C L Cute Case Book

500
CSEET : Current Affairs CSEET : Logical Reasoning

EXECUTIVE : Company Law : Economics
: Securities Laws & Capital Markets PROFESSIONAL : Multidisciplinary Case Studies
PROFESSIONAL : Drafting, Pleadings and Appearances : Insolvency – Law and Practice
: Corporate Restructuring, Insolvency, Liquidation & Winding - Up
CSEET : Business Environment CSEET : Business Communication

EXECUTIVE : Corporate & Management Accounting PROFESSIONAL : Secretarial Audit, Compliance Management and Due Diligence
: Financial and Strategic Management : Resolution of Corporate Disputes,Non-Compliances & Remedies
: Labour Laws & Practice
Adv. Amruta Chhajed

EXECUTIVE : Tax Laws
PROFESSIONAL : Advanced Tax Laws
CSEET : Legal Aptitude

EXECUTIVE : Jurisprudence, Interpretation & General Laws
: Setting up of Business Entities and Closure
: Economic, Business and Commercial Laws
PROFESSIONAL : Governance, Risk Management, Compliances and Ethics
: Corporate Funding & Listings in Stock Exchanges
YT Channel – YES Academy for CS In Karma, I Believe.. Company Law - Case Book 1
PAST EXAMINATION SOLVED QUESTIONS AND ANSWERS
CHAPTER 1 – INTRODUCTION
Q. Differentiate between Private Company & a Public Company. (4 marks)
Ans:
Private Limited Company Public Limited Company
A private company has minimum 2 members. A public company must have a minimum of 7
members.
A private company can have a maximum of A public company can have unlimited number of
200 members. members.
There is a restriction on transferability of Shares of a public limited company are freely
shares. transferable.
A private company is prohibited to invite the There is no such restriction an invitation to the
public for subscription of its securities. public for issue of securities.
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Q. Explain the concept of OPC along with the reason of its formation. (5 marks)
Ans:
1. One Person Company means a company having only one person as a member. Such
companies are incorporated in the form of Private Limited Company.
2. A Natural person who is an Indian Resident and citizen is only qualified to be appointed as
member of such OPC.
3. Every OPC shall have atleast one nominee who shall resume the office as a member in case
of death or incapacity of original member.
4. No General Meeting is conducted in case of an OPC.
5. The concept of OPC was introduced for the first time by way of Companies Act, 2013.
The idea of such structure in place is to boost entrepreneurship amongst individuals and to
bring a legal structure with least compliances and maximum benefits to them. Also, for an
individual, it becomes easy to get some financial assistance from Bank, Financial Institution
since they are working in a corporate structure. Thus, in order to regulate such small
business, the concept of OPC was introduced.
Q. “A shareholder is personally liable for the acts of the company if he holds virtually the
entire share capital of the Company”. Comment. (4 marks)
Ans:
1. In terms of the provisions of Companies Act, 2013, the day a company is incorporated it
becomes a separate legal entity.
2. Separate legal entity simply means a company is separate from the directors, promoters
and management.
3. A shareholder holding one share and the shareholder holding all the shares except one have
the same status which is that of owners of the company.
4. A member of company having its liability limited by shares is liable to pay to the company
only to the amount remaining unpaid over his shares.
5. Thus, even a shareholder who holds almost all the shares in a company cannot be held liable
for the acts of the company since company and its member are separate legal entities.
Q. All the members of a company were travelling to attend the AGM of the company in
a plane & the plane crashed. All the members died. Decide the fate of company. (4
marks)
Ans:
1. The given case pertains to the provisions relating to perpetuity of a company & company as
a separate legal entity.
2. The provisions of the Act states that even if all the members of a company die the company
continues to be in existence. In such a case the legal heirs may assume the position as a
member & the company continues to exist.
3. By applying above provisions to the given case, all the members of the company died in a
plane crash. Even in such a case company continues to exist as a separate legal entity & it
shall remain in perpetuity.
Q. X is a wealthy investor earning huge dividend & interest income. Due to heavy profits,
his income was subject to high taxes. Thus, in order to reduce his tax liability he
divided his income by floating 4 companies name A, B, C & D Ltd. & distributed all
his investments in these 4 companies. Is the Act of Mr. X justifiable in the eyes of law.
(4 marks)
Ans:
1. The facts of the given case are similar to the leading case of Sir Dinshaw Maneckjee Petit.
2. In the given case, Sir DMP happens to be an investor holding a lot of investments in his
personal name. He formed 4 companies & transferred all the investments in these 4
companies in order to divide his income & reduce the tax liability. When the intension of a
person is to evade taxes by dividing the income the court has powers to lift or pierce the
corporate veil.
3. By applying the above provisions to the given case, Mr. ‘X’ formed A, B, C & D Ltd as an
investor & transferred all his investments to all these companies in order to reduce his tax
liability, such activity is considered to be fraudulent & the court in such cases has the power
to lift or pierce the corporate veil.
Q. Common Seal of a company is to be affixed on all the important documents of the

company. Comment. (4 marks)
Ans:
1. Since, the company is an artificial person it is required to maintain a common seal of its own
which is treated as the official signature of the company.
2. In terms of the provisions of Companies Act, 2013 maintaining a common seal is now
optional for a company.
3. If a company chooses not to maintain its own common seal, the said document of a company
shall be signed by atleast 2 directors or a director & a Company Secretary. Hence, it is
optional for a company to maintain its own Common Seal.
Q. “Common Seal can be used by any employee of the company irrespective of its
designation. Comment. (4 marks)
Ans:
1. Common Seal is considered to be the official signature of the company since it is an artificial
company created by Law.
2. Common Seal is put on all official documents of the company which authenticates the
originality of such documents.
3. Maintaining a Common Seal is now optional for a company, if at all it is maintained the same
shall be kept in the safe custody of authorized officer.
4. Thus, the use of Common Seal is restricted only to those who have been specifically
authorized to use the same in any regards.
Q. “To consider a body corporate as foreign company a place of business in India is to

be established.” Justify. (5 marks)
Ans:
1. A Foreign Company means a company incorporated outside India, which has established a
place of business in India either on its own or through its agent physically or electronically
and conducts some business activities in India.
2. At the same time, the word body corporate means a foreign company & excludes a
cooperative society or a company declared by Central Government not as a body
corporate.
3. Thus, it is rightfully stated that to consider a body corporate as a foreign company, a place
of business in India is to be established.
Q. The managing director and other directors of a company are not liable to be sued for
dues against the company. Comment. (5 marks)
Ans:
1. Once a company is incorporated it becomes a separate legal entity having capacity to enter
into a contract and sue or to be sued in its own name.
2. Directors or managing directors cannot be held liable for any acts of the company unless
fraud or misconduct is carried over by such directors.
3. Therefore, if a third party has to sue it shall sue the company and not its directors.
Q. Grow Ltd. is a Government company in which Central Government and many state
governments are members. The company has recently convened its AGM at its registered
office. Does your legislature have access to the annual reports of such a company. Advice.
(5 marks)
Ans:
1. The given case pertains to the provisions of Companies Act, 2013 relating to the audit
presentation of accounts of a Government Company.
2. The provisions of the Act states that the audit of Government Companies shall be done by
the Comptroller and Auditor General of India (CAG). CAG appoints auditors or such
Govt. companies who present their audit report to CAG and CAG in turn submits
supplementary audit report to the legislature i.e. Parliament & or State Legislative Assembly.
3. By applying the above provisions to the given case, legislature has the right to ask for copies
of annual report of Govt companies since their audit is carried out by CAG and Govt holds
stake in these companies as shareholders.
Q. Enumerate the relationship between the promoter and the company. (4 marks)
Ans:
1. In order to establish a principle agency relationship, there needs to be a principle and an
agent.
2. In case of a proposed company, there exists promoters, however, the company is not in
existence and therefore, there is no principal agency relationship, nor there is a trustee
beneficiary relationship.
3. However, a promoter is expected to act in the interest of the company and therefore there
exists a fiduciary relationship between the promoters and the proposed company. It means
whatever the promoter does shall be in the interest of the company at large.
Q. Short note on Doctrine of Constructive Notice. (5 marks)
Ans:
1. Doctrine of constructive notice means that a third party while dealing with the company
must have information of what is easily available in public domain i.e. such information which
can be easily accessed & cannot be sheltered under the fact that the third party did not look
for it.
2. Any person who deals with a company remaining unaware of the material fact shall be liable
to bear the losses. i.e. Even if the person doesn’t have knowledge of material facts it is
assumed that he knows about the same.
3. In short, doctrine of constructive notice protects the company, its officers & employees
against the third party.
Q. OPC shall be formed only as a company limited by shares. (5 marks)

Ans:
1. One Person company means a company having only one person as its member.
2. OPC is none other than a private limited company, apart from limit on number of members.
Same rules as that of a private limited company, applies to an OPC.
3. A private limited company may be incorporated as a company limited by shares, guarantee
or as an unlimited company and thus similar provisions are applicable to OPC.
Q. A public limited company has only seven shareholders. Being all the shares paid in full,
one such shareholder purchased all the shares of another shareholder in a private
settlement between them reducing the number of shareholders to six. The company
continues to carry on its business thereafter. Discuss with reference to the Companies
Act, 2013 the implications of this transaction on the functioning of the company. (5
marks)
Ans:
1. As per section 3(1) (a), a public company may be formed for any lawful purpose by seven
or more persons, by subscribing their names or his name to a memorandum and complying
with the requirements of this Act in respect of registration.
2. By its very nature, a public company is required to maintain minimum seven members.
3. If at any time the number of shareholders fall below statutory minimum requirement, the
company has to increase the number of members to atleast seven within next 6 months.
4. If it is not raised, the company is liable to be wound up.
Q. Alok, the MD of yellow Ltd. borrowed a large sum of money and mis-managed it. Later
when the lender demanded his money, the company refused to repay stating that money
borrowed by MD is mis-appropriated by him & the company is not liable for repayment.
Decide whether the lender would succeed in recovering the money from the company. (5
marks)
Ans:
1. The given case pertains to the doctrine of indoor management and a famous judgement
in the matter of Royal British Bank V/s. Turquand.
2. In this case, it was decided by the English courts that a third party while dealing with the
company should only be aware of the information which is easily available in public. Any
information which is confidential, an outsider is not bound to know such information.
Such doctrine protects the third parties against the company.
3. By applying the above findings to the given case, the lender can recover the money from
Yellow Ltd. as a decision of the board is not commonly known to the outsiders. A
company may however, recover the same from MD but prima facie it is liable to pay it
to the Bank.
Q. Based on the information given in the MOA, Smart Ltd. was incorporated & a
certificate of incorporation was issued by ROC, Delhi. The MOA was duly signed except
that a major signed it on behalf of 5 minors. Examine the validity of COI issued by ROC.
(8 marks)
Ans:
1. The given case pertains to the findings in a pre-decided case of Moosa V/s. Ebrahim.
2. The court in the given case concluded that a COI signed by 5 minors out of 7 subscribers
was held to be void; however, it does not challenge the conclusiveness of the said
certificate.
3. By applying the above rule to the given case, in Smart Ltd. the subscription clause was
signed by X, Y and Z on behalf of 5 minors. This establishes that the COI issued by ROC
was held to be void, however the company shall continue to exist because the COI is a
conclusive proof to that affect.
Q. A Company cannot ratify a pre-incorporation contract though it is open to it to enter

into a fresh contract. (4 marks)
Ans:
1. Pre-incorporation contract means a contract entered into by the promoters before the
date of its incorporation.
2. A company which is not in existence cannot enter into a valid contract and accordingly,
it does not bind the company even after its incorporation. However, such contracts are
binding upon the promoters who signed such contract on behalf of the company.
3. An exception to this rule is provided under Specific Relief Act, 1963, which provides that
if the terms of the contract are warranted by the MOA & AOA of the Company, it shall
be binding upon the company after its incorporation.
Q. Kamla, the promoter of Desire Ltd. has incurred Rs. 1 lac for formation of the
company. The company refuses to pay all the expenses so incurred by Kamla. Since
the Company does not have any provision in the AOA for such payment. Advice
Kamla regarding the remedy available to him for his claim. (4 marks)
Ans:
1. The given case pertains to the provisions relating to Reimbursement of Out of Pocket
Expenses to the Promoter.
2. Provisions of the Act states that after incorporation, a company can only function based
upon what is provided by AOA, else it shall be an ultra vires act. Thus, if Articles do not
provide for payment for preliminary expenses, the company cannot pay the same.
3. By applying above provisions to given case, the articles of Desire Ltd. had no provisions for
payment of preliminary expenses & Kamla is not entitled for the same. However, if the
Company wishes to reimburse Rs. 1 lac to him, they may alter the articles by passing SR in
GM.
Q. Absolute power limited desires to commence a business specifically mentioned in its

object’s clause under the head “Other Objects” the action to be taken by the
directors before commencing the new business under other objects. (5 marks)
Ans:
1 The given case pertains to alteration of objects clause of the company under the Companies
Act, 2013.
2. The provisions of the Act states that a company can carry out only those business activities
which are provided in the main object clause under its MOA.
3. By applying the above provisions to the given case, a company in such case is required to
alter its objects clause by shifting it from other objects to main objects. In such case, a
company is required to obtain permission of its shareholders by way of a special resolution
and file form MGT-14 with a concerned ROC.
Q. Short note on Illegal Association (5 marks)

Ans:
Any association of persons or partnership or any unregistered company, which has 100 or
more persons as its members shall be compulsory registered under any particular Act or
under the Companies Act. If it is not so registered, it becomes an illegal association.
An illegal association suffers from the following limitation:
1. Any contract entered into by such association stands void.
2. A member of such association cannot sue the third party for any rights, any member, not
even if the company is subsequently registered
3. A party, however has all the rights against this illegal association.
4. Such association cannot even be wound-up by an order of court. In fact, the Court cannot
entertain a petition for its winding up as an unregistered company, for if it did, it would be
indirectly according recognition to the illegal association
Q. A company is an artificial juristic person. It does not have citizenship, residence and
domicile. (5 marks)
Ans:
1. A company is an artificial person created by law. It is not a human being but it acts through
natural persons.
2. Although the company is a legal person, it is not a citizen as per Citizenship Act, 1955 or
the Constitution of India.
3. However, it must be noted that certain fundamental rights enshrined in the constitution
for protection of a "person" are also available to a company.
4. Further, though a company cannot be a citizen, yet it has nationality, domicile and
residence. Its domicile is the place of its registration and such domicile may change
throughout its existence.
Q. The liability of a member to pay their guaranteed amount arises only when company
has gone into liquidation and not when it is a going concern. Comment. (4 marks)
Ans:
1. A guarantee company means a company in which the liability of the members is limited to
the extent of guarantee provided by them.
2. A guarantee company is two types – one having share capital and the other not having share
capital.
3. In case of a guarantee company having share capital, a member’s liability is limited to the
extent of shares held by them and remaining unpaid and the amount is paid at the time of
incorporation.
4. In case of a guarantee company not having share capital, members liability is to be paid only
at the time of winding up of the company.
5. As such the amount of guarantee in either of the cases is required to be paid only at the
time of winding up while working capital needs of the company are fulfilled out of other
sources.
Q. Registered office of the company was shifted from one state to another. A labour
litigation was pending before the Court / Tribunal. So, the employees objected to transfer.
Whether the objection of the employees is tenable. (5 marks)
Ans:
1. In case if a company shifts its registered office from one state to another it is required to
obtain permission from its members by way of a special resolution and a NOC from its
creditors.
2. However, the employees only have a right to express their concerns before the
Court/Tribunal.
3. Since, employees only have a representative right to object such proposal of shifting of
registered office from one state to another, thus the company before such shifting shall only
take into consideration the views and concerns of employees. As such employees do not
have an objectionable right against such shifting of registered office of the company.
Q. MOA & AOA binds the individual members towards the company and the company
to the members. Comment. (5 marks)
Ans:
1. MOA and AOA are the charter documents of the company. MOA is the constitution of the
company and foundation on which structure of company is built. Whereas Articles are the
rules and regulation to carry out the affairs of the company.
2. MOA sets out scope of company’s activities & its relationship with outside world, i.e. it lays
down the area beyond Which action of the company cannot go. And Articles is a contract
between the company and its members and between members inter se i.e. it binds the
company and its members and has nothing to do with the outsiders.
3. In a way, both the documents bind the company & its members & its members towards
each other’s.
4. A member is bound towards the company for payment of call money remaining unpaid in
case of a company limited by shares.
5. Also, company is bound towards its members for issue of share certificate against the monies
paid.
6. Thus, it is rightfully stated that MOA & AOA binds the individual interest and the company
to the members.
Q. With the approval of the Board, an amount of Rs. 50 crore was spent by Speed Jet
Ltd., in producing a commercial film, not covered under its objects clause. The film was
a complete flop and the company lost an amount of Rs. 40 crore. Some of the members
of the company objected to such investment not covered by objects clause of the
company. They filed a suit in Court/Tribunal of law making the directors personally
responsible to make good the loss. Will they succeed ? Support your answer with reasons.
(6 marks)
Ans:
1. The given case pertains to the powers of the board and the company.
2. The provisions of the Act states that an act which is ultra vires the directors but intra virus
the company can be ratified by the company in GM. However, if there is any act which is
ultra vires the directors and company, directors are held personally liable.
3. By applying the above provisions to the given case, Speed Jet Ltd. produced a film with the
investment of Rs. 50 crore which was not permitted by the object clause of the company
and it accordingly suffered losses to the tune of Rs. 40 crore. Since the act is ultra vires the
company, the directors shall be held liable for the loss of 40 crores. However, in future the
company has the option to extend the powers to amend the AOA and MOA.
Q. Alpha Ltd. was incorporated on 15/3/2012. A company with identical name and
similar objects was incorporated on 5/8/2013. On accounts of similarity of name, Alpha
Ltd., i.e., the company which was previously registered, filed a petition on 15/4/14 with
the Central Government seeking issue of directions for change of name by later company
so that its business interest is protected. On 16/8/14, the Central Government sent an
order to the later company to change its name. Examine the aforesaid case and validity
of the order of Central Government. (5 marks)
Ans:
1. The given case pertains to the change in name of a company.
2. The provision of the Act states that a company incorporated at a later date with a name
similar to an existing name can be asked to change its name by order of Central Government
within a period of 3 months from the date of such order by passing an ordinary resolution.
3. By applying the above provisions to the given case, Alpha Ltd. requested the CG to change
the name of the company which was formed with the identical name on 15/8/14 & Central
Government ordered the new company to change its name on 16/8/14. Which is beyond
the aforesaid period of 3 months.
Hence, the order of central government is not valid.
Q. A company registered under section 8 of the Act as “ABC Sports Club” wants to do
the following. Advise the company on the course of action.
(a) ABC Sports Club decided to alter its Articles of Association.
(b) Decided to admit AB & Co. as partnership firm into the company as members. (4
marks)
Ans:
1. A company registered under section 8 of the Act as ABC Sports Club wants to alter its
Article of Association. It can do so by passing special resolution however, such alteration
also requires the approval of Registrar of Companies.
2. A partnership firm however is not a separate legal entity and therefore, it cannot admit
ABC partnership firm into the company as a member.
Q. The prospectus issued by a company contained a false statement that B a very well-
known successful businessman was on its Board of directors. C acting upon this
statement applied to the company for its shares. D who did not rely upon this
statement but on the basis of other information about the company given in the
prospectus applied for its shares. C and D were allotted shares by the company. E was
a subscriber to the Memorandum of Association of the company. F bought the shares
through the stock exchange later on. Each of them wants to know whether they can
seek remedies for mis-statement in the prospectus.
Advise them. (4 marks)
Ans:
1. As per the Companies Act, 2013, the burden of proof regarding any misleading statement
shall fall on allottees. To claim remedies against misstatement he must prove that:
(i)There was misrepresentation of a fact
(ii) The Fact was material
(iii) He acted upon such misrepresentation
(iv)He suffered damages consequently
2. Also, a subscriber of memorandum cannot rescind the contract for the purchase of shares;
even on the ground of fraud by the promoter.
3. Referring to the above provisions and given facts of the case:
(i) C can seek remedies for misstatement in the prospectus.
(ii) D cannot seek remedies because as he did not rely upon the statement while
applying for shares.
(iii) E, being subscriber to the memorandum cannot seek remedy.
(iv) F bought shares from the stock exchange and not on the basis of prospectus at the
time of public issue, hence he cannot claim damages.
Q. Mr. Y formed a One Person Company (OPC). For the year ending 31st March, 2018,
it had clocked an average annual turnover of 2 crores and its paid up capital was
raised from 5 lakhs to 50 lakhs. Comment on its conversion and if so, within what
period such conversion to take place under the provisions of the Companies Act, 2013.
(4 marks)
Ans:
1. OPC of Mr. Y exceeds the limit as set out in the definition (i.e. Rs. 50 Lakh of paid up share
capital or Rs. 2 Crore of the turnover), thus it gets converted.
2. Further, it shall increase the number of members to 2 or 7 as private or public company
respectively.
3. Also, the memorandum and articles of company shall be amended suitably
4. A notice is also required to be submitted to ROC in form No. 1NC 5 within period of 60
days from the date it ceased to be an OPC.
Q. Ria Technologies Ltd. was incorporated 10 years back. The Board of directors
now wants to change its name to Ria Systems Ltd. Draft a notice & the
Explanatory statement for calling an EGM of the Company for change of its
name, assuming relevant data. (8 marks)
Ans:
Ria Technologies Ltd.
Registered Office
Telephone: Fax : Email-id :
NOTICE
Notice is hereby given that a meeting of members of the company is scheduled to be held on
[day] [date] [time] [place] to transact the following business.
SPECIAL BUSINESS :
To consider, & if thought fit, to pass with or without modifications, the following Resolution as
a Special Resolution.
“RESOLVED THAT pursuant to the provisions of the Companies Act, 2013 read with all the
applicable rules and regulations and as approved by the board of directors of the company at its
meeting held on ______ and by the Central Government vide its order dated _________, the
company be & is hereby authorized to change its name from Ria Technologies Ltd. to Ria Systems
Ltd.
RESOLVED FURTHER THAT Mr. A Managing Director of the company be & is hereby
authorized to submit necessary application with the Central Government & obtain all the
permissions as may be required for changing the name of the company & intimate the same to
the Registrar of Companies by filling various forms & returns to give effect to said resolution.”
For Ria Technologies Limited

SD/-
X
Company Secretary
Explanatory Statement :
Ria Technologies Ltd. is in the business of the IT related services since past 10 years. However,
the name of your company goes suitably well with a software development business and not
support system which is the main business of company. Thus, in order to reflect the nature of
business by its name, the company has decided to change its name from Ria Technologies Ltd.
to Ria Systems Ltd.
Q. In an AGM of Amar Pvt. Ltd. all the shareholders were killed in a bomb blast, State,
whether the company is still in existence. If so, how? (4 marks)
Ans:
1. The given case pertains to the provisions of Companies Act, 2013 relating to perpetual
succession.
2. The provisions of the act states that an incorporated company never dies, except if it is
wounded up as per law. A company has a separate legal entity and is unaffected by death
or departure of its member.
3. By applying the above provisions to the given case, even when all the members of Amar Ltd.
die, the company is still into existence. The legal heirs of the member will be the
shareholders.
Q. When may a company be given a “dormant” status? (4 marks)

Ans:
1. As per Section 455(1), a company formed and registered under this act for a future project
or to hold an asset or intellectual property and has no significant accounting transaction,
such company or an inactive company is called as a Dormant company.
2. It may take an application to the Registrar to obtain the status of a Dormant company in
such manner as may be prescribed in form MSC-1 after a passing special resolution to that
effect.
3. Here, inactive company means company not carrying on any business or operation or has
not made significant accounting transaction during last two financial years or has not filed
annual return during last two financial years.
4. Whereas, significant Accounting Transaction means transaction other than,
(i) Payment of fees by company to the registrar.
(ii) Payment made to fulfill the requirement under the act or any other law.
(iii) Allotment of shares to fulfill the requirement under the act.
(iv) Payment for maintenance of its office and records.
Q. The promoters of a company engaged in the formation of a software company
approach you as a Company Secretary in practice to advise them about the details of
declaration required to be made by :
(a) the professional involved in the formation of the company and
(b) subscribers to the Memorandum of Association while filing documents for
incorporation of a company. Advise them. (4 marks)
Ans:
The promoter of company engaged in formation of a software company shall obtain :
(i) Declaration from professional being Advocate, CA, CS, CWA in practice, who is
engaged in the formation of company as a director, manager or secretary of the
company that all the requirement of this act and the values made there under have
been complied with. (Form No. INC-8)
(ii) Declaration from subscribers to the memorandum and from the first director, if any
named in the articles in form No. INC 9 that he is not convicted of offence with the
promotion formation or management or has not been guilty of any fraud or
misfeacence or of any breach of duty to any company has to be filed with the registrar.
Q. Banking and insurance companies are exempted from certain financial disclosures
under the Companies Act, 2013. (4 marks)
Ans:
1. Generally Banking and Insurance Companies are formed under a special act of parliament.
2. Schedule IV is not applicable to such Banking and Insurance Companies, if at all they are
incorporated under certain special laws. In such cases, those companies are governed by
the provisions of those special laws. To the extent, special act doesn’t provide provisions
on any given act, the provisions of Companies Act, 2013 shall remain in force.
3. Hence, banking and insurance companies are exempted from certain financial disclosure
under the Companies Act, 2013, if governed by special laws.
Q. Distinguish between preliminary & provisional contracts. (4 marks)
Ans:
Sr. Preliminary Contracts Provisional Contracts
No.
1. Contracts made before incorporation of Contracts made after the incorporation but
company are known as preliminary before the company is entitled to commence
contracts. business are known as provisional contracts.
2. As per Companies Act, 2013, preliminary Provisional contracts become binding as
contracts are not binding upon the soon as the company receives certificate of
company. commencement of business.
3. If provided by terms of the memorandum No such provisions are applicable in case of
and articles of association of proposed provisional contracts.
company, a preliminary contract becomes
binding upon the company after its
incorporation.
4. Preliminary contracts are applicable to Provisional contracts are applicable only to
both private & public limited companies. public limited company.
Q. The Companies Act, 2013 does not provide statutory recognition to the doctrine of
lifting of corporate veil. Only judicial interpretations disregard the concept of separate
personality. Comment (5 marks)
Ans:
1. The Companies Act, 2013 states that company is a separate legal entity i.e. it is different from
its members, but eventually various cases has brought the concept of lifting of corporate veil.
2. It means that if any fraudulent and dishonest use is made of the legal entity, the individual
concerned will not be allowed to take shelter behind the corporate personality. The court
will break the corporate shell and will take action against the wrong does.
3. Various cases related to the doctrine of lifting of corporate veil are as follow.
(i) Gilford Motor Co V/s Horne: The corporate veil has been used for the commission of
fraud
(ii) R.G. Films Ltd.: British Company acted as an agent of American Company without any
principal business.
(iii) Connors Bros V/s Connors: The given case was against the public policy.
(iv) Sir Dinshaw Maneckjee Petit: The given action was done with a view of evasion of tax.
(v) The Workmen Employed in Associated Rubber Industries Ltd. V/s The Associated
Rubber Industries Ltd.: The corporate veil has been used for avoidance of welfare
legislation.
4. Thus, we can conclude that various cases have evolved the doctrine of lifting of corporate
veil and has been added to the Act thereafter.
Q. X Pvt Ltd has 200 members. Khushi & Dimple are joint shareholders of the company
holding 200 shares. They now wish to transfer these 200 shares in the name of Shifa,
Shristi, Nikhil jointly. Will the board allow such transfer? (4 marks)
Ans:
1. In terms of the provision of section 2(68) of the Companies Act, 2013, a Private Limited
Company can have a maximum of 200 members. Joint members are always treated as 1.
2. In the present case, Khushi & Dimple in joint names were holding 200 shares of the
company. They are desirous of transferring these shares in the favour of Shifa, Shristi and
Nikhil jointly. Since joint members are treated as one, in the present case the total number
of members will not exceed 200.
3. Therefore, the Board will allow such transfer.
Q. The liability of a member to pay guarantee amount arises only when company has
gone into liquidation & not when it is a going concern. Comment. (4 marks)
Ans:
1. A company Ltd by guarantee is a company wherein liability of members is limited to the
extent of guarantee given.
2. A company Ltd by guarantee can be of 2 types i.e.
i. A guarantee company with share capital.
ii. A guarantee company without share capital.
3. In case of guarantee company without share capital, the liability of members arises directly
at the time of winding up.
4. Whereas in case of a guarantee company with share capital, liability arises 2 times i.e.:
i. Amount of shares subscribed during the lifetime of the company &
ii. Amount of guarantee at the time of winding up.
5. Therefore, liability of the members in case of guarantee companies depends upon whether
it is with or without share capital.
Q. Two companies are incorporated with the same set of shareholders are they same or
distinct under the Companies Act, 2013. (4 marks)
Ans:
1. A company formed & registered under Companies Act, 2013 becomes a separate legal
entity from the day it is incorporated.
2. Once incorporated it becomes distinct from its promoters, directors, as well as members.
3. A company and its members are also distinct so there is no question as to why two
companies with the same set of shareholders will be the same.
4. Therefore, when two companies formed, are distinct and separate even though the
shareholders are the same.
Q. Articles of Association of a company limited by guarantee provides that entire income
of the company shall be applied towards promotion of the objects of the company.
Comment. (5 marks) [June 2022]
Ans:
1. Dividend means amount paid to owners or shareholders of the company out of profits
available for distribution.
2. It is not mandatory for the company to pay dividend every year. If the profits are not
adequate the company may not pay dividend.
3. As per the Companies Act, 2013 a limited by guarantee company may pay any amount of
dividend as it wishes, but generally the Articles of Association of such companies provide
that the entire income be applied towards promotion of its objectives & to not pay any
dividend.
Q. What would be the status of AV Pvt. Ltd, under the Companies Act, 2013, if TV Ltd.
has appointed six (6) out of ten (10) directors on the Board of AV Pvt. Ltd. by exercising
some powers at its discretion? (3 marks) [June 2022]
Ans:
1. As per the Companies Act, 2013 if majority of directors on the board of a company are
appointed by another company then such company becomes a subsidiary of the company
appointing the directors.
2. Also, where a private company is a subsidiary company of a public limited company then it
is also deemed to be a public limited company.
3. Thus, by applying these provisions it can be held that AV Pvt. Ltd. is a subsidiary of TV Ltd.
& is deemed to be a public Limited Company.
CHAPTER - 2 – SHARE CAPITAL

Q. Enumerate the conditions related to issue of shares with differential voting rights. (5
marks)
Ans:
Shares with differential voting rights are like ordinary equity shares carrying no voting rights.
The investors which are generally concerned with their amount of dividend usually prefer buying
shares with differential voting rights. The conditions required for issuing DVR’s are as follows :
1. It is authorized by its Articles of Association.
2. The issue is authorized by an ordinary Resolution. In case of listed companies, it shall be
passed through postal ballot.
3. Shares with differential rights shall not exceed seventy four percent of total voting power
including voting power in respect of equity shares with differential rights issued at any point
of time.
4. The Company has not defaulted in filing financial statements and annual returns in the last 3
preceding financial years.
5. The company has not defaulted in payment of declared dividend to its shareholders or
redemption or payment of interest on deposits or debentures or any bank loan.
6. The company has not been penalized by any court or tribunal during the last 3 years for any
offence under RBI Act, SEBI Act, SCRA or FEMA.
Provided that a company may issue equity shares with differential rights upon expiry of five
years from the end of the financial year in which such default was made good.
Q. In no circumstances, a company can issue redeemable preference beyond a

redemption period of 20 years. Comment. (5 marks)
Ans:
1. Pursuant to provisions of Companies Act, 2013, a company is allowed to issue preference
shares up to a maximum term of 20 years from the date of the issue. However, the Act
provides an exception by way of companies undertaking infra-structure projects.
2. The relevant provisions state that in case of infra companies, the term of such preference
shares could be extended up to 30 years.
3. In such issues, the company has to transfer 10% of the total redemption amount beginning
from 21st year up to 30 years. Any premium on redemption can be paid out of securities
premium account.
4. Therefore, preference shares can be issued beyond a period of 20 years in case of infra
companies.
Q. A company can issue shares to persons other than its existing shareholders.
Comment. (8 marks)
Ans:
1. A Company has a choice to either offer shares to its existing shareholders or to persons
other than existing shareholders.
2. When the shares are offered to its existing shareholder, it is known as rights issue of
securities while when they are offered to persons other than its existing shareholders, it is
known as further issue of shares.
3. In order to do a further issue of shares, the company has to fulfill the following conditions:-
(i) A special resolution in the general meeting is required to be passed.
(ii) Such issue of shares requires obtaining a valuation report from a registered valuer.
4. However, the above referred provisions are not applicable in cases whether the company
has converted its loans / debentures into equity shares on its own or by way of an order
from the Central Government in the public interest.
Q. Bonus issue of shares does not result in a gain or loss to the shareholders of the
company. Explain. (6 marks)
Ans:
1. Bonus issue of shares means issuance of free shares to the existing shareholders of the
company in order to pass surplus profits to the members by way of capitalization of profits.
2. In order to capitalize profits, the company can utilize the money out of following:
(i) Free Reserves.
(ii) Securities Premium A/c
(iii) Capital Redemption Reserve A/c.
3. Since, bonus issue is a free issue, the shareholders are not required to pay any sum to the
company. At the same time the numbers of shares issued by the company results in
increase of share capital of the company and the same is realized and transferred out of
the heads provided above conclusively, bonus issue does not involve any cost to the
shareholders and therefore there is no loss to them.
4. In terms of number of shares, the shareholders gain significantly as the number of shares
increases but at the same time the book value is reduced in proportion to the issue of
bonus share, hence it is does not result any gain/loss to the shareholders of the company.
Q. Sec. 62 ensures preemptive rights of existing shareholders. Discuss. (8 marks)

Ans:
1. Section 62 of the Companies Act, 2013 clearly mentions about the right given to the existing
shareholders at the time of any further issue made by the company. It means that whenever
in future, if a company wishes to increase its subscribed capital by way of issue of new shares,
such shares should be first offered to the existing shareholders. Such issue is known as rights
issue.
2. A letter of offer is sent to all the shareholders, at least 3 days prior to the issue opens. Such
issue shall be open for a minimum period of 15 days and the same should not exceed 30
days.
3. The shareholders are not bound to accept such shares, it is just a mere option to subscribe
to such shares at a lower price i.e. whole discount is provided on the market value of shares.
4. Shareholders may accept or reject or even renounce their offer (i.e. transfer their right to
some other person). If the member does not intimate the company regarding their decision,
it is considered to be rejected.
5. Therefore, whenever a company offers shares for raising money, either first offer is given
to the existing shareholders or their permission is taken by way of special resolution to
offer it to some other persons then to the existing shareholders. So shareholders have the
first right to subscribe to the securities of a company.
Q. Preference shares are not cumulative unless expressly stated to be cumulative.

Comment. (5 marks)
Ans:
1. A company declares dividend out of profits made in the current year, however, it is under
no obligation to pay dividend to its equity shareholders of the company while on the
contrary, preference shareholders have preferential right over the amount of dividend.
2. In situations, where company faces huge losses in current year, then it gets accumulated for
the preference shareholders. However, in next year, when company makes profit, it pays
off the dividend for 2 years (i.e. for last years and for the current year).
3. Thus, Preference dividend is always cumulative unless specifically stated otherwise.
Q. State the provisions relating to issue of shares at premium. (5 marks)
Ans:
As such the provisions of the Companies Act, 2013 does not restrict issue of securities at
a premium i.e. a company can raise money with any amount of premium, however, there
are certain conditions with respect to the utilization of the amount of premium collected
on such securities, which are as follows:
1. For issuing fully paid-up bonus shares.
2. Writing off the balance of preliminary expenses.
3. Writing off commission paid, or discount allowed on issue of shares or debentures.
4. For providing premium payable on redemption of redeemable preference shares or
debentures.
5. For buying back securities of the company.
Any amount received by way of premium shall be transferred to Securities Premium
Account.
Q. A company has just received applications for shares in response to a public issue, which
has been fully subscribed. How would you ensure that the shares are validly allotted?
(4 marks)
Ans:
Following are the condition for the Allotment to be valid:
1. It should be made by proper authority i.e. it can only be done by board of directors or a
committee on behalf of the board.
2. It should be made within reasonable time. Once allotted, securities must be issued within a
period of 2 months from the date of allotment.
3. Allotment should be absolute and unconditional.
4. It must be communicated. Posting of letter of allotment or allotment advice will be taken as
a valid communication.
5. Allotment should always be against the application.
6. It should not be in contravention of any law.
7. No allotment shall be made, until minimum subscription has been received on such share
applications. Minimum subscription shall be atleast 90% of the total issue size.
8. The application money shall be at least 5% of nominal value of the amount of security.
9. It must be received within a period of 30 days from the issue of prospectus or such other
date as may be prescribed by SEBI.
Q. Following is the balance sheet of Fun Ltd. as on 31st March,2018

Liabilities Rs.
Equity shares of Rs. 10 each fully paid 12,50,000
Revenue reserve 15,00,000
Securities premium 2,50,000
Profit & loss account 1,25,000
12% debenture 18,75,000
Unsecured loan 10,00,000
Current liabilities 16,50,000
76,50,000
Assets
Fixed assets 46,50,000
Current assets 30,00,000
76,50,000
Assuming the company has obtained necessary authorisation and approval under the
Companies Act, 2013, ascertain the maximum number of shares that can be bought
back on 1st April,2018 at Rs. 20 per share. (8 Marks)
Ans:
The maximum possible buy back with the permission of shareholders by way of a Special
Resolution could be upto = 25% of total paid up share capital and free reserves
= 25% (1250000+1500000+250000+125000) = 25% (3125000)
= Rs. 781250
No of shares to be bought back = 781250 ÷ 20 = 39062 shares
Q. Distinguish between sweat equity shares and ESOP. (4 marks)

Ans:
Sr. Sweat Equity Shares ESOP
No.
1. Sweat equity shares are like ordinary Employee stock option scheme gives an
equity shares issued at a discount for option to the employees / directors / officers
consideration other than cash to the of the company which gives them the right to
employees or directors of the company subscribe to the shares of the company on a
for providing technical know-how or future date at some pre-determined price.
making available rights in the field of IPR
2. Sweat equity shares can be issued at ESOP can be issued at a discount, but the
discount i.e. discount is available on the discount is not available on the face value of
face value of the shares. shares.
3. Register of Sweat equity shares is to be Register of ESOP is to be maintained in form
maintained in form SH3. SH6.
4. A compulsory 3 years lock in period is Holding period for ESOP is not as such
prescribed for holding sweat equity prescribed by the Act, but it may be decided
shares. by the company.
5. Maximum limit up to which company can ESOP can be issued up to a maximum of 2%
issue sweat equity shares is 15% of equity of issued capital of the company.
paid up capital or 5 crs, whichever is
higher or 25% of equity paid up capital for
the lifetime of the company.
6. All employees & directors of company are Employees & directors including promoters,
eligible to receive SES except promoters. are eligible to receive options.
Q. Rights Issue & Bonus Issue. (5 marks)

Ans:
No. Rights Issue Bonus Issue
1. Before making any further issue to the Bonus shares are additional shares issued to the
public, those shares should be first existing shareholders of the company, free of
offered to the existing shareholders of cost in the proportion of their holding.
the company at a discount on the
market value of shares.
2. In rights issue, there is a flow of In bonus issue, there is no flow of cash, in fact
consideration. the cash remains unchanged as bonus shares are
free of cost.
3. Rights issue is basically made to Bonus shares is merely capitalization of profits
increase the share capital of the i.e. capital is increased by reducing balance from
company by raising funds from the the shareholders’ funds i.e. from reserves.
existing shareholders of the company.
4. In rights issue, there is no obligation on As the shareholder is in a no gain no loss
the part of the shareholders to accept position they accept the bonus shares offered,
the shares offered. They can even reject they cannot reject or renounce their right.
or renounce their right in favour of any
other person.
Q. Differentiate between reserve capital and capital reserve. (2 marks)
Ans:
No. Reserve Capital Capital Reserve
1. That portion of the capital which is Capital reserve is created out of profits arising
reserved to be raised at the time of on sale of capital assets.
winding up is known as reserve capital.
2. Reserve capital is utilized only at the Capital reserve is utilized during the lifetime of
time of winding up. the company.
Q. A Company with face value of Rs. 10 per share wishes to come up with public issue
at price of Rs. 150. Can the company do so. If yes enumerate the uses of money received
over Rs. 10. (5 marks)
Ans:
1. The amount of money raised over and above its face value is classified as premium on issue
of shares & the said amount is transferred to securities premium A/c.
2. As such there is no limit on the amount of premium raised by the company. So, a company
with a face value of Rs. 10 can offer its share at Rs. 150.
3. The Securities Premium amount can be used for the following purpose:
(i) For issuing fully paid-up bonus shares.
(ii) Writing off the balance of preliminary expenses.
(iii) Writing off commission paid, or discount allowed on issue of shares or debentures.
(iv) For providing premium payable on redemption of redeemable preference shares
or debentures.
(v) For buying back securities of the company.
Q. Can a company reduce its share capital without sanction of court. Comment. (4
marks)
Ans:
A company can in following ways reduce its share capital without sanction of court:
1. Surrender of shares.
2. Forfeiture of Share.
3. Redemption of fully paid up share
4. Buy Back of shares
5. Purchase of shares of members by an order of the court/tribunal
6. Diminution of share capital
All of the above are effects of cancellation of shares, however, they ultimately lead to reduction
in share capital of company.
Q. Explain the rules related to forfeiture and call money. (5 marks)
Ans:
Rules related to calls
1. The power to make calls is exercised by the Board in its meeting by means of a resolution.
2. The power to make call must be for the benefit of the company, and not for the private
ends of the directors. If the call is made for the personal benefit of directors, the call will
be invalid.
3. Calls must be made on a uniform basis. There cannot be any discrimination between
shareholders of the same class as regards amount and time of payment of call.
4. Maximum call money on a particular call shall not exceed 25% of the nominal value of such
shares.
5. Notice of call must be given at least 14 days in advance to the shareholders.
6. In case of joint shareholders, they shall have joint liabilities for the payment.
7. Minimum gap between two calls shall be at least of 30 days.
8. Call money may be delayed or postponed by the company.
9. If there is any delay, it shall attract interest @ 10% p.a.
Forfeiture of share
1. If the call money on a particular call remains unpaid, the company shall have a right to forfeit
shares by giving due notice to the concerned share holder.
2. Authority to do such forfeiture shall remain with the board of directors of the company.
3. Forfeited shares may be reissued by the company if the board of directors think fit.
4. The excess of the proceeds so retained shall constitute a premium and must therefore be
transferred to the securities premium account.
5. It must be authorised by the articles of the company and a due notice of 14 days must be
given to the shareholders before doing such forfeiture.
Q. A public ltd company forfeited 80 equity shares and re-issued the same, which carried
a surplus of Rs. 2000. The company did not file Return of Allotment with ROC for
re-issue of shares. Explain whether the company has contravened the provisions of
the Act. (5 marks)
Ans:
1. The given case pertains to provisions relating allotment of securities and filing return of
allotment.
2. The provisions of the Act states that, a company is required to file a return of allotment only
when it has allotted fresh equity shares. In case of re-issue of forfeited shares, there is no
fresh allotment of shares, only the name of the member changes.
3. By applying the above provisions to the given case, public ltd company re-issued the forfeited
shares to some person. In this case, no new shares were issued and the paid-up share capital
of the company also remains unaffected. Since, there is no fresh allotment, no return of
allotment is required and hence, there is no act of non-compliance.
Q. Red herring prospectus means a prospectus which has complete particulars about
the number of securities offered and its price. Comment. (5 marks)
Ans:
1. Prospectus means an offer document issued to public inviting applications for subscriptions
of securities of company.
2. Red Herring Prospectus (RHP) is also a kind of prospectus which is issued by the company
in case of book building method.
3. In case of book building method, the company does not know exact no. of securities
subscribed & price of subscription.
4. In such cases, instead of offering prospectus, a company offers RHP to the investors.
Therefore, it could be concluded that an RHP includes all the particulars except price &
number of securities offered.
5. When the said particulars are filled in an RHP & submitted with the ROC, it becomes a
prospectus.
Q. A Company has issued a prospectus to the public stating that the company has paid
dividend regularly & prospectus is silent relating to sources of project i.e. trading
profits or capital profits. The fact is that company has incurred losses for last five
years but dividend is paid out of realised capital profits (secret reserves). While the
shareholder claimed that the prospectus is at fault. Whether his contention is
correct? (5 marks)
Ans:
1. The given case pertains to the provisions relating to issue of prospectus & disclosure of
information in the prospectus.
2. The provisions of the act states that all the material significant information should be stated
in prospectus. The said rule also states that only true, true and only true information should
be stated in the prospectus. However, there are certain particulars which need to be
compulsorily stated in the prospectus.
3. By applying the above provisions to the given case, the fact related to source of profit for
declaration of dividend is not material fact, however, what is binding upon the company is
whether the company has declared dividend is the past or not. In the given case, the company
has mentioned fact of payment of dividend & therefore contention of shareholder that it’s
wrong is incorrect principally.
Q. Differentiate Between: CIN and DIN (4 marks)

Ans:
Sr.No. CIN DIN

1. Corporate Identification number is Directors Identification number is
referred as CIN referred as DIN
2. It is a unique identification number It is a unique identification number
assigned to a company assigned to the person acting as director
3. It is assigned by the registrar of It is assigned by the central government
companies functioning in various
states under MCA
4. It is assigned at the time of It is assigned within one month from
incorporation of company receipt of application by concerned
person
5. It is used for finding the primary details It is used for finding the details of person
of companies registered in India under acting as director
MCA
6. Every company must quote CIN A person required to furnish details of
whenever a correspondence is being DIN where he is proposed to be
done with MCA appointed as director
Q. A deceitful prospectus was issued by directors on behalf of the company. Pavan
received a copy of it but did not take any shares in the company. The allotment of
shares to the applicants was completed. Several months later, pavan bought 2000
shares of company from stock market. He proceeded with a suit against the director
for issuing deceitful prospectus. Will he succeed? (5 marks)
Ans:
1. The given case pertains to onus or burden of proof in prospectus.
2. The provisions of the Act states that in order to claim compensation, a shareholder must
establish the following:
(i)That there was a mis-representation.
(ii) The misrepresentation was of a material fact.
(iii) The investor acted upon that mis-representation
(iv) He suffered losses.
If all the about facts are established, a shareholder is entitled to claim compensation.
3. By applying the above provisions to the given case, Pavan bought the shares of company
from open market & not based upon the prospectus in public issue of securities. Since he
did not invest in public issue he is not entitled to claim compensation.
Q. Differentiate between Shelf Prospectus & RHP. (5 marks)

Ans:
Sr. RHP Shelf Prospectus
No.
1. RHP is issued in case of public issue A shelf prospectus is issued only by banking
through book-building method by a companies and financial institutions.
company.
2. RHP is filed with ROC every time the Shelf prospectus is filed only in case of a
company comes up with a public issue of public issue beginning from the opening of
securities. first offer.
3. RHP does not include the details related to It includes all the particulars related to a
price & no. of securities. public issue.
4. RHP is valid for a period of 3 months Shelf prospectus is valid for a period of 1
beginning from the succeeding month in year beginning from the opening of first offer
which observation letter was issued by of securities.
SEBI
Q. When can a registrar refuse registration of prospectus. (4 marks)

Ans:
Registrar can refuse registration of prospectus in following cases :-
1. If the prospectus is not dated and issued to the public.
2. If the prospectus is not signed by the directors or proposed directors of the company.
3. If the prospectus contains a statement made by an expert who is not engaged in the
management of the company.
4. A prospectus is not valid if it is issued for more than 90 days after the date on which a copy
of it is delivered to the registrar.
5. If the prospectus does not contain true information about the company.
Q. Discuss the statement that it is the duty of those who issue the prospectus to be
truthful in all respect. (5 marks)
Ans:
1. The offer document of the company is signed by all the existing and proposed directors of
the company and therefore it is the responsibility of such directors, to ensure that the
contents of the prospectus are true and correct.
2. A prospectus shall contain true, true and only true information i.e. there should not be any
misleading or incorrect information.
3. It shall also be the duly of such officers not to conceal any material fact about the company.
4. In case, if any of the prospectus contains any misleading or incorrect information or
concealment thereof, such directors & officers of the company shall be prosecuted on civil
or criminal grounds.
Q. Short Note on Golden Legacy. (4 marks)

Ans:
1. The golden rule pronounces that all that is mentioned in the prospectus or an offer
document shall be true and only true information.
2. In short, the company’s offer document shall not contain any misleading or incorrect
information.
3. At same time, it shall also be ensured that no material information shall be concealed by the
company while making any offer document.
4. If there is any misleading or incorrect information or any concealment of material fact, all
the concerned officers, employees, Directors or promoters shall attract Civil and Criminal
Prosecution.
Q. Ajay Ltd borrowed Rs. 100 crore from Prem, without the authority conferred in its
AOA. Later the money borrowed by Ajay Ltd. was used by the board of directors to
pay of lawful debts of the company. In this case, Prem, the lender seeks your advice
for recovery of money. (8 marks)
Ans:
1. The given case pertains to the doctrine of constructive notice and suit against directors for
recovery of money.
2. The provisions related to the doctrine of constructive notice states that any information
which is easily available in public domain should always be known to the third parties while
dealing with any company. In short, the said doctrine protects the rights of company against
the third party.
The previous cases also conclude that if a third party has provided certain debts to the
company and the same debts are utilized to pay off any company creditor, all the rights of
such creditor are passed on to the said third party.
3. By applying to the above provisions to the given case, any borrowing beyond the limits
provided in the articles is ultra vires and hence the transaction is void and accordingly Prem
has no right to recover money from Ajay Ltd. However, since Ajay Ltd. utilized the money
for paying off lawful debts of the company, Prem shall have the same rights as that of the
creditor whose debts were settled out of the moneys lent by Prem.
Q. Narrate the implications of bonus issue of shares in brief. (5 marks)

Ans:
Bonus issue means issue of shares to the existing shareholders without consideration. The
company in order to surpass its access profits does bonus issue to its shareholders by
capitalization of profits. Bonus issue leaves the company & its members with the following
effects:
(i) The paid up share capital of company increases.
(ii) Authorised share capital may or may not increase.
(iii) No. of shares increase in the ratio of bonus shares.
(iv) Market value of the shares comes down.
(v) As such there is no profit or loss to the shareholders of the company.
Q. Bonus issue may be viewed as right issue except that money is paid by the company
on behalf of the investing shareholders, out of its reserves. Comment. (5 marks)
Ans:
1. Bonus shares means issue of shares to the existing shareholders without consideration while
right issue shares are also offered to the existing shareholders but at a price.
2. In case of bonus issue the amount to be transferred to capital is utilized out of reserves
while fresh money is raised in case of rights issue.
3. Reserves ultimately belong to the company & finally to its shareholders.
4. In a way, company does not call for money but utilizes the surplus funds of the shareholders
kept with the company.
5. Thus, bonus issue may be viewed as right issue except that money is paid by the company
on behalf of the investing shareholders, out of its reserves.
Q. The BOD’s of New Avtar Ltd. passed a resolution for issue of rights shares. However,
certain shareholders of the company raised an objection as to whether the company
needed additional capital. Discuss the validity of the counter move taken by the
shareholders against board resolution. (5 marks)
Ans:
1. The given case pertains to the provisions relating to ‘right issue of shares’.
2. The provisions of the act states that right issue is made to the existing shareholders of the
company and hence it is a power of the BOD of the company. If any shareholder wishes to
not participate it may refuse to subscribe the shares of the company.
3. By applying the above provisions to the given case, the BOD of New Avtar Ltd. approved a
resolution for rights issue of shares, shareholders of the company objected to the same on
the grounds that the company does not require such additional capital, shareholders have
no right to do so. Since rights issue is a power of the Board.
Q. Buy back of shares does not amount to reduction of share capital. Comment. (5 marks)
Ans:
1. Buy back of shares means the company buys its own securities from the existing
shareholders & extinguishes the same.
2. Reduction of share capital means reducing per share value of the shares.
3. Buyback results in reducing the no. of shares & the per share value remains unaffected.
4. Thus, buyback does not result in reduction of share capital, but it results into cancellation
of share capital.
Q. A company incorporated under Companies Act, 2013 does not have the right to reduce
its share capital on selective basis. Comment (5 marks)
Ans:
1. Reduction of share capital is basically alteration of share capital.
2. In reduction of share capital per share value is decreased.
3. The decrease in per share value results in the amount company has to pay as dividend to
shareholders.
4. If company is reducing the per share value company, it has to treat every shareholder equally
as every shareholder is an owner proportionate to their holding.
5. If company has done reduction of selective basis then it would have been inappropriate as
no shareholder is willing to let their company affect their ownership.
Q. BOD of Pious Ltd. gives you the following information extracted from the company
for FS as at 31st March 2015th
Authorised Capital - Rs. 10 cr.

Paid up Equity - Rs. 5 cr.
GR - Rs. 5 cr.
DRR - Rs. 2 cr.
BOD by a resolution passed at its meeting decides to go for buy-back of shares with the
intent of 20% of the company paid up share capital & FR. Examine the validity of the
BR with reference to the provisions of the Companies Act, 2013. (6 marks)
Ans:
1. The given case pertains to the provisions relating to the Buyback of Shares.
2. The provisions of the Act states that company can go for buy back of shares upto 10% of
the total paid up capital & free reserves with the approval of BOD. And if company wants
to buy back shares above the said limit, it needs to take approval of shareholder by way of
Special Resolution.
3. By applying the above provisions to the given case, BOD of Pious Ltd. passed a resolution
at its meeting for buy back of shares to the extent of 20% of the company paid up share
capital & FR. Company cannot do so by passing Board Resolution, it needs shareholders’
approval by passing SR. Hence, Board’s Resolution is not sufficient.
Q. Well done Ltd. wants to make a first call of Rs. 30 on equity shares of nominal value
of Rs. 100 each on 16th October, 2011. Can it do so? Further, if the company proposes
to make second call on 7th Nov. 2011, will it be permitted to do so. (5 marks)
Ans:
1. The given case pertains to the provisions relating to calls on shares.
2. The provisions of the Act states that a company could call upto 25% on each call and the
min gap between 2 calls should be atleast 30 days.
3. By applying above provisions to the given case, Well Done Ltd. made a call of Rs. 30 per
share on nominal value of Rs. 100 which is 30% & hence it is not allowed. Also, the company
made one call on 16th Oct 2011 & 2nd call on 7th Nov 2011, which is less than 30 days &
hence it is an invalid call.
Q. Rachika Textiles has utilized the Securities Premium Account during the FY 2016-17
as follows :
(i) Rs. 15 lacs against expenses of foreign travelling of directors.
(ii) Rs. 5 Lac for writing off the balance of preliminary expenses of the company.
(iii) Rs. 5 Lac distributed as dividend for the FY ending 31st March 2017.
You, being the Secretarial Auditor of the company, referring to the provisions of the
Companies Act, 2013 relating to the SPA, examine the validity of above. (5 marks)
Ans:
1. The given case pertains to the provisions relating to the Utilization of the amount of
Securities Premium Account.
2. Provisions of the Act states that the amount of securities premium account can be utilized
for the following purposes :
(ii) Writing off the balance of preliminary expenses
(iii) Commission paid for issue of securities
(iv) For providing premium on redemption of redeemable preference shares.
3. By applying the above provisions to the given case, amount of SPA can be used for:
(i) Expenses of Foreign Travelling of director - not allowed.
(ii) For writing off the balance of Preliminary expenses of the company - allowed.
(iii) Use for distribution of dividend for the FY – not allowed.
Q. Balance Sheet of Duck Ltd. shows a paid up capital of Rs. 5 cr. & free reserve of Rs. 2
cr. Due to heavy financial requirements, the company has decided to take loan of
Rs 8 crores. Advice whether the company is in a position to take such loan. Also
advice alternative course of action, if any. (5 marks)
Ans:
1. The given case pertains to provisions relating to borrowing powers of company.
2. The provisions of the act states that with permission of BOD a company could borrow upto
100% of its paid up capital, free reserves and SPA & any borrowing beyond this limit shall
require permission of shareholders by way of a SR.
3. By applying above provisions to given case, Duck Ltd. has paid up capital & FR of 5 cr. & 2
cr. respectively taking its limit upto 7 cr. It proposes to borrow Rs. 8 cr. which is beyond
the powers of Board & hence company shall be required to take the permission of
shareholders by way of SR.
Q. On receipt of 85% of the minimum subscription stated in the prospectus, little stars
Ltd. allotted 200 shares to Ranjit & the money was deposited in a scheduled bank.
Later on, it was revealed that 40% of the amount withdrawn was for acquisition of
fixed assets for the company. Ranjit knowing this fact refused to accept this
allotment contending that the allotment was irregular under the provision of
Companies Act, 2013. As an expert on company law advice Ranjit. (4 marks)
Ans:
1. The given case pertains to the provisions relating to irregular allotment.
2. The provisions of the Act states that minimum subscription of 90% should be received by
the company for it to do the allotment. If it is not received the allotment is irregular.
3. By applying the above provisions to given case, Ranjit contented that the Little Starts Ltd.
did not receive minimum subscription & the amount of public issue was used for some other
purpose & hence the allotment is irregular. Ranjit has a right to claim refund from the
company.
Q. Ajay sold his shares and executed a transfer deed in favour of Vijay. The documents
were lodged for transfer with the company. However, before effecting and registering
the transfer by company Ajay the transferor passed away. What is the impact of death
of Ajay on registration of transfer of shares in favour of Vijay; if the death of Ajay is –
intimated to company before registration – intimated to company after registration of
Shares in favour of Vijay?
If Vijay dies before registration of the transfer of share, what will be the consequences –
If the death of Vijay is intimated to company before registration of transfer. (8 marks)
Ans:
1. The given case pertains to the provisions relating to transfer of shares in case of death of
transferee or transferor.
2. The provisions of the Act states that if the deed of transfer is executed and sent to the
company before the death of transferor, the proper course is not to register until the legal
representative of the transferor has been referred to. However, in case of death of
transferee after the application of transfer of shares the company may if aware of the
situation hold the company to transfer till the time legal heirs submit the documents for
transmission.
3. By applying the above provisions to the given case, we narrate as follows :
a) If Death of Ajay is not known to the company, the company would obviously register the
transfer. If company is not aware shall not affect the materiality of transfer simply because
the intention of transfer is executed will before the death of Ajay. Hence the company
shall register the transfer. But if the company has notice of his death, the proper course
is not to register.
b) If the death of Vijay i.e. transferee is not known to the company, the company shall
obviously register the transfer of shares in the name of deceased person. However, if the
company is aware of death of transferee, it shall hold registration of transfer of shares &
wait for legal heirs to submit proof of death and get the shares transmitted in the name
of legal heirs.
Q. Grace Ltd. a public Ltd. company has received an application from Rosy for
transmission of certain shares in her name. Rosy, being a widow of a shareholder, applies
for transmission of shares standing in the name of her deceased husband without
producing a succession certificate. Can the company transfer shares of deceased
member? Discuss. (5 marks)
Ans:
1. The given case pertains to the provisions of transmission of shares in favour of widow.
2. The provisions of the Act states that shares can be transferred in favour of widow without
producing a succession certificate provided specific authority is given in the AOA of
Company.
3. By applying the above provisions to the given case, Rosy is entitled to transmit the shares in
her name being the legal heir without producing a succession certificate provided it is
specified in the AOA of Company.
Q. Forged Transfer is a nullity. Comment. (5 marks)

Ans:
1. Forged transfer is void in the eyes of law.
2. Forgery means transfer of shares without the knowledge of owner.
3. If such forged transfer comes to the knowledge of owner he can apply to the company about
it.
4. In such situation the company re transfers the shares in the name of original owner and the
innocent purchaser is compensated by the company.
5. The company bears the losses and has the right to recover the compensated amount from
the defaulting party.
Q. 1000 shares of Astro Ltd are registered in the names of three persons P, Q & R
jointly. Interestingly, the articles of the company provided that the survivors
shall be the only person to be recognized by the company as having any title to
the shares of the company. Unfortunately, P and Q died in an air crash. In these
circumstances, R being the survivor claims to be the full owner of the said 1000
shares. However, the legal heirs of P and Q are also making counter claims.
Who will succeed? Explain. (5 marks)
Ans:
1. The given case pertains to the provisions relating to succession of shares of a deceased
member.
2. The provisions of the Act states that the shares are succeeded by the legal heirs of
shareholders. However, if the articles to provide in case of death of one or more joint
members of the company the shares shall be succeeded by the survivor out of those joint
members.
3. By applying provisions to given case, P & Q, joint members died out of P, Q and R. The
legal heirs of P & Q cannot claim ownership of these shares since articles of Astro ltd.
provides that shares shall be owned by the surviving member in case of death of one of joint
member. Thus, the shares shall be transmitted in favour of R.
Q. An employee of a company purchased certain shares of his company through a

member of a stock exchange & lodged with the company an application for transfer
of shares in his [employees] name. The company refused to execute the transfer on
the suspicion that the employee, if admitted as a member of the company, will create
nuisance in general meetings & seek access to records of the company. Decide giving
reasons.
i) Whether the company contention shall be tenable &
ii) What is the remedy available to the employee in the given case? (8 marks)
Ans:
1. The given case pertains to provisions relating to refusal of transfer of shares.
2. The provisions of the Act states that the directors of company have a right to refuse the
registration of transfer of shares on following grounds :
(i) Whether the directors have acted in the interests of the company?
(ii) Whether they acted on a wrong principle?
(iii) Whether they acted with an oblique motive for a collateral purpose?
3. In case of such refusal of transfer, the member has a right to file an application before the
tribunal within 30 days from the date of reply for refusal of transfer or 60 days from the
date of application in case no reply is received by a member. While in case of public limited
company, the member has a right to file an application before tribunal within 60 days from
reply or 90 days from the date of application in case no reply is received.
4. By applying the above provisions to the given case :
i) Company cannot refuse registration of transfer of shares simply on the grounds that
the employer on becoming a member will create nuisance in GM of the company &
company records.
ii) In case of such refusal the concerned member has a right to file an application against
the company before the tribunal.
Q. A, B and C are the joint holders of shares in clear Ltd. The joint holders now ask the
company for altering or re-arranging the serial order of their names in the ROM of
the company. In reply, the company intends to ask the joint holders to execute a
transfer deed for transposition of names in the ROM. Advice the company. (5 marks)
Ans:
1. Transfer of shares means transfer of ownership in the company.
2. Changing the order of joint names of the members does not amount to transfer since, there
is no change in ownership.
3. In a given case, A, B and C are the joint holders of the company and have requested the
company to change the order of their names in the register of members, which is not
resulting in the change in ownership.
4. Therefore, no transfer deed is required for such transposition.
Q. One of the joint holders applied to company requesting for split of 300 equity shares
equally among the joint holder by issuing fresh share certificate to each of 3 holders
separately. Is company bound to comply with request. (5 marks)
Ans:
1. The given case pertains to transfer of shares of company.
2. The provisions of the Act states that joint shareholders are considered as one and no
shareholder singly in his individual capability can be called as owner of those shares. If the
shares are to be divided amongst joint owners, the same needs to be transferred.
3. By applying the above provisions to the given case, if joint holders wish to split their
holdings, they will have to transfer the shares & not split them. Since on each share the
holding or the ownership is joint & not that of any individual.
Example:
A, B and C – together holds 300 shares
A - 100
B - 100
C – 100
These are two different cases altogether.
Q. Mohan applied for 4000 shares in a company but no allotment was made to him.
Subsequently, 4000 shares were transferred to him without request & his name was
entered in the register of members. Mohan stood by & allowed his name to remain
in register of members. Subsequently, company went into liquidation & he was liable
as a contributory. Now Mohan wants to apply to the tribunal for rectification of
registers. Can he do so? (5 marks)
Ans:
1. The given case pertains to rectification of register of members and the rule of estoppel.
2. The provisions of Act state that the person who has acquired shares of the company
continues to be a member of the company till he establishes that he is not a member.
3. By applying the above provisions to the given case, Mohan received 4000 shares & the
burden that he was not a member of the company was on Mohan himself, which he did not
execute. In such a case, Mohan continues to be a member of the company. And hence, he
cannot apply to tribunal for rectification of registers.
Q. In case where the shares of the company are held in the joint names of two persons
Aprit and Rakshit and one of these joint holders request the company to split the
shares equally between them by issuing fresh share certificate. What should company
do? (5 marks)
Ans:
1. The given case pertains to Split Certificates.
2. The provisions of the Act state that if at all request for split certificate is to be made, it
should be made by all the shareholders jointly and also the split certificates shall also be in
the joint names. What splits are the, number of shares in the said certificate and not the
joint holders to the certificate.
3. By applying the above provisions to the given case, the company cannot split such certificate
as that would amount to transfer of shares and Companies Act provides different set of
rules for transfer. Hence, if Arpit and Rakshit wish to split the holdings, they will have to
make an application for transfer of shares.
Q. Anant buys 20 shares of a public company from Basant through a stock broker. Anant
receives the certificate and a blank transfer deed counter signed by Basant but does
not lodge the transfer deed for registration. Examine the legal effects of unregistered
transfer between the transferor & transferee. (8 marks)
Ans:
1. The given case pertains to the provisions of blank transfer of share.
2. The provisions of the Act provide that in order to sell the shares, the shareholder must
deliver it to the transferee original certificate and a duly signed & executed transfer deed.
Registration of such transfer deed is the responsibility of the transferee. If the same is not
sent to the company for registration, it amounts to blank transfer.
3. By applying the above provisions to the given case, Basant signed the transfer deed and along
with the share Certificate, it was handed over to Anant. The said transfer of shares is a
blank transfer. Till the time, the transfer is registered by Anant, Basant continues to enjoy
all the benefits upon those shares. This in order to transfer the share in Anant’s name, it
must be registered with the company.
Q. If a company has appointed a Company Secretary then its signature is mandatory on
the share certificate issued by the company. Analyse with reference to the provisions
of the Companies Act, 2013. (3 Marks)
Ans:
1. A share certificate is a certificate issued to the members of the company under its common
seal specifying the number of shares held by him and the amount paid per share. Such share
certificate is issued in Form SH-1 which shall bear the name of the member.
2. Share certificate must be signed by atleast two directors of the company or by a director
and a company secretary, if the company has one.
3. In case of one person company, every share certificate shall be issued under its seal shall be
signed by one director and authenticated by either a company secretary or by a person
authorized by the board.
4. Therefore, it is not mandatory that a CS must sign a share certificate, however, if the board
authorises the CS to sign the same, it shall then be signed by him.
Q. Arun buys 300 shares of a company from Barun on the faith of a share certificate
issued by company. Arun submits to the company a transfer deed duly executed,
along with Barun’s share certificate for transferring the shares in his name. The
company discovers that the certificate in the name of Barun has been fraudulently
obtained & refuses to register the transfer. Is Arun entitled to get the shares
transferred in his name. (5 marks)
Ans:
1. The given case pertains to the provisions of shares by a bonafide purchaser in case of
fraudulent transfer.
2. The provisions of the Act states that, a person who has acquired shares fraudulently cannot
be the real owner of those shares. Also, if his ownership is not real he cannot transfer the
shares to any bonafide purchaser.
3. By applying the above provisions to the given case, Barun acquired shares from a holder of
shares fraudulently and therefore the transfer is void because of which he cannot assume
ownership in the company. Since, he is not a real owner of those shares, he cannot further
transfer the shares to a bona-fide purchaser i.e. Arun. Therefore, Arun is not entitled to get
the shares in his name.
Q. The directors have uncontrolled and unfettered powers to refuse registration of

transfer of shares. Comment. (5 marks)
Ans:
1. In normal circumstances, the directors do not have powers to refuse the transfer of shares.
They are duty bound to register such transfer.
2. However, in a very famous case between Bajaj Auto Ltd. V/s. N K Firodia, it was decided by
the Supreme Court that if the articles of the company so provide and if it is in the interest
of shareholders at large, the directors have powers to refuse registration of transfer of
shares.
3. In order to refuse such transfer, the following factors should be considered :
a) Whether the directors have acted in the interest of the company.
b) When they acted on a wrong principle.
c) When they acted on oblique motive for a collateral purpose.
If all the 3 conditions provided above are satisfied, the directors have the power to refuse
registration of transfer of shares. However, the reason for such refusal should be
communicated to the concerned applicant in writing.
Q. If a company does not receive minimum subscription, it should refund money received
from applicants within such time as may be prescribed”. Explain the above statement
with suitable comments. (3 marks)
Ans:
1. No allotment shall be made, until minimum subscription has been received on share
applications. Minimum subscription shall be atleast 90% of the total issue size.
2. The application money shall be at least 5% of nominal value of the amount of security.
3. It must be received within a period of 30 days from the issue of prospectus or such other
date as may be prescribed by SEBI.
4. If money is not received within the stipulated period, it shall be returned within 15 days
from the closure of the issue or else it will attract payment of interest @ 15% p.a.
5.
Q. State the time limit within which certificate of securities as provided in Companies
Act, 2013 to be issued in case of :
(i) Any allotment of shares.
(ii) Any allotment of debentures. (3 marks)
Ans:
The time limit within which certificate of securities as provided in Companies Act, 2013 to be
issued in case of :
(i) any allotment of share: within two months from the date of allotment.
(ii) any allotment of debentures: within six months from the date of allotment.
Q. Premium Ltd. is considering buy-back of its shares without using any proceeds of shares
or other specified securities. The balance sheet of Premium Ltd. shows the following status
as on 31st March, 2018 :
Asset / Liabilities Amount
Share Capital :
1,00,000 Equity shares of Rs. 10 each (fully paid) Rs. 10,00,000
Free reserves Rs. 5,00,000
Unsecured debt Rs. 7,00,000
Secured debt Rs. 15,00,000
Determine the maximum quantum of buy-back of shares with the shareholders’ approval
as on 1st April, 2018. (5 marks)
Ans:
1. Buy back can be made within the approval of board of directors at a board meeting and /
or by a special resolution passed by shareholders in a general meeting depending upon the
quantum.
2. Board of directors can approve buy back upto the 10% of total paid up equity capital and
free reserve of the company.
3. Shareholders by a special resolution can approve buyback up to 25% of the total paid up
capital and free reserves of the company.
4. Since the Premium Ltd. seeks to buy back with shareholders approval.
Quantum of buy back = 25% (Total paid up share capital, free reserves & SPA)
= 25% (1000000 + 500000)
= Rs 3,75,000/-
5. As the company is considering buyback of shares without using any proceeds of shares or
other specified securities, it will use its free reserves only.
6. The quantum of buy back is within the limit of free reserves.
7. Thus, the maximum quantum of buy back of share with shareholders’ approval is upto Rs.
3,75,000
Q. Differentiate Alteration of Share Capital and Reduction of Share Capital. (3 marks)

Ans:
Sr.No. Alteration of Share capital Reduction of share capital
1. It is governed by sec. 61 of the It is governed by Sec. 66 of the Companies
Companies Act, 2013 Act, 2013
2. It is required to be done by ordinary It is required to be done by special
resolution resolution
3. It is not required to be confirmed It is required to be confirmed by the
by the tribunal tribunal
4. It may be done in the following It may be done in the following manner
manner
(a) Increasing its nominal capital by (a) Extinguishing or reducing the liability in
issuing new shares. respect of capital not paid up.
(b) Consolidating and dividing all or (b) Writing off or cancelling any paid up
any of shares into shares of large capital which is in excess of needs of the
denomination. company paying off the paid up share
(c) Converting shares into stock capital which is in excess of needs of the
and vice versa. company
(d) Subdividing its shares into
smaller amounts.
(e) Cancelling the shares which
have not been taken up and
diminishing the amount of share
capital.
Q. Differentiate between Deemed prospectus Vs. Shelf prospectus. (3 marks)
Ans:
Deemed Prospectus:
1. Public Offer includes an offer for sale (OFS) of securities to the public by an existing
shareholder, through issue of a prospectus. In such a case, the prospectus issued to public
is treated as a deemed prospectus.
2. The document Offer for sale is an invitation to the general public to purchase the shares of
a company through an intermediary, such as an issuing house or a merchant bank. A
company may allot shares or debentures to an Issue house and the issue house in turn
makes an Offer for sale to the public.
3. All rules and disclosures as applicable to a prospectus shall apply in the same way to an offer
for sale also.
Shelf Prospectus :
1. Shelf Prospectus means a prospectus, which when issued once, the company is not required
to issue any other offer document for one or more issues for a certain period.
2. A shelf prospectus may be filed with the registrar at the time of first offer of securities,
whose validity shall not be more than 1 year from the date of opening of the 1st offer of
securities.
3. In case of any issue during the said period, a company is just required to file an information
memorandum intimating the changes that have happened since the last issue.
4. Information memorandum shall be filed in form PAS-2 within one month prior to the issue
of a second or subsequent offer of securities.
5. Such prospectus is applicable to banking companies and financial institutions.
Q. Kamdhenu Sugars Ltd. decided to issue sweat equity shares to its employees for which
it has passed the required special resolution and completed other formalities on it.
Decide the validity of the following in respect the issue of sweat equity shares:
(a) Decided to issue the shares to an employee on a discount who is recruited as a
temporary employee and joined in the company seven months ago.
(b) Decided to allot shares at discount to a part-time director of the company. (4
marks)
Ans:
1. As per section 54 of Companies Act, 2013 employee under issue of sweat equity shares
means :
(i)A permanent employee of the company who has been working in India or outside India.
(ii) A director of company, whether a whole time director or not.
(iii)An employee or a director of a subsidiary in India or outside India or of a holding
company of the company.
2. Referring to the provisions:-
(a) Issue of shares to an employee on a discount who is recruited as a temporary
employee and joined in the company seven months ago is not allowed.
(b) Allotment of shares at discount to a part time director of a company is allowed.
Q. Certain members of a company are allowed to offer for sale their shareholding in the
company to the public, such offer document is deemed to be prospectus issued by the
company. Comment. (5marks)
Ans:
1. Offer for sale means the existing shareholders of the company sell their equity shares to the
general public along with further public offer of the company.
2. There is no need to issue any separate offer document. Prospectus by itself is considered
as offer document for other for sale too.
3. All the conditions mentioned in the prospectus will be applicable to the offeror under offer
for sale i.e. existing shareholder and there they are bound by it.
4. In case the person making an offer is a company or a firm,
- the offer document is signed by two directors, in case of the company and
- not less than one half of the partners, in case of the firm or
- if the offeror is an individual, the offer document is to be signed by himself.
5. The offeror will authorise the company to take all the action in case of offer for sale and
they shall reimburse all the expenses incurred by the company.
Q. Green Commercial Ltd., an unlisted company, has made a preferential offer of shares
for consideration other than cash. A question has been raised by the accounts
department as to the valuation of consideration at allotment and the manner of
treatment of non-cash consideration in books of account. As a practicing Company
Secretary advise the company with reference to the provisions of the Companies Act,
2013. (3 marks)
Ans:
1. The given question is based on the provision of ‘Issue of shares for consideration other than
cash.’
2. The valuation for allotment of such shares is done by registered valuer who shall submit a
valuation report for clarification.
3. The treatment of such allotment in the books of account will be as follow.
(i) If non cash consideration is in the form of depreciable or amortizable asset, it shall be
carried to the balance sheet of the company as per relevant accounting standards.
(ii) If is in any other form, it shall be expensed as provided in the accounting standard.
4. By applying above provision to given case, Green Commercial Ltd. too made a preferential
offer of shares for consideration other than cash, the treatment need to be made in the
way mentioned above, depending upon the form of consideration.
Q. You are a company secretary in a company. The Board of Directors want to know the
details that should be entered in the Register of Renewed and Duplicate share certificates
and the period for which such register should be maintained. Clarify the Board in this
regard. (4 marks)
Ans:
1. According to the Companies Act, 2013 every company with a share capital should maintain
a register of renewed and duplicate share certificate from the date of registration.
2. Such register shall be maintained in from No. SH-2
3. It shall indicate the name of the person to whom shares are issued, the date of issue of share
certificate in lieu of which the new certificate is issued.
4. Before issuing duplicate share certificate prior consent of board of directors is required
5. Necessary changes related to share certificate shall be made in register of member
6. Such register shall be kept at the registered office of the company or at such other place
where registered of members is kept.
7. The Company charge a fee not exceeding Rs. 50 for issuing such share certificate.
8. The register shall be preserved permanently shall be kept in the custody of company
secretory
9. It shall bear the mark duplicate share certificate in lieu of original certificate
If a company with intent to defraud issues a duplicate certificate of share, the company shall
be punishable with fine which shall not be less than five times the face value of share which
may extent to ten times the face value or rupees ten crore; whichever is higher.
Q. Amount lying in the securities premium account belongs to the shareholders and can
be used freely for their benefit. Comment. (5 marks)
Ans:
1. The amount of money raised over and above its face value is classified as premium on issue
of shares and the said amount is transferred to securities premium account.
2. Further as per the provisions of section 52 of the Companies Act, 2013, The Securities
Premium amount can be used only for the following purpose:
(ii) Writing off the balance of preliminary expenses.
(iii)Writing off commission paid, or discount allowed on issue of shares or debentures.
(iv) For providing premium payable on redemption of redeemable preference shares or
debentures.
3. Hence, amount lying in the securities premium account can be utilised only for the aforesaid
purpose.
Q. Santosh, CEO of the company, has advised the Board of directors of an unlisted
company that in order to market the public issue and generate interest and awareness
amongst the public a prospectus can be issued without giving details of number of
shares and the issue price. Examine the correctness of the advice in light of the
provisions of the Companies Act, 2013. (3 marks)
Ans:
1. Prospectus means an offer document issued to public inviting applications for subscriptions
of securities of company.
2. Red Herring Prospectus (RHP) is also a kind of prospectus which is issued by the company
in case of book building method.
3. In such cases, instead of offering prospectus, a company offers RHP to the investors. RHP
includes all the particulars except the price and the number of securities offered.
4. As per section 32 of the Companies Act, 2013 a company proposing to make an offer of
securities can issue a red herring prospectus prior to the issue of a prospectus.
5. However, after the closing of the offer of securities, the prospectus stating therein the total
capital raised 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 of India.
6. Hence, the advice given by Santosh, CEO of the Company is correct.
Q. Monika Ltd. wants to purchase its own 5,00,000 equity shares @ Rs 10/- each out of
the following:
Rs lakh
(a) Unsecured Loans 25
(b) Balance of Free Reserves 15
(c) Securities Premium Account 10
Examine the legality of the above transactions for the buy-back of securities of the
company under the provisions of the Companies Act, 2013. (3 marks)
Ans:
1. The given case pertains to the provisions relating to the Buy back of the shares.
2. The provisions of the act states that company may purchase its own shares or other specified
securities out of its free reserves; or the securities premium account; or the proceeds of the
issue of any shares or other specified securities.
3. By applying above provisions to the given case, Monika Ltd. can purchase its own shares out
of free reserves and from the securities premium account in accordance with the provisions
of the Companies Act, 2013 and not from the unsecured loan.
Q. The Board of directors of Nav Avtar Ltd. passed a resolution for issue of rights shares.
However, certain shareholders of the company raised an objection as to whether the
company needed additional capital. Discuss the validity of the counter-move taken
by the shareholders and resolution passed by the Board. (4 marks)
Ans:
1. In terms of section 62 of Companies Act, 2013, rights issue is a prerogative of BOD of the
company.
2. As such shareholders do not have powers to interfere in a decision of the Rights Issue.
3. Shareholders if do not wish to participate in the rights issue they may choose to either
reject the offer of renounce it in favour of any third party.
4. If the issue was not rights issue and it was done to general public, then shareholders had a
say in the said resolution.
5. Therefore, shareholders of Nav Avtar Ltd cannot intervene in the decision taken by BODs.
Q. A deceitful prospectus was issued by the directors on behalf of the company. Pavan
received a copy of it, but did not take any shares in the company. The allotment of
shares to applicants was completed. Several months later, Pavan bought 2,000 shares
of that company from the stock market. He proceeded with a suit against the
directors for issuing deceitful prospectus. Will he succeed? (4 marks)
Ans:
1. The given case pertains to the provisions relating to Golden Rule for misstatement in a
prospectus.
2. The provisions of the act state that for any applicant who has been allotted shares in a
company and who has suffered loss, he must establish the following in order to claim the
compensation:
a) There must be a misrepresentation;
b) Misrepresentation must be material;
c) Investors applied based upon the information;
d) Investors suffered losses.
3. By applying the above provisions to the given case, Pawan received a copy of the
prospectus for which he did not apply for the shares of the company. He later bought
the shares of the Company from the open market. He will not succeed in claiming
compensation since, he did not buy the shares during the Public Issue based upon the
prospectus on receipt of 85%.
Q. A company has issued a prospectus to the public stating that the company has paid
dividend regularly and the prospectus is silent relating to the sources of profits, i.e.,
whether trading profits or capital profits. The fact is that the company has incurred
losses for all the last 5 years, but the dividend is paid out of realised capital profits
(i.e., secret reserves), Y, a shareholder, claimed that the prospectus is false. Whether
Y’S contention is correct? Discuss. (4 marks)
Ans:
1. The given case pertains to the provision relating to the Golden rule in relation to
misstatement in a prospectus.
2. The provisions of the act states that if the prospectus of a company contains some misleading
information or there is concealment of material facts, the same amounts to breach of golden
rule. Therefore, the shareholders have the right to claim compensation, if at all they suffer
losses.
3. By applying the above provisions to the given case, the company in its prospectus stated
that the company has paid dividend regularly but it did not disclose the source of profits.
Also, the company was into losses since last 5 years which was also not disclosed. Hence
the contention of shareholder, that the prospectus is false, is correct.
Q. P Realtors Ltd, A Construction Ltd. and five other individuals have incorporated XYZ
Builders Ltd. to construct a commercial complex. P Realtors Ltd and A Construction
Ltd. have executed an agreement according to which none of these companies can
sell their shares in the new company before completion of construction of the
commercial complex. Due to financial crunch, P Realtors decides to sell its shares in
XYZ Builders Ltd. to PQR Builders Ltd. Can A Construction Ltd. restrain the transfer
of shares before completion of construction of the commercial complex? (3 marks)
Ans:
1. The given case pertains to the provisions relating to restraint on transfer of shares.
2. The provision of the Act states that restriction on transfer of shares, whether it is valid or
not depends upon fulfillment of certain conditions as provided under Bajaj Auto case. The
three conditions are as follows :
a) Whether the directors have acted in interest of company;
b) Whether they acted on a wrong principle; and
c) Whether they acted with an oblique motive for a collateral purpose.
3. By applying the above provisions to the given case, P Realtors Ltd executed an agreement
with A Construction Ltd that it will not sell shares of XYZ Builders Ltd till the construction
of complex is complete. A Construction Ltd can restrain this transfer of share before
completion of construction of commercial complex, if the three conditions mentioned
above are fulfilled.
Q. A2Z Management Services Limited is a listed company quoted at Bombay Stock
Exchange Limited. The company closed its register of debenture holders in June and
August 2016 for 12 and 21 days respectively. The Chief Financial Officer (CFO) of the
company has informed the Secretary of the company to consider closing the register
in December for another 15 days for some strategic reasons. Referring to the
provisions of the Companies Act, 2013, examine the validity of the above action of
the company. (4 marks)
Ans:
1. The given case pertains to the provisions relating to closure of register of debenture holders
in a company.
2. The provisions of the Act states that a company can close its transfer books for 15 days in
a year and 30 days for an event.
3. By applying the above provisions to the given case, A2Z Management Services Ltd closed
its books already for 33 days and it now considers closing it for another 15 days. The
company cannot do so because the books can be closed for a maximum period of 45 days
in a year.
Q. Sumeet, Puneet and Manmeet were subscribers to the Memorandum of Association

of a private company for 500 shares, 300 shares and 200 shares respectively. After
incorporation, Sumeet and Puneet bought the shares, they had subscribed for, from
the company whereas Manmeet bought 200 shares from Sumeet. Will Manmeet be
liable to the company for the shares, he has not bought from the company? (3 marks)
Ans:
1. The given case pertains to the provisions relating to subscription & issuance of shares during
incorporation.
2. The provisions of the act states that the subscribers have to buy the shares compulsorily
subscribed by them after incorporation and there is no exception to it.
3. By applying the above provisions to the given case, Sumeet, Puneet and Manmeet,
subscribers of private limited company subscribed to 500, 300 & 200 shares of the company
respectively. Later on, Sumeet & Puneet bought their shares respectively while Manmeet
did not buy it from the company instead he bought it from Sumeet. He continuous to
remain liable for the shares subscribed by him.
Q. Company Secretary of Pumpkin Ltd. has made following entries into Register of
members, debenture holders and other security holders on happening of certain events
Event Date of event Date on which entry
was made
Allotment of debentures 11th November, 2021 20th November, 2021
Forfeiture of shares 15th November, 2021 20th November, 2021
Issue of duplicate share 10th November, 2021 24th November, 2021
certificates
Decide on the validity of the entries made by the Company Secretary in light of the
provisions of the Companies Act, 2013. (3 marks) [June 2022]
Ans:
1. As per the Companies Act, 2013 entries to be made in register of members, debenture
holders and other security holders with respect to the related transactions of given
securities.
2. Validity of entries is as follows :
a) Allotment of debenture – The given entry made in the register of the debenture holder
is valid.
b) Forfeiture of shares – The given entry made in the register of members is not valid as
register of members contains details of each member of the company
c) Issue of duplicate share certificate – Such entries are not to be made in register of
members, debentures as other security holders, rather to be made in register of duplicate
share certificate. Thus this entry is invalid.
Q. The Board of directors intend to understand the benefits of the buyback of shares. You
have been requested by the Board of directors to list out a few benefits of buyback of
shares. (5 marks) [June 2022]
Ans:
1. Buy back means purchasing of own shares by company in order to destroy the same. Buy
back can be done from open market or from shareholders in proportion or from employees
who are granted shares under ESOP.
2. Buy-Back of shares can be advantageous in following ways :
a) Provide exit option to share-holders during sluggish market.
b) Supports share price during sluggish market.
c) Helps to prevent unwelcome takeover bids.
d) Improves Earning per share
e) Reduces the dilution of control.
f) Effective way of reducing capital without requiring permission from statutory authorities.
Q. Sita Ltd intends to issue equity shares to its employees for a non-cash consideration.
Managing Director believes that the sweat equity shares can only be issued for
consideration received in cash. Do you agree? (3 marks) [June 2022]
Ans:
1. Sweat equity shares are offered to the directors, manager, etc. as a non-cash benefit for
providing the company know-how or for providing the company with any intellectual
property.
2. Sweat equity shares are issued at a discounted price as a non-cash benefit & the price to be
paid is decided by a registered valuer.
3. Thus, it can be concluded that sweat equity shares can only be issued for consideration in
cash.
CHAPTER 3 – MEMBERSHIP IN A COMPANY
Q. ABC & Company, a partnership firm applied for shares of XYZ Ltd. The company
allotted the shares as requested by the partnership firm. In this context, what is the
liability of partnership firm or partners. (5 marks)
Ans:
1. The given case pertains to the allotment of shares and membership to different entities
under the Companies Act, 2013.
2. The provisions of the Act state that a partnership firm is not entitled to hold shares of a
company except in case of section 8 company since it is not a body corporate.
3. By applying the above provisions to the given case, ABC & Company cannot be allotted
shares in XYZ Ltd and the shares already allotted by the company shall constitute an invalid
allotment for the partnership firm and it shall be the liability of partners of ABC & Co to
pay for the allotment money and to hold securities in their personal names.
Q. All the shareholders of the company are its members and all the members are
shareholders. Comment. (5 marks)
Ans:
1. The one who holds shares of the company is known as shareholder of the company while
someone whose name is entered in the Register of Members is known as member of the
company.
2. Technically speaking, there is no difference between the word member and shareholder.
However, the differences arise in the following cases :
(i)In case of deceased member, the legal heirs become the shareholders of the company.
However, till the time company gets to know of the death of the member, the deceased
member continues to be a member.
(ii) In case of share warrant issue, a person who has converted his holding it to
warrants continues to be a shareholder of the company but not a member since his
name is struck from the Register of Members.
Apart from the above cases, there is no difference between the word member and a
shareholder.
Q. The name of Piyush is found entered in the Register of Members of a Company but,
Piyush contends that he is not a member of the company. The company maintains
that Piyush had orally agreed to become a member of the company and hence, his
name was entered in the ROM. Is the contention of Piyush valid? (5 marks)
Ans:
1. The given case pertains to the provisions related to membership in a company.
2. The provisions of the Act states that in order to be a member the applicant must make an
application in writing based upon which the company shall allot shares to such applicant
consequent upon which the applicant becomes a member.
3. By applying the above provisions to the given case, name of Piyush is entered in the ROM.
However, no application was made in writing by him. Since, there is no written agreement
between the two, Piyush cannot become a member of the company. Hence, his contention
is valid.
Q. A body corporate cannot be a member of a company which is its holding company

and any allotment or transfer of shares in a company to its subsidiary shall be void.
Explain. (5 marks)
Ans:
Prima facie, a subsidiary company is not permitted to hold shares of its holding company.
However, such cross holding is allowed in following exceptional cases.
1. Where the subsidiary company holds shares on behalf of some deceased member of the
holding company.
2. Where the subsidiary company holds shares as a trustee on behalf of the holding company.
3. Where the subsidiary company was a shareholder of the holding company before it
became such subsidiary.
In all the above cases, a subsidiary is allowed to hold shares of the holding company.
However, they are not allowed to exercise their voting rights.
Q. Fortune Ltd. refused to enter the name of the minor son of a deceased member in the
ROM on the grounds that minor cannot enter into a contract. The shares are fully
paid up. Comment on the decision of the company and remedies available. (5 marks)
Ans:
1. The given case pertains to membership rights of a member.
2. The provisions of the Act states that, a minor on his own cannot become a member of the
company since he is not competent to enter into a contract. However, he can only acquire
shares in his own name it they are done through a guardian.
3. By applying the above provisions to the given case, the legal heir of a deceased member,
who is a minor is eligible to be a member of the company only through a guardian. Also it
is provided that, the shares are fully paid up.
Q. John, who is a member of ‘A’ Ltd. is of unsound mind. Can a person of unsound mind
exercise voting rights. (5 marks)
Ans:
1. The given case pertains to membership rights.
2. The provisions of the Act states that a person of unsound mind is not competent to enter
into a contract and hence, he cannot exercise his membership rights with certain exceptions.
3. By applying the above provisions to the given case, a person of unsound mind cannot vote
on his own, however, his name is mentioned in the ROM of the company which entails him
with the voting rights. Because, of his incapacity to vote, the court in such cases appoints
legal guardian to exercise his voting rights. Such person can vote on behalf of a member.
Q. ‘R’ is a member of the company who has become insolvent. Can the insolvent
member vote. Also comment upon his continuity as a member. (5 marks)
Ans:
1. An insolvent person who has acquired membership of the company before he became
insolvent continues to be a member of the company even after his insolvency.
2. Accordingly, an insolvent member is also entitled to vote, since his name is entered in the
ROM.
3. However, if any beneficial interest is provided by the company on such shares, all such
benefits shall be passed on to the official receiver.
Q. Four types of persons viz., a Sec. 8 company, an insolvent individual, a trade union &
a pawnee applied for membership in your public limited company. Will you accept
them as member of your company ? why ? (5 marks)
Ans:
1. Section 8 Company is a company with a non profit objective. Since it is a separate legal
entity and it has the powers to acquire the properties in its own name, it can become a
member provided the same is authorized by its MOA.
2. A person who already holds shares in a company and subsequently becomes insolvent shall
continue to hold such shares till the time his shares are given to the receiver. However,
after becoming insolvent he can’t acquire further shares till the time his legal rights are
suspended.
3. As soon as Trade Unions are registered they become separate legal entity and that’s how
they have the powers to acquire shares or properties in its own name and can therefore
acquire membership.
4. The relation between pawner and pawnee is created in case where shares are kept by way
of security against the said loan. Pawnee becomes a shareholder in case where default is
made by the Pawner in repayment of loan. Thus, pawnee can become a member of a
company in case of default by the pawnor.
Q. A holder of a Global Depository Receipt is a member of the company. (4 marks)

Ans:
1. A holder of Global Depository Receipt is neither the subscriber to the memorandum
nor a holder of the shares. Hence its name cannot be entered in the Register of Members.
2. Thus, a holder of Global Depository Receipt is not a member of company. He may
become a member only on conversion of GDRs into undertaking equity shares.
3. However, the company issues and allots equity shares to an Overseas Depository, who
converts these equity shares into DRs and offers it to foreign investors.
4. Therefore, it is not a GDR holder but a Depository who is a member of the company.
Though the voting right is to be exercised by a Depository based upon the instructions
of the GDR holder.
Q. Thrive Ltd. is a public limited company, incorporated under the Companies Act, 2013.
The Board of Directors of the said company has recently decided to insert an article
in its articles of association relating to expulsion of a member by the BOD of company
where the directors were of the view that the activities or conduct of such a member
was detrimental to interests of Company. Is the Board’s decision valid in eye of law?
(5 marks)
Ans:
1. The given case pertains to the provision of expulsion of a member.
2. The provisions of the Act states that in no circumstances the member can be expelled even
if the powers are given under AOA. If such clause exists in AOA, the related clause of the
articles shall stand void.
3. By applying the above provisions to the above case, even if a member continuance is
detrimental to the interests of the company, he cannot be expelled from the Company The
related clause in the AOA of Thrive Ltd. for expulsion of member shall stand void. If the
shares are fully paid up he cannot be expelled in any circumstances.
Q. State the circumstances by which a person ceases to a member of the company. (5
marks)
Ans:
A person ceases to be a member of the company in the following cases:
1. He transfers his shares to another person, such transfer are registered on his name is
subsequently removed from the ROM.
2. His shares are forfeited by the company due to non-payment of any particulars amount on
any call by the member.
3. In case of death, legal heirs occupy his place.
4. His redeemable preference shares are redeemed.
5. His shares are purchased by the company itself under an order of the tribunal or when buy-
back takes place.
6. When he is declared insolvent & official assignee takes up his shares.
7. The company is wound up.
Q. Mr. X who is a citizen of Pakistan, is a shareholder of an Indian company. The
company held its last AGM on 15 September, 2018. There was a war between India
and Pakistan between 10th August, 2018 and 28th September, 2018. Mr. X did not
receive the AGM Notice and consequently could not do e-voting. He complained to
the Chairman of the Company about non-receipt of AGM Notice resulting in non-
exercise of e-voting. Comment on the eligibility and voting by Mr. X under the relevant
provisions of the Companies Act, 2013. (4 marks)
Ans:
1. The given case pertains to rights of a member of a company.
2. As per the provisions of Companies Act, 2013, a foreigner may take shares in an Indian
company and become a member in compliance with FEMA, 1999 but in the event of war
with his country of residence he becomes an alien enemy and his power of voting and his
right to receive the notice is suspended.
3. Thus Mr. X is not eligible for voting also his right to receive is suspended and his contention
isn’t valid.
Q. Vayu Ltd. holds more than 50% of nominal value of the equity capital of Stream Ltd.
In these circumstances, Stream Ltd., wants to become a member of Vayu Ltd. Can
Stream Ltd. do so ? Discuss the rights of the said subsidiary in such a case. (5 marks)
Ans:
It may be noted that Section 42 provides that a subsidiary company cannot become a
member of its holding company. However, there are certain exceptions to this rule
enumerated below:-
1. Where a subsidiary company acts as the legal representative of a deceased member of the
holding company;
2. Where the subsidiary company acts as a trustee for some shareholder of the holding
company; and
3. Where it was its member before becoming subsidiary.
But in these cases, the subsidiary company cannot exercise any right of vote at any meeting
of the holding company.
Thus, in the above circumstances, Stream Limited can become a member of Vayu Limited.
Q. The Articles of Association of a company cannot impose a blanket ban prohibiting
transfer of shares in favour of a minor. Such a restriction is unreasonable and not
sustainable. (4 marks)
Ans:
1. Transfer of shares is an inherent right of every person who is eligible to become a
shareholder.
2. A minor though cannot enter into a contract in his own name but is legally capable of
acquiring shares through a guardian.
3. Articles of association can put some reasonable conditions for transfer of shares in favour
of minor.
4. However, it cannot put an absolute ban or transfer of shares to minor. Since that is
unreasonable and avoid eventually. A minor can become a member of the company,
provided the instrument of transfer is executed on his behalf by a guardian, competent to
enter into a contract.
Q. A member of an incorporated company becomes insolvent. He claimed right to vote
and receive dividend from the company. Referring to the provisions of the Companies
Act, 2013, discuss whether his claim is valid. (3 Marks)
Ans:
1. An insolvent may be member of company as long as he is on the register of members.
2. He is entitled to vote, but he losses all beneficial interest in the shares and company will
pay dividend on his shares to the official assignee or the receiver.
3. However, till the time shares are transmitted in favor of the Receiver, an insolvent
continues to be a member of the company and is also entitled to receive all the benefits in
his name.
Q. A trade union of auto drivers applied for shares in the fresh issue of a company. The
company rejected the application; however, the Company was ready to allot shares in
the Joint names of the members of the trade union. But the trade union members
wanted the shares to be allotted only in the name of the trade union. Whether the
rejection by the company to allot shares in the name of the trade union is justifiable?
(4 marks)
Ans:
1. The given case pertains to the provisions relating to allotment of shares in favor of a trade
union.
2. As per the provisions of Companies Act, 2013, a trade union registered under Trade Union
Act can be registered as a member and can hold shares in the company in its own corporate
name since it is a separate legal entity.
3. In the given case, a trade union of auto applied for shares in the fresh issue. The company
rejected the application but was ready to allot shares in joint names of members. Referring
to the above provision such rejection by company to allot shares in name of trade union is
not justifiable.
Q. Who is a ‘Significant Beneficial owner’ under the Companies Act, 2013? Is Significant
Beneficial Owner required to file BEN-1 to the reporting company? (3 marks)
Ans:
1. Every individual, who acting alone or together, including a trust and person residing outside
India, holds beneficial interest, of not less than twenty five percent 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 over the company is called as significant Beneficial owner.
2. Such significant beneficial owner shall make a declaration to the company, specifying the
nature of his interest and other particulars within prescribed time.
3. Such declaration is to be given in Form No. BEN-1 within 90 days from the date of being
the significant beneficial owner.
Q. Ram Singh is a shareholder of Alexandra India Ltd. The Board of directors of the
company are of the view that the conduct of Ram Singh has been detrimental to the
interest of the company. Further, the Board also noted that Ram Singh is director in a
company which is a competitor company of Alexandra India Ltd. The Articles of
Association of Alexandra India Ltd. permit expulsion of members. The Board
unanimously decided to expel Ram Singh from the company. Discuss the relevant
provisions of Companies Act, 2013 in this regard. If Ram Singh files a case against the
Board whether he will win the case ? (5 marks)
Ans:
1. The given question is based on the provision of expulsion of member of the company.
2. According to the Companies Act, 2013, expulsion of member is illegal and void. If there is
any provision of expulsion is included in the Articles of the company then it will be an ultra
vires act and Articles cannot override the act.
3. Even though there is provision of expulsion of members in Articles of the company,
company cannot do so as it is illegal according to the companies Act, 2013.
4. By applying above provision to give case, Ram Singh is a shareholder of Alexandra India Ltd.
According to the Board, the Act of Ram Sing are detrimental to company and thus they
decided to expel him. The action of Board is illegal and if Ram Singh files a case against the
Board then he will win the case.
Q. Examine with reference to the provisions of the Companies Act., 2013 whether any of
the following persons can become member of the company engaged in the business of
producing steel products?
(1) Pawnee
(2) Partnership firm
(3) Unregistered trade union (3 marks) [June 2022]
Ans:
1. As per the provisions of Companies Act, 2013 person or artificial person may become a
member of the company.
2. In the given case :
a) Pawnee - Pawnee cannot become the member of the company as he only has the custody
of the shares whereas the ownership still vests in the pawner.
b) Partnership Firm – Cannot become a member as it is not a separate legal entity distinct
from partners.
c) Unregistered Trade Union - A trade union in order to become a member needs to be
registered, so an unregistered trade union cannot become member of the Company.
CHAPTER 4 – DEBT CAPITAL

Q. Debenture holders are widely protected under the Companies Act in case of defaults
in making their payment by the company. Discuss. (8 marks)
Ans:
1. The remedies to debenture holders vary according to whether it is secured or unsecured.
2. If debentures are unsecured and the principal or any interest due in respect of a debenture
is in arrears, the debenture holder may:
(i) Sue the company according to the terms of issue as an unsecured creditor; and/or
(ii) Present a petition for winding up of the company and prove his debt in the winding up
as an unsecured creditor for the amount due.
3. If debentures are secured on the assets of the company and the principal or any interest
due in respect of a debenture is in arrears, the debenture holder may:
(i) Sue, on behalf of himself and all other debenture holders, to obtain payment or to
enforce his security by sale. The Court will appoint a receiver and order the sale of a
property;
(ii) Present a petition for the winding up of the company, this is so even if the debentures
are bearer debentures;
(iii) Sell the assets charged as security, if an express power to do so is contained in the issue
of debentures;
(iv) Appoint a Receiver; if the conditions of the issue of debentures give him power to do
so. The Receiver will sell the property charged and the sale proceeds will be utilized
for the payment of the debentures;
(v) Apply to the Court for a foreclosure order. The effect of the order is to terminate the
company’s interest in these assets charged, the debenture holders becoming the owners
of them;
(vi) Have the property sold by the trustee, if the debenture trust deed permits such sale.
Q. Sun-beam Ltd. failed to pay interest on repayment of deposits. One deposit for
approached the consumer forum with the request to issue order against the company
for payment of interest on deposits. The company contended that the forum was
not a proper authority to issue such directions. Advise the company suitably. (5
marks)
Ans:
1. The given case pertains to the provisions of acceptance and repayment of deposits as stated
u./s 73(4) of Companies Act, 2013.
2. The provisions of the Act states that when a company fails to repay the deposit or part
thereof or any interest thereon, the depositor concerned may apply to tribunal for an order
directing the company to pay the sum due or for any loss or damage incurred by him.
3. By applying the above provisions to the given case, the depositor approached the consumer
forum to issue an order against sun-beam Ltd. for non-payment of interest on deposits,
which is considered to be not the proper authority to issue directions to the company for
the same.
Thus, if any complaint is to be made regarding non-compliance of any terms and conditions
of the agreement made at the time of accepting deposits, it should be made to the tribunal.
Q. A single fixed deposit holder, after marriage, applied for adding the name of his wife
as joint-holder. The company refused to do so. What are the remedies available to
deposit holder? (2 marks)
Ans:
Deposits receipts once issued cannot be subsequently altered or transferred in this case,
the deposit holder requested the company to add the name of his wife as a joint-holder
which is not permissible. Hence no remedies are available to such deposit holder.
Q. Shine Well Ltd. has accepted deposits from the public under Companies (Acceptance
of Deposits) Rule, 2014. The company has now decided to repay some of its deposits
before maturity. Can the company do so? If yes, what are the condition attached
thereto? (4 marks)
Ans:
1. Deposits include any receipt of money by way of deposits or loan or in other form by a
company but does not include such categories of amount as may be prescribed by Central
Government in consultation with the Reserve Bank of India.
2. A company shall compulsorily accept deposits for atleast 6 months and not less than 3
months in any circumstances.
3. If the company decides to repay such deposits after period of 6 months but before the
maturity then interest payable on deposit shall be reduced by one percent of what is actually
to be paid.
Q. Prism Ltd. has accepted Rs. 10 lac as advance towards the supply of goods to certain
parties. As per the agreement, the company will supply the goods after 2 years from
the date of deposit. Later on, internal auditors qualified their report on the ground
that the company has violated the provisions of the Companies Act, 2013. Directors
explained that this is required to complete the order. Examining the relevant
provisions of the Companies Act, 2013. State whether the explanation given by the
directors is justified. (5 marks)
Ans:
1. The given case pertains to provisions relating to Acceptance of deposits.
2. The provisions of the Act states that any sum of money kept beyond a period of 1 year shall
compulsorily be treated as deposits.
3. By applying above provisions to the given case, Prism Ltd. stated that it would require such
advance for execution of the order. The internal auditor raised a query that such advance
shall amount to deposits. If it is kept beyond a period of one year. View of auditor is
correct and hence explanation offered by the directors is not justified.
Q. A to Z Management Service Limited is a listed company quoted at Bombay Stock
Exchange Limited. The Company closed its registered of debenture holders in June
& August 2016 for 12 and 21 days respectively. The CEO of the company has
informed the secretary of the company to consider closing the register in December
for another 15 days for some strategic reasons. Referring to the provisions of
Companies Act, 2013, examine the validity of the above action of the company. (4
marks)
Ans:
1. The given case pertains to provisions relating to Closure of Register of Debenture holders.
2. Provisions of the Act states that a company can close its transfer books for a maximum
period of 45 days in a year & upto 30 days for any particular event.
3. By applying above provisions to given case, the company already closed its book for 12 &
21 days in months of June & August respectively. The company now proposes to close its
book for an additional period of 15 days which will exceed the prescribed no. of days
allowed. Therefore, it can close its books to maximum period of 12 days.
Q. A public company may issue secured irredeemable debentures. (4 marks)
Ans:
1. A debenture, which does not compel the company to pay the money back, is known as a
perpetual or irredeemable debenture.
2. A company can choose when to repay the debt.
3. The debenture holder cannot demand payment as long as the company is a going concern
and does not make default in making payment of interest. However, maximum term of
debentures in any case cannot exceed 10 years, even if no term of debentures is specified.
It is only in case of infrastructure companies, it can be issued for a period of 30 years.
4. Thus, a public company may issue secured irredeemable debentures.
Q. You have been appointed as a Debenture Trustee in respect of debentures issued by a

company. How would you protect the interests of its debenture holders? (4 marks
each)
Ans:
In order to protect the interests of its debenture holders, it must be ensured that:
1. there is no misleading information in any of the offer document of the company.
2. that the trust deed is not prejudicial to the interests of debenture holders.
3. Call for periodical status report of the company.
4. Communicate to the debenture holder promptly any default in payment of interest or
redemption of debentures.
5. Appoint nominee director on the board.
6. He must ensure that the terms of the Trust Deed, are not breached.
7. Ensure that the value of asset are sufficient to discharge the debts.
8. Call for meeting of debenture holder as and when required.
Q. A company cannot raise deposits for an unlimited amount. Comment. (4 marks)

Ans:
1. A Company can raise deposits within the following limits:
(i) Deposit from Members: 10% of paid up share capital + free reserves + SPA
(ii) Any other form of deposit – 25% of paid up share capital + free reserves + SPA.
(iii) Deposits by government companies – 35% of paid up share capital + free reserves
+ SPA.
2. Thus, a company cannot raise deposits for an unlimited amount.
Q. A private company and a banking company can freely accept deposits. (4 marks)
Ans:
1. The provisions of Companies Act, 2013 relating to raising money by way of deposits is not
applicable to banking companies since their main business activity is to deal with money
and are therefore governed by RBI Regulations.
2. Also, a private company may accept deposits from its members but not exceeding one
hundred percent of aggregate of the paid up share capital, free reserve and securities
premium account.
3. Thus, private company and a banking company can freely accept deposit subject to certain
limits.
Q. With reference to the provisions of the Companies Act, 2013 and the rules framed
there under, state the disqualifications for a Debenture Trustee. Explain whether the
following persons can be appointed as Debenture Trustee?
(i) A relative of whole-time director of the company.
(ii) A shareholder who has no beneficial interest. (5 marks)
Ans:
1. Following are the disqualification of debenture trustee.
(i) Belonging to promoter / promoter group / KMP
(ii) Having pecuniary relationship with the company
(iii) Indebted towards the company
(iv) Given guarantee on behalf of the company.
(v) Hold shares of the company.
(vi) Relative of promoter / promoter group / director / KMP
2. Thus, a relative of whole time director of company cannot be appointed as debenture
trustee.
3. Also, shareholder who has no beneficial interest cannot be appointed as debenture trustee.
Q. Explain the provisions contained in the Companies Act, 2013 and the Companies
(Acceptance of Deposits) Rules, 2014, which are primarily aimed at protecting the
interests of the depositors.
Ans:
1. Deposit include any receipt of money by way of deposits or loan or in other form by a
company but does not include such categories of amount as may be prescribed by central
government in consultation with the Reserve bank of India.
2. As per companies (Acceptance of Deposit) Rule 2014;
(i) For raising money by way of deposit issue circular showing financial position, credit rating
obtained, quantum of deposit etc.
(ii) File copy of circular atleast 30 days before issuing such circular to member with the
ROC.
(iii) Creation of Deposit Redemption Reserve Account and transferring 20% of the total
amount due to be repaid at the end of financial year.
Q. What are disqualifications for debenture trustees? (3 marks)

Ans:
1. Debenture Trustee is a person who is appointed to look after the work of company and to
protect the interest of debenture holders.
2. Disqualifications of debenture trustee are as follow.
(i) No person shall be appointed as a debenture trustee if he beneficially holds shares in the
company.
(ii) He cannot be appointed as debenture trustee if he is a promoter, director or key
managerial personnel or any other officer or employee of the company or any of its
holding, subsidiary or associate company.
(iii) He is entitled to money which are to be paid by the company otherwise than as
remuneration payable to him.
(iv) He is indebted to the company, or its subsidiary or its holding or associate company or
a subsidiary of such holding company.
(v) He has furnished any guarantee in respect of the principal debts secured by the
debentures or interest thereon.
(vi) He is relative of any promoter or any person, who is in the employment of the company
as a director or KMP.
Q. IOL, a manufacturing company, issued partly convertible debentures with Rs. 6 crore
few years back. The convertible option is only for 50% of the issue and debentures are
redeemable in the current financial year. What is the quantum of Debenture
Redemption Reserve (DRR) required to be created by the company now and how
much should be deposited or invested by the company? (3 marks)
Ans:
1. As per the Companies Act 2013, Company is required to create debenture redemption
reserve for the redemption of such debenture.
2. The company is also required to create debentures redemption reserve on or before the
3rd day of April in each year.
3. DRR should be created of at least 25% of the amount raised through the debenture issue
before redemption commence and invest or deposit sum not less than 15% of the amount
of the debentures maturing during the year.
4. By applying above provision to given case, IOL has issued party convertible debenture of
Rs. 6 cr. The convertible option is only for 50% i.e. the remaining 50% i.e. Rs. 3cr. is liable
to redemption.
5. Thus, the quantum of DRR required to be created is 35% of Rs. 3cr. i.e. Rs. 75 lakhs.
6. The debenture is redeemable in current financial year. Thus 15% of Rs. 3 cr i.e. Rs.45 lakhs
are to be deposited or invested by company.
Q. Debapriya was appointed as alternate director of Julien in Amal Housing Finance Ltd.
The company was served a demand notice by Goods & Service Tax department for Rs
25 lakh for violation of certain provisions of GST law. Due to cash crunch the CEO
approached Debapriya for a help of Rs 12 lakh. Debapriya borrowed Rs 7.50 lakh from
his sister’s husband and gave to the company. The company recorded the same in its
books of account. Comment. (5 marks)
Ans:
1. The given case pertains to provisions relating to Acceptance of Deposits.
2. The provisions of the Act states that deposits include any receipt of money by way of
deposits or loan or in other form by a company but does not include such categories of
amount as may be prescribed by Central Government in consultation with the Reserve Bank
of India. However, provision states that amount received from a person who, at the time of
the receipt of the amount, was a director of the company shall not be regarded as deposit,
provided that he furnishes a declaration in writing to the company at the time of giving the
money, that the amount is not being given out of funds acquired by him by borrowing or
accepting loans or deposits from others.
3. As per the Section 73, provisions of Deposits are not applicable to Housing Finance
Company registered with National Housing Bank. By applying the above provisions to the
given case, Amal Housing Finance being a Housing Finance Company, money accepted by
the director does not amount to the violation of the provisions of the Companies Act, 2013.
Q. In the course of business of the company, RST Logistics Ltd. received Rs 2 lakh on
31st March, 2015 as advance towards consideration for providing future services in
the form of warranty as per their agreement with Apurva. The period for providing
such services in terms of common business practice is 3 years. The amount is still lying
as advance and while auditing the books of accounts for the year ended 31st March,
2019, the statutory auditor had commented about contravention of the provisions of
the Companies Act, 2013 in its preliminary findings to the Vice-President (Finance).
Advise the Vice-President (Finance) if the comments of the auditor are justified in
terms of provisions of the Companies Act, 2013. (5 marks)
Ans:
1. The given case pertains to the provisions relating to treatment of advance as deposits.
2. The provisions of the act states that any amount even those shown in advance which is kept
for a period beyond 1 year will always be treated as deposits & if the company has not paid
interest on it, it has to repay the same along with interest at rate of 18% per annum.
3. By applying the above provisions to the given case, RST Logistics Ltd received Rs. 2,00,000
on 31st March, 2015 as advance towards providing future services from Apurwa. While
auditing the books of Accounts for the year ending 31st March, 2019, the auditors gave a
remark to the Vice President finance that the said amount shall be treated as deposits. The
company has contravened the provisions of the Act. The contention of the auditor is
correct.
Q. Write any five differences between debentures and loan. (5 marks) [June 2022]
Ans:
Debenture Loan
Meaning Debenture is an Loan means borrowing of

acknowledgement of loan taken funds by company from
by the company Banks, Financial
Institutions, etc.
Trustee When prospectus issued to No such appointment is

public or debentures offered to required
more than 500 people
appoi9nting trustee is mandatory.
Conversion Convertible debentures can be Conversion of loans is not
converted into equity after possible.
certain time.
Security Debentures may be secured or Loans are always secured

unsecured by creating charge on
property or in any other
way.
CHAPTER 5 – CREATION AND REGISTRATION OF CHARGES

Q. XYZ Limited has office building in London. The company has been granted a term
loan of Rs. 15 crs from a Bank. The company wants to mortgage office building of
London. Examining the provisions of the Companies Act, 2013, answer the following:
i) Whether company can mortgage the above office building?
ii) Whether a charge can be created for property situated outside India ? (5 marks)
Ans:
1. The given case pertains to the provisions relating to creation of charges.
2. Provisions of the Act related to charges state that a company in case of creation of any loan
obligation against any specific property shall be registered by way of charge, within a period
of 30 days from the date of creation. Irrespective of the fact whether property is situated
in India or outside India.
3. By applying the above provisions to the given case,
a. The Company can create a mortgage for this office building.
b. Charge can be created for any property whether it is situated in India or outside India.
Q. Explain whether a Floating charge attached to the company’s property generally

remains dormant till it crystallizes or becomes fixed. (3 marks)
Ans:
1. A floating charge is not attached to any definite or specific property and covers property
of fluctuating nature for ex: stock in trade.
2. A floating charge attached to the company's property remains dormant till it is crystallized
or become fixed:
3. Under the following circumstances, a floating charge is crystallized :-
a. When the company goes into liquidation
b. When the company ceases to carry on its business when the secured creditors or
debenture holders have enforced their security.
c. On happening of an event specified.
d. When the creditors or the debenture holder take steps to enforce their security.
Q. You have joined as a compliance officer of a company on 1st June, 2019. You realize
that a charge which was created on 15th Feb, 2019 has not yet been registered. What
immediate steps would you take to avoid legal action due to non-compliance? (4
marks)
Ans:
1. As per section 77 of the Companies Act, 2013, in case of charges created before the
commencement of Companies (Amendment) Ordinance Act 2018, registrar shall allow
registration within 300 days of such creation.
2. In case of charges created after the commencement of Companies (Amendment)
Ordinance Act, 2018, registrar shall allow registration within 60 days of such creation.
3. If the registration is not made within specified time, registration shall be made within next
60 days after payment of such advalorem fees as may be prescribed.
4. On being appointed as compliance officer, the immediate steps to be taken in case of given
company would be an application to registrar, to register the charge created on 15th Feb
2019. Also, advolarem fees as may be prescribed would be required to be paid as the
following registration is out of time.
Q. Zinc Ltd. has acquired an immovable property in London and created a Charge in
favour of a Bank in UNITED KINGDOM for having availed a loan against the said
property under the Companies Act of United Kingdom on September 30th 2018. Advise
whether the company has to create a charge under the provisions of the Companies Act,
2013 in India also? (4 marks)
Ans:
1. As per the provisions of Companies Act, 2013, any party can create a charge and for any
property whether situated in India or outside India.
2. A charge may be created in or outside India
3. By applying the above provisions, since the company is an Indian Company, particulars of
charge are also required to be filed with ROC in India as well though the immovable
property is situated in London.
Q. An unregistered charge shall be void against the liquidator and other creditors of the
company. Comment. (5 marks)
Ans:
1. According to the provisions of the Companies Act, 2013, it is mandatory to register all
charges with registrar of Companies within prescribed time.
2. Non registration of charge will result into the non-compliance of provisions of the
Companies Act and shall be void against the liquidator as well as creditor.
3. Void against creditor means the unregistered charge will not make the creditors a secured
one and consideration will be distributed between all the creditors by considering all
creditors as unsecured creditors.
4. If charge has been created on the property and has not been registered and any subsequent
charge is created on the same property, which is registered then, the creditors of
subsequent charge will have priority over first charge holders.
Q. As a Company Secretary, explain the procedure of satisfaction of charge. (3 marks)
Ans:
1. Charge is a security given for securing loans or debentures by way of a mortgage on the
assets of the company.
2. A charge is required to be created or modified in Form CHG-1 (CHG-9 for debentures),
with the Registrar within 30 days of such creation or modification.
3. Further, on payment or satisfaction in full of any charge, an intimation is to be given to the
registrar within a period of 30 days from the date of such or satisfaction in Form No. CHG-
4.
4. However, if the same is not done within 30 days, it shall be filed within a period of 300 days
with the Registrar in Form No. CHG-8 with the fee.
5. Based upon the intimation, ROC issues a show cause notice to the charge within a period of
14 days as to why payment or satisfaction of such charge shall not be registered.
6. If the cause is shown to the Registrar, he shall record the same by entering a memorandum
for satisfaction of such charge.
7. ROC on being satisfied, that the debt has been repaid and the company has not sent such
intimation to the Registrar for satisfaction of charge, Registrar may on his own enter in the
Registers, Memorandum of such satisfaction of charges and a certificate of satisfaction of
charge is issued by ROC in Form CHG-5.
Q. ABC Products Ltd. has taken term loan of Rs 5 crore from bank and has given the
properties situated at Maldives as a prime security of loan. Can the company give the
properties situated outside India for security of loan? Referring to the provisions of
the Companies Act, 2013, discuss. (3 marks)
Ans:
1. 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 a mortgage.
2. Further, charge can be created either on tangible or intangible property whether situated in
India or outside India.
3. Section 77 of the Companies Act, 2013 provides that every company creating a charge within
or outside India, on its property or assets or any of its undertakings, whether tangible or
otherwise to register the particulars of the charge, creating/modifying such charge in Form
CHG-1/CHG-9, as the case may be, and to file with the Registrar of Companies within a
period of 30 days of the date of creation or modification of charge.
4. In the given case, ABC product can give the properties situated at Maldives for security of
term loan.
Q. Rose Ltd. raised a loan from a State financial institution by creating hypothecation
of book debts and also future debts of the company. Incidentally, the charge was not
registered with the Registrar of Companies concerned. State financial institution
demanded a certificate of registration of charge for the amount of loan so granted
by it. The directors of the company replied to the State financial institution that the
charge need not be registered for hypothecation of book debts. Is the action of the
directors valid? Give reasons. (4 marks)
Ans:
1. The given case pertains to the provisions relating to the registration of charges.
2. The provisions of the act states that a charge, whether fixed or floating needs to be
compulsorily registered with the ROC by filing form CHG-1 within 30 days of such creation
& obtain a certificate thereof in CHG-2 from the concerned ROC. It is the creator who is
primarily liable for creation of such charge and in case of his failure, a charge holder has to
register the same with the concerned ROC.
3. By applying the above provisions to the given case, Rose Ltd created a charge against the
book debts & future debts of the company & did not register the same. On the state financial
institution requesting certificate of charge registration, the directors stated that charge need
not be registered. The contention of the directors is invalid & the charge has to be
compulsorily registered.
Q. The following summarized information is available in respect of a company for the
year ended 31st March, 2019:
Particulars Rs. in Lakhs
Equity Share Capital 10,000 equity shares of the face 10
value of Rs 100 each
Free Reserves 2
Revaluation Reserve 1
Profit and Loss Account (Dr.) 0.35
Net loss for the year 2018-19 0.25
The company has paid dividends to the equity shareholders @ 8%, 10% and 12%
during the immediately preceding three financial years. Advise the Board of directors
the maximum amount they can pay this year by way of dividends. (3 marks)
Ans:
1. Average rate of Dividend = (8% + 10% + 12% ) / 3 = 10%
2. Reserves available for distribution for dividend = 2,00,000
(35,000)
(25,000)
1.40 Lakhs
3. Amount of Dividend = 10% of 1.40 lakhs = Rs 14,000/-
Q. Manish, a shareholder of a company has not claimed his dividends from the company
for the last 10 years due to different reasons. He wants to know whether he will be
able to recover the dividends declared by the company for all these years. Explain to
him, the relevant legal provisions. (5 marks)
Ans:
1. The given case pertains to the provisions relating to the application to Central Government.
2. Dividend must be paid within 30 days of declaration, if any amount remains unpaid, then the
company is required to transfer the unpaid dividend to a special bank account called unpaid
dividend account.
3. If any money transferred to this account remains unpaid for a period of seven years from
the date of transfer to such account, then the same shall be transferred to investor education
protection fund.
4. The person whose amount has been transferred to IEPF can claim his money by submitting
an online application form in IEPF-5.
CHAPTER 6 – DIVISIBLE PROFITS AND DIVIDEND

Q. A company for F.Y. 11-12 declared dividend on 19th September 2012 but failed to
distribute the same within the prescribed period. A case was filed against a director
in this regard. The director has contended that he had resigned before declaration of
dividend. Decide fate of the director in light of the relevant provisions of the
Companies Act, 2013. (5 marks)
Ans:
1. The given case pertains to the provisions relating to resignation of director and declaration
of dividend.
2. The provisions of the Act states that a person who is a director is liable to attract penal
provisions in case if the company has failed to pay the dividend within the stipulated period.
3. By applying the above provisions to the given case, resignation of a director is effective from
the date of the letter or the date as mentioned in the letter, whichever happens later. Since
the director resigned before the date of declaration of dividend, he shall not be held liable
if the effective date of resignation is before the date of declaration.
Q. The BODs of a company in a meeting held on 30/4/2013 declared interim dividend.

In another meeting held on 18th May 2013, the Board revoked the interim dividend
declared without assigning any reason. Advise the company in the matter. (5 marks)
Ans:
1. The above case pertains to the provisions relating to interim dividend.
2. The provisions of the Act states that any dividend declared between 2 AGM’s is called as
interim dividend. Such dividend is not declared by the shareholders but by the BOD’s at
the BM. Dividend once declared becomes a liability.
3. By applying the above provisions to the given case, interim dividend was declared by the
board on 30/4/2013 & hence it became a liability, when the directors revoked the same in
the BM, it was already a liability & hence it cannot be revoked.
Q. A resolution was passed by the shareholders in AGM meeting approving Final dividend
@ 20% for F.Y. 2007-08 and one month later the BOD decided to pay further dividend
@ 5% for F.Y. 07-08. (4 marks)
Ans:
1. The given case pertains to provisions relating to declaration of dividend.
2. The provisions of the Act states that any dividend declared between AGM is called as interim
dividend. The board has the powers to declare interim dividend any no. of times between
two AGM’s.
3. By applying above provisions to the given case the dividend declared by the shareholders at
the AGM at the rate of 20% is called as final dividend, while the additional dividend at 5%
shall be treated as interim dividend.
Q. Dividend can be paid out of capital if the articles of association authorize such
payment. (4 marks)
Ans:
1. Dividend means any portion of the profit received by the shareholders from the net profits
which are available for distribution among the members. It also includes interim dividend
2. Dividend is paid within 30 days from the date of its declaration at the general meeting.
3. Dividend can be paid:
(i) Out of current year’s profit after providing for depreciation. OR
(ii) Out of previous year’s accumulated profits after providing for depreciation. OR
(iii) Both OR
(iv) Out of money provided by Central Government or State Government in case of
guarantee given by them.
4. Thus, Dividend cannot be paid out of capital even if authorised by the articles of the
company.
Q. BODs of KM Ltd. proposes to transfer 11.33% of the Net Profits of the Company for
the FY 2015-16 to General Reserve. Examining the provisions of the Companies Act,
2013, advise the Board whether it can go ahead with its proposal. (5 marks)
Ans:
1. The given case pertains to the provisions relating to Transfer of net profits to Reserves.
2. The provisions of the Act states that company may now choose to transfer any Reserve
before declaration of dividend as such there is no minimum requirement of transfer of any
particular % of profits to Reserve.
3. By applying above provisions to the given case, the Board of KM Ltd. decided to transfer
11.33% of its NP to Reserves. It can do so without obtaining any further approval.
Q. Due to inadequacy of profits, the Board of Directors of Rise Ltd. decided not to
recommend any dividend for the financial year ended 31st March, 2015. Certain
shareholders of the company complained to the Company Law Board / Tribunal
regarding mismanagement of the affairs of the company since the Board of the
company did not recommend any dividend. Explaining the provisions of the
Companies Act, 2013, examine whether the contention of the shareholders is tenable?
(5 marks)
Ans:
1. The given case pertains to the provisions relating to Recommendation & payment of
dividend.
2. The provisions of the Act states that dividend once declared by the shareholder becomes a
liability. However, only if recommended by the board does not bind a company to pay
dividend.
3. By applying the above provisions to the given case, the contention of the shareholders that
affairs of company are mismanaged is not tenable simply on the grounds that Board did not
recommended any dividend for the F.Y. ended 31st March,2015 as the primary right to
propose dividend is always with the Board of Directors.
Q. In Evergreen Ltd, the BOD declared interim dividend but could not could not distribute
the dividend due to objections of audit committee that the accounts considered by
the Board were false, and true financial results were inflated by not incorporating o/s
liabilities & over – valuation of inventories. A shareholder filed a suit for non-
payment of dividend. One of the directors contended that he never attended the
Board meeting where the issue relating to payment of interim dividend was declared
on the basis of false accounts. Discuss about the validity of contention of the director.
(5 marks)
Ans:
1. The given case pertains to the provisions relating to Declaration of Interim Dividend.
2. The provisions of the Act states that, dividend once declared becomes a liability of the
company and hence it is required to be paid statutorily or it becomes personal liability of
directors. However, if a non executive director who was not present in the BM in which
the decision to pay the dividend was passed, cannot be held liable for such payment.
3. By applying above provisions to given case, Board of Evergreen Ltd. declared the interim
dividend in its BM, however it failed to pay the same due to falsification of accounts. One
of the directors was not present during BM and therefore, he can seek liberty from any
punishment arising on account of such default.
Q. Referring to the provisions of Companies Act, 2013 advice a public company which
declared dividend on 30th September,2018 as to the procedures to be followed in this
regard for payment of dividend. Whether any intervening holidays in the month of
October 2018 shall be taken into account in calculating the time limit? (4 marks)
Ans:
1. A public company which declared dividend on 30th September 2018 shall deposit the
amount of dividend in separate bank account in 5 days.
2. Dividend shall be paid to registered shareholder in cash (either cash or warrant or
electronic mode) within 30 days from the date of declaration.
3. Within 7 days from the expiry of 30 days, if any dividend is remaining unpaid, it is
transferred to unpaid dividend account.
4. The dividend remaining unclaimed remains in unclaimed dividend account for a period of
7 years after which, it is transferred to investors education and Protection Fund Account.
5. Company shall within 90 days of transfer of dividend to the unpaid dividend account
prepare a statement covering the list of shareholders and the amount of dividend and
place it on website.
6. No national and public holidays are excluded while calculating the number of days in
which dividend is to be paid.
Q. A company declared dividend on 21st November, 2018. It reports on 22nd December,

2018 that it could not pay dividend to 46 members as they are not traceable for last
three years. Advise the company with regard to unpaid dividend under the provisions
of the Companies Act, 2013. (3 Marks)
Ans:
1. The amount of dividend shall be deposited in a separate bank account within 5 days from
the date of declaration of dividend.
2. The dividend is paid to all registered shareholder of the company within 30 days from the
date of declaration.
3. Within 7 days from the expiry of 30 days, if any dividend remaining unpaid it is transferred
to unpaid dividend account.
4. The dividend remaining unclaimed remains in unclaimed dividend account for a period of 7
years after which it is transferred to investor education and protection fund.
5. Any dividend which is unpaid or unclaimed is to be kept in unclaimed dividend account by
the company and it can be claimed by the concerned members by applying for the same
with the company.
Q. X is a shareholder of Company A. At the AGM held on 27th Sep. 2018, Company A

declared a Dividend of 20 per equity share. X wrote to the company saying that he does
not want to take the dividend and advised the company not to send the dividend amount.
Comment whether the waiver of dividend by X is tenable under the provisions of the
Companies Act, 2013? (5 marks)
Ans:
1. As per sec 123 and 124 of Companies Act, 2013 the amount of dividend shall be deposited
in a separate bank account within 5 days from the date of declaration of dividend.
2. Such dividend shall always be paid to the registered shareholders within 30 days from the
date of declaration otherwise it shall be transferred to unpaid dividend account within 7
days from expiry of 30 days.
3. In the above case company declared dividend but X do not want to take dividend. In this
case waiver of dividend by X is not tenable. In case, if he doesn’t claim the dividend amount,
it will eventually be transferred to unpaid dividend account where it shall remain for 7 years
and thereafter transferred to investors education and protection fund.
Q. While adopting accounts for the year, the Board of directors of Prima Ltd. decided to
consider the interim dividend @12% as final dividend and did not consider transfer of
profit to reserve. Explain whether decision of the Board were justified referring to relevant
provisions. (3marks)
Ans:
1. Interim dividend is a dividend declared by Board of Directors of the company between two
Annual General Meetings of the Company.
2. A company may, before the declaration of any dividend in any financial years, transfer such
percentage of its profit for that financial year as it may consider appropriate to the reserves
of the company.
3. As the transfer of profit to the reserve is an optional for companies, it will not violate any
condition of law, if not fulfilled.
4. By applying above provision to given case, the Board of Directors of Prima Ltd. decided to
consider interim dividend as final dividend and did not consider transfer of profit to reserve.
The company has not violated any condition for transfer of profit. But as the interim
dividend is declared by Board and final dividend by shareholder, they need to take approval
of shareholders for the said action.
Q. Dealing with dividend is the prerogative of Board of directors. However, there are
certain parameters included in dividend distribution policy of a company. Comment. (5
marks)
Ans:
1. A dividend is a distribution of a portion of a company’s earnings, decided by the board of
directors, to a class of its shareholders.
2. The amount and timing of the dividend is decided by the board of directors, who also
determine whether it is paid out of current earnings or the past earnings is kept as reserve.
3. The power to pay dividend is inherent with the company i.e. Board of the directors and is
not derived from the Companies Act, 2013 or the Memorandum or Articles of Association
although the Act and the Articles regulate the manner in which dividends are to be declared.
4. However, Regulation 43A of the SEBI (LODR) Regulations, 2015, mandates top 500 listed
entities based on market capitalization to formulate a dividend distribution policy which
broadly specifies the external and internal factors including parameters that may be
considered while declaring dividend and the circumstances under which the shareholders of
the company may or may not expect dividend.
Q. Strike in the postal department could be a valid reason for delay in dispatch of
dividend warrants. (5 marks) [June 2022]
(Hint: Acceptable)
Ans:
1. A company which declares dividend must pay the same to its shareholders within 30 days
of declaration in order to comply with Companies Act, 2013.
2. There are certain exemptions to the company in the above rule, including delay due to any
such conditions which are not in the control of the company.
3. By applying the above exception, the strike in the postal department is out of control of the
company & thus, could be a valid reason for delay in dispatch of dividend warrents.
CHAPTER 7 – CORPORATE SOCIAL RESPONSIBILITY

Q. Brave Ltd. is listed at BSE and has a net worth of over Rs. 600 crs. The company
constituted a corporate social responsibility committee and made Jay and Vijay as its
members. Both Jay and Vijay are directors of the company, Jay being an independent
director.
Explaining the provisions of Companies Act, 2013 relating to “CSR”, and examine
whether the company has complied with the provisions of the Act in this regard. (8
marks)
Ans:
1. The given case pertains to provisions under Companies Act, 2013 related to CSR.
2. The provisions of the act states that CSR shall be applicable to all the companies which has
net worth of Rs. 500 crs or more OR Turnover of Rs. 100 crs or more OR net profits of
Rs. 500 crs or more.
3. Contribution to be made should be atleast 2% of average net profit in last 3 immediately
preceding financial years. Such company should form CSR committee which shall have
minimum 3 members, who shall be its BOD and one of them shall be an Independent
Director.
4. By applying the above provisions to the given case, Brave Ltd. has a net worth of Rs. 600
crs. So, CSR committee provisions shall be applicable and further they have only 2 members
in CSR committee whereas as per provisions there shall be minimum 3 members. So, the
company has to appoint one more of its director, as a member of the said committee.
Q. Net Profit of PQR Ltd. during the following years disclosed in the statement of P & L
are as under :
31st March, 2013 - 10 cr.
31st March, 2014 - 12 cr.
31st March, 2015 - 8 cr.
The BOD of the company at its meeting decides to contribute to a charitable
organization for the charitable purpose, a sum of Rs. 3 cr. out of NP of the F.Y. ended
31st March, 2015. This contribution has been made by the board without seeking
approval of shareholders in the GM.
In light of the provisions of the companies Act, 2013, examine the validity of the
contribution made by the company. What shall be your answer in case the Board
decides to contribute Rs. 1 cr. only. (5 marks)
Ans:
1. The given case pertains to provision of the act relating to contribution to a charitable fund.
2. The provisions of the Act states that the company can contribute upto 5% of Average NP
of three preceding years to a charitable fund. Any contribution beyond this limit shall require
permission of shareholders in GM.
30
3. According to the provisions, in the above case 5% of cr. is 50 lacs.
3
4. Thus, it is not valid if the company decides to contribute Rs. 3 cr. without the permission
of shareholders. If the company decides to contribute Rs. 1 cr., even then it is not valid
because it is not under the given limits.
Q. Explain whether the Corporate Social Responsibility (CSR) Committee is entrusted

with any specific functions under the Companies Act, 2013? (4 marks)
Ans:
1. Corporate Social Responsibility (CSR) is a form of self-regulation integrated into a business
model. It is also known as corporate conscience, corporate citizenship, social
performance or sustainable business/responsible business
2. The Board of a company may decide to undertake its CSR activities approved by the CSR
committee.
3. CSR Committee is entrusted with following functions
i) The committee shall initiate CSR policy
ii) It shall recommend the amount of expenditure to be invested
iii) It shall stipulate how, where and when they want to invest their funds.
Q. Any expenditure incurred for the benefit of the society will be considered as
expenditure in pursuance of corporate social responsibility policy. Comment with
reference to the provisions of the Companies Act, 2013. (3 marks)
Ans:
1. The company shall give preference to local area and areas around it where it operates for
spending the amount marked for corporate social responsibility activities.
2. Further, expenditure incurred on specified activities that are carries out in India only will
qualify as CSR expenditure. Such expenditure includes contribution to the corpus or on
project or program relating to CSR activities.
3. Expenditure incurred in undertaking normal course of business will not be considered as
part of CSR expenditure.
4. Thus, any expenditure incurred for the benefit of the society will be considered as
expenditure in pursuance of corporate social responsibility policy. However, the activity
shall be such, which is specified in Schedule VII to the Companies Act, 2013
Q. Warner Ltd. is an Indian company with a net profit of Rs. 4, 7, 6 and 7 crores
respectively in the last four years. Net profit for each of last four years included a dividend
of Rs. 1 crore received from WB Ltd. which is an Indian company. Discuss whether Warner
Ltd. is required to spend on CSR activities? If yes, how much it should spend? If no, state
the reasons for it. (4 marks)
Ans:
1. According to Sec 135 of the Companies Act, 2013 all the companies having.
(i) net worth of Rs. 500 cr or more or
(ii) turnover of Rs. 1000 cr or more or
(iii) net profit of Rs. 5cr or more
during immediately preceding financial year shall constitute a CSR committee.
2. For this purpose net profit shall be calculated in accordance with the provisions of sec 198.
In order to determine the ‘net profit’ dividend income received from another Indian
company or profits made by company from its overseas branches have been excluded.
3. The company has to contribute at least 2% of the average net profit of the company during
3 immediately preceding financial years.
4. By applying above provisions to given care as the net profit of Warner Ltd during
immediately preceding financial year is 6 cr i.e. Rs. 7cr - 1cr (dividend income) it is required
to spend on CSR Activity.
5. It has to contribute 2% of (6 + 5 + 6 i.e. after deducting 1 cr from each) / 3 i.e. 2% of 17
cr/3 i.e. 2% of 5.667cr i.e. Rs. 11.33 lakhs.
Q. Board of directors of Charity Ltd. wants to understand from you applicability of the
provisions relating to CSR to companies including requirements to constitute CSR
committee. Inform the Board. (5 marks)
Ans:
1. According to Sec 135 of the Companies Act, 2013 all the companies having.
(i) net worth of Rs. 500 crs or more or
(ii) turnover of Rs. 1000 crs or more or
(iii) net profit of Rs. 5crs or more
during immediately preceding financial year shall constitute a CSR committee.
2. The Committee shall consist of It shall consist of 3 or more Directors of which 1 (one)
shall be an independent Director. Composition of such committee shall be disclosed by
the company in its Boards Report.
3. Companies which are not required to appoint an Independent Director shall have such
committee comprising of 2 or more directors.
4. Private limited companies having only two directors on its board shall have such committee
only with 2 directors.
5. Foreign company shall have at least 2 Directors one of whom must be a resident in India
and the other nominated by the foreign company.
Q. Mind Game Ltd., is a subsidiary company of Mind Guru Ltd. Mind-Game attracts the
provisions of section 135 of the Companies Act, 2013 and it has minimum average obligation
to spend corporate social responsibility (CSR) amount of Rs. 15 crore during each of the
preceding 5 years. In this connection, Board of directors need your expert view on the
following matters:
(i) What is the meaning of “impact assessment”?
(ii) Whether impact assessment is required to be undertaken by all the companies?
(iii) Who can conduct impact assessment? (5 marks) [June 2022]
Ans:
1. As per the Companies Act, 2013, company needs to contribute atleast 2% of average net
profits of past 3 years towards CSR if it has passed the threshold limit as prescribed.
2. Also, the company whose annual CSR contribution exceeds Rs. 10 crore shall carry out
impact assessment of all its transactions having outlay of more than 1 crore.
3. Impact assessment means checking for the validity of CSR its benefit to the society &
whether company has properly complied with its responsibility.
4. Impact assessment can be done by any independent agency appointed by the company.
CHAPTER – 8 –ACCOUNTS, AUDIT, AUDITORS

Q. It is not obligatory for every company to preserve its books of accounts. Comment.
(4 marks)
Ans:
1. Books of accounts shall mean and include statement of assets and liabilities, income and
expense, sales and purchases and other cost records.
2. It is mandatory for every class of company to maintain its books of accounts for a period of
8 years beginning from the end of Financial Year.
3. It is responsibility of Managing Director, in his absence the Whole Time Director, in his
absence CFO or such other officer as may be prescribed to maintain such books of accounts.
Q. Where a company has a branch office, whether in India or abroad, the original books
of accounts, records, etc. of the branch office will have to be maintained at the
registered office of the company. Comment. (4 marks)
Ans:
1. Books of accounts means and include statement of assets and liabilities, income & expenses,
sales and purchases and other cost records.
2. The books of accounts shall be kept at the registered office of the company. It may however
be kept at such other place as the board of directors may decide.
3. Also, the books of accounts of the branches shall be maintained in the same manner ie the
Books of accounts of branch can be maintained either at the branch office or registered
office or such other place as decided by the board however if maintained at branch office, a
summary of such books of accounts shall be sent to the registered office of the company at
regular intervals which shall not exceed 3 months.
Q. Short Note on Appointment of Cost Auditor. (4 marks)

Ans:
1. To certain class of companies, which includes production, processing, manufacturing and
mining and such other class of companies as may be prescribed by Central Government in
future obtaining cost audit report is mandatory.
2. Cost audit can be carried by a Cost and Management Accountant.
3. Cost Auditor is appointment by Board of Directors of Company within 180 days from the
commencement of financial year.
4. Such cost auditor shall submit the report to BOD within 180 days from the end of financial
year.
5. The board shall submit cost audit report to Central Government within next 30 days after
adding comments on remark by auditor.
6. It shall be filed in Form CRA-3.
Q. Give your opinion whether the ROC can take balance sheet and profit and loss
account on record even if it is not laid before AGM or placed before EGM. (5 marks)
Ans:
1. With respect to approval of Financial Statements, every company shall place its Financial
Statements before its shareholders.
2. The said Financial Statements whether approved or not are to be filed with the ROC within
30 days from the date of the meeting, even in case if the said Financial Statements aren’t
approved, they shall be file with ROC.
3. The company shall attract penal provisions for the non compliance of filling of Financial
statement with the ROC.
Q. Chargee Biotech Private Ltd. is a two year old company. The BOD of the company
wants to contribute 2.8% of its average net profits of the last years profits to the
Prime Ministers National Relief Fund. Referring to the provisions of the Companies
Act, 2013, advise the board. (4 marks)
Ans:
1. The given case pertains to the provisions relating to CSR contribution made by a Pvt Ltd
Company.
2. Provisions of the Act states that to every company to whom the provisions of CSR are
applicable has to make a contribution of atleast 2% of its average net profits of 3 immediately
preceding F.Y. or in case if such contribution is not made, justify in its directors report as
to why CSR was not made. The said contribution shall be made in any of the activities as
specified in Schedule VII
3. By applying above provisions to given case, Chargee Biotech Pvt. Ltd wants to make a
contribution of 2.8% of its average NP of 2 F.Y. to Prime Ministers National Relief Fund &
has therefore complied with provisions of the Act.
Q. Write a short note on approval and signing of the balance sheet and profit and loss
account.
OR
Q. An auditor of a company signed Balance Sheet, Profit and Loss Account, schedule &
notes and furnished the auditors’ report on the same date on which the reports were
signed by the directors on behalf of the board. One of the directors raised objection
stating that the audit can be completed and certified in a day. Do you are agree with
the director and if not why ? (5 marks)
Ans:
1. The Financial Statements viz. balance sheet, profit and loss account, schedules and notes are
audited by the auditors as soon as the provisional financial statements are completed.
2. Once the audit process is complete, the said financial statements are placed before the
board and are signed in the board meeting.
3. The accounts placed before the board is in-principally approved by the auditors and once
signed by the board, they are co-signed by auditors in the same Board Meeting.
4. Since the accounts were in-principally approved by the auditors, so it can be signed in the
same board meeting as the auditors’ report was already completed before signing of
accounts by the board.
Q. SAM & Co. are the auditors of MAS Company Limited appointed at the AGM held on
15 September, 2017 for a period of 5 years. However, due to difference of opinion,
SAM & Co. decided not to seek re-appointment as auditors at the AGM held on 28th
September, 2018 but failed to inform their unwillingness in writing prior to AGM.
Company went ahead and appointed them as auditors at the AGM held on 28th
September, 2018. Post AGM (held on 28th September, 2018), SAM & Co. informed
their unwillingness to act as auditors. Comment on the validity of such appointment
and what steps to be taken by the company under these circumstances. (4 marks)
Ans:
1. As per the provisions of Companies Act, 2013 at every AGM of the company a retiring
auditor shall be reappointed except if
(i) He is not qualified for reappointment
(ii) He has given his notice in writing of his unwillingness to be reappointed.
(iii) A special notice has been received by the company of his removal and appointing some
other person as the auditor of the company.
2. By referring the above provisions to the given case, SAM and Co. who were the auditors
of MAS company limited decided not to seek reappointment as auditors however failed to
inform their unwillingness in writing prior to meeting, also neither there was any
disqualification for reappointment nor a special notice has been received by company for
its removal. Thus, company went ahead and appointed them as auditor. Hence, such
appointment is valid.
Q. Write a short note on approval and signing of the balance sheet & P&L Account. (4
marks)
Ans:
1. The financial statement for a particular period is prepared by the management of the
company which is reviewed by the audit committee. The statutory auditor performs the
audit & after completion of audit process submits the same with the Audit Committee and
finally with board of directors.
2. Financial Statements must be laid before the board of directors & then ultimately before
the shareholders at the AGM.
3. Financial statement should be signed on behalf of the board by at least
chairperson of company, duly authorised by board, or two directors of whom one should
be the managing director, and chief executive officer, chief financial officer and company
secretary, if any in the company.
4. One Person company's financial statements shall be signed by only one director.
5. Such sign is required for submission of financial statements to the auditor for his report.
6. Auditors report is required to be attached to every financial statement.
7. The said financial statements are authenticated by the CS of the company and approved and
signed by the statutory auditors as well.
Q. Adorable Ltd. incorporated under the Companies Act, 2013 has on its board, 5
directors and a MD. The company has also appointed a CS. The Financial
Statements of the company, viz. balance sheet and statement of Profit and Loss
Account for the year ended 31.3.2015 were authenticated under signatures of one
director & CS. Referring to the provisions of Companies Act, 2013 examine the
validity of authenticated shall be your answer in case of on OPC? (6 marks)
Ans:
1. The given case pertains to the provision regarding signing of Financial Statements.
2. The provisions of the Act states that Financial statements should be signed on behalf of the
board by at least chairperson of company, duly authorised by board, or two directors of
whom one should be the managing director, and chief executive officer, if he is director,
chief financial officer and company secretary, if any in the company. One person company's
financial statements shall be signed by only one director.
3. By applying the above provisions to the given case, only one director and a CS signed the
statements hence such authentication is not valid. In case of an OPC, financial statement
shall be signed only by one director, hence it will be valid.
Q. Answer by explaining provision regarding internal auditor:
(1) Whether a private company is mandatorily required to appoint an internal auditor?
(2) Who may be appointed an internal auditors. Whether a PCS can be appointed as an
internal auditor? (4 marks)
Ans:
1. A private company which has Turnover of 200 crs or more OR outstanding borrowing of
100 crs or more has to appoint an internal auditor.
2. A CA/CMA or any other professional as decided by the Board may be appointed as an
internal auditor. The internal auditor may or may not be an employee of the company;
Hence, PCS can be appointed as an internal auditor if decided by the Board.
Q. The time gap between the date of approval of financial statements by the Board of
Directors of a company and the date of notice of annual general meeting should be
45 days. (5 marks)
Ans:
1. The financial statements of the company as at the end of financial year are approved by
BODs, and then finally sent to the shareholders for their approval.
2. Usually, the notice of the AGM to be sent to all shareholders is also approved in the same
Board meeting in which financial statement were approved by the board of directors.
3. If for some reasons the notice of GM was not approved in the same BM, it could be done
on any other day.
4. In no case the provisions provide for any statutory gap between the date of BM and the
date of notice of the general meeting.
5. The only gap provided is between the date of dispatch of notice & the date of GM which is
21 days clear notice.
Q. CIF Technosystems Private Limited is proposed to be incorporated in Bhubaneshwar,
Orissa under the Companies Act, 2013. The holding company of the company is
already incorporated in Brazil under the company law of Brazil. The company in
Brazil follows financial year 1st January to 31st December of a calendar year.
Referring to the provisions of the Companies Act, 2013 state whether the F.Y. of CIF
Technosystem can also be 1st January to 31st December, in order to make it easier to
prepare Consolidated Financial Statements. (5 marks)
Ans:
1. The given case pertains to the provisions relating to change of Financial Year of an Indian
Company which is a subsidiary of a foreign holding company.
2. Provisions of the Act states that, a company incorporated in India is not allowed to change
its F.Y. from April to March period. However, in case of a foreign holding company with a
different financial year, it may be changed with the prior permission of NCLT.
3. By applying above provisions to given case, CIF Ltd. which has its holding company in Brazil
shall apply to NCLT for change of its financial year for the purpose of preparation of
consolidation of FS.
Q. Sanjay, a CA is the financial controller of Sonic Industries [Pvt.] Ltd. for the last five
years. The company wants to appoint him as the statutory auditor of the company.
Examining the provisions of the Companies Act, 2013, advice whether the company
can appoint Sanjay as its statutory auditor. (5 marks)
Ans:
1. The given case pertains to the provisions relating to the Appointment of the statutory
auditor.
2. The provisions of the Act states that, the statutory auditor can be any person who is a
practicing Chartered Accountant as an individual, firm or LLP. However, any employee of
the company cannot become its statutory auditor since he is fully aware of all the internal
controls of the company.
3. By applying the above provisions to give case, Sanjay being a chartered Accountant is
disqualified to be appointed as the statutory auditor of Sonik Industries Pvt. Ltd since he is
an employee of the company.
Q. The paid up equity share capital of Strong Foundry Ltd. is Rs. 45 lacs. President
[Finance] of the company seeks your advice whether it is possible to re-open its book
of accounts and recast the company’s FS of the previous year. You being the secretary
of the company, advice the President [Finance] by preparing note in this regard. (6
marks)
Ans:
To,
President [Finance]
Subject :- Reopening of Financial Statements of the company
Dear Sir,
This has reference to the captioned subject, wherein, I, advice as follows:-

1. As per Sec 130 of the Companies Act, 2013:
In case re-opening of accounts is ordered either by central government or income tax
authority or SEBI or any other judicial or regulatory authority, books of accounts can be
re-opened.
2. Such re-opening is permitted only in cases where :-
(i) The earlier accounts were prepared in a fraudulent manner.
(ii) The affairs of the company were mismanaged during the relevant period.
(iii) The court or Tribunal shall order re-opening of accounts
3. Thus, Strong Foundry Limited can reopen its books of accounts only for the aforesaid
reason if permitted by the authority.
Please let me know, if you need any further clarifications over this.
Thanking you,
Yours faithfully,
Sd/-
CS
Q. Manohar, the auditor of Bella Ltd. appointed by company in its last GM has resigned
from the office of auditor of the company for some personal reason :-
I. Who is the competent authority to accept & approve the resignation?
II. State the manner in which the vacancy shall be filled in GM. (4 marks)
Ans:
1. An auditor when resigned from his office has to file his resignation in form ADT-3 along
with justification with the BOD’s & ROC in case of a non government company.
2. Such casual vacancy caused by the resignation of an auditor shall be filled by the shareholders
in General Meeting which shall be convened within 3 months on the recommendation of
the BOD’s. Such auditor shall now hold office till the conclusion of next AGM.
Q. EFG Pvt. Ltd. is a holding company of HIJ Ltd. and KLM Ltd. which are its subsidiary
companies. Is the company required to prepare a consolidated financial statement
(including the details of the Subsidiary Cos.) and lay it before the AGM of die
company? (4 marks)
Ans:
1. As per section 129 of Companies Act, 2013 all companies including unlisted company and
private companies having one or more subsidiary company is required to prepare
consolidated financial statements.
2. Referring to the above provision and given facts of the case, EFG Pvt. Ltd. which is holding
company of HIJ Ltd. and KLM Ltd. is required to prepare consolidated financial statement
and lay it before the AGM of the company.
3. Previously to present consolidated financial statements, approval of CG was required to be
obtained, however, now it is allowed to present CFS, provided that if a member specifically
demands copies of standalone financial statements of subsidiaries, company has to provide
that on request.
Q. The Director’s Report of Ayush Ltd. for the financial year ended 31st March,12 has
been dated 1st May 12, whereas the Auditor’s Report for same period is dated 16th
May 2012. Is this in order. Explain. (5 marks)
Ans:
1. The given case pertains to signing of boards report and audit report.
2. The provisions of the Act states that the directors report shall contain adverse remarks
made by the auditors in the audit report.
3. Thus, date of directors’ report cannot precede auditors’ report.
4. By applying the above provisions to the given case, the date of directors report mentioned
was 1 May,12 while the auditors’ report was dated 16th May,12. Such situation is not possible
because the directors report shall contain remarks on any adverse remarks made by the
auditors in the audit report.
Q. A director of a company has an absolute right of inspection of books of accounts.

Comment. (4 marks)
Ans:
1. In terms of the provisions of the act, a director can inspect books of accounts of the
company during the business hours.
2. He can even inspect the books of subsidiary company with prior approval of BOD’s
3. If Director wants to inspect books of Foreign Company, then such records should be
provided to him within 15 days of the date of his request.
4. Hence, a director of a Company has absolute right of inspection of books of accounts.
Q. Every financial statement of the company must give true and fair view of the
state of affairs of the company at the end of the financial year. (4 marks)
Ans:
1. The purpose of financial statements is to reveal true picture of the financial position
of the company.
2. Also, while preparing the same, it must be ensured that all the accounting standards,
policies, principles have been followed by the company.
3. Every financial statement must reflect a true and fair view of financial statement of
the company.
4. Also, they must be presented in the format as provided under Schedule III to the
Companies Act, 2013 so that shareholders are in a position to interpret the same.
5. Therefore, it is rightly stated that the financial statements reflect true and fair view
of the financial position of the company.
Q. Vijay is an auditor of XYZ Ltd, a listed public company having paid-up share capital
of Rs. 10 crore. Advise him as to whether he can render the following services, keeping
in mind, the relevant provisions of Companies Act, 2013?
(i) Vijay wants to conduct internal audit of XYZ Ltd. He also wishes to provide
actuarial services to XYZ Ltd.
(ii) Vijay wishes to “design and implement one financial system” and offer
management services to ABC Ltd, the holding company of XYZ Ltd.
(iii) What will be your answer in the above two cases if services are provided to PQR
Ltd, a subsidiary company of XYZ Ltd? (6 marks)
Ans:
Vijay is an auditor of XYZ Ltd. a listed public company having paid up share capital of Rs.
10 Crores. With reference to Section 144, of Companies Act, 2013.
(i) Vijay cannot conduct internal audit of XYZ Ltd. also he cannot provide actuarial services
to XYZ Ltd.
(ii) Vijay also cannot design and implement financial system and offer management services
to ABC Ltd. the holding company of XYZ Ltd.
(iii) Vijay will also be ineligible to provide above services to PQR Ltd., Subsidiary of XYZ
Ltd.
Q. Ram is practicing Chartered Accountant and partner of two audit firms namely PYMG
and YE. In the immediately preceding financial year, PYMG has completed its two
terms of five consecutive years in Gayatri Pvt. Ltd. having paid up share capital of Rs.
60 crore. Now Gayatri Pvt. Ltd. is considering appointing YE firm as its statutory
auditors. Can Gayatri Pvt. Ltd. appoint YE as its auditors? What will be your answer
in the following cases ?
(i) If appointing company is a one person company;
(ii) If appointing company is a small company. (5 Marks)
Ans:
1. As per the provision of Companies Act 2013, in case of a firm, it cannot be appointed for
a period exceeding 5 years of two consecutive term.
2. After a cooling period of 5 years, such as auditor shall again be reappointed for a period of
5 or 10 years in case of an individual or a firm respectively.
3. In case of a firm, if a partner retires from an existing firm which has served as the statutory
auditor of the company, if the same person retires from this firm and going to another firm
in such case, the new firm shall also be ineligible for appointment as the auditor of such
company for a period of 5 years.
4. Therefore, Gayatri Private Ltd. cannot appoint YE firm as auditor for 5 years atleast. The
above answer will be same in case of one person company as well as small company.
Q. Reels India Ltd. Is a wholly owned subsidiary of Wheels India Ltd. The auditor of
Wheels India Ltd. has intimated the Boards of directors that the company will not be
required to prepare consolidated financial statements if provisions of section 129, of
Companies Act, 2013 are complied with. As a company secretary give your comments
in this regard. (3 marks)
Ans:
1. The given question pertains to the provision relating to preparation of consolidated
Financial Statement.
2. As per the Sec 129 of the Companies Act, 2013, every company having a subsidiary
Company is required to prepare the consolidated financial statement.
3. Sec 129 also states that financial statement shall give a true & fair view of the state of affairs
of the company.
4. None of the provision of the Companies Act, 2013 excludes any company from such
requirement except that Central Government may exempt any class or classes of
companies from complying with such requirement.
5. By applying above provision to given case, Reels India Ltd is a wholly owned subsidiary of
wheels India Ltd. The auditor of wheels India Ltd has intimated that the company is not
require. to prepare consolidated financial statement, if sec 129 is complied. The contention
of the auditor is not maintainable and wheels India Ltd has to prepare consolidated financial
statements.
Q. ABC & Associates is an audit firm with partners A, B and C. The firm’s tenure as
statutory auditor in M Ltd. has expired under Companies Act, 2013. M Ltd. is a listed
company. XY & Co. another audit firm is appointed as auditor of M Ltd. for the
subsequent year. B joins XY & Co. as partner, 4 months after it was appointed as
statutory auditor of M Ltd. Comment with reference to the provisions of the
Companies Act, 20l3 (4 marks)
Ans:
1. According to the Companies Act, 2013, if an audit firm have a common partner or partners
to the other audit firm whose tenure has expired in same company immediately preceding
the financial year, then firm shall not be appointed on auditor of the same company for a
period of five years. This status is to be checked as on the date of appointment.
2. By applying above provision to given case, ABC & Associates is an audit firm with partners
A, B & C. The firm’s tenure has expired in M Ltd and XYZ & Co is appointed as auditor in
M Ltd and B has joined the firm XY & Co. after 4 months of appointment. As B joined the
firm after appointment XY & Co was eligible on the date of appointment and according to
the provision it is still eligible.
3. Thus XY & Co can continue to act as statutory auditor.
Q. Books of account have to be kept only at the registered office of the company. As a
Ans:
1. Books of accounts shall mean and include statement of assets and liabilities, income and
expense, sales and purchases and other cost records.
2. It is mandatory for every class of company to maintain its books of accounts for a period of
8 years beginning from the end of Financial Year.
3. As per section 128 of the Companies Act, 2013, every company needs to prepare and keep
the books of account and other relevant books and papers and financial statements at its
registered office or at such other place in India as the Board of directors may decide.
4. However, when the Board so decides, the company is required to file with the Registrar of
Companies, a notice in writing giving full address of that other place within 7 days of such
decision. in e-form AOC 5.
Q. Advise whether the internal auditor is required to be appointed in the following
scenarios:
Amount (Rs crore)
Name Status Paid-up Turnover Outstanding loans &
Capital borrowings
Lala Ltd. Listed 49 195 99
Dilo Ltd. Unlisted public 23 200 56
Craft Ltd. Unlisted public 50 123 65
Wood Pvt. Private 55 186 89

Ltd
Can the following persons be appointed as internal auditor?
(i) President (HR)
(ii) DGM (Finance). (5 marks)
Ans:
1. The given case pertains to the appointment of Internal Auditor.
2. As per Section 138 of the Companies Act, 2013, following class of companies needs to
appoint an internal auditor:
a) Every listed company;
b) Every unlisted public company which has paid up share capital of Rs.50 crore or more; OR
turnover of Rs. 200 crore or more; OR Outstanding loans or borrowings from banks or
public financial institutions exceeding Rs. 100 crore or more at any point of time; OR
Outstanding deposits of Rs. 25 crore or more at any time during the preceding financial
year; and
c) A private company which has Turnover of 200 crs or more OR outstanding borrowing of
100 crs or more at any time during the preceding financial year.
3. By applying above provisions to the given case,
(i)Lala Ltd. – Needs to appoint Internal Auditor, since it is listed entity;
(ii) Dilo Ltd. – Needs to appoint Internal Auditor, since the turnover is Rs. 200 crore;
(iii) Craft Ltd. – Needs to appoint Internal Auditor, since the paid-up capital is Rs. 50 crore;
(iv) Wood Pvt. Ltd. – Needs not appoint Internal Auditor since the turnover or loans /
borrowings does not exceed the threshold limits.
4. Further, an Internal Auditor can be CA/CMA or any other professional as decided by the
Board may be appointed. The internal auditor may or may not be an employee of the
company; Hence, President (HR) and DGM (Finance) can be appointed as an internal auditor
if decided by the Board.
Q. Chief Financial Officer (CFO) of a conglomerate is of the view that secretarial audit
is mandatory for all the companies. He has approached you to determine whether
secretarial audit is applicable in case of the following companies:
Amount (Rs crore)
Name of the Status Paid up share Turnover
Company capital
Helo Ltd. Listed 49 120
Jam Ltd Unlisted 38 500
Butter Pvt Ltd Subsidiary of Jam 7 26

Ltd
Advise the CFO. (5 marks)

Ans:
1. Pursuant to the provisions of sections 204 of the Companies Act, 2013, every listed company
and such other class of companies as prescribed shall annex a copy of Secretarial Audit
Report to its board’s report as given by a Practicing Company Secretary (PCS).
2. The following class or classes of companies have been prescribed by the Central
Government:
(i) Every Public Company whose paid up share capital is Rs. 50 crores or more OR
(ii) Every Public Company whose turnover is Rs. 250 crores or more OR
(iii) Every company having outstanding loans or borrowings from banks or public financial
institutions of Rs.100 crore or more.
3. Secretarial Audit is also applicable to a private company which is a subsidiary of a public
company, and which falls under the prescribed class of companies as indicated above.
4. By applying above provisions to the given case, applicability is as follows:
Helo Ltd. Yes, since Secretarial audit is applicable to every listed
company.
Jam Ltd Yes, since turnover exceeds the prescribed limit.
Butter Pvt Ltd No, though it is a subsidiary of a public company,

yet it does not fall under the prescribed
threshold limit.
Q. Shyam was appointed as the statutory auditor of Rain Ltd. a non-government company at
the Annual General Meeting held on 30th September, 2021. He has resigned after 2 months
as he wanted to discontinue the practice and surrendered his Certificate of Practice and
joined a Multinational Company. Explain how the new auditor will be appointed by Ram
Ltd. and the conditions to be complied with in this regard. (3 marks) [June 2022]
Ans:
1. The given case pertains to provisions relating to vacancy of auditor by resignation.
2. As per the provisions of Companies Act, 2013 where an auditors office is vacated due to
resignation a new auditor shall be appointed by shareholders in the general meeting.
3. By applying above provisions, an extra ordinary general meeting is to be called to appoint
the auditor as recommended by Board of Directors.
CHAPTER 9 – TRANSPERANCY AND DISCLOSURES

Q. Narrate briefly the importance of Corporate Governance Report and also state who
can certify such report. (5 marks)
Ans:
1. The provisions relating to corporate governance have been drawn from SOX Act, 2000 in
US and LODR Regulations in India.
2. The main focus of such regulations is to enhance disclosure & improve accountability of the
companies to which such rules apply.
3. Such regulations also focus upon strengthening the board position along with disclosure and
accountability of accounts.
Such report shall be certified by the statutory auditor or the practicing CS that all the
regulations applicable shall be complied with.
Q. Every company is required to comply the disclosure requirements under the Sexual
Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
in their Board Report. Comment. (5 marks)
Ans:
1. The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal)
Act, 2013 is applicable to every workplace, establishment, company or organisation
employing 10 or more employees irrespective of its location or nature of industry.
2. Act mandates Internal Committee to prepare an Annual Report where number of cases filed,
if any, and their disposal under this Act is disclosed.
3. Rule 14 of Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal)
Rules, 2013 provides that following disclosure are to be made in the annual report which the
Complaints Committee is required to prepare:
a) Number of complaints of sexual harassment received in the year;
b) Number of complaints disposed off during the year;
c) Number of cases pending for more than ninety days;
d) Number of workshops or awareness programme against sexual harassment carried out;
e) Nature of action taken by the employer or District Officer.
Q. Every company is required to have active website. Comment. (3 marks)

Ans:
1. There is no requirement under Companies Act, 2013 for the company to have an active
website, but however, SEBI (LODR) Regulations, 2015, requires the listed entity to maintain
a functional website containing the basic information about the listed entity.
2. Following are few of the information that listed entity needs to disseminate under a separate
section on its website as per regulation 46 SEBI (LODR) Regulations, 2015:
i. Details of its business;
ii. terms and conditions of appointment of independent directors;
iii. composition of various committees of board of directors;
iv. code of conduct of board of directors and senior management personnel;
v. details of establishment of vigil mechanism/ Whistle Blower policy;
vi. criteria of making payments to non-executive directors , if the same has not been disclosed
in annual report; (g) policy on dealing with related party transactions;
vii. policy for determining ‘material’ subsidiaries; etc.
3. Therefore, only listed company is required to have active website.
Q. Provide a specimen of board resolution for preparation of annual report in abridged

form for mailing to the members. Assume facts and figures for the purposes of
mentioning in the resolution. (5 marks)
Ans:
Type of Meeting : Board Meeting
Type of Resolution : Board Resolution
“RESOLVED THAT in terms of the provisions of Companies Act, 2013 read with all the
applicable rules as amended till date, the annual report containing the balance sheet, P&L A/c.,
cash flow statement, schedules and notes to accounts as prepared and finalized in form AOC-3
be and is hereby approved.
FURTHER RESOLVED THAT the said financial statements be signed by all the directors of the
company, CEO, CFO and CS and then the same be sent to the auditors for obtaining their
signatures and finally to the members.
FURTHER RESOLVED THAT the Company Secretary of the company be authorized to identify
a list of members and dispatch it to all the members at their registered address / e-mail id,
available with the company.”
Q. Which parameters shall be included in the Dividend Distribution Policy by the top 500
listed entities as per the SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015? (5 marks) [June 2022]
Ans:
1. As per the requirements of SEBI [LODR] Regulations, 2015, top 500 companies as per the
market capitalization are required to form a Dividend Distribution Policy [DDP]
2. The DDP shall include the following details :
a) The circumstances in which the shareholders may or may not expect dividend.
b) Financial parameters to be considered by the company before declaration of dividend.
c) Policies and provisions with respect to manner of utilization of retained earnings by the
company.
CHAPTER 10 – INTER CORPORATE LOANS, INVESTMENTS AND RPT’S

Q. Position of ABC Ltd. as on 31st March 04 shows the following liabilities :
Paid-up Capital Rs. 10 Crore
R&S Rs. 20 Crore
Reserve for Redemption of Debentures Rs. 20 Crore
The Company has already advanced to the following companies :
XYZ Ltd. Rs. 6 Crore
MNO Ltd. Rs. 2 Crore
ABC Ltd. has given corporate guarantee of 25 Crore to STU Limited.
PQR Ltd. has approached ABC Ltd. for inter corporate loan of 8 Crore.
As the CS of ABC Ltd, advise the management on the limits of making loans & inter-
corporate investment. (8 marks)
Ans:
7th September, 2015
To,
The Board of Directors,
Subject: Calculation of Limits for loans and investments
Dear Sir,
1. Pursuant to the provisions of Section 186 of Companies Act, 2013, a company may without
obtaining prior permission of shareholders by way of a special resolution provide the
following loans and investments to any person or body corporate.
60% of paid up share capital + Free Reserves + Securities Premium A/c.

OR
100% of Free Reserves & Securities Premium A/c., whichever is higher.
2. Position of the company is as follows :

Paid up Capital - 10 crs
R&S - 20 crs
TOTAL - 30 crs
So, the limit available with the company is, 60% of (10 + 20) crs i.e. Rs. 18 crs or
100% of (20 crs + 20 crs) i.e. Rs. 20 crs , whichever is higher
So, the available limit = Rs. 20 crs
3. However, out of the total available limit of 20 cr, the company has already utilized as
follows:
Advance of XYZ Ltd. = 6 crs
MNO Ltd. = 2 crs &
Guarantee to STU Ltd. = 5 crs
Total = 13 crs
Out of total 20 crores the company has already utilized an amount up to Rs. 13 crs. Thus,
the remaining balance is Rs. 7 crores.
4. Therefore, if the company has to provide loan to PQR Ltd. of Rs 8 crores, it would require
sanction of shareholders by way of SR.
Thanking you,
Yours faithfully,
Q. As on 31st March 2010, the balance sheet of ABC Ltd. shows the following
Particulars Rs. in Cr.
Paid up share capital 30
Reserves & Surplus 40
Reserve for redemption of debentures 20
Capital Reserve 10
The company made loan / stood guarantee for loans to other companies below :
Loan to DEF Ltd. Rs. 15 Crs
Guarantee given on behalf of GHK Rs. 15 Crs
LKP Ltd. approached ABC Ltd. for loan of an amount of Rs. 20 crs. Advise the
management of ABC Ltd. as to whether the company can give loan of Rs. 20 Crs to
LKP Ltd. (6 marks)
Ans:
1. In terms of provision Sec. 186 of Companies Act 2013, a company can grant loans, provide
security or give guarantee to any other person or body corporate or make investments in
any other body corporate upto an amount not exceeding 60% of PUC+FR+SPA or 100% of
FR+SPA, whichever is higher, without obtaining the prior permission of shareholders by way
of SR.
2. The particulars of ABC Ltd are as follows :
a. 60% of PUC & FR
60% (30 + 40) = 42 Crs.
OR
b. 100% (40) = 40 Crs.
i.e. Limit allowed = 40 Crs.
3. Loan and Guarantee already given – 30 crs. Proposed loan to LKP is 20 Crs. Which is
beyond the permission limit of 42 Crs. And therefore, the company has to obtain prior
permission of shareholder by way of SR.
Q. Following information has been extracted from the balance sheet of Richy Rich
Ltd. :
i) Paid up Share Capital Rs. 20 cr.
ii) Reserves & Surplus Rs. 80 cr.
iii) Capital Reserve Rs. 5 cr.
iv) Investment in securities Rs. 10 cr.
v) Loan to company Rs. 30 cr.
DEF Ltd. has requested Richy Rich Ltd. for a loan of Rs. 50 crs which the Board
of Directors will consider at its ensuring meeting. Explain the legal position &
advice the board. (6 marks)
Ans:
1. The given case pertains to the provisions relating to the loan & investment of companies.
2. The provisions of the act states that, no company shall directly or indirectly.
a) Given any loan to any person or body corporate.
b) Give any guarantee to any security in connection with the loan made to any person or
body corporate.
c) Make any investment by acquisition / subscription of security of any other body corporate
beyond
60% of PUC + FR + SPA or 100% of Free Reserves + SPA (whichever is higher)
a. 60% of paid up capital + FR + SPA
i.e. 60% [20 cr + 80 cr] = 60 cr.
OR
b. 100% of [FR + SPA]
100% of 80 crs = 80 crs.
4. Therefore, company can give loan upto Rs. 80 crs without permission of shareholders.
Therefore, Richy Rich Ltd. can give loan of Rs. 80 crs to DEF Ltd.
Q. RR Limited has decided to make investments in other companies for Rs. 50 lakhs, which
is in excess of 60% of the company’s paid up share capital, free reserves & securities
premium A/c. Company has 5 directors. Four directors were present in the Board
meeting, three directors have given their content but one director abstained from
voting. The decision of the board was noted in the minutes of Board meeting &
decided to make such investment by passing Board Resolution with majority.
Referring to the provisions of Companies Act, 2013, examine the validity of the
Boards decision. (5 marks)
Ans:
1. The given case pertains to the provisions relating to Investments made by a company.
2. Provisions of the Act states that, a company could provide loan, give guarantee or provide
security to any other person or body corporate or make investments in any other body
corporate upto maximum of 60% of its paid up share capital, FR & SPA OR 100% of FR &
SPA, whichever is higher. Any transaction beyond this limit require prior approval of
shareholdersin the general meeting by way of a special resolution. Before making any loan
and investment prior approval of "All The Directors" present at the board meeting shall be
obtained.
3. By applying above provisions to given case, RR Ltd. passed a Board Resolution by majority
to make investment of 50 lacs, which in excess of the prescribed limit. The company in such
a case shall require prior approval of shareholders by way of a SR.
Q. XYZ Ltd. has a paid-up capital of Rs. 50 crore and free reserves of Rs. 30 crore. It
provided a guarantee for repayment of a loan of Rs. 40 crore borrowed by its wholly
owned subsidiary company. It did not pass any resolution for the same in the general
meeting. Is the guarantee valid? Answer with reference to the relevant legal provisions.
(4 marks)
Ans:
1. As per section 186, no company shall directly or indirectly give any loan to any other
person or body corporate, give guarantee or security, make any investment by acquisition
or subscription exceeding 60% of its paid up share capital, free reserve and securities
premium OR 100% of free reserve and securities premium account whichever is higher.
2. However, any investment beyond the above limit shall require previous approval of
shareholders in general meeting by way of special resolution.
3. But, no such provision of loan, guarantee, security or investment shall apply to any
transaction made by holding company in its wholly owned subsidiary or joint venture.
4. Referring to the above provision and the given facts of the case, I hereby conclude that the
guarantee given by XYZ Ltd. to its wholly owned subsidiary company is valid.
Q. MAA Engineering Works Pvt. Ltd. advanced an amount of 25 lakh to GP Construction

Solutions, a firm in which the Managing Director of MAA Engg. Pvt. Ltd. is a partner
in the firm. The paid up capital of MAA Engineering Works Pvt. Ltd. is Rs. 1.06 crore
and the company has taken a term loan from a financial institution worth Rs. 10
crore. All the shareholders of the company are individuals and there are no
repayment defaults in borrowings. Turnover of the company is Rs. 50 crore during the
last year. Ascertain if the grant of 25 lakh to GP Construction Solutions is in order
under the provisions of the Companies Act, 2013. (4 marks)
Ans:
1. The provisions of section 185 of the Companies Act, 2013 shall not apply to private
company subject to the following conditions:
(i) In whose share capital no other body corporate has invested any money
(ii) If the borrowings of such company from banks and financial institution or any body
corporate is less than twice of its paid up share capital or fifty crores whichever is
less and
(iii) Such a company has not defaulted in repayment of such borrowings subsisting at
the time of making transaction
2. Referring to the above provision and facts of the given case, company complies with all
the above conditions except that the borrowings exceeds twice the paid up share capital.
Hence MAA Engineering Pvt. Ltd. cannot grant Rs. 25 Lakh to GP construction solution in
which the managing director of MAA Engg Pvt. Ltd. is a partner.
Q. Metal Industries Ltd. passed a special resolution in the last general meeting to
empower the Board of Directors to grant of loan to Subash Finance Ltd. in excess of
the 60% of paid-up share capital, free reserves and securities premium account.
However, the company auditor took a contrary view to the resolution passed stating
that the resolution did not mention the loan amount that can be provided for. Besides,
from the minutes of the Board Meeting in which such item was discussed had a
dissenting vote by one of the directors of the company. Comment on the issued raised
by the auditor. (4 Marks)
Ans:
1. As per Sec 186 of the Companies Act, 2013, no company shall directly or indirectly give
any loan to any other person or body corporate exceeding 60% of its paid up share capital,
free reserve & securities premium or 100 % of free reserve and securities premium account,
whichever is higher.
2. Any investment beyond the above limit shall require previous approval of shareholders in
the general meeting by way of special resolution
3. Before making any loan and investment prior approval of All the Directors present at the
board meeting shall be obtained.
4. Referring to the above provision, Metal industries ltd. passed a special resolution in the last
general meeting to empower the board to grant loan in excess of 60% of paid up share
capital, free reserve and securities premium account however the said resolution was
dissented by one of directors of the company. Hence the issue raised by the auditor is valid.
Q. Who is a ''related party'' as defined in Section 2 (76)? (3 marks)

Ans:
The term 'related party' means and includes :
(i) a director or his relative
(ii) a KMP or his relative
(iii) a firm in which a director, manager or his relative is a partner.
(iv) a private company in which a director, manager or his relative is director or
member.
(v) a public company in which a director or a manager is a director and holds along
with his relative more than 2% of the paid up share capital.
(vi) a person on whose advice board is accustomed to act (except under professional
capacity)
(vii) a holding / subsidiary or associate company
(viii) any body corporate which is
- holding, subsidiary or associate company
- subsidiary of holding company which it is also a subsidiary
- an investing company or the venture of the company
Q. What are the ‘related party disclosures’ required to be made by listed entities as per
SEBI Regulations?
Ans:
1. Related Party is a person or an entity that is related to the reporting entity.
2. SEBI regulation establishes requirement for the disclosures of related party relationships
and transaction between them.
3. The entity requires to disclose the following information.
(i) The name of the transacting related party.
(ii) A description of the relationship between the parties.
(iii) The nature of transaction.
(iv) Volume of the transaction either as an amount or a part thereof.
(v) Any element of related party transaction which is necessary for an understanding
of the financial statement.
(vi) Outstanding amount from related parties at the balance sheet date.
4. These are some disclosures required to be made by listed entities as per SEBI Regulations.
Q. A company passed a special resolution in its general meeting for grant of loan to
another body corporate in excess of limits specified in section 186(2). However, one of
the directors contended that prior approval of their financial institution is also required
for such lending. Explain whether the contention of the director is acceptable. (4 marks)
Ans:
1. According to Section 186 (2) of the Companies Act, 2013, no company shall directly or
directly give any load to any other person or body corporate or give any guarantee or
provides any security in connection with the loan made to any person or body corporate
or make any investment by acquisition or subscription of securities of any other body
corporate exceeding.
i. 60% of its paid up share capital, free reserve & securities premium account.
Or
ii. 100% of free reserve & securities premium account, whichever is higher.
2. It also states that if there is any loan subsisting from a bank or financial institution and if the
company has exceeded limits as stated above and if there is any default in repayment of such
loan or its interest payment a prior approval from such bank or FI’s shall be obtained.
3. By applying above provision to give case, A company passed a special resolution in its general
meeting for grant of loan to another body corporate in excess of limit specified in sec 186
(2)
i. If company has any borrowings from banks of financial institution and has made any default
in repayment of such then it has to take prior approval of concerned bank & financial
institution.
ii. If company has not borrowed any amount from bank then it does not have to
take prior permission of banks & financial institutions.
Q. Jupiter Ltd. intends to acquire shares in another company. How much amount can be
invested by Jupiter Ltd. without passing special resolution considering the facts mentioned
below?
Particulars Amount (Rs crore)
Paid-up Share Capital 1,000
Free Reserves –340
Securities Premium Account 780
Investment in another company 780
Examine. (3 marks)
Ans:
1. Pursuant to the provisions of Section 186 of the Companies Act, 2013, no company shall
directly or indirectly give any loan to any other person or body corporate exceeding 60% of
its paid up share capital, free reserve & securities premium or 100 % of free reserve and
securities premium account, whichever is higher.
2. Any investment beyond the above limit shall require previous approval of shareholders in the
general meeting by way of special resolution.
(i)60% of SC+FR+SPA:
60% [1000+ (340) + 780] = Rs. 864 crore.
OR
(ii) 100% of FR + SPA:
100% [(340) + 780] = Rs. 440 crore.
Higher of (a) or (b) = Rs. 864 crore

4. Rs. 864 crore can be invested by the Jupiter Limited. However, the investment already done
in another company amounts to Rs. 780 crore.
5. Hence, further investment that can be made by Jupiter Ltd. without passing special resolution
is Rs. 84 crore (Rs. 864 crore – Rs. 780 crore).
Q. Hi-Fi Ltd. has defaulted in repaying security deposits received from its dealers. Such
security deposits were accepted from the dealers for proper and timely performance of
the contracts by them. Hi-Fi Ltd. wants to invest Rs 5 crore in equity shares of Wi-Fi
Ltd. Is there any restriction under Section 186 of the Companies Act, 2013, when a
company is in default with respect to the repayment of security deposits? (5 marks) [June
2022]
Ans:
1. The given case pertains to provisions relating to conditions fulfilled prior to investments.
2. The provisions of the act under section 186 state that where company has defaulted on
repayment of any deposit it cannot make any loans, guarantee or investment till the time
such default persists.
3. By applying above provisions to the given case Hi Fi Ltd. has defaulted in paying back security
deposits & wishes to invest Rs. 5 Cr. In shares of Wifi Ltd. it cannot do so till it repays the
security deposits.
CHAPTER 11 - REGISTERS AND RECORDS

Q. Distinguish between Statutory Books & Statistical Books. (2 marks)
Ans:
Statutory Books Statistical Books
1. The books and records of the 1. The books and records which the
company which are to be compulsory company may or may not maintain are
maintained by a company are called called statistical books.
Statutory books
2. ROM, Register of Debenture holders 2. Register of payment of attendance fee,
are examples of statutory books Register of attendance of directors at a
board meeting are examples of statistical
books.
CHAPTER 12 – AN OVERVIEW OF CORPORATE REORGANISATION

Q. One of the major creditors of Jay Ltd. is of the opinion that an investigation in the
affairs of the company need to be undertaken in the interest of the company and the
creditors. Can he make an application for investigation of Jay Ltd. to the CG? (5
marks)
Ans:
1. An application for investigation can be made by either ROC, Central Government or
Shareholders by way of Special Resolution.
2. An application for investigation can be made in the following circumstances:
i. Investigation of the affairs of the company.
ii. Investigation of affairs of related company.
iii. Investigation of the ownership of the company
iv. Investigation of foreign companies.
v. Investigation by Serious Fraud Investigation Office (SFIO).
vi. Investigation on the order of Tribunal.
CG, if they think fit based upon the order of the creditor may order an investigation.
Q. Mere lack of confidence between majority shareholders and minority shareholders

would not be enough to order for relief under Section 242. Comment. (4 marks)
Ans:
1. Under Sec. 242 of Companies Act, 2013, a minority shareholder has a right to take action
against majority provided the any of the following conditions are fulfilled.
(i) Ultra Vires Acts
(ii) Fraud on Minority
(iii) Wrongdoers in control
(iv) Resolution requiring special majority passed by simple majority
(v) Breach of duty
(vi) Prevention of oppression and mismanagement
2. Thus, simply because mere lack of confidence does not give the minority rights to take
action against majority shareholders.
Q. A petition signed by 100 members of a company has been moved to Company Law
Board for prevention of mismanagement. Later on, half of the member withdrew their
consent after filing the petition. Examine whether the remaining applicants to the
petition would be successful in their complaint. (5 marks)
Ans:
1. Any petition for operation of mismanagement U/s. 241 and U/s. 242 of Companies Act, 2013
shall be moved by
- In the case of a company having a share capital:
(i) Not less than 100 members of the company, or not less than 1/10th of the total number
of its members, whichever is less; or
(ii) Any member or members holding not less than 1/10th of the issued share capital of the
company, provided that the applicant or applicant have paid all calls and other sums due on
their shares;
- In the case of a company not having a share capital, not less than 1/5th of the total number
of its members.
2. The requirement of minimum number is at the time of making the application and not
thereafter.
3. Thus, even if the application is withdrawn by 50 out of total 100 members, it shall be a valid
application.
Q. A transferor company got approval for a scheme of amalgamation with the transferee
company. An amount of Rs. 5 lakh was deposited by the transferor company on the
direction of the court for setting the dues of employee. An ex-employee of the
transferee company objected to the amalgamation citing that he is also entitled for
the claim in the amount deposited. Will he succeed. (5 marks)
Ans:
1. The given case pertains to the provisions related to amalgamation under Sec. 230 to 232 of
the Companies Act, 2013.
2. The provisions of the Act states that an amalgamation scheme can only be objected by
members or its creditors and not by the employees as they only have a representative right.
3. By applying the above provisions to the given case, an ex-employee of the company objected
to the scheme and claimed money from the company out of the amount kept aside for
settling the employee’s dues based upon the high court order. So in such a case, the ex-
employee shall not have any right to claim compensation.
Q. BOD of desire Ltd. decides to go for creditors winding up of the company. For this
purpose the Board decides to call an EGM on 30th June 2016. Draft a notice along
with explanatory statement for convening the meeting. Assume facts. (8 marks)
Ans:
Desire Ltd.
Registered Office
Telephone : Fax : Email :
NOTICE
Notice is hereby given that a meeting of creditors of the company is scheduled to be held on
[day] [date] [Time] [place] to transact the following business.
SPECIAL RESOLUTION :
“RESOLVED THAT pursuant to the provisions of the Companies Act, 2013 read with all other
applicable Rules & Regulations and subject to the permission of BOD, shareholders & all other
concerned authorities, the creditors of the company be & is hereby authorized to initiate the
winding up proceedings against the company by appointment of Y as the liquidator of the
Company for disposal of all of the assets & payment of liabilities thereof.
RESOLVED FURTHER THAT Mr. B, Managing Director of the company be and is hereby
authorised to do all such acts and take such necessary steps as may be required to give effect to
the said resolution”
For Desire Limited
SD/-
X
Company Secretary
Explanatory Statement:
Referring to the financial position of the company in past 3 FY, it has been seen & observed that
the company is undergoing a lot of financial trouble & that is why it has become difficult for the
company to repay its debts on time although the business has surplus of Assets to repay all the
debts of the Company. Thus, after negotiating with all the concerned parties, the majority
creditors have decided to wind up the company.
Q. Examining the provisions of the Companies Act, 2013, explain the powers of Central
Government to order amalgamation of companies in public interest. (8 marks)
Ans:
1. Central Government is satisfied that it is essential in the public interest, it may by order
notify in the Official Gazette and provide for the amalgamation of two or more companies
into a single company with such constitution, powers rights, authorities as may be prescribed
in order.
2. The order may also provide for continuation if there are any legal proceedings pending
between transferee & transferor company, such incidental & supplemental provision, in
opinion of Central Government be necessary to give effect amalgamation.
3. Interest of rights of members, creditors, debenture holder of transferor company should be
same in the transferee company after amalgamation. If any in case the interest of member
in transferee company is less than that they were having in original company, they shall be
entitled to compensate to that intent.
4. Any person aggrieved by assessment of compensation made by the prescribed authority
within a period of 30 days from the date of publication of such assessment in the Official
Gazette, can prefer an appeal to tribunal.
5. No order shall be made unless :
(i) Copy of order has been sent in draft to each of company.
(ii) The time for preferring an appeal has expired.
6. The copies of every order shall be laid before each house of parliament.
Q. Differentiate between Minority Shareholders and Dissenting Shareholders. (4 marks)

Ans:
 Minority shareholder:
1. He is a shareholder who holds less than 50% of the total shares of company.
2. A minority shareholder does not have the voting control of the company or any say
in the running of the company
 Dissenting shareholder:
It means the holder of the shares who have validity exercised and not effectively
withdrawn or lost their rights to dissent from merger and to receive payment of the
fair value of their shares.
Q. Mahesh is a creditor of an unlimited company. The company was wound up. Mahesh,
therefore, wants to sue the members of the company to recover the dues. Advice
Mahesh regarding the remedy available to him. (5 marks)
Ans:
1. The given case pertains to the provisions related to winding up and consequent dissolution.
2. The provisions of the act states that a creditor can submit his claim with the company only
during the winding up of company and once it is complete, one cannot submit his claims.
3. By applying the above provisions to the given case, since the company was already wound
up, Mahesh shall not have any right to claim compensation from the company or its
members.
Q. Winding up is only a process while dissolution puts an end to the existence of a
company. (4 marks)
Ans:
1 For bringing about a lawful end to the life of the company, the procedure is divided into 2
stages - “winding-up” and “dissolution”.
2 Winding up is the first stage wherein the liquidator sells the assets and pays off the liabilities
and surplus if any is distributed amongst the members.
3 Whereas, dissolution is the final stage whereby the existence of the company is withdrawn
by law. Order for dissolution can be passed by the court only.
4. Thus, the Company continues to be in existence even after winding up but ceases to exist
only after dissolution.
Q. XYZ Ltd. sold a mine, owned by it for Rs. 28.20 crore. A minority shareholder brought
an action for damages against their directors and against the company itself stating
that the real value of the mine was Rs. 100.00 crore. With reference to provisions of
Companies Act, 2013 state whether the action for damages is maintainable? (3 marks)
Ans:
1. The given case pertains to the rights of minority against the directors.
2. The provision of the acts states that if a minority shareholder has to bring an action against
directors it cannot do so since such right is conferred only to majority shareholders and
to minority in exceptional cases.
3. In the above case XYZ Ltd. sold a mine for Rs. 28.2 Cr. Which minority shareholders claim
to be Rs. 100 Cr. And accordingly sued the directors and company for the same. It has
been held that the shareholders has powers to sue the company however shall have no
right to sue the director.
Q. Under what circumstances can the National Company Law Tribunal order winding-up
of a company? (4 marks)
Ans:
Under the following circumstances the National company Law Tribunal may order winding
up of a company :
1. If the company has by special resolution, resolved that the company be wound up by the
Tribunal.
2. If the company has acted against the interest of the sovereignty and integrity of India, the
security of the state, friendly relations with the foreign states, public order, decency or
morality.
3. If on application made by the registrar or any other person authorized by central
government by notification under this act, the Tribunal is of the opinion that the affairs of
the company have conducted in fraudulent manner.
4. Where it is just and equitable in the opinion of the tribunal.
Q. The provisions of the Companies Act, 2013 relating to compromises and arrangement
are uniformly applicable to all the companies. Comment. (5 marks)
Ans:
1. Compromise means settlement of claims in dispute by mutual concessions of parties
whereas arrangement implies rearrangement of rights or of liabilities.
2. Compromise pre-supposes the existence of dispute while arrangement can take place with
or without dispute.
3. The provisions of compromise and arrangement are uniformly applicable to all the
companies. The only condition is that, the court has to understand the type of compromise
and arrangement and then has to pass an order.
4. For example, if compromise or arrangement results into reduction of capital, the court has
to follow different procedure. Whereas if it results into amalgamation or reconstruction,
different procedure needs to be followed.
Q. Can a contributory file a petition for winding up of the company? Discuss. (3 marks)
Ans:
1. Winding up is the process whereby assets are realized and liabilities are paid off and surplus,
if any, distributed among its members.
2. An application for the winding up of company has to be made by way of petition to the
Tribunal. The following persons can file the petition.
(i) The Company.
(ii) Any Contributory or contributories.
(iii) All or any of the Person specified in (i) & (ii)
(iv) The Registrar.
(v) Any person authorized by the Central Government in that behalf.
(vi) In case falling under clause (b) of section 271, by the Central Government or a State
Government.
3. Thus, we can conclude that contributory can file a petition for winding up.
Q. “The Companies Act, 2013 attempts to maintain a balance between the rights of
majority and minority shareholders.” Discuss. (3 marks)
Ans:
1. The given question is based on the judgment of famous case law Foss V. Harbottle.
2. In normal parlance, the company is governed by the decision taken by the majority
shareholder which may sometime results into losses to minority shareholder.
3. Minority shareholder started to bring case against all the actions of majority shareholders
which hindered majority shareholders from exercising their right property.
4. Thus, in the case of Foss V. Horbottle the majority rule was established but it does not and
minority shareholder are protected by the Companies Act, 2013 or any common law.
5. Thus, Majority shareholders can exercise their right but there are some exceptions where
minority can claim their right such as
(i) Ultra Virus Act.
(ii) Fraud on minority.
(iii) Wrongful doers in control.
(iv) Resolution requiring special majority passed by simple majority.
(v) Breach of duty.
(vi) Prevention of oppression & mismanagement.
6. Thus the companies Act, 2013 attempts to maintain a balance between the rights of
majority and minority shareholders by giving power to majority shareholder but not the
absolute one.
Q. Appointed date and Effective date are very important in any merger or amalgamation
through a scheme of arrangement. Do you agree? (3 marks) [June 2021]
Ans:
1. Under the scheme of merger or amalgamation, appointment date is the date from which the
scheme comes into the force i.e. date on which amalgamation takes place.
2. However, effective date is the date when the amalgamation/merger is completed in all
respects after having gone through the formalities involved and the transferor company have
been liquidated by the Registrar of Companies, which is, generally on the approval of the
NCLT and filling necessary documents thereof with the ROC.
3. Section 232(6) of the Companies Act, 2013 states that the scheme under this section shall
clearly indicate an appointed date from which it shall be effective and the scheme shall be
deemed to be effective from such date and not at a date subsequent to the appointed date.
Q. Ajit, a minority shareholder in PQR Ltd, filed a suit against the Directors on the
ground that they sold a property of the Company for 24,50,000 whereas its real value
was over 41.00.000. Is the action of Ajit justified? (5 marks) [June 2022]
Ans:
1. The given case pertains to provisions relating to rule of majority.
2. As per the provisions of the act if decisions are made in the company by majority then the
minority share holders cannot object to the same.
3. By applying the above provisions to the given case, Ajit is a manority share holder of PQR
Ltd. filed suit against director that they sold a property of Rs.41 lakhs at Rs. 24.5 lakhs. Ajit’s
action would not be justified as the decision is taken by the majority.
CHAPTER 13 – AN INTRODUCTION TO MCA 21 AND XBRL

Q. Write a short note on pre-scrutiny & check form. (5 marks)
Ans:
 Check form:
1. By clicking “check form”, the user will be in a position to find out whether the
mandatory fields in an e-form are duly filled-in.
2. For example, if the user enters alphabets in “Date of appointment of Director” field,
he/she will be asked to correct the entered information.
3. If the size of e-Form including attachment is of bigger size then the attachment may be
filed through an addendum. If the size of attachment is even bigger in size then the
details may be submitted in a floppy or compact disc at the ROC office.
 Pre scrutiny:
1. Pre-scrutiny is a functionality that is used for checking whether certain core aspects are
properly filled the-e-Form.
2. The user has to make the necessary attachments, in PDF format before submitting the
e-Form for pre-scrutiny.
Q. XBRL offers major benefits at all stages of business reporting & analysis. Discuss. (4
marks)
Ans:
1. XBRL stands for extensible Business Reporting language. It is used for electronic
communication of business and financial data.
2. XBRL uses different dictionaries known as Taxonomies to define specific tax used for each
standard these dictionaries are computer readable.
3. The benefits of XBRL are cost saving, speed, reliability, accuracy, better analysis and better
quality of decision making.
4. It enables users to repair and present data in all efficient manners, thereby saving time.
Q. Who are all the persons required to obtain Digital Signature Certificates? (4 marks)
Ans:
Every user who is required to sign an e-form for submission with MCA is required to obtain
a digital signature certificate.
Besides these, the following four types of user are identified as users of digital signatures and
are required to obtain digital signature certificate :
1. MCA (Government) employees.
2. Professional (CA/CS/CMA/Lawyers) who interact with MCA and companies in context
of Companies Act.
3. Authorised signatory of company including Managing director, Directors, Manager or
Secretory.
4. Representatives of Banks and Financial Institutions.
Q. Filing of financial statements in XBRL mode and by using XBRL taxonomy is
mandatory to certain companies. Discuss, referring to the provisions of the Companies
Act, 2013. (3 Marks)
Ans:
1. XBRL stands for extensible business reporting language and is use for electronic
communication of business and financial data.
2. XBRL uses different dictionaries known as Taxonomies to define specific tax used for each
standard.
3. The Ministry of Corporate Affairs has mandated the following select class of companies
mentioned below to file financial statements in XBRL mode:
(i) all companies listed with any Stock Exchange(s) in India and their Indian subsidiaries; or
(ii) all companies having paid-up capital of Rupees five crore and above; or
(iii) all companies having turnover of Rupees one hundred crore and above; or
(iv) all companies who were required to file their financial statements, using XBRL
mode.
4. The companies in banking, insurance, power sector, non banking financial companies and
housing finance companies need not file financial statements under XBRL mode.
Q. Short note on Pre-fill in e-forms and Pre-scrutiny in e-forms. (4 marks)

Ans:
 Prefill in e-forms:
1. Prefill is a functionally in an e-form that is used for filling automatically, the requisite data
from the system without repeatedly entering the same.
2. For example, by entering the CIN of the company, the name and registered office address
of the company shall automatically be pre-filled by the system without any fresh entry.
 Pre Scrutiny in e-forms:
Pre Scrutiny is functionally that is used for checking whether certain core aspects are
properly filled the e-form. The user has to make the necessary attachment in PDF
format before submitting the e-form for Pre Scrutiny.
Q. Assistant Company Secretary of JKL Ltd. has made excess payment of Rs 1 lakh to
MCA for filing of E-forms. What is the procedure of refund of MCA-21 fees? (3 marks)
[June 2021]
Ans:
1. For the purpose of making all transactions faster, improving service delivery and making office
of the Registrar paperless, the process of physical submission of documents is now eliminated
with e-filing. Users are required to make various payments to avail MCA21 services for such
e-filings.
2. However, while making payments, in case of instances like multiple payments or incorrect
payment or excess payment of MCA-21 fees, following procedure is required to be followed:
i. The Person is required to file the 'Refund Form' available on MCA21 portal for claiming
refund.
ii. The refund of MCA21 fees is available in the following cases:
Multiple Payments -This includes cases where service seeker does multiple filings and
makes payments more than once for the same service. However, refund shall not be
allowed in respect of approved e-Forms.
Incorrect Payments - This includes cases where the service seeker has made payment in
respect of an e-Form or Stamp duty through an incorrect option under Pay miscellaneous
fee facility.
Excess Payments -This includes cases where any excess fee has been paid by the service
seeker due to some incorrect data entered in the e-Form or incorrect data in MCA-21
system due to migration of data from legacy system.
iii. The refund form is to be filed within the stipulated time period. Also, there shall be
deduction in the amount to be refunded based on time period within which refund e-
form is filed.
3. No refund is permitted of the stamp duty, the person is required to approach the concerned
state/ union territory.
CHAPTER – 14 – GLOBAL DEVELOPMENTS
Q. What types of companies can be formed in Singapore as per the Singapore Companies
Act? (3 marks)
Ans:
1. Any person may, whether alone or together with another person, by subscribing his name
or their names to a constitution and complying with the requirement as to registration, can
form an incorporated company.
2. A company may be.
(i) a company limited by shares.
(ii) a company limited by guarantee or
(iii) an unlimited company
3. No company, association or partnership consisting of more than 20 persons can be formed
for the purpose of carrying on any business that has for its object as the acquisition or gain
by the company, association or partnership, or by the individual members thereof, unless it
is registered as a company under this Act, or is formed in pursuance of some other written
law in Singapore or letter paten.
Q. What are the requirements to form a proprietary company under the Australian
Corporations Act, 2001? (3 marks)
Ans:
1. A proprietary company is a company that is registered as, or converts to, a proprietary
company under the Australian Corporations Act, 2001.
2. A proprietary company must have at least one director, who must ordinarily reside in
Australia.
3. A proprietary company must:
i. be limited by shares or be an unlimited company with a share capital;
ii. have no more than 50 non-employee shareholders; and
iii. not do anything that would require disclosure to investors under the Chapter 6D of the
Act (except in limited circumstances).
4. A public company to have at least 3 Directors (excluding alternate Directors). At least 2
Directors must ordinarily reside in Australia.
CHAPTER – 15 – BOARD CONSTITUTION AND POWERS

Q. Examining the provisions of the Companies Act, 2013 relating to the constitution of
‘Nomination and Remuneration Committee’ and ‘Stakeholders Relationship
Committee’, answer the following:
(i) Is it mandatory for a listed company to constitute such committees? Also state
whether it is mandatory for a non listed public company having paid up share
capital of Rs. 5 crs to constitute such committees?
(ii) What shall be the composition of the committees in case the company is required
constitute such committees? (8 marks)
Ans:
Nomination & Remuneration Committee
1. Following companies shall have NRC:
(i) Every listed company
Or
(ii) every public company with:
- paid up capital of Rs. 10 crores or more or
- turnover of Rs. 100 crores or more or
- borrowings, loans, debentures or deposits exceeding Rs. 50 crores
2. It shall comprise of three or more non-executive directors out of which not less than one
half shall be independent directors.
Stakeholders Relationship Committee

1. Every company having 1000 shareholders, debenture holders, deposit holders and any
other security holders during any financial year shall constitute a stakeholders relationship
committee.
2. Its constitution shall include a person who shall be a non executive director and such
other members as may be decided by the board.
3. The Chairperson of such committee or in his absence, any authorised member shall attend
the annual general meeting of the company.
Conclusion:
Therefore, by applying above provisions to the given case, It is mandatory for listed company
to have NRC & if company have more than 1000 shareholders, debenture holders, deposit
holders and any other security holders it shall also constitute SRC.
Further, in case of, non-listed public company having paid up share capital of Rs. 5 crs is not
required to form NRC. However, to form SRC the same above limit of 1000 holders is
applicable.
Q. Decision taken by the BOD’s cannot be altered or changed by the shareholders even
if they want to approve it with unanimous majority. Comment. (4 marks)
Ans:
1. The powers between the boards and the shareholders are clearly divided by way of AOA
2. Wherein the powers are reserved for board, shareholders do not have right to intervene
but in the following exceptional cases shareholders can intervene even though the powers
remain with board.
(i) Directors acting Malafide:

In case if the directors are acting against the interests of the company, the
shareholders have a right to interfere and take the decision on behalf of the company
to rectify the wrong done.
(ii) Incompetent Board:
In case if all directors are interested in particular resolution then they may not be
able to take decision. In such cases, shareholders may intervene and take a decision
on behalf of the board.
(iii) Deadlock in the Board:
If the directors are unable to or unwillingly to act, the shareholders interfere to take
decision e.g. if a director votes in favour & another director votes against & the
Company has only two directors in such, no decision can be taken.
Q. BOD of Divine Ltd. decided to enter into a contract whereby Manish, a director of
the company shall acquire certain assets from the company for consideration other
than cash. Shareholders of the company object to the said decision of the Board.
Referring to the provisions of Companies Act, 2013 examine the validity of BOD’s
decision & state whether the contention of the shareholders shall be tenable. (5
marks)
Ans:
1. The given case pertains to the provisions of Sec. 192 and Sec. 180 of Companies Act, 2013.
2. The provision of the Act states that if a company enters into a contract for sale of its certain
assets to any of its directors, it shall be pre-approved by the shareholders by way of special
resolution and a valuation report shall be approved thereto.
3. By applying the provisions, the BOD of Divine Ltd. sold certain assets of the company to
Manish, director of the company by way of board resolution. The contention of shareholder
is tenable because such transaction requires prior approval of shareholders by way of special
resolution.
Q. Directors ought not to misuse the trust entrusted on them. (4 marks)
Ans:
1. Directors are the officers of the company who have control over its affairs. They are the
ones who act on behalf of the company in the company’s interest.
2. The ultimate ownership and control along with the decision-making powers rests with the
shareholders.
3. Indirectly, between the shareholders and directors, there exists a principle agency
relationship i.e. the directors act on behalf of the company while the ownership of this
company remains with the shareholders.
4. Since, the directors administer the property of the company on behalf of the shareholders,
there is a trustee beneficiary relationship between them, the only difference being that the
property is not in the name of the directors i.e. the trustees.
5. There also exists a fiduciary relationship between the shareholders and the directors i.e.
whatever activities, a director, carries out should be in the interest of the shareholders.
Thus, Directors ought not to misuse the trust entrusted on them.
Q. Aarav Ltd. (a listed company) is having an audit committee consisting of six directors
and the Board of Directors of the Company consists of eight directors of which three
are independent directors. As a Practising company secretary, clarify whether Aarav
Ltd. has complied with the requirement of appointment of independent directors with
regard to Audit Committee. (5 marks)
Ans:
1. As per Section 177 of Companies Act, 2013, an audit committee shall comprise of minimum
three director with majority being independent
2. Aarav limited is having an audit committee of six directors and the Board of Director of
the company consist of eight director of which three are independent director, assuming
that all independent director are part of audit committee Aarav has complied with the
requirement of appointment of independent director with regard to audit Committee.
Q. DEF Ltd. has made profit for last 3 consecutive financial years as under :
Year Rs. In Crore
2017 - 18 100
2018 - 19 150
2019 - 20 200
Considering the provisions of Companies Act 2013, state whether :
(i) DEF Ltd. can contribute Rs. 33.75 crore directly to a political party by a bearer
cheque ?
(ii) What is the limit on the maximum amount that can be contributed by a company
to a political party ?
(iii) Would your answer be different, if DEF Ltd. is a “Government Company” and
donation is given by an “account payee cheque? (l+2+2=5 marks)
Ans:
1. As per section 182 of Companies Act, 2013 any non government company or a company
which is in existence since last three financial years may make any political contribution
either directly or by incurring expenses on behalf of such political party.
2. The Finance Act, 2017 removed the maximum limit over the political contribution and
now company could contribute any limit by way of political contribution.
3. Referring to the above provisions
(i) DEF Ltd. can contribute Rs. 33.75 Crore directly to a political party by a bearer
cheque.
(ii) There is no maximum limit on amount that can be contributed by company to a
political party.
(iii) If DEF Ltd. is a Government company Sec 183 is not applicable.
.
Q. Jolly Retails Ltd. issued a notice for the meeting of its Board of directors scheduled for
on 5th June 2019 at its corporate office. One of the directors intimated that he would
be participating in the meeting through video conferencing. The Secretary contended
that the meeting cannot be participated through video conferencing and that the
concerned director cannot insist that the company should provide video conferencing
facilities for attending the board meeting. Is the contention of the Secretary tenable
as per the provisions of the Companies Act, 2013? Discuss with relevant case laws, if
any. (5 marks)
Ans:
1. As per Companies Act, 2013, a director intending to participate through video
conferencing made of audio visual means shall communicate his intention to the chairman
or the company secretary of the company.
2. Further, the chairman or company secretary shall make suitable arrangement in this behalf.
3. Referring to the above provisions and facts of the case, the contention of secretary is not
tenable as per the provision of Companies Act, 2013.
Q. The Board of directors of XYZ Ltd. wants to delegate all or any of their powers to any
of the directors of the company or any person even not in the employment of the
company for transfer of securities. Referring to the provisions of the Companies Act,
2013 advise in the matter. (5 Marks)
Ans:
1. As per the provisions of Companies Act, 2013, a board may delegate its powers to a
committee or to an individual executive director or to others if and to the extent that the
company’s article expressly authorize that delegation.
2. It is therefore important to review company’s articles whenever a board delegates its
power to ensure that any authority under articles is broad enough to cover the delegation.
3. Thus, the board of Director of XYZ Ltd. can delegate all or any of their power to any of
the directors of the company or any person of the company for transfer of securities
subject to the articles of the company.
Q. Logical Solutions Ltd., a listed company, is having a Corporate Social Responsibility
(CSR) committee constituted with the following members :
Rohan - Whole-time director & Chairman of CSR committee and Board
Sohan - Non-executive director
Mohan - Independent director
Can company constitute a Nomination and Remuneration committee consisting of
same three members of CSR committee with same composition ? Discuss. (5 marks)
Ans:
1. As per the provisions of Companies Act, 2013, CSR committee shall consist of 3 or more
directors, of which atleast one shall be independent directors.
2. Nomination and Remuneration Committee shall consist of three or more non executive
director out of which not less than one half shall be independent directors.
3. The CSR committee of Logical Solution Ltd. is in compliance with Companies Act, 2013.
4. However, it does not comply with provision relating to constitution of NRC as it consists
of whole time director and independent director are less than one half of total members
of committee.
5. Thus, company cannot constitute NRC consisting of same three members.
Q. Establishment of Vigil Mechanism and Sexual Harassment Complaints Committee is

mandatory only for listed companies. (5 marks)
Ans:
1. Every listed company and a company which
(i) accepted deposits from public
(ii) borrowed money from banks and public financial institution in excess of Rs. 50 crore
(iii) having paid up share capital Rs. 10 crore or more
(iv) having turnover Rs. 100 crore or more
shall establish a vigil mechanism for their director and employees to report their genuine
concern or grievance.
2. The Act mandates that all companies having more than 10 women employees shall disclose
in annual report about the Number of complaints of sexual harassment received in the
year; disposed off, cases pending, etc.
Q. ABC ltd. is a non-listed public company with a paid-up share capital of Rs. 50 crore.
It has deposits of Rs. 10 crore. Its turnover In the last financial year was Rs. 101 crore.
It has 800 equity shareholders and 500 deposit holders. Does it mandatorily require to
have :
(a) A Nomination & Remuneration Committee
(b) Stakeholders Relationship Committee ?
Ans:
1. As per section 178 of Companies Act, 2013, every listed company and every public company
with paid up share capital of Rs. 10 crore or more OR turnover of Rs. 100 crore or more
OR borrowing, loan, debenture exceeding Rs. 50 crore shall have a nomination and
remuneration committee.
2. As per Companies Act, 2013 every company having 1000 or more shareholder, debenture
holder, deposit holder and any other security holder during any financial year shall
constitute a stake holders relationship committee.
3. Referring to the above provision and given fact of case, I hereby conclude that ABC Ltd. is
mandatorily required to have both
 Nomination and remuneration committee
 Stakeholders Relationship Committee
Q. XY Ltd. is a (Unlisted) wholly owned subsidiary of ABC Ltd. (Listed). XY Ltd, annual
turnover was Rs. 120 crore as per the last audited balance sheet. The auditor of XY
Ltd. is of the opinion that, XY ltd. is covered under Rule 4 of Companies (Appointment
and Qualification of Directors) Rules, 2014 and so it should compulsorily appoint
Audit Committee. Whether the observation of the auditor is tenable? (4 marks)
Ans:
1. In terms of the provisions of section 177 of the Companies Act, 2013, every listed company
or every public company with
 Paid up share capital Rs. 10 Crore or more or
 Turnover Rs. 100 Crore or more or
 Borrowing, loan, debenture of deposit exceeding Rs. 50 crore shall have an audit
committee.
2. However, the above stated provisions aren’t applicable to a wholly owned subsidiary,
dormant company or a joint venture company.
3. Since XY Ltd. is a unlisted wholly owned subsidiary of ABC Ltd, the said provisions are not
applicable to XY Ltd and therefore, the contention of the Auditors is incorrect.
Q. Ganesh and his wife Seema are the shareholders of the XY Company Ltd, holding
jointly 3% of equity shares. Ganesh is working in the company as executive vice-
president of Operations and he draws a salary of Rs. 8 lakh per month. His son Jackson
is a technical specialist and is also employed in the same company drawing a salary of
Rs. 9 lakh per month. The managing director of XY Company Ltd., Agarwal is paid an
annual salary of Rs. 90 lakh.
Under these circumstances does the Board of Directors have any duty towards these
employees under Section 197 of the Companies Act, 2013? (8 marks)
Ans:
1. The board shall include a statement showing the names of top ten employees in terms of
remuneration drawn and name of every employee.
2. If employed throughout the year, was in receipt of remuneration for that year which in the
aggregate was not less than one crore and two lakh rupees.
3. If employed for a part of financial year was in receipt of remuneration for any part of that
year at the rate in aggregate not less than Rs. 850000 per month.
4. The full disclosure shall be made :
(i) Name and designation of employee
(ii) Remuneration received
(iii) Nature of employment
(iv) Qualification and experience
(v) Date of commencement of employment
(vi) Age of such employee
(vii) Last employment
(viii) Equity holding of such employee in the company
(ix) If such employee is a relative of any director or manager, details thereof
The concerned details shall also be made available to any shareholder of the company at
specific request made by him / her to the company.
Q. Moon Oil Exploration Ltd. (MOEL) was incorporated on 1st June 2007 and the
company made a considerable amount of profit in the past years: Financial Year Net
Profit 2016-17- 25Crore; 2017-18 -10 Crore; 2018-19- 12 Crore
i. In the current financial year 2019-20, the company wants to contribute to a political
party. How much can it contribute?
ii. If MOEL had contributed to political parties earlier to the year 2017, how much
could it have contributed at the maximum during those years?
iii. The Chairman of MOEL directed its account manager to pay a political party’s office
an amount of Rs 50 Lakh by cheque as part payment to the party, can he do so?
iv. The Board of directors authorised a payment to the National Defence Fund too but
wanted to not show it in profit and loss account. Is it possible to do so?
v. A sum of Rs. 2 lakh was spent by MOEL on an advertisement in a tract published by
a political party? How it is to be treated in the accounts of the company? (5 marks)
Ans:
1. According to the Sec 182 of the Companies Act, 2013 any Non-Government company or
a company which is in existence since last three financial years may make any political
contribution. Thus, in given case, Moon Oil Exploration Ltd. was incorporated on 1st June
2017 and net profit of Last 3 FY is also given so we can conclude company is in existence
since last 3 years so Company can contribute any amount to any political party.
2. Before 2017, only upto 7.5% of average net profits during the three preceding financial
years. Here, profit has not been given so we cannot calculate the exact amount.
3. Chairman can direct to pay contribution only if resolution is passed in Board meeting or he
is duly authorized by Board. Such contribution shall not be made in any other way other
than account payee cheque or any other electronic clearing system. Thus, chairman can do
so if he is authorized by Board.
4. The Board can contribute any amount to National Defense Fund, but such contribution
shall mandatorily be disclosed in P & L Account. Thus, board can pay to National Defense
Fund but disclosure in P & L A/c must be given.
5. Amount contributed can be used for advertisement, but such publication must be made by
or on behalf of political party or if not then it must be for the benefit of such political party.
Thus, a sum of Rs. 2 lakhs was spent by MOFI will be considered as politician contribution
and should be debited to P&L A/C.
Q. RPK Ltd. is an unlisted company having Rs. 9 crore as paid up capital and Rs. 52 crore
as long term loan. The directors of the company would like to know from you the
answers for the following questions :
i. Would the company be liable to constitute an audit committee ?
ii. If the company is listed after a fresh issue of shares to the tune of Rs. 50 crore, in
such a situation, would the company be liable to constitute Audit Committee ?
iii. What is the quorum for meetings and number of meetings to be held in a year by the
audit committee? (4 marks)
Ans:
1. According to Sec 177 of the Companies Act, 2013 the following companies are required to
form audit committee.
(i) Every listed company or
(ii) Every public company with
a) Paid up capital of Rs. 10 cr or more or
b) turnover of Rs. 100 cr or more or
c) Borrowing, loan, debenture or deposits executing Rs. 50 cr shall have an audit
committee.
2. Requirements for quorum applies only to listed companies since as per the Companies Act,
2013, there is no requirement of any quorum for Audit Committee. The quorum in case of
listed companies shall be either two member or one third of the members of the audit
committee, whichever is greater, but there should be a minimum of two independent
member present.
3. By applying above provisions to given case.
(i) The company is required to constitute audit committee as a loan exceeds Rs. 50cr.
(ii) Yes, listed company is required to constitute audit committee.
(iii) The quorum for meeting shall be two member or one third of the members of audit
committee whichever is greater, but these should be a minimum of two independent
members. The audit committee shall meet at least four times in a year and the gap between
two meetings shall not be more than 120 days.
Q. The Board of Directors of Passion Ltd. has passed board resolutions for the following
items. Examine the validity of resolution as a secretarial auditor of the company:
(a) To invest the funds of the company for Rs 15 Lakh in ABC Mutual funds;
(b) To remit, or give time for the repayment of, any debt due from a director;
(c) To invest otherwise in trust securities the amount of compensation received by it as
a result of any merger or amalgamation;
(d) To take over a company or acquire a controlling or substantial stake in another
company; (4 marks)
Ans:
1. Section 180 of the Companies Act, 2013 states about the powers that can be exercised by the
Board of directors only with the consent of the shareholders by way of special resolution.
2. Further, section 179 states about the powers of the Board that can be exercised by resolution
passed at the meeting of the Board i.e. without prior approval of the shareholders.
3. By applying above provisions to the given case, validity of the resolutions passed by Passion
Ltd. is as under:
a) As per section 179, resolution passed by the Board of directors is valid considering the
investment made are within the threshold limit specified under section 186 of the act.
b) As per section 180, the Board of Directors of a company to exercise the power to remit,
or give time for the repayment of, any debt due from a director only with the consent of the
company by a special resolution.
c) As per section 180, the Board of Directors of a company to exercise the power to invest
otherwise in trust securities, the amount of compensation received by it as a result of any
merger or amalgamation only with the consent of the company by a special resolution;
d) Section 179 provides power to take over a company or acquire a controlling or substantial
stake in another company by means of resolutions passed at meetings of the Board.
Q. Vasu is independent director in various companies and he seeks your opinion regarding
presence of independent director in different types of Committees. Advise. (4 marks)
[June 2021]
Ans:
Following Committees require presence of Independent director as per Companies Act, 2013
and SEBI (LODR) Regulations, 2015:
1. Audit Committee – As per the Act, majority of directors need to be Independent director.
Whereas, as per LODR regulations, 2/3rd members need to be Independent directors.
However, in case of listed entity having outstanding SR equity shares, committee to have only
Independent directors.
2. Nomination and Remuneration Committee (NRC) – As per the Act, not less than half of the
committee members shall be Independent directors. Whereas, as per LODR regulations, 50%
shall be Independent directors. However, in case of listed entity having outstanding SR equity
shares, committee to have 2/3rd of its member as Independent directors.
3. Risk Management Committee – As per LODR regulations, listed entity having outstanding SR
equity shares to have 2/3rd of its member to be Independent directors.
4. Corporate Social Responsibility Committee – As per the Act, committee to have atleast 1
Independent director, if any.
Q. The Board of directors of Well Ltd, wants to contribute 60,000 to a charitable trust
during the financial year 2022-2023. During the financial year 2021-2022, the company
suffered losses; however, during the financial years 2019-20 and 2020-21 the net profits
were 12,00,000 and 5,00,000 respectively. The directors are contemplating to
contribute the said amount in spite of the losses. In this connection, state whether the
directors can do so? Whether contribution towards Gratuity Fund for employees of the
company can be considered as contribution to charitable trust under the Companies Act,
2013? Suitable assumptions can be made. (4 marks) [June 2022]
Ans:
1. The given case pertains to provisions relating to contribution by company to charitable fund.
2. Provisions of the Act state that, a company can contribute to charitable fund, amount upto
5% of average net profits of last year. Any amount beyond this shall require shareholders
approval at general meeting [GM].
3. By applying above provisions to the given case :
12,00,000+500,000+0
 5% of
3
17,00,000
 5% of > 5% of 566,666
3
 Rs. 28,333 is the maximum amount that can be contributed to charitable fund. In order
to contribute Rs. 60,000 company will require shareholders approval by special resolution
in GM.
4. Contribution towards gratuity fund is a statutory contribution & connot be considered as
contribution to charitable trust.
Q. With the scenarios described below, examine whether any of the following companies
is required to constitute Audit Committee as per provisions of the Companies Act, 2013?
Name of the Paid up capital Turnover Aggregate outstanding
company (Rs. In Crore) (Rs. In crore) loan, debenture &
deposits
(Rs. In crore)
A Ltd. (Unlisted) 8 75 55
B Ltd. ( Listed) 10 75 11
C Pvt. Ltd. 8 110 11
D Ltd. ( Unlisted) 10 51 5
(4 marks) [June 2022]
Ans:
1. As per the provisions of Companies Act, 2013, following classes of companies have to form
Audit Committee :
a) Every listed company
b) Every other public company having
 Paid up capital of Rs. 10 Crore or more
 Turnover of Rs. 100 Crore or more
 Outstanding borrowing of Rs. 50 Crore or more
c) Private company is not required to form audit committee.
2. By applying the above provisions.
i) A Ltd. – required to form AC as turnover exceeds Rs. 50 cr.
ii) B Ltd. – Required to form AC because it is listed.
iii) C Pvt. Ltd. - Being a private company not required to form AC.
iv) D Ltd. – Required to form AC as its paid up capital is Rs. 10 cr.
CHAPTER 16 - DIRECTORS
Q. Manish a Director of PQR Ltd defaulted in filing annual accounts and returns with
ROC for a continuous period of 3 financial years ended 31.3.12. Based upon the
provisions of the Act, State
a) Whether Manish can continue to be a director of PQR Ltd, when he is also director
in UV Ltd. ?
b) If the defaulting company is Pvt. Ltd Company, what would be your answer? (8
marks)
Ans:
1. The given case pertains to the provisions of 164(2) regarding disqualifications of director
of the Companies Act 2013.
2. The provisions of the Act states that any person who is or has been a director of a
company which has not filed its annual accounts & annual returns for 3 financial years shall
not be eligible for appointment as director of any company & for reappointment in the same
company for a period of 5 years from the date of default.
3. By applying the above provisions to the given case, Manish is disqualified from being
appointed as a director in any public company for a period of 5 years i.e. the year in which
his reappointment is due. Also, he shall cease to be a director in those companies i.e. PQR
Ltd. & UV Ltd.
Even if defaulting company is a Pvt Ltd Company, the answer would have been the same
since the provisions state that default may happen in any of the company whether public or
private.
Q. Mr. X is a director in Greenfield Industries Ltd. He is a man of wide knowledge of
commercial matters. The company has not filed FS with the ROC for the years ended
31st March, 2014, 31st March, 2015 & 31st March 2016. However, it has filed the
annual returns for those years in compliance of the provisions of Companies Act,
2013.
Considering Mr. X’s huge experience, Redfield Industries Ltd. wants to induct him as
a director on its board. Referring to the provisions of Companies Act, 2013, examine
the validity of such proposition. (5 marks)
Ans:
1. The given case pertains to the provisions relating to Disqualification of Directors.
2. Provisions of the act states that any Director of company which has defaulted in filling its FS
or Annual Return for 3 consecutive financial years shall be disqualified from being appointed
as director in any company or in the same company for a period of 5 years.
3. By applying the above provisions to the given case, Mr. X who is a director of Greenfield
Industries Ltd. has defaulted in filling its financial statements for consecutive 3 F.Y. All the
directors of such a company shall be disqualified from being appointed as a director of
Greenfield Company Ltd. for a period of 5 years and from being appointed in a public
company and hence he cannot be appointed in Redfield Industries Limited.
Q. In what way does the Companies Act, 2013 & Rules made thereunder regulate the
appointment of Women director in a Company. Explain. (5 marks)
Ans:
1. The Act states that a company of prescribed class shall have atleast one women director
under Sec. 149.
2. The Rule 3 of Companies (Appointment and Qualification of Directors) Rule, 2014
prescribes the following class of companies to have atleast one women director
- Every listed Company
- Every other public company having :
a) Paid up capital 100 Crs or more or
b) Turnover 300 Crs or more.
3. Intermittent vacancy of Women Director shall be filled up immediately in next board
meeting or 3 months from the date of vacancy, whichever is later.
Q. A foreign national was intended to be appointed on the board of MNC in India. He

contends that DIN is not required for him since he is a foreign national. Whether his
contend is valid? (5 marks)
Ans:
1. Any person who wishes to be appointed as a director of a company in India even though it
is an MNC has to obtain DIN.
2. For obtaining DIN, an application in form DIR-3 is required to be made to the Central
Government. Verification of such DIN in form DIR-4 also needs to be done and it needs to
be digitally signed by a CA/CS/CMA or managing director or director of company in which
he is proposed to be director.
3. On receipt of said application, Central Government first generates a provisional DIN and
if approved, the same DIN becomes the final DIN.
4. Hence the contention of foreign national is invalid.
Q. Mr. Solid, a young professional of 29 years, has stayed in India for 150 days in the
previous financial year. He does not hold any shares in Happy Retails Limited, which
is a quoted [listed] company. Small shareholders have decided amongst themselves
that he is proposed to be appointed as small shareholders director who shall not be
liable to retire by rotation & his tenure shall be for five years from the date of joining
the office of director. Examine. (5 marks)
Ans:
1. The given case pertains to the provisions relating to Appointment of small shareholders
director.
2. The provisions of the Act states that, to be a small shareholder director, a person needs to
a small shareholder first i.e. he shall not hold shares more than Rs 20,000 of nominal value.
His term shall not be subject to retirement by rotation & it shall be for maximum period of
3 years.
3. By applying above provisions to the given case, Mr. Solid is not a small shareholder & also
shareholders propose to appoint him for a period of 5 years which defeats the provisions
of the Act & hence he cannot be appointed as a small shareholders director.
Q. The chairman & managing director of professional Ltd. resigned on 6th May, 2009
but the company filed form DIR-12 with the ROC stating the date of resignation as
15th Jan,15. The company issued various cheque to its investors in repayment of their
deposit after 6th May,14 which were bounced. The investors filed a complaint
against the former chairman and managing director. The articles of the company
provided that resignation would be effected from the date it was tendered. Will the
CMD be liable in this case? (8 marks)
Ans:
1. The given case pertains to Sec. 168 of the Companies Act, 2013 relating to resignation of
a director.
2. The provisions of the Act states that a Director may resign from his office by giving a notice
in writing. The notice shall become effective from the date on which it is received by the
company or any date specified by the Director in the notice, whichever is later.
A company is required to file form required to file form DIR-12 & concerned director is
required to file form DIR-11 with the ROC, within 30 days from the effective date of
resignation. Though filing of DIR 11 is optional for a director now.
3. By applying the about provisions to the given case, CMD cannot be held liable for an act
of default after the date of resignation. Filing form DIR-12 is the responsibility of the
company & if the same is not done, the company & its officers are considered to be in
default.
Q. Vinay was appointed as an additional director by the board of directors of Prudent

Ltd. in its meeting held on 20th July 2005. Further, Vinay was appointed as a director
by members of the company in its AGM held on 2nd Sept. 05. Comment whether
Vinay is again required to file consent to act as a director. (5 marks)
Ans:
1. The given case pertains to the provision related to filing of consent for appointment of
director.
2. The provisions of the Act states that consent is required to be filed at the time of
appointment of a person as a director and not while changing his designation during the
general meeting.
3. By applying the above provisions to the given case, Vinay was appointed by the board at its
meeting held on 29.7.05, the company at that time must have filed DIR-2 along with DIR-
12 with the ROC. However, on 2.9.05, when his appointment is confirmed as a director,
it involves a change in designation for which from DIR-12 is not required to be filed as no
fresh consent is required.
Q. Krugen Holding Ltd. promoted Ms. Bhavna & designated her as Director. Examine
the validity of such a designation under the provisions of the Companies Act, 2013.
(4 marks)
Ans:
1. Any person, who is an employee of a Company appointed as a director assumes the position
of the WTD.
2. Krugen holding ltd. promoted Bhavna as a director [administration] who is presumably the
employee of the Company. She automatically assumes the position of a WTD.
3. Such appointment shall apart from the resolution of board shall also require the approval of
the shareholders in GM by way of an ordinary resolution.
Q. Distinguish between Appointment of Small Shareholders’ Director and Appointment

of Independent Director. (4 marks)
Ans:
 Appointment of small shareholders director:
1. A listed company may by notice of not less than 1000 or 1/10 th of the total number of
small shareholder, whichever is less, appoint a small shareholder director.
2. A nominated small shareholder director shall atleast 14 days before the meeting leave a
signed notice of his intention to be appointed along with his details as a director.
3. The notice shall be signed by the proposed director and shall state his DIN, consent to act
as a director and a confirmation that he is not disqualified.
 Appointment of independent director

1. Every listed company shall have atleast 1/3rd of the total number of director as independent
director.
2. Central government by way of rules has prescribed certain other class of companies which
shall have atleast 2 directors.
The following class of unlisted public limited companies shall have at least 2 independent
directors, where
- paid up share capital is Rs, 10 Cr or more
- Turnover is Rs. 100 Cr or more
- Loans, Deposit, Debenture Rs. 50 Crore or more.
The above stated provisions are not applicable to a wholly owned subsidiary, joint venture
company or a dormant company.
Q. Distinguish between Additional & Alternate Director. (4 marks)

Ans:
Additional Director Alternate Director
1. A director appointed in addition to the existing A director appointed in place of the
director is known as the Additional Director. Original Director is known as the
Alternate Director.
2. There is no specific reason as to the Alternate Director is appointed in case
appointment of an Additional Director. where the Original Director has gone
out of India for a period not less than 3
months.
3. The term of the Additional Director is up to The term of the Alternate Director
the ensuing AGM of the company on due date expires as the Original Director returns
of the AGM, whichever happens earlier. to India.
Q. A listed company appointed Mr. Radheshyam as an Independent director on its board.

The board of directors of the Company appointed him for a period of 5 years initially.
However, Mr. Radheshyam is confused about his appointment in the Company. He
wishes to seek your advice whether:
i) He can be reappointed for a period of 3 years.
ii) Whether his cooling period shall commence after (5+3) years or after 10 years.
(8 marks)
Ans:
1. The given case pertains to sec 149 of the Companies Act 2013.
2. The provisions of the Act states that independent director can be appointed for a period of
5 years by way of ordinary resolution and then he can be reappointed for further period of
5 years by passing a special resolution. A cooling period shall be applicable for 3 years after
such term.
(i) Mr. Radheshyam can be reappointed in the company for 3 years by way of special
resolution.
(ii) His cooling period shall begin as soon as he completed his second term in the
company i.e. 8 years.
Q. Mr. Sunil Goyal, a director of XYZ Limited wants to go on a foreign trip. He wants to
assign his office to the Vice president of the company. Mr. Sunil Goyal seeks your
advice whether he can do so. Referring to the provisions of the Companies Act, 2013
advise him on the matter. (4 marks)
Ans:
1. The given case pertains to provisions relating to Assignment of office of Directors.
2. Provisions of the Act states that, if the original director moves out of India for not less than
3 months then in that case Board has a right to appoint any other person as a director in
his place till the time original director comes back to India. As such a director is not allowed
to assign his office to any other person as a director.
3. By applying the above provisions to the given case, Mr. Sunil Goyal, director of XYZ Ltd.
wants to go on a foreign trip & assign his office to VP of the company. If it is to be done it
requires the resolution of the Board to appoint him as an alternate director & Mr. Goyal
cannot do this on his own. But a director otherwise is not allowed to assign his office to
anyone else.
Q. A person other than retiring director is also eligible for appointment as director.
Examine. (8 marks)
Ans:
1. A person who is not a retiring Director shall not be eligible to be appointed to the office of
a Director, if atleast 14 days before the date of the meeting, any person signifying his
intention to appoint him as a Director of a company, has left a notice in writing for such
candidature as a Director.
2. Such application shall be accompanied by a deposit of Rs. 1,00,000 or such higher amount
as may be prescribed and the same shall be refunded, if the person proposed to be appointed
gets elected as a Director or gets more than 25% of total valid votes cast on show of hands
or on poll.
3. The requirements of deposit of amount shall not apply in case of appointment of:
(i) An independent director or
(ii) A director recommended by the Nomination and Remuneration Committee or
(iii) A director recommended by the Board of Directors of the Company, in case if
a company is not required to constitute Nomination and Remuneration Committee.
Q. In Bright Ltd., vacancy of a director is caused by the death of Mohan, a director of the
company, after three months of his joining the company as a director. The Board of
the company, therefore, appoints Sumit in his place but did not seek approval of the
company in general meeting. Referring to the provisions of the Companies Act, 2013,
examine the validity of Sumit’s appointment. (5 marks)
Ans:
1. The given case pertains to the provisions relating to the Appointment of a Casual Vacancy
Director.
2. The provisions of the Act states that in case of death of a director, the Board has power to
fill that vacancy by appointing any other person as a director at his place. Shareholders
approval is required in the next general meeting for appointing a person as a casual vacancy
director.
3. By applying above provisions to the given case, Mohan a director of Bright Ltd. died. The
board of the company appointed Summit as a CVD at his place. The powers to appoint the
CVD is with the board & shareholders approval is required after such appointment.
Q. Johnson, a director in Disha Ltd. goes on a leave for 8 months to France for personal
reasons. BOD at a meeting appoints Peter for a period of 2 months as an alternate
director. AOA of the Company does not confer upon the BOD any such power to
appoint anyone as alternate director. Referring to the provisions of the Companies
Act, 2013, examine the validity of the above appointment. What shall be your answer
in case the Board appoints Peter for the period of Johnson’s leave? (5 marks)
Ans:
1. The given case pertains to the provisions relating to Appointment of an Alternate Director.
2. The provisions of the Act states that a company has powers to appoint the alternate director
in case if the original director has moved out of India for more than 3 months. An alternate
director may be appointed for part of the period during which the original director has
moved out of India.
3. By applying above provisions to given case, Disha Ltd. may appoint Peter as an alternate
Director in place of Johnson who has gone out of India for 8 months. Even if the Board so
desires he may be appointed for the entire period during which the vacancy exist. However,
powers to appoint such alternate director shall be provided in the AOA else the company
cannot make such appointment.
Q. A Ltd., a public company wants to appoint Alternate Directors. Examine the validity
of acts of the company with reference to provisions of the Companies Act, 2013 in
following cases :
(i) ‘D’ a director was absent for a period of two and half months. It is proposed to
appoint an alternate director.
(ii) ‘E’ a director was absent for 4 months. It is proposed to appoint ‘F’ as an
alternate director in place of ‘E’. ‘F’ is already acting as an alternate director in “A”
Ltd. for a director ‘G’ who was absent for 5 months.
(iii) Can the said appointment, if permitted, be passed by circular resolution? (1+2+2
=5 marks)
Ans:
1. As per the provisions of the Companies Act, 2013 an alternate director can be appointed
if the original director is absent for a period of not less than 3 months from India.
2. The person to be appointed as alternate director shall be the person other than the person
holding any alternate directorship for any other directors in the company or any person
holding directorship in the same company.
3. An alternate director can be appointed by passing resolution by circulation.
Conclusion:
(i) An alternate director cannot be appointed at place of D as he is absent for (less than
three months) two and half months.
(ii) F is already acting as an alternate director in the place of G who is director of A ltd.
Thus, cannot be appointed as an alternate director.
(iii) The said appointment, if permitted can be passed by circular resolution.
Q. Anil, a shareholder holding 9% equity shares of the company, who is not holding any
directorship wants to stand for directorship in Pritam Ltd. in its next annual general
meeting. State the procedure for appointment of Anil as per the provisions of the
Companies Act, 2013. (5 Marks)
Ans:
1. In the above case, Anil is not holding any directorship in Pritam Ltd. and wishes to stand
for directorship in Pritam Ltd.
2. As per the provision of selection 160 of the Companies Act, 2013 a person who is not a
retiring director shall not be eligible to be appointed to the office of the director, if atleast
14 days before the date of meeting. Any person signifying his intention to appoint his as a
director of a company, has left a notice in writing for such candidature.
3. Such application shall be accompanied by a deposit of Rs. 1,00,000 or such higher amount
as may be prescribed and same shall be refunded, if the person gets elected or gets more
than 25% of total valid votes cast on show of hands or by poll
Q. Directors can be removed only by passing a special resolution. (4 marks)
Ans:
1. A Company may remove a director except a director appointed by NCLT (National
Company Law Tribunal) before expiry of his period.
2. A special notice is required to be served to the company.
3. On receipt of such notice, copy shall be sent to the concerned director who is to be
removed.
4. The director on receipt of such notice send a copy of representation to the members
or may be orally heard at the meeting of sufficient time is not available.
5. And after such representation, shareholder shall decide by way of an ordinary resolution
to remove such director.
6. No need of special resolution to remove the director except independent directors
removal during the second term.
Q. T’ Ltd. a listed company has Rs. 20 crore paid up share capital and has nine directors
on its Board. Advise T Ltd. on the following matters :
(i) The number of independent directors it should appoint on its board.
(ii) How many independent directors should be appointed by T Ltd. in case it is an
“unlisted public company” ?
(iii) Can T Ltd. appoint an independent director for second consecutive term of 6 years
whose first term, as independent director in T Ltd. was for 4 years ?
(iv) T Ltd. wants to appoint another independent director for further period of 2 years.
He has already completed 2 consecutive tenures of 4 years each as an independent
director in T Ltd. ? (4 marks)
Ans:
1. As per section 149(4), every listed company shall have atleast ⅓ rd of total directors as
independent director.
2. In case of unlisted public companies, it shall have atleast 2 directors as independent
directors if;
(i) Paid up share capital Rs. 10 Crore or more
(ii) Turnover of Rs. 100 Crore or more
(iii) Debenture, deposits of Rs. 50 crore or more
3. An Independent Director shall hold office for a period not more than 5 years and shall
be eligible for reappointment for further 5 years by a special resolution.
4. However, no independent director shall hold any office for more than 2 consecutive
terms.
Conclusion:
Referring to the above provisions and facts of the case,
(i) T Ltd. shall appoint at least 3 independent directors
(ii) T Ltd. shall appoint at least 2 independent directors in case it is unlisted public company
(iii) T Ltd. cannot appoint an independent director for second consecutive term of 6 years
(not more than 5 years) although whose first term was for 4 years.
(iv) T Ltd. cannot appoint another independent director for further period of 2 yrs. As he has
already completed 2 consecutive tenures of 4 years each as an independent director in T
Ltd.
Q. Abhay Ltd. committed a default by failing to file balance sheet & profit & loss
account. Proceedings have been initiated against the non-executive director.
However, he contended that he had resigned before the date of default whether the
contention of ex-director can be taken into account? (5 marks)
Ans:
1. The given case pertains to the provisions relating to default by a director.
2. In terms of provisions of the Act, all the directors of a company who are its directors as on
the date of default shall be liable to be prosecuted.
3. In the given case, a non-executive director of Abhay Ltd. resigned before the date of default
i.e. non-filing of Financial Statements since the director had resigned before the date of
default he cannot be prosecuted for such an offence.
Q. Distinguish between Alternate director and director appointed in casual vacancy (4
marks)
Ans:
Sr. Alternate Director Casual Vacancy Director
No.
1. If there is a temporary vacancy created Casual vacancy director is appointed in
on the board, the company appoints an case if there is a permanent vacancy
alternate director. created on the board.
2. Alternate director is appointed in case Casual vacancy director is appointed in
where the original director has moved cases where the original director has
out of India for a period not less than 3 either died or resigned or is disqualified
months. to be a director.
3. The term of the alternate director The term of the casual vacancy director
expires where the original director comes to an end when the term of the
returns back to India. original director expires
4. In case of retirement and reappointment, Since, there is a permanent vacancy so,
it is the original director who is re-appointment of original director is not
reappointed. possible.
Q. The Board of Directors of ‘Z’ Ltd. appoints Pawan as a director by passing a circular
resolution. The appointee seeks your advice about the tenure of his appointment
Advice. (5 marks)
Ans:
1. The provisions relating to appointment of additional director are given under Section 161
of the Companies Act, 2013.
2. The provisions of the Act states that the term of the Additional Director remains up to the
date of next AGM or due date of holding such AGM, whichever happens earlier.
3. By applying the above provisions to the given case, Pawan was appointed by the board by
way of circular resolution and hence, he shall be treated as an additional director and his
term shall be up to the date of next AGM or up to the due date of holding such AGM of ‘Z’
Ltd.
Q. DEF Ltd., a Company listed at BSE failed to file its report on the AGM for the FY
ended 31/3/13 with ROC, Mumbai. The Company further abstained from filing the
said report for another 2 years, viz. F.Y. ended 31/3/14 & 15 respectively. Examine
the provision & states whether the default committed by the company amounts to an
offence. If so, to what extent it is possible to get the offence(s) compounded ? (5
marks)
Ans:
1. The given case pertains to the provision of filing of report on the AGM.
2. The provision of the Act states that every listed company is required to file a summarized
report of the proceeding of AGM along with all its particulars with the registrar of company
is MGT-15 within 30 days of AGM. If it is not done it shall amount to an offence.
3. By applying the above provision to the given case, the DEF Ltd. failed to file the said report
with registrar for 3 consecutives F.Y. Since the nature of offence is similar DEF Ltd. shall
make an application for compounding of offence with ROC Mumbai.
Q. Newly incorporated Abhay Limited has not mentioned names of first directors of the
company in the AOA. Referring to the provisions of the Companies Act, 2013, advise
the BOD regarding the appointment of first directors of the company. What would
by your answer in case the company is a One Person Company? Also state whether
provisions of the Act are applicable to a Private Limited Company. (6 marks)
Ans:
1. The given case pertains to provisions relating to Appointment of first Directors of company.
2. Provisions of the Act states that first directors are those who are appointed by virtue of
MOA & AOA of the company. In case if the names of first directors are not mentioned in
the articles, then the subscribers to the Memorandum by default becomes the First
Directors of company.
3. By applying the above provisions to given case, in case of Public Ltd. company, in case if the
names of first directors is not mentioned in AOA, the subscribers to the memorandum of
Abhay Ltd. shall by default become the first directors. If company was an OPC, the sole
member shall become the first director while, in case of a private company, the subscribers
shall become first directors.
Q. Barkha Ltd. has four directors on its Board. A Board meeting was convened which
was attended by only 2 directors, where Rekha was appointed as an additional
director. Rekha is related to both the directors. Referring of the provisions of the
Companies Act, 2013, examine the validity of the appointment. (4 marks)
Ans:
1. The given case pertains to the provisions relating to Appointment of any person as a director
by an Interested Board.
2. Provisions of the Act states that, interested directors are those who can neither vote nor
can their presence be counted for the purpose of quorum. Such interested directors cannot
vote on the resolutions therefore.
3. By applying above provisions to given case, Barkha Ltd. has on its board 4 directors out of
which 2 are not present & remaining 2 are interested in the appointment of Rekha. Since
interested directors neither form part of quorum nor can they vote, hence, Rekha cannot
be appointed in this Board Meeting. The board may either appoint more persons as
directors to form a valid quorum and then appoint Rekha or else take this proposal before
the shareholders.
Q. Five BM were held in Asha Ltd. during the period from Jan to June in the calendar year
2016. Rajeev an additional director, attended none of these meetings. For the first
2 meetings he sought leave of absence from the Board but did not inform the Board
for the remaining 3 meetings. Examining the provisions of Companies Act, 2013,
decide whether he is disqualified to act as a director. (5 marks)
Ans:
1. The given case pertains to provision relating Vacation of office of a Director.
2. Provisions of the Act states that if a director is absent during all the meetings of Board
during a period of 12 months with or without seeking the leave of absence from the Board,
his office shall stand vacated.
3. By applying above provisions, Rajeev, absented himself from all the 5 BMs of Asha Limited
held during the calendar year, out of which he sought leave of absence for first 2 BMs. In
such circumstances his office shall stand vacated.
Q. Amitabh is a director in PQR Overseas Trading Ltd. The company’s name has recently
been struck off from the register of companies by the Registrar. He does not hold
directorship in any other company. Therefore, Amitabh applied to the Registrar for
cancellation of his DIN. However, the application was rejected by the Registrar. Is the
rejection of application correct in your opinion? (5 marks)
Ans:
1. DIN is a Director Identification Number allotted by Central Government to any person
intending to be a director or an existing director the company.
2. DIN can be surrendered in the following cases.
(i) If it is found to be duplicated in respect of the same person.
(ii) The DIN was obtained in a wrongful and fraudulent manner.
(iii) Death of the individual.
(iv) Person of an unsound mind declared by the court.
(v) Undischarged insolvent.
(vi) He has never been appointed as director in any company.
3. By applying above provision to give case Amitabh is a director in PQR Overseas Trading
Ltd. The company’s name has been struck off, he does not hold directorship in any company
now & thus he applied for cancellation of DIN. Here, registrar is correct because Amitabh
was a director of PQR Overseas Trading Ltd and it is contradictory to the (vi) condition
above.
Q. Rajesh Gawda is a director of XYZ Pvt. Ltd. Having a paid up share capital of Rs. 11
crore. The company has granted a loan of Rs. 2 crore to Rajesh Gawda. The company
has a borrowing of Rs. 15 crore from HDFC Bank. The company secretary informs the
company that the loan to the director is in violation of the provisions of the
Companies Act, 2013. Justify the claim of the company secretary. (5 marks)
Ans:
1. According to the Sec 185 of Companies Act, 2013, No Company shall, directly or indirectly,
advance any loan, including any loan to represented by a book debt, to or give any guarantee
or provide any security in connection with any loan taken by
(i) Any director of Company or of a Company which is its holding Company or any partner
or relative of any such director; or
(ii) Any firm in which any such director or relative is a partner.
(iii) In whose share capital no other body corporate has invested any money
(iv) If the borrowings of such company from banks or financial institutions or anybody
corporate is less than twice of its paid up share capital or Fifty Crore rupees whichever
is lower and
(v) Such company has not defaulted in repayment of such borrowing.
2. By applying above provision to given case, Rajesh Gawda is a director of XYZ Pvt. Ltd.
having paid up share capital of Rs. 11 cr. source of paid up capital is not given, thus we will
presume no other body corporate has invested in the company. The borrowing from HDFC
Bank is Rs. 15 cr. i.e. less than twice of its paid up capital i.e. Rs. 22 cr. and thus second
condition is also fulfilled. Thus XYZ Pvt. Ltd. comes under exempted Private Company and
can give loans to its directors. XYZ Pvt. Ltd. is not in the violation of the provisions of the
Companies Act, 2013.
Q. Destinations Ltd. is a listed company with paid-up share capital of Rs. 40 crore,
turnover Rs. 200 crore but having a loss of Rs. 10 crore for the year ended 31 March,
2018. The woman director in the Board of the company resigned on 1 October, 2018.
The last Board meeting was held on 25th September, 2018. The Board is likely to meet
next on 15th January, 2019. Lalita, aged 30 years, has conveyed her interest to be
associated with the company as a woman director. Discuss if any woman director is
required to fill the vacancy and if so, when the appointed should be made as per the
provisions of the Companies Act, 2013? (4 marks)
Ans:
1. According to sec 149 of the Companies Act, 2013, the following class of companies have to
appoint at least one women Director on its board
(i) A listed company.
(ii) Every other public company which has
a) Paid up share capital of 100 cr or more OR
b) Turnover of 300 cr or more
2. If there is a vacancy created on the Board of the company for such women director then it
shall be filled by the Board not later than next Board meeting or 3 months from the date of
such vacancy whichever is later.
3. By applying above provision to given case. Destination Ltd is a listed company thus it has
to appoint woman director irrespective of the paid up capital or turnover.
4. The woman director has resigned on 7 Oct 2018 then vacancy shall be filed by Board within
3 months i.e. 31 December or 15th January i.e. the date of next board meetings whichever
is later. So the vacancy shall be filled on or before 15th January 2019.
Q. Rohan is a well-known banker and holds directorship in 22 companies as on 30th
September, 2020. The companies include 10 public companies, 11 private companies
(including MNP Pvt. Ltd., a dormant company) and 1 company registered under section
8 of the Companies Act, 2013. Recently, on 20th December, 2020, ABC Ltd in which
Rohan is not a director acquired 100% shares in MNP Pvt. Ltd. In this context, answer
the following:
(i) Whether the directorships held by Rohan as on 30th September, 2020 are valid?
(ii) Can Rohan continue to hold directorship in all 22 companies after acquisition made
by ABC Ltd?
(iii) Company Secretary of ABC Ltd. has proposed to restrict number of directorship of
the directors in ABC Ltd. Whether the proposal given by the Company Secretary is
tenable in light of the provisions of the Companies Act, 2013? (5 marks) [June 2021]
Ans:
1. The given case pertains to the Maximum number of directorships.
2. Section 165 of the Companies Act, 2013 states that a person can hold maximum 20
directorship, including any alternate Directorship. At the same time, a person cannot be a
director of more than 10 public companies. In terms of public company, directorship in
private companies that are either holding or subsidiary of a public company shall be included.
3. Further, for reckoning the limit of directorships of 20 companies, the directorship in a
dormant company and section 8 companies shall not be included.
4. The provision also states that the members of a company may, by special resolution, specify
any lesser number of companies in which a director of the company may act as Directors.
(i)directorship held by Rohan as on 30 September, 2020 are valid as he is holding directorship
in 10 public companies and in 11 private companies out of which one company is dormant
company and one company is registered under section 8 of the Companies Act, 2013. So,
maximum directorship he is holding is in 20 companies.
(ii)Upon MNP Pvt. Ltd. becoming subsidiary of ABC Ltd. (a public company) directorship in
MNP Pvt. Ltd. will be included within the limit of 10 public companies. Accordingly, if Rohan
acts as director in more than 10 public companies, then same will be in contravention of
Section 165 of the Companies Act, 2013.
(iii) The proposal given by the Company Secretary is tenable as members of a company may,
by special resolution, specify any lesser number of companies in which a director of the
company may act as Directors.
Q. Shankar was appointed as a small shareholders’ director on 2nd March, 2017. Shankar
has submitted a letter to the Board of directors expressing his desire to get re-
appointed. In this context, the Board wants your opinion on the following points:
(i) Whether Shankar can be re-appointed as on 31st March, 2021?
(ii) Whether he is liable to retire by rotation as on 31st March, 2019?
(iii) Since Shankar is serving as director in many companies, whether his directorship in
the capacity of small shareholders’ director be included in the total number of
directors as per the provisions of the Companies Act, 2013? Answer to the Board.
(4 marks)
Ans:
1. The given case pertains to the provisions relating to the small shareholders director.
2. Section 151 of the Companies Act, 2013 states that he tenure of small shareholders' director
shall not exceed a period of 3 consecutive years and on the expiry of the tenure, such director
shall not be eligible for re-appointment after the expiry of his tenure.
3. A small shareholders' director is included in the total limit of directorship of 20 companies
as prescribed under section 165 of the Companies Act, 2013.
(i)Shankar cannot be re-appointed as small shareholder director as on 31 March 2021.
(ii)Shankar being small shareholder director is not liable to retire by rotation.
(iii) Shankar's directorship will be
counted in the over-all limit provided under Companies Act, 2013.
Q. Raman is a director of Mega Ltd., a company engaged in the business of selling
mineral water. Rohini, wife of Raman, is a partner in M/s. Total, a partnership firm,
engaged in the business of selling packaged juices. Raman also holds 100 shares in
Zimba Pvt. Ltd., a company engaged in the business of manufacturing bottles. Board
of directors of Mega Ltd. intends to grant loan to M/s. Total and Zimba Pvt Ltd within
the limits specified under the Companies Act, 2013. Examine whether Mega Ltd can
grant loan. If yes, what are the conditions? (5 marks)
Ans:
1. Pursuant to section 185 of the Companies Act, 2013 no company can, directly or indirectly,
advance any loan, including any loan represented by a book debt to, or give any guarantee or
provide any security in connection with any loan taken by:
a) any director of company, or of a company which is its holding company or any partner or
relative of any such director; or
b) any firm in which any such director or relative is a partner.
2. Further, section 185(2) of the Companies Act, 2013 states that a company may advance any
loan including any loan represented by a book debt, or give any guarantee or provide any
security in connection with any loan taken by any person in whom any of the director of the
company is interested, subject to the condition that -
a) A special resolution is passed by the company in general meeting: Provided that the
explanatory statement to the notice for the relevant general meeting shall disclose the full
particulars of the loans given, or guarantee given or security provided and the purpose for
which the loan or guarantee or security is proposed to be utilised by the recipient of the
loan or guarantee or security and any other relevant fact; and
b) the loans are utilised by the borrowing company for its principal business activities.
3. By applying above provisions to the given case, Mega limited cannot grant loan to M/s total,
since it being partnership firm and Rohini (wife of Raman -relative) being a partner in it.
4. However, Mega Limited can grant loan to Zimba Pvt. Ltd. in which Raman is a member holding
100 shares, subject to the conditions stated above.
Q. Dim Dim Ltd. was incorporated on 31st December, 2019. An advisor to the company
has suggested that since the Articles of Association (AOA) does not contain provisions
relating to appointment of first directors, company can function without the directors
until AOA is amended. Do you agree with the suggestion given by the advisor? Can
Dim Dim Ltd. appoint a director who has just stayed for a period of 120 days in India
during financial year 2019-20? (4 marks)
Ans:
1. Section 152 of the Companies Act, 2013 prescribes that if there is no provision made in
Articles of Association of the company for appointment of first directors then the subscribers
to the memorandum who are individuals are deemed to be the first directors of the company
until the directors are duly appointed.
2. Further, provisions of the act also mandate every company to have at least one director who
has stayed in India for a total period of not less than 182 days during the financial year.
However, in case of a newly incorporated company the requirement to apply proportionately
at the end of the financial year in which it is incorporated.
3. By applying above provisions to the given case, advisor given regarding first director is not
correct as subscribers to the memorandum who are individuals are to be considered as first
directors of the company.
4. Further, Dim Dim Ltd. being incorporated on 31 December, 2019 can appoint a director who
has just stayed for 120 days in India during the financial year, 2019-20.
Q. Amit is having directorship of the following companies:
Nature of companies Number of companies

Public companies (including 2 8
dormant companies)
Private companies (including 2 10
subsidiaries of public companies)
Alternate director (in a private 1
company)
Section 8 company 1
Indicate how many more directorships Amit can undertake in public or private
companies. (4 marks)
Ans:
1. The given case pertains to the provisions relating to the directorships of an individual.
2. An individual can become director, in 20 companies including alternate directorships.
3. Out of the 20 companies, a person cannot become director in more than 10 public
companies. The Private Limited Company which is a subsidiary of public company is also a
public company.
4. The limit of directorships of 20 companies shall not include section 8 company and dormant
company.
5. Amit can take directorships in total 20 companies & in case of Public Companies it shall not
be more than 10. Out of 20 Companies, Section 8 & Dormant Companies are excluded.
Therefore, Amit can assume 3 more directorship out of which directorships in Public
Company cannot exceeds 2.
Q. Examine the validity of the following statements:

(i) ‘Every listed public company must have an independent woman director.
(ii) ‘Every listed public company must have a small shareholders’ director. (5 marks)
Ans:
1. The Provisions of the act states that every listed company & unlisted public company whose
paid up share capital is 100 crores & turnover of Rs. 300 crores shall compulsorily appoint
an independent women director.
2. For listed entities, the BODs of top 500 listed entities from April 2019, & top 1000 listed
entities from April 2020, shall appoint atleast one independent women director.
3. The appointment of small shareholders is optional for public companies. A listed company
may have a small shareholders director.
Q. ‘T’ Ltd. a listed company has Rs. 20 crore paid up share capital and has nine directors
on its Board. Advise T Ltd. on the following matters:
(i) The number of independent directors it should appoint on its board.
(ii) How many independent directors should be appointed by T Ltd. in case it is an
“unlisted public company”?
(iii) Can T Ltd. appoint an independent director for second consecutive term of 6
years whose first term, as independent director in T Ltd. was for 4 years ?
(iv) T Ltd. wants to appoint another independent director for further period of 2
years. He has already completed 2 consecutive tenures of 4 years each as an
independent director in T Ltd? (4 marks)
Ans:
1. Every listed company and every unlisted public company having paid up share capital of Rs.
10 crores or more or turnover of Rs. 100 crores or more or where its borrowings exceed
50 crores, must appoint atleast 2 independent directors, while a listed company may have
atleast 1/3rd of total number of directors as independent directors.
2. By applying above provisions to the given case, following is the applicability:
(i) Since T Ltd. is a listed company, has 1/3rd of its total i.e. 3, should be independent
directors.
(ii) If T Ltd was an unlisted public company, it shall have a minimum of 2 directors as
independent directors.
(iii) No term of an independent director shall exceed beyond 5 years, even though the 1st
term was of 4 years, 2nd term cannot exceed 5 years.
(iv) Any independent director can serve a maximum of 2 terms of 5 years each. So even
though the 2 terms were of 4 years their cannot be a balanced term of 2 years.
Q. Kailash, a director of a company has sent in his resignation notice stating that he is
resigning from the office of director with effect from 10th December, 2019. The notice
was received by the company on 15th December, 2019. State the effective date of
resignation of Kailash and the date up to which the company is required to intimate
the Registrar of Companies (ROC). Is Kailash required to intimate his resignation to
the ROC mandatorily? (4 marks)
Ans:
1. The given case pertains to the provision relating to effective date of registration by a director.
2. The provisions of the act states that the resignation of a director is effective either from the
date specified in the letter or date of receipt of letter by the company, whichever happens
later. Also, intimation of resignation is to be intimated to the ROC within 30 days from the
effective date of resignation in form DIR-12.
3. By applying the above provisions to the given case, Kailash specified the effective date of
resignation as 10 December 2019, while it reached the company on 15 December 2019. The
effective date therefore is 15 December 2019 & the same is to be intimated to ROC by 14
January 2020 by the company. It is optional for the Director to give intimation to ROC
about his Resignation.
Q. Rajesh Gawda is a director of XYZ Pvt. Ltd. Having a paid up share capital of Rs. 11
crore. The company has granted a loan of Rs. 2 crore to Rajesh Gawda. The company
has a borrowing of Rs. 15 crore from HDFC Bank. The company secretary informs
the company that the loan to the director is in violation of the provisions of the
Companies Act, 2013. Justify the claim of the company secretary. (5 marks)
Ans:
1. In terms of the provisions of Sec.185 of Companies Act, 2013, a company is not allowed to
give loan to any of its directors.
2. However, such loan transactions are allowed in case of a Private Limited company provided
it fulfills the following conditions:
a) In whose share capital no other body corporate has invested any money.
b) If the borrowings of such 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
lower and
c) Such a company has not defaulted in repayment of such borrowings subsisting at the time
of making transactions under this section.
3. In the present case, paid up share capital of company is Rs. 11 crore which means the
company could give loan to the extent of lower of two i.e. 2 x 11 crores = 22 crores or 50
crores. Therefore the maximum amount is Rs. 22 crores.
4. Since the company has already borrowed 15 crores from HDFC Bank, the reduced limit shall
be 7 crores. So, the loan granted to Mr. Gawda of Rs. 2 crores is within the permissible limit.
Q. Systems Ltd. is holding 40% of paid-up share capital of ATC Aviation Pvt. Ltd. R
Systems appointed representative director in ATC Aviation Pvt. Ltd. to safeguard its
interest. Board of Directors of R Systems Ltd. wishes to know whether the director
appointed by them shall be treated as nominee director. Advise the Board. (4 marks)
Ans:
1. The given case pertains to the provision relating to the Nomination of Directors.
2. The nominee director means director nominated by financial Institution in pursuance of the
provisions of any law for time being in force or any agreement or appointed by government
or by any other person to represent its interest.
3. Since, R systems appointed representative director in ATC Aviation Pvt. Ltd to safeguard its
interest, so the director appointed by them shall be treated as nominee director.
Q. In Bright Ltd., vacancy of a director is caused by the death of Mohan, a director of
the company, after three months of his joining the company as director. The Board
of the company, therefore, appointed Sumit in his place but did not seek approval of
the company in general meeting. Referring to the provisions of the Companies Act,
2013, examine the validity of Sumit’s appointment. (4 marks)
Ans:
1. The given case pertains to the provisions relating to appointment of casual vacancy director.
2. The provisions of the act states that in case of any permanent vacancy created on the Board,
the same can be fill by the Board by appointing any other person as a casual vacancy director.
However, approval of shareholders is required in such case.
3. By applying the above provisions to the given case, Mohan died as a director of Bright Ltd
and Sumit was appointed at his place as a casual vacancy director. However, approval of
shareholders was not obtained so the appointment is invalid.
Q. On 4th September, 2018 Varun was appointed as Managing Director of Astha Ltd. by
the Board of directors subject to the approval of the members at the next general
meeting. On 10th September, 2018 Varun in the capacity of managing director
executed an agreement with Shabeer to purchase some machines. On 3rd October,
2018 members in the general meeting did not approve the appointment of Varun.
Later on company refuses to accept delivery of machines from Shabeer on the ground
that agreement was executed by Varun whose appointment is not approved by the
members. Is refusal of company valid on the said ground? Examine.
Ans:
1. The given case pertains to the provisions relating to appointment of Managing Director.
2. The provisions of the act states that managing directors’ appointment is considered valid
from the date of his appointment by Board of Directors and any contract done after his
date of appointment will be valid and binding upon the company. Even if his appointment is
not approved by the shareholders at a later stage, the contract continues to remain binding.
3. By applying the above provisions to the given case, Varun was appointed as a managing
director on Board on 4th September 2018 and at the General Meeting on 3 October 2018
his appointment was not confirmed by the shareholders. In the meanwhile, Varun executed
an agreement with Shabeer to purchase some machines. The Company refused to accept
this contract since the appointment of MD was refuse by the shareholders. The contract
would however be valid and binding upon the company since Varun was a MD on the date
of contract.
Q. In compliance to the Companies Act, 2013, atleast one-woman director shall be on the
board of such class of companies as may be prescribed. Riya is keen to hold the office of
woman director in a company. She has selected some companies in which there is a vacancy
for a woman director.
Name of Listing Paid up share Turnover (in
the status capital (in Rs) Rs) as per
Company as per the latest the latest
audited financial audited
statements financial
statements
Maya Ltd. Unlisted 50 Crore 100 Crore
Manna Listed 100 Crore 150 Crore
Ltd.
Mopin Ltd. Unlisted 150 crore 350 crore
Guide Riya in selecting the companies which are mandatorily required to appoint a woman
director as per the Companies Act, 2013. Also explain as to when a company is required to
appoint independent woman director? (5 marks) [June 2022]
Ans:
1. As per the provisions of Companies Act, 2013 every unlisted company having paid up share
capital exceeding Rs. 100 crore & turnover exceeding Rs. 300 crore is mandatorily required
to have 1 woman director on its board. Also, every listed company is required to have 1
woman director on its board.
2. By applying above provisions to the given case :
a) Maya Ltd. - Does not mandatorily require woman director as it is below the threshold
limits.
b) Manna Ltd. - Being a listed company mandatorily required 1 woman director on its board.
c) Mopin Ltd. – It is also required to have 1 woman director on board as its share capital &
turnover both exceed the limits.
3. As per Companies Act, 2013, have every entity falling under top 1000 listed companies need
to mandatorily have 1 Independent Woman Director.
Q. Extra power Ltd desires to appoint an additional director on its board of directors.
The articles of association of the company confer upon the board to exercise the power
to appoint such a director. As such mohan is appointed as an additional director on 12th
December 2020. The 5th annual General Meeting of the company was scheduled to be
held on 17th September, 2021. However the meeting was adjourned to and held on 30th
September, 2021. Decide the date up to which mohan can continue as an additional
director in Extra power Ltd? [June 2022]
Ans:
The given case pertains to provisions relating to appointment & term of additional director.
1. As per the provisions of the Companies Act, 2013, a company may appoint additional
director if authorized by its articles of association. Such director shall continue to hold
office till ensuing general meeting or till the date by which general meeting should have been
held which ever is earlier.
2. By applying the above provisions to the given case. Mohan was appointed as additional
director of Extra Power Ltd. and can continue his office till the ensuing AGM or the last day
for holding AGM. In this case the adjourned AGM and last day to hold it fall on the same
day. Hence Mohan can continue to hold office till 30th September 2021.
CHAPTER 17 – KEY MANAGERIAL PERSONNEL

Q. The Managing director of public company applied for purchasing a flat. The price
of flat is Rs. 40 lakhs. MD suggested that he will be allowed to pay Rs. 20 lakhs & the
balance Rs. 20 lakhs may be covered from his salary in 40 installments. Accounts
Department observed that this arrangement will lead to house building advance to
managing director which is not allowed under rules of Company. Being a Company
Secretary of the company, you have been asked by the board to examine & submit
report, in this regard on the action to be taken for considering the same. (8 marks)
Ans:
25th January 2015
To,
The Board of Directors,
Sub. : Applicability of Section 185 for sale of flat to managing director
Dear Sir / Madam,

The provisions of Sec. 185 of Companies Act, 2013 details about a loan transaction or a
guarantee or security given on behalf of directors of Company.
In the proposed transaction, companies flat is being sold to MD at a price of Rs. 40 lakhs out of
which Rs. 20 lakhs shall be paid by way of cash & the balance Rs. 20 lakh shall be paid in 40 equal
installments.
If we observe the provisions of the transactions as well as the provision of Sec. 185, the proposed
transaction is not strictly a loan transaction because there is only a credit facility extended to
the MD of the company which may not fit within the meaning of word loan since no money has
been provided to such MD.
Since the said transaction does not tantamount to loan, there is no requirement of obtaining
shareholders permission by a way of special resolution & company by way of a board resolution
carry out the said transaction.
Thanking you,
Yours faithfully,
SD/-
Name
Company Secretary
Q. A MD of a Company stood as surety for repayment of loan taken by it for which he

was paid guarantee commission. Does this commission amount to managerial
remuneration? Support your answer with decided case law, & any. (5 marks)
Ans:
1) Managerial Remuneration in case of a public ltd company means remuneration paid to the
directors or manager of the company.
2) A public company can pay upto a max of 5% of net profits of company by way of
remuneration to its WTD or manager, if there is one. However, if the company has more
than one such WTD or manager, a max. of 10% of Net Profits to all of them.
3) Overall managerial remuneration shall not exceed 11% of Net Profits including Executive
and Non Executive in given F.Y.
4) Remuneration to all the Non-Executive Directors shall be paid by way of profit-based
commission upto a maximum of 1% of the net profits of the company in case if the company
has WTD & upto 3% of Net Profit if the Company has WTD if company does not have a
WTD.
5) While calculating overall managerial remuneration sitting fee, out of pocket expenses and
fees paid for any professional services is excluded.
6) Guarantee commission paid to a MD also forms part of managerial remuneration.
Q. Distinguish between Whole time Chairman & Part time Chairman. (2 marks)
Ans:
1) An executive director appointed as Chairman of the company is called as whole time
Chairman. A non-executive director appointed as Chairman is part time chairman.
2) As such whole time Chairman can be appointed for maximum period of 5 years since a
Whole Time Directors term cannot exceed 5 years. There is no such term provided for
Non-executive director under the Act and hence he can continue as Chairman till the time
board appoints someone else as the Chairman.
Q. Suresh a Solicitor is appointed as a director on the board, of a company, which has

obtained legal opinion from Suresh & paid fee of Rs. 5 lakhs during last financial year.
Auditor has raised an objection that fee payable to Suresh has exceeded the limits
provided u/s. 197. Hence, the payment is illegal. Express your opinion whether such fee
should be recovered from the concerned director. (5 marks)
Ans:
1. The given case pertains to Sec. 197 and 198 of the Companies Act, 2013.
2. The related provisions of the Act states that any remuneration paid to a director in his
professional capacity shall be excluded while calculating overall managerial remuneration.
3. By applying the above provisions to the given case, Suresh who is a director on the Board
of Company and also a solicitor, acted in his professional capacity & gave legal opinion for
which he was paid Rs. 5 lakhs. Had he not given such legal opinion, he would not have been
paid such amount.
Therefore, such remuneration is over & above the managerial remuneration & is kept out
of total managerial remuneration.
Q. Distinguish between WTD & MD (4 marks)
Ans:
WTD MD
Section 2 (94) of the Companies Act, 2013 Managing Director means a director who, by
defines “whole-time director” as a director virtue of the articles of a company or an
in the whole-time employment of the agreement with the company or a resolution
company. passed in its general meeting, or by its Board
of Directors, is entrusted with substantial
powers of management of the affairs of the
company and includes a director occupying
the position of managing director, by
whatever name called.
A WTD by his position is not entrusted MD by his very nature of appointment is
with substantial powers of management i.e. entrusted with substantial powers of
he cannot undertake all the activities, if management and therefore he can carry out
powers are not delegated to him. activities on behalf of the company even if
powers are not delegated to him.
Q. P is working with manager with the company Board of directors of Company has now
decided to appoint him as directions on the board explain his position. (5 marks)
Ans:
1. Any person appointed by the board in a board meeting is known as an additional director.
An employee who is appointed as a director by virtue of act assumes position of a whole
time director.
2. P initially would be appointed as an additional director on the board, however, his position
in the company shall be that of WTD. Such appointment shall be subject to approval of
shareholders in general meeting, wherein, he shall be appointed a director.
3. If his appointment is confirmed by the shareholders, he shall continue to act as a WTD of
the company.
Q. A WTD of company made an invention during the course of employment of the

company. He patented this invention in his own name & appropriated benefits to
himself. Can he do so? (5 marks)
Ans:
1. A WTD is a whole time employee of the company & he therefore devotes all his time &
attention towards the business of the company.
2. It is implied that if he is acting full time for the company any work undertaken by him during
course of employment shall have company’s right.
3. In the given case, said patent was obtained by him during course of employment & hence it
would be considered as company’s property.
4. Any benefits denied by such WTD shall be returned back by him to the company. Since
patent shall be treated as company’s property.
Q. Yogesh is a company secretary of Big Leap Ltd convened a GM of company after
discussing the matters with some directors even though there was no express approval
of BOD for convening such a meeting. Discuss the validity of such a meeting. (5
marks)
Ans:
1. The given case pertains to provisions related to calling of a meeting.
2. The provisions of the Act states that a meeting can be called by the board or by shareholders
by requisition or by tribunal. It can also be called by the officers of the company provided
the authority is given to him by Board.
3. By applying the above provisions to the given case, Yogesh, called for a meeting based upon
the discussion with BOD, however, it is provided that no specific instructions were given
to him by the board for calling such a meeting. As such a CS does not have right to call for
a meeting on his own and hence the meeting held & conducted is invalid.
Q. Statutory duties of company secretary under Companies Act, 2013. (5 marks)
Ans:
The duties of a CS under the Act are as follows:
1. To report to the Board about the compliance statement of the company.
2. To ensure that the company complies with secretarial standards.
3. To discharge such other duties as may be instructed by board of directors of the company.
4. To hold and convene meetings of the Board, committee’s and shareholders thereof.
5. To represent the company before regulatory authorities, Tribunal etc.
6. To assist & advice the Board in ensuring good corporate governance practices.
7. To assist the Board in conducting affairs of the company.
Q. Heal Ltd. owned chain of hospitals in Mumbai. Dr. Aman, a practicing Surgeon has
been appointed by the company as its non-executive ordinary director and wants to
pay him fees on case-to-case basis for surgeries performed by him on patients at
hospital. Advise the company whether payment of such fees to him would amount
to payment of managerial remuneration to a director under Companies Act, 2013. (5
marks)
Ans:
1. The given case pertains to the provisions of payment of fee to a NED in his professional
capacity.
2. The provisions of the Act states that any remuneration paid to a NED because of his
professional skills is considered as payment made in professional capacity which does not
form part of managerial remuneration.
3. By applying the provisions to the given case, Aman who is appointed as a NED on the board
of Heal Ltd. is paid remuneration in his professional capacity for conducting various surgeries
on a case to case basis, which does not form part of M.R.
Q. Explain the meaning of the term KMP in relation to a company as introduced by
Companies Act, 2013 & also state the manner in which they are appointed. (8 marks)
Ans:
1. Every listed company and a public company which has a paid up share capital of Rs. 10 crores
or more shall appoint the following as KMP:
a) MD/CEO/ Manager and in their absence a WTD
b) Company Secretary
c) Chief Financial Officer (CFO)
2. Rule 8A states that all those companies which are not covered under Rule 8 and which have
paid up share capital of Rs. 5 crores or more shall have a whole time company secretary.
3. Rule 8A mandates the private company having paid up capital Rs. 10 crore of more to have
a whole time Company Secretaries. (Inserted vide MCA Notification dated 03/01/2020 with
effect from financial years commencing on or after 1st April, 2020).
4. An individual who is the chairman of the company shall not be appointed as the MD or CEO
at the same time unless it is made permissible by the articles of association or the companies
into multiple businesses.
5. A whole time KMP shall not hold office in more than one company unless it is a subsidiary
company. However, with the consent of ALL the Directors of the second company who
were present at the meeting, such person can hold 2 whole time positions.
6. From the commencement of this Act, every such Director who is holding office in more
than one company shall have to choose within a period of 6 months as to his Directorships.
7. Any casual vacancy created on the Board of such KMP shall be filled by the board within a
period of six months from the date of such vacancy.
Q. Explain the provisions of Companies Act, 2013 relating to ‘Secretarial Audit’. State
whether ‘secretarial audit’ is mandatory for all companies. (8 marks)
Ans:
3. Secretarial Audit is a process to check compliance of all the applicable laws, regulations,
provisions and maintenance of book and records by an independent professional to ensure
that all the legal and procedural requirements are met with.
4. Pursuant to the provisions of sections 204 of the Act, every listed company and such other
class of companies as prescribed shall annex a copy of Secretarial Audit Report to its board’s
report as given by a Practicing Company Secretary (PCS).
5. The following class or classes of companies have been prescribed by the Central
Government as follows:
(iv) Every Public Company whose paid up share capital is Rs. 50 crores or more OR
(v) Every Public Company whose turnover is Rs. 250 crores or more
6. Any reservation or qualifications or remarks as made by the PCS shall have to be answered
by the Board of Directors in their Board’s Report.
Q. A public company with a paid up share capital of company wishes to pay managerial
remuneration to its BOD’s, which comprises of 2 executive directors, 2 Independent
directors & 3 NED’s. Your Chairman seeks your advice as a company secretary upon
overall managerial remuneration to be paid to all such directors. (8 marks)
Ans:
1. The provisions of section 197 and 198 of the Companies Act, 2013 are applicable to such
payment of remuneration.
2. The maximum ceiling for payment of managerial remuneration by a public company to its
MD, WTD or Manager shall not exceed 11% of net profits of the company.
3. Any remuneration over and above 11% or as provided in schedule V to the Act shall
require prior sanction of the shareholders.
4. Remuneration payable to either one of MD/ WTD or manager shall not exceed 5% of net
profits of the company. However, if there is more than one such Director, overall
remuneration to all of them taken together shall not exceed 10% of the net profits of the
company.
5. Remuneration payable to any other Director other than MD or WTD but including non-
executive and independent director shall not exceed-
(i) 1%of the Net profits of the company, if the company has a MD/WTD or manager
(ii) 3% of the Net profits in any other case
(iii) Sitting fees payable for attending the meetings of the Board or Committee shall be
excluded while calculating the overall managerial remuneration.
6. A Director or Manager may be paid remuneration either by way of a monthly payment or
at a specified percentage of net profits of the company or both of them.
7. Any remuneration paid above any of these limits i.e. 1%, 3%, 5% or 10% shall also require
approval of shareholders by special resolution and no central government approval is
required.
Q. Distinguish between MD and Manager. (4 marks)

Ans:
No. Managing Director Manager
1. Managing Director means a director who, by Manager as an individual who, subject to
virtue of the articles of a company or an the superintendence, control and direction
agreement with the company or a resolution of the Board of Directors, has the
passed in its general meeting, or by its Board management of the whole, or substantially
of Directors, is entrusted with substantial the whole, of the affairs of a company, and
powers of management of the affairs of the includes a director or any other person
company and includes a director occupying occupying the position of a manager, by
the position of managing director, by whatever name called, whether under a
whatever name called. contract of service or not.
2. A MD is a member of the Board Manager may or may not be a member of

the board.
3. MD is entrusted with substantial powers of Manager is entrusted with the powers as
the management. given to him by the board of directors.
Q. Explain independent director & inside director. Do inside director & interested
director connote the same meaning. (8 marks)
Ans:
No. Independent Director Inside Director
1. Independent Director, in relation to a Inside Director means a director who is
company, means a director other than a also an employee of the company.
managing director or a whole time director
or a nominee director
2. ID’s can be paid profit based commission, ID’s are entitled to receive profit based
sitting fee & out of pocket expenses. They commission and sitting fee.
are not entitled to receive stock options.
1. Interested Director means a director who is interested in a particular resolution.
2. Such interested directors are not allowed to vote or resolution in which they are interested.
However, for the other resolutions in the same Board Meeting, where he is not interested,
he is allowed to vote.
3. Such interested directors are also not counted for the purpose of quorum only or the
resolutions in which they are interested.
Q. Approval of the Government is not always required under Sec. 196 for appointment
of WTD by a company having a paid-up shares capital of Rs. 10 crore. (8 marks)
Ans:
1. Appointment of WTD must be first approved by the Board and then by the shareholders
in general meeting by way of an ordinary resolution. At the time of his appointment, his
terms and his remuneration are fixed and approved by the shareholders.
2. A MD, WTD or manager shall not be appointed for a term exceeding 5 years and no
reappointment shall be made earlier than 1 year before the expiry of his term.
3. A return of appointment shall be filed in form MR-1 within 60 days from the date of
appointment of such directors
4. In case if provisions of schedule V to the Companies Act is not complied with, an application
in Form MR-2, shall be made to the Central Government for such appointment.
i.e. Any remuneration over and above 1%, 3%, 5%, 10% or as provided in schedule V to the
Act shall require prior sanction of the shareholders.
However, now Central government permission is not required.
5. Central Government shall take into consideration following facts including financial position
of the company, professional qualifications, experience, remuneration & commission drawn
from the same company or any other company.
6. Provisions relating to approval of members or central government for such appointment
shall not apply to a government company and it shall be governed by the provisions of AOA.
Q. Kapil is branch head of a limited company. The company proposes to elevate Kapil
to the board. Enumerate the steps involved in such a proposal. (6 marks)
Ans:
1. Kapil, who is a branch head of the company, and when he is appointed as a director of the
board, he assumes the position of a Whole Time Director.
2. For the appointed of person as a WTD, his terms of appointment shall be approved by the
shareholders in the General Meeting by way of Ordinary Resolution.
3. Also, before appointing him as a director, the Company must assure that Kapil holds a valid
DIN and he has given his consent to act as a director of the company.
4. A return of appointment shall be filed in form MR-1 within 60 days from the date of
appointment of such directors
5. A company shall file a return of appointment of a Whole time Director within sixty days of
the appointment, with the Registrar in Form no. MR-1.
Q. Suresh, a solicitor, is appointed as director on the board of Sam Organic Ltd. The
company has obtained legal opinion from Suresh and paid a fee of Rs. 5 lakh during
the F. Y. 2004-05. Auditor has raised on objection that fee payable to Suresh exceeds
the limit prescribed under Sec. 197 and hence payment made to him is illegal as the
company has not obtained permission from Central Government and the company
should take steps to recover the same from Suresh. Keeping in view the provisions of
Companies Act, 2013, give your opinion on the objection raised by the auditor. (8
marks)
Ans:
1. The given case pertains to section 197 & 198 of the Companies Act, 2013 read with relevant
rules & schedules thereon.
2. The provisions of the Act states that a company shall not pay any Remuneration in excess
of limits provided under the Act without prior approval of shareholder by special resolution
and no Central Government approval is required now, however, any fee paid in professional
capacity to a director shall be excluded from the calculation of Management Remuneration.
3. By applying the above provisions to the given case, Suresh was paid Rs. 5 lakh in excess of
the overall managerial remuneration in his professional capacity. The payment of 5 lakh
cannot be included while calculating the overall limits and hence the contention of Auditor
is invalid.
Q. Amol, a non member of Shristhi Ltd. has been appointed as a director of the
Company. Later on, he has become the chairman of the company. In AGM of
Shristhi Ltd, Amol presided over the meeting. Zahir, a member of the company,
objected to his Chairmanship on the ground that Amol is not a member of the
company. Discuss the validity of the objection. (5 marks)
Ans:
1. The given case pertains to the provisions regarding chairmanship of an individual and his
role in a GM.
2. The provisions of the act states that if no name is provided in the AOA, the Chairman of
the board meeting shall also chair the GM of the company till the time the shareholders
wish to appoint any other person as the chairman for the said meeting. The chairman
appointed by the board shall act as a chairman till the decision of poll for such appointment.
It also states that such chairman of the GM need not necessarily be a member of the
company.
3. By applying the above provisions to the given case, Amol, the chairman of Srishti Ltd.
presided over the AGM of the company. Zahir being a member of the company objects
appointment by Amol as chairman of AGM on the ground that he is not a member of the
company. The chairman appointed may preside over the meeting of shareholders even
though he is a non member, however, if the shareholders wish to appoint any third person
as a chairman, they may do so by demanding a poll. Hence the contention of Zahir is not
correct.
Q. In a limited company, the MD terminated an employee on the charge of various
misconduct. The aggrieved employee filed a writ petition before the HC challenging
the dismissal contending that the MD had no power to do so and the proper authority
was with the BOD. During the pendency of the suit, the board of directors passed a
resolution ratifying the action of MD. The HC while setting aside the MD’s dismissal
order allowed the writ petition. MD appealed to SC. Decide the case, having regard
to the judicial pronouncements in the matter. (8 marks)
Ans:
1. The given case pertains to the provisions of Companies Act, 2013 regarding the powers of
MD and that of the board.
2. The provisions of the Act states that, MD has substantial powers of the management which
may not be exercised by any other person in the normal course of business. However, the
power of the board supersedes the powers of MD.
3. By applying the above provisions to the given case, MD terminated the services of employee
which was well within his powers, while the matter was pending before the HC, the board
ratified the act of MD & retained the service of employee. High Court also decided the case
in favour of the employee. MD’s right to appeal against the HC’s order is not maintainable
simply because, the board has more powers as against the MD and once decided by the
board, “MD cannot do anything further”.
Q. Mrs. Beautiful, aged 40 years, is the Managing Director of Beauty Care Products
Limited. She has received contribution to superannuation fund and leave
encashment during her tenure with the company during the FY ending 31st March,
2017. The Manager [Accounts] of the company is not very confident, if there
perquisites are to be included in the computation of ceiling on remuneration specified
in the Companies Act, 2013. Referring to the provisions of the Act, advise the
Manager [Accounts]. (5 marks)
Ans:
1. The given case pertains to provisions relating to Payment of Managerial Remuneration (MR)
to a MD of the company.
2. The provisions of the Act states that, while computing MR paid by a company Basic salary,
DA, any other allowances or Perquisites shall be included. However, it shall not include the
amounts paid by way of sitting fees, Remuneration paid in professional capacity & retiral
benefits.
3. By applying above provisions to given case, Beauty Care Products Ltd. paid Remuneration
to Mrs. Beautiful which included the amounts covered under superannuation fund & leave
encashment. Since superannuation is a part of retiral benefit and hence it shall be included
while calculating MR, while leave encashment shall not be included.
Q. A was appointed as the Managing Director of OPQ Ltd. for a period of 4 years on his
66th birthday on 1st June, 2016. A Board Resolution was passed to extend his term of
office by another five years and the same was approved by the members in the AGM
of the company held on 21st May, 2019, by an ordinary resolution. Is the re-
appointment of A as M.D. valid? (4 marks)
Ans:
1. As per the provisions of the Companies Act, 2013, a person who is to be appointed as
manager / managing director / WTD shall not be below 21 years of age and has not attained
age of 70 years or more. However, such condition may be waived by special resolution.
2. Where no such special resolution is passed, and application made by board to central
government, central government on being satisfied such person may be appointed even by
ordinary resolution.
3. Referring to the above provisions and given facts of the case, A's reappointed as managing
director is not valid because such reappointed requires special resolution while the
company passed an ordinary resolution and also no application was made to the central
government.
Q. ABC Corporation Ltd. has no managerial person acting in professional capacity.

During the current financial year the company sustained a loss. How can the company
remunerate their non-professional managerial personnel in such a situation? (4 marks)
Ans:
1. ABC corporation Ltd. has no managerial person acting in professional capacity.
2. During the current financial year the company sustained a loss.
3. The company can remunerate their non-professional manager as follows :
Effective Capital Overall Managerial Remunaration
Negative or less than 5 Crore 60 Lakhs
5 Crore but less than 100 84 Lakhs
Crore
100 Crore but less than 250 120 Lakhs
Crore
250 Crore and above 120 Lakhs plus 0.01% of the effective capital in excess of
250 crores
Q. Introduction of Secretarial Standards by the Institute of Company Secretaries of India
[ICSI] is a unique & pioneering effort towards attainment of good corporate
governance. Do you agree? Explain briefly. (5 marks)
Ans:
1. The ICSI has prescribed secretarial standards viz. SS 1 & SS 2 on board meetings & general
meeting respectively.
2. The main objective of these standards is to ensure uniformity, better participation by the
board as well as shareholders, improve accountability & better decision making.
3. By introducing these standards, ICSI has provided guidelines to all the corporates to ensure
minimum standards while conducting & convening the meetings of the company. Initially,
they were made optional for all the companies to be followed. However, at a later stage
they obligated certain class of companies to strictly abide by or else it shall attract penal
provisions.
Q. A Housing company has sold a flat to its MD by accepting 50% in cash & balance in
installments. Decide whether this transaction attracts the provisions pertaining to
loan to directors under section 185. If so, validate the transaction. (5 marks)
Ans:
1. The given case pertains to provisions relating to loan to Directors.
2. Provisions of the act states that any loan facility intended to the directors of the company
would qualify as loan given to director.
3. By applying above provisions to given case, the company sold a flat to its MD against which
it accepted part amount in cash & the balance 50% in installment. This would amount to
giving loan to MD of the company. To validate this transaction, the company has to obtain
permission of shareholders by way of a SR.
Q. Fashion Ltd. holds a general meeting for passing a special resolution regarding
appointment of Shyamal aged 72 years as Managing Director of the company. Out
of the 50 members present in the meeting 25 voted in favour, 15 against and 10
members did not cast their vote. Can company appoint Shyamal as Managing
Director of the company? Discuss. (4 marks)
Ans:
1. As per the provisions of Companies Act, 2013, a person cannot act as managing director /
WTD / Manager if he is not 21 years old or if he has attained 70 years of age.
2. Such conditions may be waived by passing a special resolution.
3. Special Resolution implies that the vote cast in favour of resolution are not less than 3
times of number of votes cast against the resolution. (25 ≠ 3 x 15)
4. By referring to the above provisions and given facts of the case, company cannot appoint
Shyamal as the managing director because the vote cast in favour does not constitute as a
special resolution, and special resolution is must for appointment as managing director
where his age is beyond 70 years
Q. Director, Ravi, was appointed on 1st July, 2018. On 2nd July, 2018 he wrote to Managing
Director of the company to inspect the minutes of the board meeting held on 1st
August, 2017, The Managing Director refused as he was not a director at that time.
Ravi attended a meeting held on 1st September, 2018 and resigned on 3rd October,
2018, On 4th October, 2018 he wrote to the Managing Director to send him a copy of
the signed minutes of the meeting held on 1st September, 2018. Again, the Managing
Director refused. Are the actions of Managing Director valid under Companies Act,
2013 & Secretarial Standards? Comment. (4 marks)
Ans:
1. As per the provisions of Companies Act, 2013, minutes book of meeting is kept at the
registered office of the company and shall be open for inspection to the member during
business hours without payment of fees.
2. The member is entitled to receive copies of the minutes on payment of fee as may be
provided by the articles and in any case not more than Rs. 10 per page within 7 days from
the date of his request.
3. In the above case, Ravi wrote to managing director to inspect the minutes book on 2nd
July 2018 to 4th October 2018 however he was associated with the company for 1st July
2018 to 1st September 2018.
4. Managing Director may refuse to provide minutes on 4th October 2018 but not 2nd July
2018 as he was member on that date.
Q. The share capital of Raney Ltd. is Rs. 30 crore. ‘Russel’ is appointed as the managing
director of the company; the company wants to compensate him by issue of shares
for supplying technical know-how without any cost. In this context, answer the
following :
i. Whether the company is allowed to allot such shares?
ii. Is approval of shareholders required for issuing such shares?
iii. If found eligible to allot such shares, what will be the quantum (value) of shares
that can be allotted?
iv. Can Russel sell such allotted shares in the market?
v. Will the amount that he receives on sale of his shares be considered a part of
his remuneration? (5 marks)
Ans:
1. The Company is allowed to allot such shares. Such shares are known as sweat equity shares
which are issued at discount or for consideration other than cash for providing know –how
or making available right in the nature of intellectual property rights of value addition.
2. Such issue is required to be authorize by shareholders by passing special resolution which
shall be valid for a period of 12 months.
3. Issue of such share shall not exceed 15% of the existing paid up equity share capital in a year
or the shares of issue value of Rs. 5cr, whichever is higher & 25 % of the paid up equity
capital of the company at anytime. As the share capital of company is Rs. 30cr. It can allot
15% of Rs. 30cr i.e. 4.5cr or Rs. 5cr whichever is higher i.e. Rs. 5cr and 25% of Rs. 30cr i.e.
7.5cr at anytime.
4. Such equity shares have lock-in period of 3 yrs. Thus Russel can sell such allotted shares in
the market only after completion of 3 yrs.
5. Any amount received by the director for any professional service provided by them shall
not be the part of managerial Remuneration Thus the amount he receives on sale shall not
be considered as a part of his remuneration.
Q. Jackson is a prospective candidate for the post of Managing Director of Tirubuvani

Sugars Ltd. Unfortunately, his proposed appointment could not satisfy the conditions
of Schedule V of the Companies Act, 2013. Discuss if any other option is available
with the company to appoint him as the Managing Director of the company (4 marks)
Ans:
1. According to the Companies Act, 2013, Schedule V contains five conditions which must be
satisfied by person to be eligible for appointment as MD.
2. In case if provisions of schedule V is not complied with, an application in form MR-2 shall
be made to Central Government for such appointment.
3. Such appointment must be first approved by the Board and then by the shareholders.
4. Before making such application to CG, the company shall issue a general notice to the
members indicating nature of application. The notice shall be published in at least one
vernacular language and at least one in an English newspaper indicating the notice of
application proposed to be made to the CG.
5. By applying above provision to give case, Jackson is a prospective candidate for the post of
MD. His appointment could not satisfy the conditions of schedule V. Thus, he can be
appointed by complying to the above procedure.
Q. In the following scenario, examine whether the amount of sitting fees decided by the
Board of directors is in accordance with the provisions of the Companies Act, 2013
and rules made thereunder:
Name Nature of directorship Amount of sitting

fees per meeting (Rs)
Raja Nominee director 1,20,000
Raju Small shareholder 1,00,000

director
Ritu Independent director 1,00,000
Shalini Independent director 75,000
(4 marks)
Ans:
1. The given case pertains to the provisions relating to the sitting fees to directors for attending
the meeting.
2. The provisions of the act states that company may pay a sitting fee to a Director for attending
meetings of the Board or committees thereof, such sum as may be decided by the Board of
Directors, which shall not exceed Rs. 1 lakh per meeting of the Board or committees thereof.
3. Further, it provides that the sitting fee payable to Independent Directors and Women
Directors shall not be less than the sitting fee payable to other Directors.
4. By applying above provisions to the given case, applicability of the provisions is as under:
Raja Sitting fees exceeds the threshold limit and should

be reduced to Rs. 1,00,000.
Raju Sitting fees is within limit.
Ritu Sitting fees is within limit.
Shalini Salini being an Independent Director, sitting fees should not be

less than other directors and hence should be Rs.1,00,000.
Q. Board of directors of Yes No Ltd. proposes to appoint Arjun as managing director.

Arjun has recently celebrated his 71st birthday. Arjun has spent his entire career in
power sector and will be a strategic fit for Yes No Ltd. Company Secretary of the
company suggests that Arjun can only be appointed through special resolution. Do you
agree with the Company Secretary? (4 marks)
Ans:
1. Section 196 of the Companies Act, 2013 state that no company shall appoint or continue the
employment of any person as managing director, whole-time director or manager who is
below the age of 21 years or has attained the age of 70 years.
2. However, appointment of a person who has attained the age of 70 years may be made by
passing a special resolution and in such case explanatory statement annexed to the notice for
such motion shall indicate the justification for appointing such person.
3. Further, where no such special resolution is passed but votes cast in favour of the motion
exceed the votes, if any, cast against the motion and the Central Government is satisfied, on
an application made by the Board, that such appointment is most beneficial to the company,
the appointment of the person who has attained the age of seventy years may be made.
4. Therefore, in given case Mr. Arjun can be appointed as Managing director in Yes No Ltd.
either by special resolution or application made by the Board of Directors to the Central
Government.
Q. Logic Ltd. wants to remove Radhika, Company Secretary of the Company. Explain
the procedure. (4 marks)
Ans:
1. As Company secretary is appointed by the Board, the Board of directors have absolute
discretion to remove a company secretary or to terminate his services at any time for any
reason or without any reason.
2. Following is the procedure for the removal of the Company Secretary:
i. To convene a Board Meeting after giving notice to all the directors of the company and pass
a resolution to that effect.
ii. The Company shall thereafter serve a notice of termination to the Company Secretary. The
period of notice shall be governed by the employment letter or in its absence the
termination policy of the Company.
iii. The Company Secretary shall cease to be in office from the date of expiry of notice.
iv. Company is required to file e-Form DIR-12 within 30 days of cessation with the Registrar
of Companies along with evidence of Cessation.
v. In case of listed entity, Inform the stock exchange within 24 hours of Board meeting.
vi. Make entries in the Register maintained for recording the particulars of Company
Secretaries under section 170 of the Companies Act, 2013.
vii. Issue a general public notice, if it is so warranted, according to size and nature of the
company.
CHAPTER 18 – BOARD AND COMMITTEE MEETINGS

Q. Board meetings of the companies are to be held at the registered office of the
company during working hours and on working days. Comment. (4 marks)
Ans:
1. Section 173 & 174 of Companies Act, 2013 states that the board meeting of the company
can be held at any place, at any time & on any day.
2. There is no restriction on the board meeting to be held only at the registered office.
3. However, only in case of adjourned of board meeting, there is a restriction which states
that, it cannot be held on a public holiday.
4. If adjourned meeting falls on a public holiday, it will be held on next day.
Q. The board of directors of a company met thrice in the year 2014 & the fourth meeting
was not held for the want of quorum. As a company secretary of the company, decide
with reasons, whether the company has complied with the provisions of Companies
Act, 2013 with respect to minimum number of Board meetings held in a year. (5
marks)
Ans:
1. The given case pertains to Sec. 173 & 174 of the Companies Act, 2013.
2. The provisions of the Act states that for a board meeting to be valid, a minimum of 1/3rd
of total number of directors or two, whichever is higher, shall be present THROUGHOUT
the meeting.
Also, in a calendar year, four board meetings should be held & gap between 2 such meetings
cannot exceed 120 days.
The Act further states that if requisite quorum is not present, the remaining directors shall
appoint new directors to make up for the quorum & then conduct meeting.
3. By applying the above provisions to given case, the company is required to conduct a
meeting, appoint necessary directors to make up for the quorum & then conduct
proceedings of meeting so as to comply with the provisions of the Act.
Q. The chairman of BM counts 6 votes in favour and 7 votes against the resolution. Can
the chairman cast his own vote. Which he has not exercised earlier in favour of the
resolution and also the casting vote which the AOA authorize and declare the resolution
passed ? (5 marks)
Ans:
1. The given case pertains to the casting vote by chairperson.
2. The provision of the Act states that a chairman in his capacity as a director has a right
to cast one vote in the BM, however, if the articles of the company so permit, he may
have an additional vote to cast in case if there is a deadlock in the board.
3. By applying the above provisions to the given case, 6 votes were cast in favour of the
resolution and 7 votes were cast against, if the chairman wishes to vote in favour of the
resolution, he shall have 2 votes making the vote in favour to 8. In such a case the
resolution can be approved.
Q. The quorum for Board meeting shall be present throughout the meeting. Comment.
(5 marks)
Ans:
1. The valid quorum for the board meeting shall be 1/3rd of total number of directors or two,
whichever is higher.
2. If requisite quorum is not present during meeting, the meeting shall stand adjourned.
3. In the absence of quorum, if directors continue to pass resolution, such resolution at the
board meeting shall be invalid.
4. If the numbers of directors fall below the requisite quorum, the remaining directors shall
appoint additional directors to reach the requisite quorum.
5. Hence, quorum should be present throughout the meeting else it will stand invalid.
Q. As the company Secretary of Jay Ltd, what steps would you take in case the scheduled
BM could not complete the agenda slated threat. The items of business left
untransacted are of extreme importance for the company’s growth and the same
cannot be deferred until the next BM because of urgency. Advice the board about
steps to be taken. (8 marks)
Ans:
10/6/16
To,
The BOD,
Sub. : Passing of Resolution by Circulation
Dear Sir/Madam,
With reference to the above referred subject, I advise as follows :
1. The last BM of the company went incomplete in terms of the agenda items because of the
unavailability of the directors.
2. The untransacted business is of significant importance to the company and hence the
company is not in a position to wait for the next BM.
3. In such circumstances, the company instead of calling a separate BM may pass the resolution
by way of circular resolution. The applicable provisions are as follows:
a. The resolution in draft form shall be sent to all the directors at their registered address
in India or through electronic means including email or fax.
b. The said resolution must be passed by majority of directors entitled to vote.
c. If more than one third of directors want the resolution to be passed at a board meeting,
then the chairperson shall declare it accordingly.
Such resolution may be noted at a subsequent meeting as part of the minutes.
Thanking you,
Company Secretary
Q. Star Gen Ltd. held a meeting of its BOD on 31/10/10 at its registered office. Though
the company has 12 directors on its Board only 5 directors were present at the
commencement of the meeting. Thereafter even while the meeting was in progress,
2 more directors left the meeting and the remaining directors carried on the
proceedings of the meeting. Discuss the validity of decisions, if any, taken by the
remaining 3 directors. (5 marks)
Ans:
1. The given case pertains to the quorum of Board meeting.
2. The provision of the Act states that for Board Meeting to be valid, atleast 1/3rd or two
whichever is higher shall be present. Moreover, such quorum shall be present throughout
the BM.
3. By applying the above provisions to the given case out of total 12 directors 5 directors were
present at the start of the meeting. While the required quorum was 4 and hence the
quorum was validly present at the start of the meeting. However, during the meeting two
directors left because of which the quorum was not present. Any resolution passed in the
absence of quorum shall be invalid and hence the meeting stands adjourned.
Q. Shaky Commodities Private Ltd. could not hold its 10th annual general meeting for the
year 2016 by 30th Sept. 2016. The company sought extension of time for holding the
AGM from the Registrar of companies but failed to hold the meeting within the
extended time too. Instead, it held the meeting on 31st March, 2017 and passed
resolutions thereat. Certain shareholders have challenged the validity of these
resolutions. Referring to the provisions of the Companies Act, 2013, examine whether
the contention of the shareholders shall be tenable. (5 marks)
Ans:
1. The given case pertains to provisions relating to ‘holding of an AGM’ & passing of
Resolution’.
2. Provisions of the Act states that an AGM should be held within period of 6 months from
the end of FY & it shall be ensured that gap between 2 AGMs is not more than 15 months.
If the AGM is not held within this time period, an extension may be sought for holding such
AGM. Extension sought shall not be more than 3 months. The AGM shall not be invalid if
the company has paid necessary fine with respect to the same. Any resolution passed thereat
shall be valid.
3. By applying above provisions to given case, all the resolutions passed at the AGM held on
31st March, 2017, if company has paid necessary fine for not conducting an AGM within the
prescribed limit. Therefore, even delay in holding the AGM beyond the prescribed period
doesn’t make it void and the resolutions passed are valid.
Q. A Director insists that his note of dissent be recorded in the minutes of the BM which
he attended & did not agree to some of the points of agenda. Comment (5 marks)
Ans:
1. Minutes are nothing but written records of proceedings of a meeting.
2. Minutes of the meeting of Board shall include the details of the directors present & absent.
3. While recording the minutes of meeting it should ideally be mentioned that which director
voted in favour & who voted against.
4. Even though the resolution is approved by majority, a director may choose to vote against
the said proposal and fact of the disagreement shall have to be recorded in the minutes
book.
5. Thus, a director requesting his dissent for a particular resolution must be recorded in the
minutes book.
Q. Articles of Reality Ltd. provides that directors participating through audio-visual

means in its Board meetings shall always be counted for quorum. Examine the validity
of this provision with reference to the Companies Act, 2013. (5 Marks)
Ans:
1. Quorum means minimum number of person required to constitute a valid meeting.
2. As per the provision of companies act, 2013, section 174 the quorum for every board
meeting shall be one third of the total strength of the director or two whichever is higher.
3. Also, for determining quorum, directors present through video conferencing or audio
visual mode should be counted.
4. Thus, articles of Reality Ltd. are consistent with the provisions of act and hence the clause
that provides that director participating through audio visual means in the board meeting
shall always be counted for quorum.
Q. Referring to the provisions of Companies Act, 2013, advise the directors of a company
in the following matters:
(i) The company wishes to obtain approval of the financial statement in a meeting
held through video conferencing.
(ii) Due to urgency, the company wants to get its prospectus approved in a meeting
held through video conferencing. (4 marks)
Ans:
As per the provisions of the Companies Act, 2013, there are few matters which cannot be
approved by a resolution passed through conferencing or audio visual mode such as:
(i) approval of annual financial statement
(ii) approval of boards report
(iii) approval of prospectus
(iv) audit committee meeting for consideration of accounts
(iv) approval of matters relating amalgamation, merger, demerger, acquisition.
However, if the quorum during the meeting is present in person, and the remaining directors
are present through video conferencing, such resolutions passed thereat are valid.
Conclusion:
By referring to the above provisions and facts of the case, company cannot obtain approval of
the financial statements in a meeting held through video conferencing. Also, it can get its
prospectus approved in a meeting through video conferencing, provided the requisite quorum
for a valid board meeting is present in person.
Q. Minutes of the meetings of the company shall be preserved for a period of not less
than eight years. Comment with reference to the provisions of the Companies Act,
2013. (4 marks)
Ans:
1. Every company shall within a period of 30 days from the conclusion of such meeting,
prepare, sign and keep minutes of the proceeding of the meeting including board meeting,
general meeting, committee meeting or resolutions passed through postal ballot.
2. Each page of minutes book shall be entailed, and last page shall be signed and dated by:
(i) In case of Board Meeting, by the chairman of the meeting or the chairman of the next
meeting.
(ii) In case of GM, by the Chairman of the meeting or in case of his death or inability, the
Director authorized by the Board.
(iii) In case of postal ballot, by the chairman of the Board & in case of his death or inability,
by a Director duly authorized by the Board.
3. Minutes of meeting shall be kept at the registered office of the company. It shall be kept in
the custody of company secretary or director duly authorized and shall be preserved
permanently.
4. Minutes are permanent record of the company, be it general meeting or board meeting
and they carry evidentiary value. Hence, at no point, they can be destroyed by the company
and are maintained for life.
Q. A Board meeting of a listed public company was called at shorter notice to transact
an urgent business. None of the Independent directors could attend the meeting.
Examine the validity of resolution(s) passed at the meeting referring to the provisions
of the Companies Act, 2013. (4 marks)
Ans:
1. As per the provision of Companies Act, 2013 notice of board meeting shall be served
atleast 7 days before the meeting in writing to every director at registered address available
with the company.
2. Board meeting may also be called at a shorter notice, provided atleast one independent
director shall be present at such meeting.
3. Since, independent director could not attend the meeting which was called at shorter
notice. Hence, it is not a valid meeting.
Q. JKJ Ltd. has 10 directors on its Board. A Board meeting was convened on 19-10-2019
in which two of the directors participated in-person and one director through video
conferencing. Two directors were interested in the agenda and hence, did not
participate in the meeting. The auditor claimed that the quorum was not present for
the meeting to be valid. Do you agree with the auditor? Justify your answer in reference
to provisions of the Companies Act, 2013 (5 marks)
Ans:
1. The given question is based on the provision of quorum of Board meeting.
1
2. Quorum for Board meeting should be of total strength or two director, whichever is
3
higher.
3. Any fraction of a member will be rounded off as one.
4. Directors participating through video conferencing shall be included.
5. By applying above provision to given case, JKL Ltd has 10 directors on its Board, Thus,
1
quorum will be of 10 i.e. 3.33 i.e. or 2, whichever is higher i.e. 4.
3
6. Two directors have attended in person and one through video conferencing still quorum
requirements are not fulfilled. Thus, the claim of auditor was valid.
Q. Approval of the Audit Committee to a related party transaction can be granted by

passing a circular resolution. Discuss. (5 marks)
Ans:
1. Section 188 of the Companies Act, 2013 prohibits board of the directors of the company
from dealing with an item of business relating to Related Party Transaction through circular
resolution i.e. it can be passed only in a duly convened meeting.
2. Further, section 177 of the Companies Act, 2013 prescribes Audit committee’s approval for
any RPT or subsequent modification thereto. However, the act is silent on dealing with an
item of business relating to Related Party Transaction by the Audit committee through
circular resolution.
3. Further, there is no bar on omnibus approval of limits being passed by a circular resolution
by the Audit Committee.
4. Therefore, it can be stated that law does not impose any restriction on Audit committee for
providing approval to a related party transaction by way of circular resolution.
Q. A meeting of the Board of Directors was convened to approve the annual financial
statements of the company. The company has a total of 9 directors out of which 4
directors were attending the meeting through video-conferencing while the Chairman
and 4 other directors were personally present. Five directors (including the Chairman
and those attending the meeting through video-conferencing) gave their assent to
approve the financial statements while three directors personally present dissented.
Can the Chairman consider the financial statements as approved? Explain with
reasons. (5 marks)
Ans:
1. The given case pertains to the provisions relating to quorum for a Board Meeting for
approval of financial statements.
2. The provisions of the act states that in any Board Meeting where financial statement are
approved by the board it must be ensured that the quorum should be physically present in
the Board meeting. It does not matter who approved or who disapproved the proposal out
of the directors who are physically or virtually present.
3. By applying the above provisions to the given case out of total 9 directors, 5 were physically
present & 4 were present through video conferencing. The quorum is sufficient i.e., 1/3rd of
9 = 3, or 2, whichever is higher. Now it does not matter whether the approval received by
majority is out of the director who were physically present.
Q. Describe the provisions relating to cross border mergers in companies Act, 2013.
Ans:
1. Cross border amalgamation means Amalgamation between an Indian company and a foreign
company.
2. Such cross border amalgamation were previously not allowed since there were an explicit
provisions notified for it.
3. Now if an Indian company is to be merged with foreign company or vice-versa, approval of
certain Regulatory authority is to be joined.
4. The Indian company has to obtain the approval of Tribunal within whose jurisdiction the
company’s registered office is situated.
5. Approval of RBI is also to be obtained since certain transfer of assets or control happen
between both the companies.
6. The foreign company has to obtain the approval of regulatory authority in their country of
Origin.
Q. 'The Company Secretary and Chairperson shall take due and reasonable care while handling
virtual meeting.' Evaluate the statement. (5 marks) [June 2022]
Ans:
1. A company hold the meeting of its board of directors through electronic mode by way of
Video Conference [VC]
2. Certain care has to be taken by the chairperson & company secretary, as follows:
a) Ensure that proper arrangements have been made so that everyone can be heard & seen.
b) Ensure that no one else than the directors & other person authorized is attending the
meeting.
c) See to it that proceeding are being property recorded & presence the records.
d) Check the quorum at the start of meeting and while resuming after every break by giving
out roll calls.
e) If there is any garble or disturbance while speaking the chairman may ask the person to
repeat himself.
f) It is to be seen that differently director is extend all sorts of assistance during the meeting.
Q. Explain the following terms with reference to a virtual meeting:

Electronic mode
Roll call (4 marks) [June 2022]
Ans:
1. Electronic mode –
- Electronic mode with respect to virtual meeting means meeting conducted with the help
of Video Conferencing over a Desktop, phone or a Laptop by using applications such as
skype, etc.
- In electronic mode participants are not present at the venue but can see each other &
listen to them.
2. Roll Call -
- Roll call is carried out at the beginning of the board meeting or at the time of resuming
after a break.
- Roll call includes calling out the name of every director to ensure whether they are
present so that quorum is formed & also to ensure that no one else other than authorized
person is attending the meeting.
CHAPTER 19 – GENERAL MEETINGS

Q. Pioneers Ltd. convened a BM on 1/9/13. During the course of meeting the date of
next AGM was discussed but no decision was taken. However, the CS issued the
notice for AGM without any specific authorization from BOD. Decide the Validity of
notice of AGM. (5 marks)
Ans:
1. The given case pertains to the provisions of calling of AGM.
2. The provisions states that it is a specific authority of BOD or any person authorized by the
board to call for an AGM by sending notices for an AGM. If the decision is not taken by the
board no other officer has the power or authority to call for AGM.
3. By applying the above provisions to the given case in the BM of Pioneer Ltd. the BOD
discussed the proposal however no specific resolution was passed by them nor any authority
was given by the court to CS for calling the AGM. Since the CS called for AGM without a
specific authorization from board, the AGM is held to be invalid.
Q. What are the requirements as to the maintenance of Register of Postal Ballot? (3
marks)
Ans:
1. Every company which is required to or which proposes to get any resolution passed through
postal ballot should maintain a separate register for each postal ballot to record the assent
or dissent received through postal ballot.
2. The scrutinizer shall maintain a register either manually or electronically to record their
assent or dissent received.
3. Entries in the register should be made immediately after the opening of postal ballots.
4. The register should be kept at the registered office of the company after the Scrutinizer has
submitted his report.
5. The register, postal ballot forms and all other related records are not available for
inspection.
6. All postal ballot forms should be authenticated by the Scrutinizer. Entries in the register
should be authenticated by the Scrutinizer.
7. The register, postal ballot forms and all other related records should be kept in the safe
custody of the Scrutinizer till the Chairman signs the Minutes Book in which the result of
the voting by postal ballot is recorded.
8. The secretary of the company, managing director or whole-time director or the director
so authorised and the Scrutinizer should make adequate arrangements for safe custody of
the register and proof of dispatch of Notices and all envelopes received by post or by hand,
until the Scrutinizer submits his report to the Chairman.
9. The Scrutinizer’s report and office copies of the notices should be preserved in good order
until the resolution has been implemented or for a period of 10 years, whichever is later.
Q. Yash, a member of Omar Ltd. appoints Jolly to attend a GM of the company at the
meeting. Voting takes place by show of hands. However Jolly does not know whether
he as a proxy can vote by show of hand. Advise. (5 marks)
Ans:
1. Pursuant to the provisions of Companies Act, 2013, every member is entitled to vote either
in person or by appointing a proxy on his behalf.
2 A proxy holder has a right to attend the meeting but when it comes to voting, he can only
do so in case of a poll.
3 A proxy-holder is not allowed to speak during the meeting, but he has a right to demand a
poll.
4 In the given situation, Jolly cannot vote on show of hands however, he can vote on a poll
and also demand for a poll.
Q. Agile Ltd. called its AGM on 28th Sept. 2013. The notice of the meeting was posted
on 6th Sept. 2013. With reference to the provisions of Companies Act, 2013, examine
whether the notice given by the company was valid. (5 marks)
Ans:
1 The given case pertains to the provisions relating to service of notice.
2 Provisions of the Act states that, a 21 days clear notice is required to be served for a GM
to be valid i.e. date of postage and date of the meeting shall be excluded.
3 By applying the above provisions to the given case, Agile Ltd., dispatched the notice on 6th
Sept. 2013 and the date of meeting was on 28th Sept,13 leaving a gap of 21 days excluding
6th Sept. and 28th Sept.13 and hence the notice is valid.
Q. Every AGM of the Company must be held in each calendar year. Comment. (8 marks)
Ans:
1. Section 96 of the Act provides that every company other than an OPC is required to hold
on AGM every year.
2. The first AGM shall be held within 9 months from the end of F.Y. in which the company was
incorporated, however, an AGM is not required to be held in the year of its incorporation
whereas subsequent AGMs shall be within 6 months from the end of Financial Year
3. However, any extension needed for conducting AGM, an application is made with ROC, on
which ROC can provide for an extension of not more than 3 months.
4. Thus in normal cases, or even after seeking extension from the ROC, an AGM is held before
31st of December every year and hence an AGM shall be held in each calendar year.
Q. Explain the provisions related to Passing of resolution by postal ballot. (5 marks)

Ans:
1. Postal Ballot means voting by post or through electronic mode.
2. There are certain businesses which shall only be transacted through postal ballot. For ex-
buyback, change of registered officer outside the local limits, Issue of shares with differential
voting rights etc.
Procedure:
1. The company is case of postal ballot is required to send a notice to all the shareholders
along with explanatory statement requesting the members to give their assent or dissent on
such resolutions within 30 days from the date of dispatch of notice.
2. The notice shall be sent either through registered post, speed post, courier or e-mail.
3. After the ballot papers have been dispatched, a notice in English & vernacular language
newspapers shall be published.
4. Copy of the said notice, shall also be placed on the website of the company.
5. The Board shall appoint a scrutinizer who is willing to be appointed for the said purpose.
6. Ballot papers shall be kept in the safe custody of the scrutinizer.
7. After counting all the votes cast through ballot papers, the scrutinizer shall submit a report
within a period of 7 days from the last date of receipt of ballot papers.
8. All the records & registers shall be maintained either manually or electronically by the
scrutinizer till the time, the chairman considers, approves & signs the same.
9. The results shall be placed on the website of the company.
10. The result shall be deemed to have been passed on the date of declaration of the results.
Q. PQR Ltd. is an unlisted company and has 400 shareholders in all. The shareholders
proposed voting by electronic mode. Chairman of company rejected the shareholders
proposal. Explaining the provisions. (5 marks)
Ans:
1. The provisions related to e-voting have been introduced for the first time under the
Companies Act, 2013.
2. The reason behind e-voting was to widen shareholder’s participation in GM. However,
providing such facility is not mandatory for all the companies.
3. E-voting is mandatory only for those companies which are listed and for those other
companies who have a minimum shareholder base of 1000.
4. Since, PQR is an unlisted company and it has only 400 shareholders, therefore, it is not an
obligation on the part of the company to provide e-voting facility to its members. The
contention of Chairman is correct. However, a company may voluntarily choose to provide
e-voting options to its members.
Q. Abhijeet is a shareholder of Kutumb Ltd. On receipt of notice of an AGM to be held
on 28th Sept 04, Abhijeet issued a proxy in favour of Baljeet on 25th Sept. Abhijeet
again issued another proxy in favour of Charanjeet on 26th Sept 04. Both Baljeet
and Charanjeet attended the meeting on 28th Sept. 04. Decide who is entitled to vote
on poll. (8 marks)
Ans:
1. The given case pertains to appointment of proxy.
2. The provisions of the Act states that, the company shall receive a valid proxy atleast 48 hrs
before the meeting at its registered office. If the shareholder after sending the proxy form
to the company wishes to appoint another person as a proxy, he may do so, and the second
person shall be entitled to attend the meeting.
3. By applying the above provisions to the given case, Abhijeet appointed Baljeet as a proxy on
25th of Sept. and thereafter appointed Charanjeet as a proxy on 26th Sept. 04 since they
reached the company 48 hours before the meeting. Both the proxies are valid and therefore,
the subsequent proxy holder shall have right to attend and vote on a poll.
Q. Distinguish Between Motion and Resolution. (2 marks)
Ans:
No. Motion Resolution
1 When an agenda item is put up for When the said agenda is put up for vote, it is
discussion, it is a motion. called as a resolution.
2 Motion is not binding since, it is a Resolutions are binding because, they are
proposal approved.
Q. A proxy was appointed by a member by an instrument duly executed. Will the vote
cast by the proxy be valid in following cases :
a)When the member himself attended and casted his vote at the meeting without
revoking the authority of proxy.
b)When the member died in meantime. (8 marks)
Ans:
1. The given case pertains to the provisions relating to appointment & revocation of proxy.
2. The provisions of the Act, states that for any proxy to be valid it must reach the registered
office of the company atleast 48 hrs. before the meeting. A proxy – holder in every
circumstance shall be entitled to vote unless it has been expressly revoked by the member.
a) Since, the member did not revoke the proxy nor did he intimated the chairman before
the start of the meeting regarding his presence & voting, his vote shall stand invalid.
b) Proxy was appointed by the member during his lifetime and hence no subsequent event
except revocation can take away the rights of proxy. Thus, even if the original members
died, a proxy holder shall be entitled to vote.
Q. Distinguish between ‘Postponement of Meeting’ and ‘Adjournment of Meeting’ (2

marks)
Ans:
No. Postponement Adjournment
1. When the meeting is not called to order When meeting is called to order and convened
is called on future date is postponement at some future date due to want of quorum or
any other reason as specified is adjournment.
2. It can be done by Chairman It can be done by Chairman or for want of
Quorum.
Q. Short note Voting by show of hands. (4 marks)

Ans:
1) In a General Meeting of Company, voting may happen by any of the following methods,
namely, show of hands or poll.
2) In case of voting by show of hands a member attending a meeting is given one vote per
member irrespective of its holding i.e. “one member one vote” – Rule is applied.
3) In case if poll is not demanded, defacto method of voting is always show of hands.
Q. It is not necessary to have the minutes of the meeting confirmed in the next meeting.
Comment. (5 marks)
Ans:
1) Minutes are nothing but the proceeding recorded in writing.
2) The minutes of every meeting shall be prepared approved and signed by the Chairman within
30 days of the meeting.
3) The Minutes are signed by the Chairman of said meeting or in case of his death or
unavailability. It shall be signed by the Chairman of the next meeting.
4) In what so ever situation the minutes of last Board Meeting are always placed before the
next Board Meeting for their confirmation.
Q. 40 out of 100 members of a Company submitted a requisition for holding of an EGM
in order to remove the MD from the office. On the failure of the company to call the
meeting, the requisitionists themselves called the meeting at the registered office of
the company. On the appointed date, they could not hold the meeting at registered
office of the company, as it was kept under lock & key by the MD himself. The
member held the meeting elsewhere and adopted a resolution removing the MD from
the office. Is the resolution valid? (5 marks)
Ans:
1. The given case pertains to the provisions of holding of an AGM by requisitionists by
themselves.
2. The provision of the Act states that, if on the request of member, the company is unable to
call on AGM, the members themselves in case of such failure call for on EGM, either at the
registered office or some other place within same town / place / city or village.
3. By applying the above provisions to the given case since the MD locked the registered office
which was the venue of EGM, the members have right to call for the EGM at some other
place within same / town / city / village for it to be valid EGM. Any resolution passed for
removal of MD at such a meeting shall be valid.
Q. Minutes of the company can be maintained in loose leaf form. Comment with reason.
(5 marks)
Ans:
1. Minutes of the Company are nothing, but proceedings of a meeting recorded in writing
about the decisions taken at a particular meeting.
2. Every company for all the meetings conducted in a year is required to record the minutes
& it is a permanent record & which has the strongest evidentiary value.
3. The minutes once prepared are to be approved by all the directors & signed by the chairman
within 30 days of the meeting.
4. Once the meetings are signed they are required to be binded in the minutes book & then
kept as a permanent record.
5. However, no time period is provided under the Act for binding the set minutes but a
reasonable time period i.e. a period not more than six months is considered to be
reasonable for binding the same.
Q. Bright Products Ltd. wishes to sell one of its undertakings for which it decides to call
an extra-ordinary general meeting [EGM] & to pass a resolution threat. State the
material facts to be set out in the explanatory statement to be annexed to the notice
of the EGM on this special business to be transacted at the meeting. (8 marks)
Ans:
1. Explanatory statement is given in case if a company transacts any of the special business at
a GM. It is given as a justification to the shareholders as to why the company is proposing
to pass the set resolution.
2. An explanatory statement for sale of an undertaking of the company shall include the
following:
i) Details of the Assets
ii) Its present value & valuation report of an in dependent valuer.
iii) Expected selling price.
iv) Profit & Loss on sale of Assets & its tax aspects.
v) Utility of such asset & the new asset to be purchased thereof.
Q. Postal Ballot mechanism improves shareholders participation in corporate decision

making. Comment. (4 marks)
Ans:
1. The word Postal Ballot means voting on a particular resolution by post.
2. A lot of shareholders do not participate in proceedings of the meeting on account of
transportation issues, distance or time.
3. Postal Ballot mechanism gives an opportunity to shareholders to participate in the decision
making of company sitting at home.
4. Company sends copy of the resolution to all its shareholders & gives them a time period of
30 days to vote.
5. The shareholders can submit their votes to the company through the prepaid envelope sent
by the company.
6. Thus, Postal Ballot mechanism improves shareholders participation in corporate decision
making.
Q. In a general meeting of Kutumbh Ltd, only 15 shareholders were present for a special
resolution, only 7 out of 15 shareholders voted for the resolution, 2 voted against the
special resolution & 4 did not vote at all. No poll was demanded & chairman of the
meeting declared the special resolution to be carried. Examine the validity of the
resolution. (5 marks)
Ans:
1. The given case pertains to the provisions relating to voting at the GM of the Company.
2. The provisions of the Act states that at a GM of a company the total members present shall
form quorum for the meeting while for the purpose of voting, only those who are present
& cast their vote shall be considered.
3. By applying the above provisions to the given case, in the GM of Kutumbh Ltd. 15 members
were present, out of which 4 did not vote at all. Thus, for the purpose of voting, only 11
members shall be taken into consideration. Out of 11, 9 voted in favour & 2 voted against
& hence the resolution is carried by special majority since it is more than 75%.
Q. A member of a Company has a statutory right to appoint proxy for attending the GM
of the company. Similarly, a director can also appoint his proxy for attending the
meetings of Board of Directors of the Company. Comment. (4 marks)
Ans:
1. It is a general right of shareholders to appoint a proxy in case if the member is not in a
position to appoint the GM but wishes to vote.
2. In case of BM, all the critical decisions are taken & it is restricted to very few people who
can actually attend & vote in BM.
3. Thus, it is only the directors who can attend & vote in a BM, no proxy is allowed.
4. Thus, in case of GM, proxy can be appointed which is not so in case of meetings of BOD of
the company.
Q. Kirti Ltd. has total paid-up share capital of Rs. 23 crore and its annual general meeting
is scheduled on 27th December, 2018. Ritik is holding paid-up share capital having nominal
value of Rs. 3 crore and Sonu is holding paid-up share capital having nominal value of Rs.
2.4 crore. On 24thDecember, 2018 both Ritik and Sonu wanted to issue proxy in favour of
Rohit to attend meeting on their behalf. Rohit is not a member of any company. Decide
under the provisions of the Companies Act, 2013 whether both Ritik and Sonu can
appoint Rohit as their proxy. (4 marks)
Ans:
1. As per section 105 of of Companies Act, 2013 a proxy holder can act as proxy on behalf
of not more than 50 members and holding 10% of the share capital of company.
2. Also, in case of companies other than section 8 company proxy holder need not be the
member of the company.
3. By referring to the above provisions and facts of case, Sonu and Ritik wanted to appointed
Rohit as their proxy. Sonu hold Rs. 3 Crore and Ritik holds Rs. 2.4 Crore of the total paid
up share capital of Rs. 23 Crore. This exceeds 10% of total paid up share capital (i.e. 10%
of 23 Crore = 2.3 Crore). Hence Ritik and Sonu cannot appoint Rohit as their proxy.
Q. In Pallavi Chemicals Ltd. resolution for issue of bonus shares in the general meeting
was put to remote e-voting and requisite majority has approved but quorum is not
present at the general meeting. What would be the implications? (4 marks)
Ans:
1. As per the provisions of Companies Act, 2013, the essential of a valid meeting is that it
must be properly constituted, that included
- Proper quorum must be present in general meeting.
- Proper chairman must be presiding the meeting.
2. In the above case, Pallavi Chemicals Ltd. passed a resolution for issue of bonus share in
general meeting which did not had a requisite quorum. Thus the meeting was invalid. Hence
Pallavi Ltd. cannot carry bonus issue.
Q. A company has appointed you as a scrutinizer in respect of a resolution required to

be passed through a postal ballot. Describe your functions as a scrutinizer. (5 marks)
Ans:
1. The Board appoints any practicing professional as a scrutinizer who is not in employment
and person having repute.
2. As a scrutinizer
(i) Ensure safe custody of ballot paper
(ii) Count the votes casted through ballot paper
(iii) Submit a report within a period of 7 days from the last date of receipt of ballot paper.
(iv) Maintain record and register either manually and electronically till the time chairman
considers, approves and sign.
(v) Scrutinizer shall place the result on website of the company.
Q. Swaroop wants to depute his friend Suraj to act as a Proxy in companies he holds
shares. Advise him on the following :
(a) He wants his friend Suraj to speak and vote on his behalf.
(b) For how many persons, his friend Suraj can act as proxy? (4 marks)
Ans:
1. Swaroop wants to depute his friend Suraj to act as proxy in companies he holds shares.
2. He wants his friend Suraj to speak and on his behalf. However, a proxy shall not have a
right to speak, however he shall be entitled to vote on his behalf.
3. Suraj can act as proxy on behalf of maximum 50 members and holding 10% of the share
capital of the company having voting rights.
Q. Last Annual General Meeting (AGM) of one of the top 100 listed companies was held
on 25th May, 2018 pertaining to the FY 20017-18. The Board of directors of the
company is planning to hold this year’s AGM at a possible later date due to technical
issues in finalisation of accounts. Give your suggestions about the date before which
the AGM should be held in reference to relevant provisions of the Companies Act,
2013 (5 marks)
Ans:
1. Annual General meeting is the meeting of all the members of the company which should
take place once in each calendar year
2. Fist Annual General meeting should be held within 9 months from closing of FY or
subsequent meetings shall be hold within 6 months from the closing of relevant FY and gap
between two meetings shall not exceed 15 months.
3. As per SEBI notification, top 100 listed companies shall hold their AGM within a period 15
months from the closing of relevant FY such Company shall also provide one way live
webcast of the proceedings of AGM.
4. Thus, by applying above provisions to given case, last AGM of one of the top 100 listed
companies held on 25th may 2018. Thus subsequent meeting shall be hold within 5 months
from end 01 FY 18-19 i.e. 31st August 2019 or within 15 months from end of 15 months
from last AGM i.e. 25th Aug. 2018 whichever is earlier.
5. Thus meeting shall be held before 25th Aug 2017.
6. Registrar can also give extension of not exceeding 3 months, if he has been provided with
satisfactory reason of not holding meeting. Thus, Company have to hold meeting on or
before 25th August 2019 or as per extension given by registrar as the care may be.
Q. A newly joined trainee of the secretarial department would like to know details of
information to be entered in respect of resolution passed through postal ballot by the
company. Advise him. (4 marks)
Ans:
1. Postal Ballot means voting by post or through electronic mode.
2. These are certain businesses which shall only be translated through postal ballot.
(i) Buy Back.
(ii) Change of registered officer outside the local limits.
(iii) Issue of Shares with differential rating rights.
3. One Person company and all other companies having members upto 200 are not required
to transact any business through postal ballot.
4. The company in case of postal ballot is required to send a notice to all the shareholders
along with explanatory statement requiring the member to give their assent or dissent on
such resolution.
5. After the ballot papers have been dispatched, a notice in English & vernacular language
newspaper shall be published.
6. Copy of such notice shall be published on the website of the company.
7. The Board shall appoint a scrutinizer for the said purpose. Ballot papers shall be kept in the
safe custody of the scrutinizer.
8. After counting all the votes cast through ballot papers, the scrutinizer shall submit a report
within a period of 7 days from the date of receipt of ballot papers.
9. All the records & registers shall be maintained either manually or electronically by the
scrutinizer till the time, the chairman considers, approves and sings the same. The result
shall be placed on the website of the company.
Q. ‘A’, a shareholder, appointed ‘X’ as his proxy for the general meeting of a company.
The proxy forms were lodged 50 hours before the meeting. The Chairman of the
meeting refused to accept the proxy stating that the proxies should be lodged at least
70 hours before the beginning of the meeting as per articles of the company. However,
despite Chairman’s refusal proxy participated in the meeting. Meanwhile ‘A’ also
rushed to attend the meeting and both ‘A’ and ‘X’ voted on a particular resolution of
the meeting. On the basis of above facts, answer the following :
i. Can ‘X’ compel the Chairman to admit the proxy?
ii. Since both ‘A’ and ‘X’ voted, the Chairman invalidated both the votes.
Discuss whether the Chairman acted as per the provisions of the Companies Act, 2013 (4
marks)
Ans:
1. Any person who appoints someone else to vote on his behalf then such appointed person
is known as proxy.
2. A valid proxy must be deposited at least 48 hours before the meeting, however a longer
period prescribed by the company’s Article of Association shall be considered as if the
period is 48 hours.
3. If after appointed of proxy, the member himself attends the meeting, it amounts to automatic
revocation of proxy. But once the proxy has voted it cannot be revoked.
4. By applying above provisions to given case, A, a shareholder, appointed ‘X’ as his proxy for
the general meeting of the company. The proxy form use lodged 50 hrs before the meeting
although the Articles provide the time period of at least 90 hrs. The proxy form shall be
accepted as per the provisions of companies Act because proxy has been lodged at least 48
hrs.before the meeting, Chairman have to admit the proxy.
5. By applying another provision, the vote cast by A shall be considered valid.
Q. A group of shareholders holding 13% of the total paid-up share capital of Lala
Investments Ltd. requested the Board of directors of the company to convene the
Extraordinary General Meeting (EGM) by their letter dated 5th October, 2019, to
discuss the matters set out in their requisition to the company. The Board of directors
did not act on their request until end of October 2019. As a practicing Company
Secretary what would you suggest as to the further course of action and the procedure
to be followed in this regard? (4 marks)
Ans:
1. If the company has a share capital, member who held 1/10th of total paid up share capital on
the date of request, may request for an EGM & if there is no share capital, 1/10 th of total
voting power will be considered.
2. The Board may within 21 days from the date of receipt of a request proceed to call for a
meeting on a day not later than 45 days from the date of request.
3. If Board does not take necessary action within 21 days, the requisitionist may on their own
call for a meeting of members, within a period of 3 months from the date of request.
4. In case of such meeting notice shall be given by requisitionist which serves 21 days clear
notice it shall specify time, place, day, date and the business to be transacted.
5. It should be held at registered office of the company or in the same city, town or village
whose such registered office is situated. It should be held on any working day.
6. The EGM of a company which is wholly owned subsidiary of a company incorporated outside
India, may be held outside India.
7. No explanatory statement is required to be attached to the notice.
8. The notice shall be given to those members whose name appears in register of member
within 3 days from date of receipt of valid request.
9. In case of such meeting, if the quorum is not present within half an hour, the meeting shall
stand cancelled.
10. Here, shareholders holding 13% made a request to call EGM and till the end of October
board hasn’t taken any action. Now shareholders can call their meeting by their own.
Q. Himmat Ltd. has a paid-up capital of Rs 50,00,000 divided into Rs 5,00,000 shares of
Rs 10/- each. Special notice of intimation to move a resolution to remove Rajesh &
Co., statutory auditor, before the expiry of their term and appointing Ritaban & Co.
in their place has been given to the company by a shareholder holding 5,023 shares.
In the above context, give your suggestion to Himmat Ltd. (4 marks)
Ans:
1. The given case pertains to section 115 relating to resolution requiring special notice.
2. The provisions of the act states that special notice can be given to the company by such
number of members holding not less than 1% of total voting power or holding shares on which
the aggregate sum of not less than Rs.5 Lakhs has been paid-up on the date of notice for
removal and appointment of the auditor.
3. By applying above provisions to the given case, shareholder is holding more 5,023 shares of
Himmat Ltd. which is more than 1% of total voting power (5,00,000shares*1% = 5,000 shares).
Therefore, special notice being as per requirements, company to send the copy of such notice
to the Rajesh & Co., who is to be removed. Hence, Rajesh & Co. can be removed by following
the prescribed procedures.
4. However, as per section 140 of the Companies Act, 2013, auditor can be removed from his
office before the expiry of his term only by passing a special resolution of the company, after
obtaining the previous approval of the Central Government. Therefore, Ritaban & Co. can be
appointed by the Board of Directors within 30 days to fill such casual vacancy.
Q. Can an annual general meeting be called at a shorter notice? Would your answer be
different if it were an extra-ordinary general meeting? (4 marks)
Ans:
1. A 21 days clear notice is required to be given to all the shareholders in writing or through
electronic mode before the general meeting.
2. However, pursuant to section 101 of the Companies Act, 2013, Annual General Meeting may
be called after giving a shorter notice, if consent is accorded in writing or by electronic mode
by not less than 95% of the members entitled to vote at such meeting.
3. Whereas, in the case of extra-ordinary general meeting, a shorter notice can be given if
consent is accorded:
a) In case company has a share capital – members holding majority in number of members
entitled to vote and who represent not less than 95% of such part of the paid-up share
capital of the company as gives a right to vote at the meeting; or
b) In case company has no share capital – members holding not less than 95%, of the total
voting power exercisable at that meeting.
4. Further, where any member of a company is entitled to vote only on some resolution or
resolutions to be moved at a meeting and not on the others, those members shall be taken
into account in respect of the former resolution or resolutions and not in respect of the latter.
Q. 25 members of a company holding 11% of total paid up equity share capital made a
requisition on 5th December, 2019 to the Board of Directors to convene an Extra
Ordinary General Meeting (EGM). State the date by which the Board of Directors is
required to proceed and the date by which the EGM should be held. What could the
requisitionists do if the Board of Directors fail to act on the requisition? (4 marks)
Ans:
1. In terms of the provisions of Companies Act, 2013, on the request of members holding 10%
of share capital or 10% of voting power in case of company having share capital or voting
power respectively.
2. In the present case requisition was received from 25 member, holding 11% of paid up equity
on 5th December 2019 and hence, this is a valid requisition.
3. The board now has to take action within 21 days from 5th December i.e. 26th December
2019.
4. The EGM should be called within 45 days from the date of requisition i.e. 19th January 2020.
5. In case if the Board fails to call for an EGM, the requisition can call for a meeting on their
own within 3 months from 5th December 2019.
Q. RST Communications Ltd. has a total paid-up share capital of Rs 6 crore consisting of
6 lakh shares of Rs 100 each. Its annual general meeting had been scheduled for 15th
September, 2019. On 25th August, 2019, two of its members jointly holding 5500 fully
paid shares sent a notice to the company intimating their intention to move a
resolution in the forthcoming Annual General Meeting for removing a director before
the expiry of his term and appointing another person as a director in place of the
director so removed. Is the company required to act on this notice ? Explain with
reference to the relevant legal provisions. (5 marks)
Ans:
1. In terms of the provisions of Companies Act, 2013, if the members of a company are desirous
of removing a person from the position of a director, a special notice is required to be sent.
2. A special notice can be sent by members holding 1% of paid up share capital or 5,00,000 in
value and is to be sent atleast 14 days before the date of General Meeting.
3. In the present case 2 members of the company holding 55,000 shares of Rs. 100 each amount
to Rs. 5,50,000 sent a notice to RST Communication Ltd. on 25th August 2019 to remove a
person as a director AGM to be held on 15th September 2019.
4. To the extent removal of an existing director is concerned, members have fulfilled both the
conditions of 5,00,000 in value & 14 days in advance.
5. However, to appoint any other person as a director, such nomination required application
to be sent along with a fee of Rs. 1,00,000.
Q. Decide whether the length of the notice is proper in the following cases with reference to
the provisions of the Companies Act, 2013 ?
Particulars Case I – Sky Ltd. Case Il – Moon Ltd.
Date of Annual 30th September, 30th September, 2021
General Meeting 2021
Date of sending 5th September, 7th September, 2021

notice by post 2021
What would be your stand in case if Sky Ltd. and Moon Ltd are section 8 companies? (5
marks) [June 2022]
Ans:
1. As per the provisions of Companies Act, 2013, a notice of annual general meeting shall be
sent to shareholders atleast 27 clear days before the meeting clear days means while
calculating time limit day of sending & the day of AGM are to be excluded further if the
notice is sent by post additional 2 days of delivery are to be added.
2. In case of Sec. 8 company a 14 days clear notice of general meeting is required.
3. Thus, in case of Sky Ltd. the notice of AGM is valid as it is more than 21 clear days where
as in case of Moon Ltd. the notice is only of 27 clear days & thus invalid.
4. In case if both are Sec. 8 companies then notices sent by both Sky & Moon Ltd. are valid.
Q. lndra Kumar, head of the legal and secretarial department of a conglomerate wants to
understand from you that which of the following resolutions shall only be passed by the
postal ballot. Assist him with your answers as per the provisions of the Companies Act, 2013
based on the information available from the following table:
Nature of the Number Subject matter for
company of which resolution is
members proposed
One Person 1 Alteration of articles of
Company association
Unlisted 190 Buy-back of Shares
Company
Listed 12,340 Election of Small
Company Shareholder’s Director
(4 marks) [June 2022]
Ans:
1. The Companies Act, 2013 requires that certain funds of resolutions should only be passed
by postal ballot.
2. Postal ballot nothing is a voting process where ballot paper is sent to each shareholder, who
has to caste his vote and send the same to the company.
3. Postal ballot is mandatory while taking decisions such as buy-back. Every listed company &
other company having more than 200 members shall mandatorily use postal ballot.
4. By applying the above provisions.
a) One Person Company – Not required to pass resolution by postal ballot.
b) Unlisted company – has to pass resolution by postal ballot as the resolution relates to buy
back of shares.
c) Listed company – being listed & having more than 200 members shall pass resolution by
postal ballot.
CHAPTER – 21 - LEGAL FRAMEWORK GOVERNING COMPANY

SECRETARIES
Q. CS Rohan, a company secretary in practice availed loan against his personal

investments from a bank. He issued two cheques towards repayment of the said loan as
per terms of sanction of loan. Both the cheques were returned by the bank with remarks
‘returned due to insufficient funds’. Comment on the facts given with reference to
provisions of the Company Secretaries Act, 1980 (5 marks)
Ans:
1. Part1 of the first schedule of company secretaries Act 1980 states about professional
misconduct in relation to company secretaries in Practice.
2. Company secretary in practice shall be deemed to be guilty of professional misconduct if
(i) Allows any person to practice in his name as a CS unless such person is also company
secretary in practice and is in partnership with or employed by him.
(ii) Pay or allow or agrees to pay or allow, directly or indirectly, any share, commission
or brokerage in the fees or profits of his professional business to any person other than
a member of Institute or of any other professional body
(iii) Accepts or agrees to accept any part of the profits of the professional work of
person who is not the member of the institute.
(iv) Enters into partnership, in or outside India, with any person other than member of
ICSI of any other professional body
(v) Secure either through the services of a person who is not an employee of such
company secretary or who is not his partner.
(vi) Solicit clients or professional work, either directly or indirectly, by circular,
advertisement, personal communication etc.
(vii) Advertises his professional attainments or services or uses any designation or
expression other than CS on professional documents, visiting cards etc. unless it be a
degree of university established by law in India or recognised by the Central Government.
(viii) Accepts the position of a company secretary in practice previously held by another
company secretary in practice without first communicating with him in writing.
(ix) Charges or other to charge, accepts or offers to accept any professional
employment fees which are based on percentage of profit or which are contingent upon
the findings.
(x) Engage in any business or occupation other than the profession of company
secretary unless permitted by council
(xi) Allows a person not being a member at Institute or member not being a partner to
sing on his behalf anything which he is required to certify.
3. Thus CS Rohan, Company secretary in practice has not committed any of the above
mentioned professional misconduct. He shall not be deemed to be guilty of professional
misconduct.
Q. FMP & Associates, Company Secretaries, has sent a letter to the foreign exchange
department of Reserve Bank of India stating that the firm has three partners who
specialise in the law of Foreign Exchange & Management and asked the said Authority
to include their name in the panel, whenever formed for providing advisory services.
Comment with reference to the provisions of the Company Secretaries Act, 1980. (5
marks)
Ans:
1. The given case pertains to the professional Misconduct in relation to Company Secretary in
practice
2. The provisions of the act states that a Company Secretary in practice shall be deemed to be
guilty of professional misconduct if he solicits clients or professional work either directly or
indirectly by a circular, advertisement, personal communication or interview or by any other
meAns:
3. By applying aforesaid clause to the given case, FMP & Associates and its partners are guilty of
professional misconduct under Clause 6 of Part I of First Schedule to the Company Secretaries
Act, 1980 as it has solicited professional work from the Reserve Bank of India by inquiring
about the maintenance of the panel and advertising about the partners of the firm having
specialised knowledge of foreign exchange and management law.
Q. A complaint of professional misconduct is filed with ICSI against Swapan, a practicing

member. The Disciplinary Committee of ICSI is of the opinion that Swapan is guilty of
professional misconduct mentioned in the Second Schedule to the Company Secretaries
Act, 1980. The Committee, after affording Swapan an opportunity of being heard,
ordered for removal of his name from Register permanently and also imposed penalty
of Rs 10 lakh. Is the action of the Committee valid? What actions can the Board of
Discipline (a separate authority) take if it is of the opinion that a member is guilty of
professional misconduct mentioned in the First Schedule to the Act, 1980? (5 marks)
Ans:
1. Section 21B(3) of the Company Secretaries Act, 1980 states that where the Disciplinary
Committee is of the opinion that a member is guilty of professional or other misconduct as
mentioned in the Second Schedule or both the First Schedule and the Second Schedule,
opportunity of being heard to be given before making any order against him and may thereafter
take any one or more of the following actions, namely:
(a) Reprimand the member;
(b) Remove the name of the member from the Register permanently or for such period, as it
thinks fit;
(c) impose such fine as it may think fit, Maximum of Rs. 5 Lakhs.
2. Applying above provisions to given case, the order for permanent removal of name of Swapan,
a practising member, from Register of members is valid but fine can be imposed maximum
upto Rs. 5 Lakhs.
3. Further as per the provisions of the Company Secretaries Act, 1980, where the Board of
Discipline is of the opinion that a member is guilty of professional or other misconduct
mentioned in the First Schedule, it shall afford to the member an opportunity of being heard
before making any order against him and may thereafter take any one or more of the following
actions, namely:
(a) reprimand the member;
(b) remove the name of the member from the Register up to a period of 3 months;
(c) impose such fine as it may think fit which may extend to Rs. 1 lakh.
Q. Kirti, who is a practicing company secretary is specialized in the areas of secretarial

audit. On account of receiving many assignment and unable to handle the work alone,
she permits mohan, her friend who is a company a company secretary but not in the
practice and who is also a lawyer but not a member of any Bar council to conduct the
secretarial audit and give reports on her behalf. There is no written agreement between
kirti and Mohan to this effect; however the oral understanding between both of them is
that the fees received from the assignment shall be passed on for Mohan and Kirti in
equal proportion. Examine the validity of this arrangement in light of the relevant
provision related to misconduct under the company secretaries Act 1980. (5 marks) [June
2022]
Ans:
1. The given case pertains to provisions relating to misconduct of company secretary in
practice.
2. Provisions of the act state that a company secretary is practice shall be held liable of
misconduct if he allows any member not being his partner and member of ICSI in practice
to sign report on his behalf.
3. It is also stated that distribution of fees by practicing company secretary to any other person
not being his partner shall be construed as profession misconduct.
4. By applying the above provisions to the given case. Kirti a PCS permits Mohan, a CS not in
practice & not being her partner to conduct Secretarial Audit & give report on her behalf.
She also agrees to divide the fees received equally between them.
5. Thus she can be held liable for professional misconduct.
CHAPTER – 22 - SECRETARIAL STANDARDS BOARD
Q. Company secretary of Black Ltd has suggested following style of assigning serial
number to its Board Meeting :-
(i) Serially numbering on calendar year basis as follows :
“1/2015” 2/2015” “3/2015” and so on….. In the next year, Numbering would be “1/2016”
“2/2016”, “3/2016” and so on.
(ii) Serially numbering on financial year basis as follows
“1/2015-16” , “2/2015-16” “3/2015-16” and so on……or 1/15-16, 2/15-16, 3/15-16 and so
on.
(iii) Continuous serially numbering across years : 11th Meeting, 12th Meeting and so on.
Board of directors of Black Ltd would like to know that which of the above style of
assigning serial number to board meeting is valid as per secretarial standard (SS-1)? How
serial number to the adjourned Board meeting should be given to comply with SS-1? (5
marks) [June 2022]
Ans:
1. The given case pertains to provisions relating to misconduct of company secretary in
practice.
2. Provisions of the act state that a company secretary is practice shall be held liable of
misconduct if he allows any member not being his partner and member of ICSI in practice
to sign report on his behalf.
3. It is also stated that distribution of fees by practicing company secretary to any other person
not being his partner shall be construed as profession misconduct.
4. By applying the above provisions to the given case. Kirti a PCS permits Mohan, a CS not in
practice & not being her partner to conduct Secretarial Audit & give report on her behalf.
She also agrees to divide the fees received equally between them.
5. Thus she can be held liable for professional misconduct.
CHAPTER – 23 - MEGA FIRMS
Q. A middle aged practicing company secretary (PCS) is considering to start a mega

professional firm. Name the professional bodies with which the PCS can have
partnership as per the Company Secretaries Regulations, 1982 (5 marks) 23
Ans:
The professional bodies with which the PCS can have partnership are as follow.
1. The Institute of Chartered Accountants of India established under Chartered Accountant
Act, 1949.
2. The Institute of cost and works Accountants of India established under the Cost and Works
Accountants Act, 1959.
3. Bar Council of India established under the Advocates Act, 1961.
4. The Institute of Engineers or Engineering from a university established by law or an
institution recognized by law.
5. The Indian Institute of Architects established under the Architects Act, 1972.
6. The Institute of Actuaries of India established under the Actuaries Act, 2000.
7. Professional bodies or Institutions outside India whose qualifications relating to CS
recognized by the council.
1-24 DECIDED CASES
CHAPTER – 1 - INTRODUCTION
SEPARATE LEGAL ENTITY
SALOMON V/S SALOMON AND CO. LTD. (1897)
Brief Facts:
In the above case, Salomon was carrying on a prosperous business of a leather merchant and a
boot manufacturer. He then formed a limited company consisting of himself and his family
members all of whom were subscribers of the company. Salomon then sold his business to the
company. The company soon ran into liquidation as it was unable to meet the debts. The
creditors, however, pleaded that Salomon being a principle beneficiary was responsible to pay
off the debts.
The court held that the identity of the company is distinct from its members. The company and
its members do not hold any fiduciary relationship. Hence Salomon was not held liable.
Court Held:
It was clearly established in the above case that once the company is established under the
Companies Act, it has a separate legal entity distinct from its members or owners.
Similar Judgments:
Lee V/s. Lee’s Air Farming Ltd. (1961)
Kondoli Tea Co. Ltd. (1886)
PERSON
UNION BANK OF INDIA V/S. KHADER INTERNATIONAL CONSTRUCTION AND
OTHERS (2001)
Brief Facts:
In the above case the question arose whether a company is entitled to sue as a person under
Civil Procedure Code, 1908. The appellant in this case had objected to the contention of the
company which had sought permission to sue as a person. The point of contention of the
appellant was that it was a public limited company, a juristic person and not a natural person.
However, the court observed that the word ‘Person’ must be given a wider meaning and hence
the company is a legal person though it is an artificial entity.
Court held:
A Company though an artificial person created by law is considered as a legal person, who can
enter into contracts, can sue and be sued by others.RATE PROPERTY
R. F. PERUMAL V/S. H. JOHN DEAVIN (1960)
Court Held:
It was declared by court that no member can claim himself to be the owner of the property of
the company either during its existence or during its winding up.
Madras High Court in the above case held that company is a separate legal person entirely
distinct from its members. It is capable of owning, enjoying and disposing off property in its own
name. It is a real person merely controlled and managed by natural persons.
SHRAEHOLDERS ARE ENTITLED TO SPECIFIC RIGHTS
MRS. BACHA F. GUZDAR V/S. THE COMMISSIONER OF INCOME TAX, BOMBAY
Case Held:
The Supreme Court in the above case held that though the income of the company is entitled
to be exempted from Income Tax up to 60% being partly agricultural however the same income
when received by shareholders in the form of dividend is taxable in the respective assessment
year. Shareholders are not the owners of the company they merely are entitled to certain rights.
Shareholders are entitled only to various rights such as to receive notice, to attend the meeting,
vote etc. but they are not the owners.
COMPANY CAN SUE IN ITS OWN NAME

FLOATING SERVICES LTD. V/S. M V SAN FRANSISCO DIPALOA
Court Held:
A company being a body corporate can sue or be sued in its own name. All legal suits or
proceedings can be instituted against the company or by company against any person. A
company’s right to sue arises if any damage is called to its property etc. However a company is
not liable for contempt committed by its officer. A Company being a separate legal entity can
sue its own members and any other person.
Similar Judgments:
Lalit Surajmal Kanodia V/s Office Tiger Database Systems India Ltd.
LIFTING UP OF CORPORATE VEIL

PREMLATA BHATIA V/S. UNION OF INDIA (2004)
Court Held:
In case a fraudulent and dishonest use is made of the legal entity, be allowed to take shelter
behind the corporate personality.
Brief Facts:
In the above case, the premises of a shop were allotted on a license to the individual licencee.
However, she set up a wholly owned private company and transferred the premises to that
company without governments license. She could not remove the illegality by saying that the
company is a separate legal entity.
In such cases the court has a power to break through the corporate shell & apply the doctrine
of lifting or piercing of corporate veil. The court will look behind the corporate entity and take
actions as though no entity separate from the mentor existed and make the controlling partners
liable for such debts incurred fraudulently.
Similar Judgements:
BSN (UK) Ltd. V/s. Janardan Mohandas Pillai (1996)
CONNORS BROS. V/S. CONNORS (1940)
Brief Facts:
In the said case, the MD of the company made use of his position opposing public policy.
However, the court regarded the character of the company is enemy company as the persons
involved in the control of affairs, were residents of Germany, which was at war at that time.
Hence it was regarded as alien enemy and which was opposed to public policy.
Court Held: If the conduct of the company is opposed to public policy, courts can lift the
corporate veil to safeguard the public policy.
Similar Judgements: Diamler Co. Ltd. v/s. Continental Tyre & Rubber Co. (1916).
ZENSHIP STATE TRADING CORPORATION OF INDIA LTD. V/S. CTO
Brief Facts:
In the above case the Supreme Court held that the State Trading Corporation though a separate
legal entity was not a citizen under the Citizenship Act, 1955 or the Constitution of India. The
Company can act only through some natural person. However, it can enjoy certain rights as
enshrined in the constitution such as right to equality etc.
Court Held:
The Company though a legal person is not a citizen.
SHAREHOLDER RIGHTS ARE UNAFFECTED
R.C. COOPER V/S. UNION OF INDIA (1970)
Brief Facts:
In the above case, Supreme Court held that if the rights of the petitioner who is the shareholder
of the company are infringed, he can petition on behalf of the company. The reason is that the
shareholders rights are equally and necessarily affected if the rights of the company are affected.
Court Held:
The rights of an individual are unaffected even if he is shareholder of the company.
Similar Judgements: Bennet Colemon Co. V/s. UOI (1973)
COMPANY HAS NATIONALITY

GASQUE V/S. INLAND REVENUE COMMISSIONER (1940)
Court Held:
It was held by the court that a limited company is capable of having a domicile which is its place
of registration and nationality. Company though is not a citizen however, it has nationality.
Similar Judgement :Tulika v/s. Parry & Co. (1908)

LLEGAL ASSOCIATION
WILKINSON V/S. LEVISON (1925)
Court Held:
An unincorporated association consisting of large number of persons has been declared illegal.
No partnership consisting of more than such number of persons as may be prescribed shall be
formed for the purpose of carrying on any business. Thus members cannot either individually or
collectively, bring an action to enforce any contract to recover any debts from the association.
The members of an illegal association are individually liable in respect of all the acts made on
behalf of the contract.
WESTERN MAHARASHTRA DEVELOPMENT CORPORATION V/S BAJAJ AUTO LTD.
(2010)
Court Held:
In the Act, the court concluded that there is a clear distinction for transferability of shares. A
private company restricts its rights to freely transfer the shares, however, in case of public
company the Act provides that the shares or debentures and any interest therein of a company
shall be freely transferable. The concept of free transferability of shares in private and public
companies was upheld by the Court.
VERNMENT COMPANY
A. K. BINDAL V/S. UNION OF INDIA (2003)
Brief Facts:
A Government company is not a department or an establishment of government, it is a company
in which not less than 51% of the paid up share capital of the company is held by the government.
However, the employees of government companies are not government servants they have no
legal right to claim any dues from the government. It was also held that income earned by a
government company is not the income of government as they both are distinctly separate
entities.
Court Held:
In the above case it was held that in case of rise in the pay scale, it is company’s responsibility of
paying the salaries to its employees and not of the government.
LACE OF BUSINESS
TOVARISHESTVO MANUFACTURE LIUDVIG RABENEK(1944)
Brief Facts:
In the above case the concept of place of business was recognized. It was clearly observed that
in case the representatives of a company which is a foreign company established outside the
country frequently stayed in a hotel located at some other place for looking after the business,
it was regarded as the place of business of the company.
However, if there is a representative of the customers of some other countries, it cannot be
regarded as a place of business.
Court Held:
It was held that where the representatives of the company frequently meet it is held as the place
of business.
Similar Judgements: P.J. Johnson V/s. Astrofiel Armadon

KELNER V/S. BAXTER (1886)
Brief Facts: A company cannot ratify contract made by a promoter before the incorporation
of the company however, specific performance may be enforced upon the company in respect
of such contracts. If the promoter commits a breach of his duty, the company can rescind the
contract. If the promoter has availed any secret profits out of such a contract then the company
can compel him to account for the same.
Court Held:
A promoter is personally liable to third parties upon all the pre-incorporation contracts with an
exception regarding the provision of Specific Relief Act, 1963.
Similar Judgement: D.R. Patil V/s. A. S. Dimilor (1961)
PROMOTERS STAND IN A FIDUCIARY RELATIONSHIP

ERLANGER V/S. NEW SOMBRERO PHOSPHATE CO.
Court Held:
A promoter is neither a trustee nor an agent of the company as it is an artificial person.
However, he occupies a fiduciary position towards the company. Hence the promoters need to
give full disclosures of the relevant facts and any profits made by them. Promoters of the
company are in a fiduciary relationship to the company.
Similar Judgements:
Lindley L.T. in Lydney & Wigpool Iron Ore Co. V/s. Bird (1866)
Laguras Nitrate Company V/s. Laguras Syndicate (1899)
PROMOTERS NOT TO MAKE SECRET PROFITS

GLUCKSTEIN V/S. BARNES (1990)
Brief Facts:
Promoters occupy a fiduciary position with its members and company. He is in a position of
trust so as to control & manage the company in good faith as the shareholders money is involved.
Promoters are neither the agents nor the trustees as company is not a natural person. Hence,
the promoters are required to disclose the relevant facts and if they make any secret profits in
connection with any transaction to which company is a party and does not make full disclosure
of the profits, the company has the right to affirm the contracts and the promoter can be
compelled to handover his profits to the company.
Court Held:
Promoters should disclose their secret profits. The company can compel the promoter to
handover such secret profits.
Similar Judgements: Ernia Silver Minning Co. V/s. Grant (1879)
IABLE FOR MISSTATEMENTS
BENTLEY V/S. BLACK (1893)
Brief Facts: A promoter is in a fiduciary capacity as against the members & company. A
promoter is therefore required to give full disclosure as to any profits incurred by him in any
transaction or contract.
A promoter will be responsible for any misstatement as to an existing fact. A calculation of
future gains or profits is not a statement of fact. But a misstatement as to which the money is
raised and will be utilized is a misrepresentation of present facts.
Court Held: Promoter is responsible for any misstatement done.
Similar Judgements: Ecgington V/s. Fitzmaurice (1885), Netropolitan Coal Consumers’

Association Ltd. Karberg’s Case (1892)T TO RECEIVE PRELIMINARY EXPENSES
ENGLISH & COLONIAL PRODUCER COMPANY (1906)
Brief Facts:
The promoters are entitled to receive all the expenses incurred for setting up and registering
the company from Board of Directors. The articles however must have provision for payment
of such preliminary expenses. A promoter has no legal right to claim promotional expenses for
his services unless there is a valid contract without such a contract, he is not entitled to recover
any of the preliminary expenses.
Court Held:
Promoters cannot claim the preliminary expenses unless there is a valid contract.
CONCLUSIVE EVIDENCE
JUBILEE COTTON MILLS LTD. V/S. LEWIS (1924)
Brief Facts:
A Certificate of Incorporation given by the registrar in respect of any association shall be
conclusive evidence that all the requirements of the act have been complied with in respect of
registration and matters related thereto. The Certificate of Incorporation states that everything
is in order as regards registration and is competent to enter into contract. The validity of the
registration cannot be questioned after the receipt of such incorporation.
Court held: The certificate of Incorporation is the conclusive evidence that the company has
come into existence.
Similar Judgements: Moosa V/s. Ebrahim (1913)
ASHBURY RAILWAY CARRIAGE &IRON ORE LTD. V/S. FICHE (1875)
Court Held:
The Memorandum of Association of a company is its charter and defines the limitations of the
company. It states the extent of power of the company as well as the things which are beyond
the powers of the company. The memorandum of association of the company is foundation on
which the entire structure of the company is built.
Similar Judgements:
Egyptian Salt and Soda Company Ltd. V/s. Port Salt Association Ltd. (1931)
REGISTRAR TO MAKE NECESSARY ENQUIRIES BEFORE APPROVME

METHODIST CHURCH V/S. UNION OF INDIA (1985)
Brief Facts:
The name of the company is a symbol of its independent corporate existence. A name which is
identical or nearly resembles the name by which a company is previously incorporated will be
deemed to be undesirable. The registrar is required to conduct a preliminary investigation. The
objective is to prevent the use of a name likely to mislead the public. A company is not allowed
to use a name which is prohibited under any other specific act.
Court Held: The names must not be misleading or intended to deceive with reference to the
objects clause of Memorandum.
Similar Judgement: Swing V/s Butterup Margarine Co. Ltd. (1917)
CHANGE OF NAME
HALIFOX PIC V/S. HOLIFOX REPOSSESSIONS LTD. (2004)
Court Held:
Where a company is directed to change the name, the court cannot directly order the Registrar
to effect the change in name of the company. The court can only order the company to do so.
The company on the contrary needs to follow a proper procedure for change of name. The
company needs to follow the change of name as per the procedure laid down. The name of a
company must not be similar or deceptively similar to any other company’s name previously
incorporated.
DR. H L BATLIWALLA SONS AND COMPANY LTD VS EMPEROR
Court Held:
Where office is situated within a compound, the display outside the office room, though inside
the building is sufficient. The words ‘outside of every office’ does not mean outside the premises
in which the office is situated.
DUM OF ASSOCIATION ARE VOID
RAJENDRA NATH DATTA V/S. SHAILENDRA NATH MUKHERJEE (1982)
Court Held:
Ultra vires means beyond the powers of a company. In case of a company an object which is
not stated in the objects clause of the memorandum is prohibited by the doctrine of ultra vires.
As a result, an act which is ultra vires is void & does not bind a company. Neither the company
nor the contracting party can sue on it. Thus the contract which is ultra vires the company is
incapable of ratification. An act which is intra vires the company but outside the authority of
the directors may be ratified by the Company. In case of company whatever is not stated in the
memorandum or the objects is beyond its powers.
IMPLIED POWERS
OAKBANK OIL CO. V/S. CRUM (1882)
Court Held:
Every company may necessarily possess certain powers beyond its objects which are implied
such as power to appoint and act through agents, to borrow, give security etc. Such powers are
incidental & can be inferred from the powers expressed in memorandum and need not be
specifically mentioned. The powers exercisable in respect of objects may be express or implied
and may not be specified.
Similar Judgements: Egyptian Salt & Soda Company V/s. Port Said Salt Association
EFFECTS OF
ULTRA VIRES TRANSACTIONS
ATTORNEY GENERAL V/S. GENERAL V/S GENERAL EASTERN RAILWAY COMPANY
(1880)
Court Held:
The ultra vires acts are null & void. The company is not bound by such acts nor can it sue upon
anyone or be sued. The members can get an injunction to restrain a company, wherein ultra
vires act has been or is about to be undertaken by the company.
PERSONAL LIABILITY OF DIRECTORS
JEHANGIR R. MODI V/S. SHAMJI LADDHA (1855)
Brief Facts:
It is the duty of directors to ensure that the corporate capital is used only for the legitimate
business of the company and hence if such capital is diverted to purposes other than those in
Memorandum, the directors will be personally liable to replace it. However, there is a distinction
between transactions which are ultra-vires the company and ultra-vires the director. The acts
which are ultra vires the directors can be ratified by the shareholders, however, the powers
ultra-vires the company cannot be ratified.
Court Held:
If the capital of the company is wrongly used or diverted to other purposes other than the
company’s memorandum, the directors will be held personally liable.
EFFECT OF NAME CHANGE

MALHATI TEA SYNDICATE LTD. V/S. REVENUE OFFICER (1973)
Court Held:
The change of name by any company shall not affect any rights or obligations of the company or
render ineffective any legal proceedings by or against it and any legal proceedings commenced
by or against the company in its former name. Where a company changes its name and the new
name has been registered by the Registrar, the commencing of legal proceedings in the former
name is not valid.
CHAPTER 2 – SHARE CAPITAL

e incorporation contracts
HOWARD VS PATENT IVORY CO
Court Held:
Even if the company takes some benefit from a contract made before its formation, the contract
is not binding on the company. The promoters alone, therefore, remain personally liable for any
contract they purport to make on behalf of the company, unless the company enters into the
contract in terms of such agreement after incorporation. A company cannot ratify a pre-
incorporation contract, but it is open to it to enter into a new contract after its incorporation
to give effect to a contract made before its formation.
INLEC INVESTMENT (P) LTD. V. DYNAMATIC HYDRAULICS LTD
Court Held:
A company cannot acquire shares prior to its incorporation. Where a company was named as
the transferee in the share transfer forms prior to its incorporation, it was held that such
transfers could not be registered.
HEAD (HENRY) & CO. LTD. V. ROPNER HOLDING LTD
Where a company issue shares at a premium, even though the consideration may be other than
cash, a sum equal to the amount or value of the premium must be transferred to the securities
premium account.
NEEDLE INDUSTRIES (INDIA) LTD. V. NEEDLE INDUSTRIES NEWEY (INDIA)
HOLDING LTD
Court Held:
The power to issue shares need not be used only when there is a need to raise additional capital.
The power can be used to create a sufficient number of shareholders to enable a company to
exercise statutory powers or to enable it to comply with statutory requirements. Ministry of
Corporate Affairs has clarified that ‘one year’ specified in the section is to be counted from the
date on which the company has allotted any share for the first time.
WORLDWIDE AGENCIES (P) LTD. V. MARGARET T. DESOR
Court Held:
It was held that persons who have become entitled to the shares of a deceased member can
exercise all the membership rights of the deceased irrespective of the fact whether their name
is in the register of members or not.
MATHALONE (R) V. BOMBAY LIFE ASSURANCE CO. LTD
Court Held:
The Court held that the transferor could not be compelled by the transferee to take up on his
behalf the rights shares offered to the transferor and all that he could require the transferor to
do was to renounce the rights issue in the transferee’s favour.
SEWELLS CASE
Court Held:
Where shares were issued beyond the authorised amount and a resolution was subsequently
passed at a general meeting ratifying the issue, it was held that although the original issue was
not in accordance with the articles, the ratification was effective and the allottees were bound.
CASTIGLIONE ERSKINE & CO LTD
Court Held:
It was held that cancellation of unissued shares or of shares issued but not taken up by any
person, may be effected without seeking confirmation of the Court.
PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN LTD V. CIT
Court Held:
Fee paid to the ROC for registering increase of capital is in the nature of capital expenditure
irrespective of the fact whether an increased capital will lead to increase in profits.
MARWARI STORES LTD. V. GOURI SHANKER GOENKA
Court Held:
Where there is only one class of shares, prima facie, the same percentage should be paid off or
cancelled or reduced in respect of each share, but where different amounts are paid-up on shares
of the same class, the reduction can be effected by equalising the amount so paid-up. The same
principle is to be followed where there are different classes of shares
PRAMATHA NATH SANYAL V. KALI KUMAR DUTT
Court Held:
Advertisement in newspaper to invite application for purchase of remaining shares of a company
is prospectus.
NASH V. LYNDE
Court Held:
Several copies of a document marked “strictly confidential” and containing particulars of a
proposed issue of shares, were sent accompanied with application form by the managing director
who, in turn, gave it to a client who passed it on to a relation. Thus, the document was passed
on privately through a small circle of friends of the directors. The House of Lords held that there
had been no issue to the public and any action for compensation by the allottee for loss sustained
by reason of an omission in the document, failed
GOVT. STOCK AND OTHER SECURITIES INVESTMENT CO. LTD. V.
CHRISTOPHER
Court Held:
It was held that a circular issued by a company to the shareholders of other companies to acquire
their shares held in those companies and issue its own shares in exchange of those shares did
not amount to be a prospectus, as there is no public issue. It was pointed out that the circular
did not involve an offer for the purchase of any shares. The shares in question were unissued
shares of new company, so that they could not be the subject of an offer for purchase. Thus, the
circular was not a prospectus, but only the communication of an offer to exchange shares in the
new company for shares in the other existing companies.
SOUTH OF ENGLAND NATURAL GAS AND PETROLEUM CO. LTD
Court Held:
It was held that “Public” is a general word, and includes any section of the public. If a document
inviting persons to buy shares is issued, for example, to all advocates, or to all doctors, or to all
foreigners living in India, or to all Indian citizens, or to all shareholders in a particular company,
it will still be deemed to be issued to the public within the meaning of the Act. In the aforesaid
case, 3,000 copies of a document in the form of a prospectus were sent out and distributed
among the members of certain gas companies only. It was held that the document so sent and
distributed was a prospectus issued to the public.
PEEK V. GURNEY
Court Held:
A deceitful prospectus was issued by the directors on behalf of the company. P received a copy
of it but did not take any shares originally in the company. The allotment of shares to applicants
was completed, and several months afterwards he bought 2,000 shares on the stock exchange.
His action against the directors for deceit was rejected. It was observed by the Court that the
office of a prospectus is to invite persons to become allottees, and, allotment having been
completed, such office is exhausted and liability to allottees does not follow the shares into the
hands of subsequent transferees.
GENERAL PRINCIPLES REGARDING ALLOTMENT
CHANGE MAL V/S PROVISIONAL BANK (1914)
Court Held:
Allotment made without proper authority will be invalid. Allotment of shares made by an
irregularly constituted Board of Directors shall be invalid.
HOMEES DISTRICT CONSOLIDATED MINE (1888)
Court Held:
It is necessary that the Board should be duly constituted and should pass a valid resolution of
allotment at a valid meeting.
ROYA L BRITISH BANK V/S TURQUAND (1856)
Court Held:
An allotment may be valid even if some defect was there in the appointment of directors but
which was subsequently discovered.
PORTUGESE CONSOLIDATED COPPER MINE (1889)
Court Held:
An allotment by a board irregularly constituted may be subsequently ratified by a regular Board.
YARK TRAMWAYS CO V/S WILLOW (1882)
Court Held:
A director who has joined in an allotment to himself will be stopped from alleging the invalidity
of the allotment.
CRAMSGATE VICTORIAL HOTEL COMPANY V/S MONTSFIONE (1899)
Court Held:
The interval of about six months between application and allotment was held unreasonable.
HOUSEHOLD FIRE ANDCARRIAGE INSUARANCE LTD CO.V/S GRANT(1879)
Court Held:
In the above case, Grant applied for certain shares in a company, the company dispatched letter
of allotment to him which never reached him. It was held that he was liable for the balance
amount due on the shares.
OFFICIAL LIQUIDATOR ,BELLARY ELECTRIC SUPPLY CO. V/S KANNI RAM
RAMWOOLHAMAL(19330
Court Held:
The mere entry of a shareholder’s name in the company’s register is insufficient to establish that
an allotment was in fact made.
BRITISH AND AMERICAN STEAM NAVIGATION CO.(1870)
Court Held:
These can be no proper allotment of shares unless the applicant has been informed of the
allotment.
UNIVERSAL BANKING CORPORATION RE. GUNN’S CASE (1867)
Court Held:
A formal allotment is not necessary. It is enough it the applicant is made aware at the allotment.
BARROW CASE (1880)
Court Held:
If a person knows that the statements in a certificate are not true, he cannot claim an estoppel
against the company.
ALEXANDER V/S. AUTOMATIC TELEPHONE CO.
Court Held:
The power to make call is in the nature of trust and must be exercised only for the benefit of
the company, and not for the private ends of the directors. If the call is made for the personal
benefit of directors, the call will be invalid.
EXPARTO TRADING CO. (1879)
Court Held:
Where two directors were allotted qualification shares, without any payment and these shares
were forfeited by a Board resolution passed at the request of those held directors, “the
forfeiture was held to be invalid and the directors were held liable to pay the nominal value of
the shares.
JOHNSON V/S. LYTTLE’S TRON AGENCY (1877)
Court Held:
The notice should mention that the payment of interest should be made from the date of the
call.
CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. (1957)
Court Held:
If the shares are re-issued of a price more than the face value, the excess of the proceeds of sale
is not payable to the former owner. The excess of the proceeds so retained shall constitute a
premium and must therefore be transferred to the securities premium account.
BELLERBY V/S. ROWLAND AND MARWOOD’S S.S. CO. LTD. (1902)
Court Held:
A company cannot accept a surrender of its shares as every surrender of shares, whether fully
paid up or not involves a reduction of capital which is unlawful. Forfeiture is a statutory
exception and is the only exception.
ALOTE ESTATE V. R.B. SETH HIRALAL KALYANMAL KASLIWAL
Court Held:
In case of inadequacy of consideration, the shares will be treated as not fully paid and the
shareholder will be liable to pay for them in full, unless the contract is fraudulent.
CHAPTER – 3– MEMBERSHIP IN A COMPANY

Who May Become A Member
SADIQ ALI V/S. JAI KISHORI (1928)
Court Held:
It was held that after attaining majority, the minor, if he does not want to be a member, must
repudiate his liability on the shares on the ground of Minority.And if he does so, the company
cannot plea estoppel on the ground of his having received dividend during his minority if at that
time he had fraudulently misrepresented his age in his application for shares.
Register Prima Facie Evidence

M.F.R.D. CRUZ, 1939
Brief Facts:
The plaintiff applied for 4000 shares but no allotment was made to him. Subsequently 4000
shares were transferred to him and his name was entered in the Register of Members.The
plaintiff knew it but took no steps for rectification in the Register of Members.Thecompany
further went into the liquidation and he was held liable as a contributory.Thus, the court held
him liable as he took no steps at that time.
Court Held:
When a person knows that his name is included in the Register of Members and he stands by
and allows his name to remain, he is holding out to the public that he is a shareholder and
thereby he loses his sight to have his name removed.
Closing of Register of Members

KILLICK NIZON LTD. V/S. DHANRAJ MILL PVT. LTD. (1983)
Court Held:
The powers in section 11 of the Companies Act, 2013 is intended for the convenience of
company to close Register of Members up to date for the purpose of calculating dividend and
bonus, etc. But, court held that even during the closure of Register of Members, the company is
obliged to make certain entries such as entries relating to registration and probates and letters
of administration, notices of change of name and address and court orders, such as changing
orders, etc.
Rights of Members
BALAKRISHNA GUPTA & OTHERS V/S. SWADESHI POLYTEX LTD. & OTHERS
Court Held:
It was held that when once a person becomes a member he is entitled to exercise all the rights
of a member until he ceases to be a member in accordance with the provisions of the Act.So as
long as a person’s name stands registered in the books as a member, even if he has sold the
shares and has given the share certificates and the blank transfer deed duly signed, he alone is
entitled to exercise the rights of membership.
Refusal to Transfer
SHRI NIRMAL KUMAR V. JAIPUR METAL AND ELECTRICAL LIMITED
Court Held:
If a company refuses to register a share transfer on the ground that if an employee admitted as
a member will attend a general meeting and will raise irrelevant issues to obtain access to the
records of the company, then it will not be a valid reason. Thus, Company is not allowed to
refuse a share transfer if it thinks that it will affect its interest.
ANGPUR TEA ASSOCIATION LTD. V/S. MAKKAN LAL SAMADDAR (1979)
Court Held:
If an applicant had attempted to wind up a company for more than one time then only on that
ground directors cannot refuse transfer of shares. The court held that if a person is making an
application for share transfer then directors are not allowed to refuse it on such grounds.
BAJAJ AUTO LTD. V/S. N.K. FIRODIA, 1971
Court Held:
The court observed that in exercising the discretion as to when directors can refuse a share
transfer, they should act in the paramount interest of the company as well as in the general
interest of shareholders because, directors are in a fiduciary position towards both company as
well as every shareholders. Supreme Court further held that if articles permit the directors to
refuse share transfer without stating reasons, in such a case, court will not make an unfavourable
interference. As, in such case, it will be assumed that directors have acted bonafide and aggrieved
party has to prove the same by evidence. The court held three basis to determine whether the
directors acted reasonably:
i) Whether the directors acted in the interest of the company;
ii) Whether they acted on a wrong principle; and
iii) Whether they acted for collateral purpose.
MODI CARPETS LTD. V/S. TRANS – ASIA CARPETS LTD
Court Held:
It was held by the Supreme Court that where an appellant transferee and respondent company
were in the same line of business and were rivals, then, in such case, on the ground of rivalry
refusal to share transfer will be justified.The court held that, the respondent company is entitled
to refuse the share transfer even in the absence of provision in the articles of a company.
SHRI T. N. KURIAKOS V/S. PREMIER TYRES LTD. (13.5.1983)
Court Held:
If a decision of refusal to register a share transfer is taken by other sub committee, instead of
Board of Directors, then it will not be considered as a valid decision. The share transfer was
refused by the Transfer committee, a sub-committee of Board of Directors. Thus, the court held
that the refusal of respondent company to register share transfer was not based on the decision
of directors, the said decision was not valid and legal decision.
BABULAL CHOUKHANI V/S. WESTERN INDIAN THEATRES LTD. (1958)
Court Held:
The court held that a company cannot register any transfer of securities unless a proper
instrument of transfer which is:
i) Duly stamped;
ii) Dated; and
iii) Executed by or on behalf of transferor and transferee, has been delivered to a company
alongwith related certificates.
Court held that a person executing an instrument shall while affixing an adhesive stamp cancel
the same so that it cannot be used again. Thus, it was held that as per section 17 of Indian Stamp
Act, 1899 all that instruments chargeable with duty shall be stamped before or at the time of
execution and the same shall be cancelled as per legal requirements.
SHREE PARVEEN SARDA V/S. CHOPSONI ICE AERETED WATER AND OIL MILLS
LTD
Court Held:
The court held that a company cannot register transfer of shares unless the instrument of
transfer is duly stamped and is delivered to the company. The document in question would be
invalid if the same has not been cancelled before or at the time of the execution. Thus, court
held that company shall not register such share transfer.
VARDHAMAN PUBLISHERS LTD. V/S. MATHRUBHUMI PRINTING AND
PUBLISHING CO. LTD. (1990)
Court Held:
Kerala High Court held that, if:
i) Affixing stamps on a separate sheet of paper and attaching the same to transfer
application; or
ii) Cancellation of stamps by drawing across the stamp.
Was not improper and court declared that it was a valid document.
ansfer of Shares to a Minor
SURAJ V. BRITANNIA INDUSTRIES LTD
Court Held:
Court held that Articles of Association of a company cannot impose prohibition on transfer of
shares in favour of a minor as such a restriction is unreasonable. The court observed that
restriction imposed on transfer of shares to a minor if accepted, would mean that the shares of
a deceased member can never be inherited by the legal heirs who might be a minor. Thus, it was
held that the shares which are fully paid up and in respect of which no financial liability devolves
can be transmitted in favour of a Minor. As per Section 44 of the Companies Act 2013, shares
in a company are movable property and are transferable in the manner provided by articles.
KOTHARI INDUSTRIES CORPORATION LTD. V/S. LAZOR DETERGENTS P. LTD.
(1994)
Court Held:
The court held that where a company by mistake registers a share transfer which should have
been refused because of uncancelled stamps or an instrument being unstamped then in such a
case, a company should point out such error to a transferee within one year from the date of
execution. Further, court held that transferee can rectify such matters through the orders of
the court, afterwards it would be too late.
of Shares
LETHEBY AND CHRISTOPHER LTD. (1904)
Court Held:
It was held that, a transfer deed executed by the transferor alone does not pass the title in the
shares to the transferee. Where the transferor’s address and the distinctive numbers of the
shares were not mentioned in the transfer form, it was held to be not void because those
particulars were verifiable from the accompanying share certificate.
CIT V/S. RAMASWAMY (1985)
Court Held:
The court held that a transfer is complete as between the transferor and transferee when all the
formalities such as execution of the transfer deed and handing over the share certificates are
completed.
LIFE INSURANCE CORPORATION OF INDIA V/S. ESCORTS LTD. (1986)
Court Held:
The Supreme Court held that a transfer effective between transferor and the transferee is not
effective as against the company and any person without notice of the transfer being registered
in the company’s register.
VICKERS SYSTEM INTERNATIONAL LTD. V/S. MAHESH P. KESHWANI (1992)
Brief Facts:
In case of a joint family, the transfer form would be executed by the holding member, or in his
absence, the same would be executed by Karta who represents the family. It was held by CLB
to register the shares in the name of the Hindu Undivided Family showing Mahesh P. Keshwani
as its Karta.
Court Held:
Section 108 enables the execution of a transfer deed by or on behalf of the transferor or the
transferee.
MOHIDEEN PICHAI TARAGANAR V/S. TINNEVILLY MILLS CO. LTD
Court Held:
It was decided that a transfer by a registered holder of shares cannot have any application to a
court auction sale or sale of forfeited shares for non payment of calls, etc.
VALLUR MOHAMMAD SAHEB V/S. GOLDEN AGRO TECH INDUSTRIES LTD (2008)
Brief Facts:
The transferee purchased 2700 shares of the company and lodged the transfer deed alongwith
the original share certificate with the share transfer agent. But, the company did not register the
share transfer, and therefore, the transferee filed a petition and to direct the company and its
agent to pay damages from the date of filing petition till the date of its realizations or to issue a
duplicate shares certificate.
Court Held:
The court held that section 22 does not extend to any direction which may be issued by CLB
for rectification of register of members of the company. Thus, in view of this legal position, it
was held that the resistance of company for not registering the share transfer was not tenable.
As per Section 22 of SICA, CLB is not allowed to extend any direction for rectification of the
register of members of the company.
SHAM SUNDAR KUKREJA V/S. HINDUSTAN LEVER LTD. (2001)
Court Held:
The court held that by virtue of section 111A (3) of the Companies Act, 1956 [Corresponds to
section 59 (1) of Companies Act, 2013), the petition should have been filed within two months
of the registration of the securities submitted for the transfer. However, it was held that, if the
transfer was effected in fraudulent manner, the period of limitation i.e. two months shall not
apply.
DR. RAJIV DAS V/S THE UNITED PRESS LTD (2001)
Court Held:
It was held that where the shares of a company are held in joint names and one of these joint
holders requests the company to split the shares equally between the joint holders by issuing
fresh certificate, the company shall not be legally bound to do so unless the transfer deed
executed by both the joint holders duly completed and stamped are lodged with the company
together with relevant share certificates as per section 108 of the Companies Act, 1956.
MAHESHWARI KETAN SUGAR MILLS V/S. ISHWARI KHETAN SUGAR MILLS (1963)
Court Held:
As per Section 56(i) of the Companies Act, 2013, the transfer of securities must be effected by
a proper instrument of transfer and that a provision in the Articles for an automatic transfer of
securities of a deceased securities holder is illegal and void.
VASANT INVESTMENT CORPORATION LTD. V/S. COMPANY LAW BOARD (1999)
Court Held:
It was held that it is for the party making an appeal to CLB [Now Tribunal] to prove that the
decision of the Board of directors is initiated by an ulterior motive in case of a refusal by the
Board to register a transfer.
ANIL GUPTA V/S. DELHI CLOTH AND GENERAL MILLS CO. LTD. (1983)
Court Held:
It was held that no time limit has been laid down u/s. 59(1) of Companies Act, 2013 for preferring
an appeal for rectification of the register of members. But, in regard to rectification for register
of members, the provisions of Articles 137 of the Limitation Act would apply and application for
rectification of register of members as per the Articles must be preferred within three years
from the date on which the right occurs.
SIMM V/S. ANGLO – AMERICAN TELEGRAPH COMPANY (1879)
Court Held:
When shares are transferred under a forged signature and the transferee received a share
certificate, the title does not pass to him. It was held in the given case, that a forged transfer can
pass no title and is a nullity.
KAUSHALYA DEVI V/S. NATIONAL INSULATED CABLE COMPANY OF INDIA 1977
Court Held:
Court held that the fact that the transferee was a bonafide purchaser for value did not make any
difference and the transferee was bound to return the scripts to the person to whom the same
rightfully belong.
CHUNNILAL KHUSHALDAS PATEL V/S. H.K. ADHYARU (1956)
Court Held:
It was held that where the transferor, after the share transfer has received any dividend on
shares, bonus or other benefit in respect thereof, the transferee, in such a case, can recover the
same from the transferor, provided that he has not allowed his claim to become time barred
under the provisions of Limitation Act.
Dividend to transferee after transfer
KOTHARI INDUSTRIAL CORPN. LTD. V/S. LAZOR DETERGENTS P. LTD
Court Held:
Once the share transfer is registered, a company is bound to give dividend and all other benefits
thereof to the transferees.
1) In the given case the transfer was registered and dividends were paid to the transferee.
2) Later, the register was rectified by removing the transferee’s name from the register on the
ground of a technical nature, like inadequacy of stamps.
3) It was held that the transferee was not bound to handover the dividend amount to the
transferor.
4) Thus, the Madras High Court held that the company should not be allowed to rectify the
register on a technical ground after transferring the shares.
CHAPTER 4 – DEBT CAPITAL
BARONNESS WENLORK V. RIVER DEE
Court Held:
A power to borrow money cannot be implied
FIRBANK’S EXECUTORS V. HUMPHREYS
Court Held:
If the borrowing by the directors is ultra vires their powers, the directors may, in certain
circumstances, be personally liable for damages to the lender, on the ground of the implied
warranty given by them, that they had power to borrow.
DEONARAYAN PRASAD BHADANI V. BANK OF BARODA
Court Held:
Sometimes it happens that a power to borrow exists but is restricted to a stated amount, in
such a case if by a single transaction an amount in excess is borrowed, only the excess would be
ultra vires and not the whole transaction.
LAKSHMI RATAN COTTON MILLS CO. LTD. V. J.K. JUTE MILLS CO. LTD
Court Held:
If the borrowing is unauthorized, the company will be liable to repay, if it is shown that the
money had gone into the company’s coffers
V.K.R.S.T FIRM V. ORIENTAL INVESTMENT TRUST LTD
Court Held:
Under the authority of the company, its managing director borrowed large sums of money and
misappropriated it. The company was held liable stating that where the borrowing is within the
powers of the company, the lender will not be prejudiced simply because its officer have applied
the loan to unauthorised activities provided the lender had no knowledge of the intended misuse.
SURAJ BABU V. JAITLY & CO.
Court Held:
P & Co., were the managing agents of L & Co., which was in liquidation. P the manager borrowed
a sum of money from J in his own name. In one letter to J he indicated that the loan was for a
requirement of L & Co. and that company had actually benefited. It was held that there was no
intention to bind the company. “The mere fact that the company had benefited was not in itself
sufficient to bind the company
CHAPTER – 5 –CREATION AND REGISTRATION OF CHARGES
OFFICIAL LIQUIDATOR V/S. SRI KRISHNA DEO (1959)
Court Held:
The plant and machinery of a company embedded in the earth or permanently fastened to things
attached to the earth becomes part of the company’s immovable property and therefore apart
from the registration under the Companies Act, registration under the Registration Act would
also be necessary to make the charge valid and effective.
Similar Legal Cases : Roy and Brothers V/s. Ramnath Das (1945)
COSSLETT (CONTRACTORS) LTD. (1995)
Court Held:
A construction company’s washing machine which was in use at the site was declared under the
terms of the contract to be the employer’s property during the period of construction. This
was held to have created a fixed charge and not a floating charge on the machine because the
machine was only one fixed item and was not likely to change.
LORD MACHAGHTEN IN GOVT. STOCK INVESTMENT COMPANY LTD. V/S.
MANILA RAILWAY COMPANY LTD
Court Held:
In the given case it was observed that a “Floating Security” is an equitable charge on the assets
for the time being of a going concern. It attaches to the subject charged in the varying condition
in which it happens to be from time to time. It is the essence of much of a charge that it remains
dormant until the undertaking charged ceases to be a going concern, at until the person in whose
favour the charge is created intervenes.
MATURI U. RAO V. PENDYALA (1970)
Court Held:
When the floating charge crystallizes if becomes fixed and the assets comprised therein are
subject to the same restrictions as that of fixed charge.
WHEATLY V/S. SILKSTONE AND HIGH MOOR COAL CO. LTD. (1885)
Unless specifically precluded, the company can create fixed charge subsequent to floating charge
over the same property.
SMITH V/S. BRIDGEND COUNTY BOROUGN COUNCIL (2002)
Court Held:
In the above case, the agreement was held to constitute a floating charge, in so far as it allowed
the employer, in various situations of default by the contractor, to sell the contractor’s plant and
equipment and apply the proceeds in discharge of its obligations. A right to sell an asset belonging
to a debtor and appropriate the proceeds to payment of the debt could not be anything other
than a charge. Thus, it was held that it was a floating charge because the property in question
was a fluctuating body of assets which could be consumed or removed from the site in the
ordinary course of the contractor’s business.
Floating Charge
GOVERNMENT STOCK INVESTMENT CO. LTD. V/S. MANILA RAILWAY CO. LTD.
(1897)
Court Held:
Although a floating charge is a present security, yet it leaves the company free to create a specific
mortgage on its property having priority over the floating charge.
Brief Facts:
In the above case, the debentures were secured by a floating charge. Three months’ interest
became due but the debentures holders took no steps and so the charge did not crystallize but
remained floating. The company then made a mortgage of a specific part of its property. Thus,
in the given case, court held that, the mortgage is a bad priority. The security for the debentures
remained merely a floating security as the debenture holders had taken no steps to enforce their
security
CHAPTER - 12 -AN OVERVIEW OF CORPORATE REORGANISATION

The Principle of Non – Interference
FOSS V/S. HARBOTTLE
Brief Facts:
In the given case, Foss and Turton, the two shareholders brought an action against directors and
solicitor on behalf of them and all other shareholders alleging that there were no qualified board
and directors had caused the company’s property to be lost to the company by doing illegal
transactions. The court, in this case, held that action could not be brought by minority
Shareholders. The majority is the proper plaintiff for wrong done to the company, and they are
competent to decide whether to commence proceedings against directors. The court held that
if something has been done irregularly or illegally which the majority of company is entitled to
do legally then there is no use in having litigation about it.
Court Held:
Every member holds equal rights with the other members of the company. In case of differences
amongst members, the issue is decided by a vote of majority, but company law provides
protection for minority shareholders when their rights are trampled by majority.But, the
protection is not generally available when majority does anything or when they are acting within
the powers conferred on them under the articles of company and the court will not interfere in
such cases.
RAJAMUNDRY ELECTRIC SUPPLY CO V/S NAGESHWARA RAO
Court held:
Every member holds equal rights with other members of the company. In case of differences
amongst members, the issue is decided by a vote of majority, but company law provides
protection to minority shareholders when their rights are trampled by majority. But, the
protection is not generally available when majority does anything or when they are acting within
the powers conferred on them under the articles of company and the court will not interfere in
such cases. In this case, the Supreme Court held that if Directors are supported by the majority
shareholders in what they do, the minority shareholders can, in general do nothing about it.
PAVLIDES V/S. JENSEN (1956)
Brief Facts:
Minority shareholders brought an action against directors and company on the ground that
company sold the mine for Pound 82,000, whereas its real value was about Pound 10,00,000 and
they were negligent in this transaction. Court held that, company had authorized to sell the mine
at a price decided by passing a resolution of majority of shareholders. Court further held that
once the company had given authority by majority of shareholders who had authority to decide
that if directors by their negligence had sold the company’s mine at an undervalue, then in such
a case, minority shareholders could not have right to take action against directors and the
company. Thus, it was held by the court that an action was not maintainable and, so, it was
rejected.
Court Held:
A company is a separate legal person from its members who compose it. A company is the
proper person and can take action. And with the permission of majority shareholders, company
can exercise the powers.
Breach of Duty
Brief Facts:
In the given case, the plaintiff who were minority shareholders brought an action against two
directors alleging that the directors who were the majority shareholders sold the company’s
land to one of the directors (who was wife of other) for Pound 4250 and they stated that it is
an obligation of directors to have known that the sale was at an under value and then she sold
the same land after four years for Pound 120000.The directors filed an application for the
statement of claim to be disclosed, which were filed by minority shareholders.The court
dismissed the application of directors and held that as per the exception to the rule in Foss V/s.
Harbottle,“Minority Shareholders may bring an action where there is a wrong done by directors
and majority shareholders which detrimental to a company.”
Court Held:
The minority shareholders may bring an action against company, where there is a breach of duty
by directors and majority shareholders if it is detrimental (harmful) to the company.
Oppression
RE – HINDUSTAN CO-OPERATIVE INSURANCE SOCIETY LTD
Brief Facts:
The life insurance business of a company was in 1956, acquired by LIC of India on payment of
compensation. The directors who had majority voting power refused to distribute this
compensation money among shareholders rather they passed a special resolution for changing
the objects of company to utilize this money for new objects. The oppressed minority filed a
suit against directors before CLB. The court held that majority shareholders exercised their
authority in a wrongful manner. They attempted to force the minority to invest compensation
amount in different kind of businesses against their will.
Court Held:
Section 397 provides that if the affairs of company are being conducted in a manner prejudicial
to public interest by majority shareholders and directors, the oppressive minority, in which case,
it may make an application before Company Law Board by way of petition for relief. The court,
in this case, held that minority had invested their money with all its safeguards and statutory
protections and the minority was protected by court by accepting their petition.
Similar Case:
Scottish Co-operative Wholesale Society V/s. Mayer (1959)
Mi
smanagement
LALITA RAJYA LAKSHMI V/S. INDIAN MOTOR COMPANY (1962)
Brief Facts:
The petitioner alleged that Board of Directors were guilty of certain acts which were detrimental
to minority. They stated that board had deliberately showed less income by excessive
expenditure. The allegations were that passengers travelling without ticket were not checked,
that petrol consumption was not properly checked, that second hand buses of company had
been disposed of at a very low price, dividends were being declared at too low figure.
Court Held: The court, in above case, held that these are minor acts of mismanagement. It
was held that even if each of the allegations were proved correct, there would have been no
oppression. Minor acts of mismanagement, however, are not to be regarded as oppression. As
far as possible shareholders should try to resolve their differences by mutual readjustment.
AJIT SINGH AHUJA V. SAPHIRE (INDIA) (P) LTD. 2009
Court Held:
The minority who alleged the majority shareholders and directors should have reasonable
grounds and must have facts showing that the minority is actually oppressed by majority of the
shareholders. The court held that in case of oppression, a member has to specifically plead on
five facts:
a) What is the alleged act of oppression;
b) Who committed the act of oppression;
c) How it is Oppressive;
d) Whether it is in the affairs of the company; and
e) Whether the company is party to the commission of the act of oppression.
Persons Entitled to Apply

L. CHANDRAMURTHI V. K. L. KAPSI (2005)
Court Held:
Section 399 of the Act states the persons eligible to file a petition. To be entitled to make the
application, the members must have paid all the calls and other sums due on their shares. In the
above case, a person filed a petition against majority who had disposed off his shares. The court
held that, a person who had disposed off his shares was not allowed to apply to Company Law
Board.
MUMBAI LABOUR UNION V/S. INDO FRENCH TIME INDUSTRIES (2002)
Brief Facts:
The Trade Union filed a winding up petition alleging that company had not paid wages of
workmen/employees. Court held that only the persons mentioned in section 439 can file a
petition for winding up. Thus, the Trade Union cannot file winding up petition.
Court Held:
Section 439 of the Act states the name of the persons who are entitled to file a petition in the
court for winding up of a company. Court held that Trade Unions are disentitled as other
legitimate remedies are available to them under labour laws. In such a case, filing winding up by
a trade union petition is abuse of law.
on of Court for entertaining Winding Up Petition
GTC INDUSTRIES LTD. V/S. PARASRAMPURIA TRADING (1999)
Brief Facts: There was an agreement between the parties, that disputes of the parties will be
resolved before High Court where registered office is not situated. Court held that, regardless
of where agreement is executed, the winding up petition can be filed in company court having
jurisdiction over the place where registered office of company is situated court held that the
agreement is invalid.
Court Held: As per section 10 of the Companies Act, 1956, the winding up petition can either
be filed in the High Court where registered office of a company is situated or, in District Court
of the area subordinate to High Court.
Similar Case: LKP Merchant Financing V/s. Arwin Liquid Gases (2001)
KALPANA TRADING V/S. N.C.L. INDUSTRIES LTD. (1996)
Brief Facts:
The company filed a petition for winding up before Orissa High Court whereas the company
had its registered office at Hyderabad. The Orissa High Court held that company cannot file a
petition in Orissa court and it refused to entertain the petition.
Court Held:
For the purpose of winding up of companies, the expression registered office means the place
where the company had longest term as registered office during the six months immediately
preceding the presentation of the petition for winding up.
Members Voluntary Winding Up
SHRI RAJA MOHAN MANUCHA V/S. LAKSHMINATH SAIGAL (1963)
Court Held:
The petition for winding up, in the given case was not filed properly as the declaration of solvency
was not made in accordance with law. The court held that, in such a case, the resolution for
winding up and all the subsequent proceedings would be null and void. The court held that the
declaration of solvency must be filed made within five weeks of immediately proceeding the date
of passing the resolution which must be accompanied by latest auditors’ report, profits and loss
account and balance sheet. The court held that, the director making declaration without having
reasonable grounds shall be punishable with imprisonment extending up to six months or fine
extending up to Rs. 50,000/- as ‘with both u/s. 488. A winding up in the case of which declaration
of solvency has been made by the directors and delivered in accordance with section 488 is
lettered as a members voluntary winding up
CHAPTER – 15 – BOARD CONSTITUTION AND POWERS &

CHAPTER – 18 – BOARD AND COMMITTEE MEETINGS
Directors Acting Mala Fide
MARSHAL’S VALVE GEAR CO. LTD. V/S MANNING WARDLE CO. LTD. (1909)
Brief Facts:
In the above case, A and three other persons were four directors of M Company and were
holding almost the whole of the subscribed capital of company, in which ‘A’ was holding less than
three fourth of the share capital. Another company known as N Co. was committing the
infringement of trademark of M Co. in which three directors were interested and they declined
the proceedings against N Co in this court held that, the directors when themselves are wrong
doers and when their personal interest is in conflict with their duty, then majority of
shareholders may take steps for redressed of the wrong. Similarly, ‘A’, as a General Manager of
the company who was holding less than 3/4th of the share capital resolved and commenced an
action against ‘N Co.’ to restrain alleged infringement.
Court held:
The court stated that directors are the only persons who can conduct litigation in the name of
the company, but shareholders can intervene when the directors have acted with improper
motive.
Incompetent Board
VISHWANATHAN TIFFINS B.A. PVT. LTD
Brief Facts:
1) In the above, the articles of the company authorized directors to fill casual vacancies and
also to increase the number of directors within the maximum limit fixed in the AOA.
2) Further, same casual vacancies were occurred and they were promptly filled at general
meeting, which was challenged on the ground that once the power to appoint was delegated
to the Board, it could not have been exercised at a general meeting.
3) The court held that at the time of meeting, there was no director to act and therefore the
members had the right to elect.
4) In the above case, the court observed that the company has inherent powers to take all
steps to ensure its working. The company can delegate powers to directors for this but, if
there is no legally constituted board or board is unwilling to act, then in such a case power
delegated to board lapses and the members can exercise inherent right in them of
appointing director so that company can ensure its proper working.
Court Held:
The general body of the shareholders may exercise the powers vested in the Board when the
Board is incompetent to act, for instance, where all the directors are interested in the transaction
or the board is unwilling to act.
CHAPTER – 17 – KEY MANAGERIAL PERSONNEL

Substantial Powers of Managing Director
Brief Facts:
MD filed a suit on behalf of the company against the tenants to vacate and deliver the possession
of tenanted premises. The tenants filed an application on the ground that the MD, who had filed
a suit, had no proper authorization from the Board. The trial court, in the above case granted
decree directing the tenants to vacate their premises and rejected their application. The court
held that the institution of suit made by MD is within the meaning of ‘substantial powers of
management’ and is deemed to be within his power and authority. Thus, in above case, the court
held that the contention that managing director had no authority to file a suit is invalid and the
same is rejected.
Court Held:
The court held that the words ‘substantial powers of management’ specifically excluded certain
acts from its purview. Therefore, except that the managing director has power of conducting
the business of company in accordance with the MOA and AOA.
Similar Cases:
1. G. SubbaRao V/s Rasmi Die Casting Ltd. 1998
2. ShantaShamsher Jung Bahadur V/s. Kamani Brothers P. Ltd. 1959
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YES Academy for CS, Pune
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CSEET : Current Affairs CSEET : Logical Reasoning

CSEET : Business Environment CSEET : Business Communication

Adv. Amruta Chhajed

CSEET : Legal Aptitude

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Q. When can a registrar refuse registration of prospectus. (4 marks)

Q. Short Note on Golden Legacy. (4 marks)

Q. Narrate the implications of bonus issue of shares in brief. (5 marks)

Authorised Capital - Rs. 10 cr.

Q. Forged Transfer is a nullity. Comment. (5 marks)

Q. An employee of a company purchased certain shares of his company through a

Q. The directors have uncontrolled and unfettered powers to refuse registration of

Q. Differentiate Alteration of Share Capital and Reduction of Share Capital. (3 marks)

Q. Sumeet, Puneet and Manmeet were subscribers to the Memorandum of Association

CHAPTER 3 – MEMBERSHIP IN A COMPANY

Q. A body corporate cannot be a member of a company which is its holding company

Q. A holder of a Global Depository Receipt is a member of the company. (4 marks)

CHAPTER 4 – DEBT CAPITAL

Q. You have been appointed as a Debenture Trustee in respect of debentures issued by a

Q. A company cannot raise deposits for an unlimited amount. Comment. (4 marks)

Q. What are disqualifications for debenture trustees? (3 marks)

Meaning Debenture is an Loan means borrowing of

Trustee When prospectus issued to No such appointment is

Security Debentures may be secured or Loans are always secured

CHAPTER 5 – CREATION AND REGISTRATION OF CHARGES

Q. Explain whether a Floating charge attached to the company’s property generally

CHAPTER 6 – DIVISIBLE PROFITS AND DIVIDEND

Q. The BODs of a company in a meeting held on 30/4/2013 declared interim dividend.

Q. A company declared dividend on 21st November, 2018. It reports on 22nd December,

Q. X is a shareholder of Company A. At the AGM held on 27th Sep. 2018, Company A

CHAPTER 7 – CORPORATE SOCIAL RESPONSIBILITY

Q. Explain whether the Corporate Social Responsibility (CSR) Committee is entrusted

CHAPTER – 8 –ACCOUNTS, AUDIT, AUDITORS

Q. Short Note on Appointment of Cost Auditor. (4 marks)

Subject :- Reopening of Financial Statements of the company

This has reference to the captioned subject, wherein, I, advice as follows:-

Q. A director of a company has an absolute right of inspection of books of accounts.

Dilo Ltd. Unlisted public 23 200 56

Craft Ltd. Unlisted public 50 123 65

Wood Pvt. Private 55 186 89

Jam Ltd Unlisted 38 500