘registered post
acknowledgement due’ is instead sent by ‘registered post’ only, the protection of
presumption regarding serving of notice under ‘registered post’ under this section of the
Act neither tenable not based upon sound exposition of law.
12. T he normal function of a proviso is to except something out of the enactment or to qualify
something stated in the enactment which would be within its purview if the proviso w ere
not there. The effect of the proviso is to qualify the preceding enactment which is expressed
in terms which are too general. As a general rule, a proviso is added to an enactment to
qualify or create an exception to what is in the enactment ordinarily a proviso is not
interpreted as it stating a general rule.
the provision to which it has been enacted as a proviso and not to the other. (Ram Narain
Sons Ltd. Vs. Assistant Commissioner of Sales Tax. A.I.R,1995 SC 765)

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appointment shall also be approved by the company at a general meeting

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